Long live RMI


Financial Mail - - INVESTOR’S NOTEBOOK -

My col­league Marc Hasen­fuss re­cently called for the dis­man­tling of the ar­chaic Rand Mer­chant Bank (RMB) Hold­ings, a pyra­mid which con­trols Firstrand. I hap­pened to be vis­it­ing Rand Mer­chant In­vest­ment Hold­ings (RMI) in Mer­chant Place, and its CEO, Her­man Bos­man, who is also the boss of RMB Hold­ings, which prefers to be known as RMH to avoid con­fu­sion with the mer­chant bank. He makes the point that when the RMB founders took over First Na­tional Bank (FNB), it was prob­a­bly a bet­ter out­come than be­ing sold to a for­eign bank.

It was bet­ter off with the wis­dom and pa­tience of GT Fer­reira, Lau­rie Dip­pe­naar and Paul Har­ris rather than, as Bos­man puts it, the “in, out, shake it all about” style in which Bar­clays con­trolled Absa. These ar­gu­ments used to be com­mon in SA. At An­glo­vaal, for ex­am­ple, the Menells and Hersovs con­trolled an em­pire through a spider’s web of pyra­mid hold­ing com­pa­nies and N shares. Much of the time it had no in­de­pen­dent di­rec­tors, and it was a no­to­ri­ously stingy div­i­dend payer. For years this was tol­er­ated as the fi­nan­cial re­sults were strong, un­til the de­cline of the gold sec­tor made it un­sus­tain­able.

RMH made sense so long as it was a way to get the fairy dust from The Three Mus­ke­teers. I am sure Bos­man can con­tribute — he is a first-class pro­fes­sional man­ager. But aren’t there too many cooks al­ready, with CEO Alan Pullinger the pope in Mer­chant Place and FNB boss Jac­ques Cel­liers the pope in Bank City? RMI is a dif­fer­ent story.

It is easy to mea­sure the dis­count at which RMH trades to Firstrand and, as Hasen­fuss said, the other RMH in­vest­ments, into prop­erty, do not amount to a hill of beans. RMI, though, is an at­trac­tive mix of busi­nesses, and the un­der­ly­ing man­agers still con­sider RMI to be a use­ful sound­ing board. Dis­cov­ery might not need it as an an­chor share­holder right now, ex­cept for the up­com­ing eq­uity of­fer­ing, where the cor­po­rate fi­nance skills at RMI are use­ful.

Mov­ing parts

And MMI has cer­tainly ben­e­fited from RMI’S in­put. With­out it, per­haps the regime change from Ni­co­laas Kruger to Hil­lie Meyer would not have hap­pened. For the in­vestor, the main at­trac­tion of RMI is as a way to ac­cess Out­surance, which ac­counts for more than half of RMI’S earn­ings. It would be a great day for the mar­ket if Out­surance listed in its own right, but it doesn’t need to as it gen­er­ates so much of its own cash.

Its nor­malised earn­ings were up 22% in the year to June to R3bn and the div­i­dend paid to share­hold­ers (just RMI and man­age­ment) was up 33%. Earn­ings from Aus­tralia and New Zealand now make up more than a quar­ter of the to­tal. Its life busi­ness was the only big dis­ap­point­ment, with earn­ings down 53% to a to­ken R53m. Per­haps one of the other RMI busi­nesses should take it off its hands. The other large hold­ing in the port­fo­lio is Hast­ings in the UK, which has a 7.5% share of the UK pri­vate car in­sur­ance mar­ket, giv­ing it 2.7-mil­lion clients. There has been plenty of use­ful in­for­ma­tion shar­ing with Out­surance. A full merger of the two busi­nesses would make sense in the medium term.

RMI po­si­tions it­self as a long-term in­vestor with lim­ited in­ter­est in the op­er­a­tional as­pects of its hold­ings, which is why the un­der­ly­ing man­agers are com­fort­able. It is not the same as op­er­at­ing as a di­vi­sion of Old Mu­tual or San­lam, with di­rect re­port­ing lines and end­less com­mit­tee meet­ings.

So while I agree that RMH is an anachro­nism, RMI, with far more mov­ing parts, should live on.

RMI is a good mix of busi­nesses, and the un­der­ly­ing man­agers con­sider RMI to be a use­ful sound­ing board

123Rf/ro­man Khilchyshyn

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