Smoke and mir­rors

Financial Mail - - MARKET WATCH - @mar­chasen­fuss

It’s not dis­closed in Rem­gro’s fi­nan­cial re­sults or men­tioned in the in­vest­ment pre­sen­ta­tions — but the in­vest­ment group is still earn­ing smoul­der­ing re­turns from an “oorskot” hold­ing in Bri­tish Amer­i­can To­bacco (BAT). The old Rem­brandt group (the pre­de­ces­sor to Rem­gro) was built on to­bacco, a prod­uct which these days is se­verely frowned upon. Rem­gro and Richemont, 10 years ago, of­fi­cially un­bun­dled their re­spec­tive stakes in BAT with new in­vest­ment com­pany Reinet re­tain­ing a mean­ing­ful mi­nor­ity stake in the to­bacco gi­ant.

So it might come as a sur­prise that Rem­gro still holds 1.25-mil­lion BAT shares. These shares were tech­ni­cally in­her­ited — and were at­tached to Rem­gro shares re­pur­chased and held in trea­sury fol­low­ing a share buy­back ex­er­cise that pre­ceded the un­bundling of the to­bacco in­ter­ests in 2008.

By my cal­cu­la­tion the BAT shares are worth about R850m — big­ger than some of the more mar­ginal in­vest­ments Rem­gro dis­closes in its in­vest­ment port­fo­lio. Though the value of the BAT hold­ing is small com­pared with Rem­gro’s in­trin­sic value of about R150bn, it is worth not­ing that the value of these shares was about R250m in 2008.

In other words, BAT has been one of the best per­form­ers, al­beit undis­closed, in Rem­gro’s port­fo­lio of in­vest­ments. Rem­gro CEO Jan­nie Du­rand says the BAT hold­ing is not viewed as strate­gic but is rather re­tained as a “cur­rency”.

Cer­tainly the BAT hold­ing has out­per­formed any cash Rem­gro has held on call. With Rem­gro mov­ing back into a cash-flush po­si­tion af­ter the sale of its stake in Unilever there seems lit­tle in­cen­tive to dis­pose of the BAT stake … at least for the next few years.

Back­ing the jockey

I note with some sur­prise that Rian du Plessis has ten­dered his res­ig­na­tion as CEO of Phumelela Gam­ing Leisure. While he has com­mit­ted to as­sist his suc­ces­sor, the vastly ex­pe­ri­enced John Stu­art, un­til the end of March 2019, I thought Du Plessis would re­main in the sad­dle for many more fur­longs. He has been a su­perb cor­po­rate jockey, and en­sured Phumelela stayed strongly po­si­tioned in a fast-chang­ing gam­ing en­vi­ron­ment. Some com­fort will be taken from the fact that he is com­mit­ted not to dis­pose of any Phumelela shares held di­rectly or in­di­rectly in the fore­see­able fu­ture. He played an in­te­gral role in trans­form­ing Phumelela from a one-trick pony as a tote spe­cial­ist to a di­ver­si­fied gam­ing group with a com­mand­ing (and lu­cra­tive) po­si­tion in sports bet­ting. Du Plessis is one of those rare breeds of CEO, along with As­tral Foods’ Chris Schutte and Afrimat’s An­dries van Heer­den, who ex­udes a re­as­sur­ing con­fi­dence around op­er­a­tions and strat­egy as well as de­ter­mi­na­tion to drive share­holder re­turns.

Does his de­par­ture sig­nal a change at Phumelela? Per­haps even the emer­gence of a strate­gic eq­uity part­ner?

Bet­ter late than never

In­dus­trial ser­vices group PSV has fi­nally con­cluded its long-awaited BEE deal. With­out BEE cre­den­tials it was ham­strung and at risk of not writ­ing much­needed new busi­ness.

Em­pow­er­ment com­pany Beryl Hold­ings will sub­scribe for 15% stakes in

PSV In­dus­trial and PSV As­set Co for a to­tal con­sid­er­a­tion of R5m. While this ap­pears to be a fairly petty sum for a BEE in­vest­ment, the deal is of crit­i­cal im­por­tance to PSV. The Beryl deal fol­lows a res­cue deal where Mau­ri­tius­based in­vest­ment com­pany Regis in­vested R26m in PSV for a 34.99% stake. The Regis deal de­pended on, among other is­sues, PSV en­ter­ing into a bind­ing agree­ment with a broad-based BEE part­ner.

Pro­ceeds from the Beryl sub­scrip­tion will be used to (fur­ther) re­struc­ture PSV’S bal­ance sheet so that it can hope­fully find op­er­a­tional trac­tion.

PSV of­fers in­ter­est­ing in­dus­trial ser­vices, and the next 18 months will de­ter­mine if its pro­longed time with­out em­pow­er­ment cre­den­tials has caused any last­ing da­m­age to prospects.

Shares in Danske Bank had dou­bled in value from when Thomas Bor­gen took over as CEO in 2013 to July 2017, but have since lost more than a third and he has re­signed in the midst of a scan­dal

Bri­tish Amer­i­can To­bacco has been one of the best per­form­ers, al­beit undis­closed, in Rem­gro’s port­fo­lio of in­vest­ments

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