Long live RMI
DAVID KNEALE IS RETIRING AFTER 13 YEARS AS CEO. VIKESH RAMSUNDER WILL TAKE THE HELM IN JANUARY
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.
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