Picking up the BAT stompies

It was quite a toss-up this month: mobilise the annual annuity payment for 175 Sasol shares or for a used Honda CRF250L “motorsickle”. With an eye on the long-term horizon, I chose the latter.

So far, so good … The chances of a new road being built to ease the traffic congestion out of Kommetjie are less than slim, what with the local toad whisperers likely to fall prone in front of bulldozers before giving up as much as an inch of the expansive wetland. My wife, nevertheless, was not charmed by what I packaged as a time- and costsaving purchase. She exhaled dismissively and even gave the front wheel a disrespectful boot.

But she was later much reassured when I explained that the price for a late midlife crisis could have been so much higher — pointing to acquaintances that forked out dearly for the old “toupee in the coupe” shtick. That said, zipping through dense Cape Town traffic in December is invigorating enough to take years off your life.

Speaking of longevity, quite a few pundits were doing their level best to stub out the last glowing embers at British American Tobacco (BAT) after a less than glowing trading update. I confess to taking a handful last week, though I also grabbed a clutch of Prosus as a foil. I suppose the stomach-churning impairment of cigarette brands in the old RJ Reynolds stable needs to be read with the target of generating 50% of revenue from noncombustible brands by 2035. BAT’s top brands, Vuse and Velo, are delivering strong volume-led revenue growth and higher profits. These new product categories are now expected to break even this year, two years ahead of schedule. What does worry me is the reference to regulatory inaction regarding illicit disposable vapes in the US. On the other hand, the much-maligned cigarette, I suspect, will blaze for a bit longer than most observers predict, albeit in developing economies, where there is still considerable pricing power and decent volumes.

BAT, of course, owns a 29.04% stake in India-based ITC, a diversified investment company that still earns the bulk of its operating profits from tobacco. After BAT’s initial post-trading statement slump, ITC’s market value actually surpassed that of the global tobacco group. But what really interested me was the movements in BAT and investment company Reinet’s share prices after the former’s trading update.

Reinet was listed in late 2008, with a significant minority stake in BAT as its anchor investment. For many years Reinet was merely viewed as a proxy for BAT. Perhaps no more, even though Reinet still collects a heap of dividends from this cash-generative tobacco business. There is now a clear disconnect in the respective share prices.

Over the seven days to Monday, BAT was down about 8.5%; Reinet, which still holds 48.3-million BAT shares, had dropped less than 3%. Over 90 days Reinet is up 6% and BAT is down 12%. BAT still represents a chunky 25.6% of Reinet’s portfolio but is now considerably smaller than the biggest holding in financial services business Pension Insurance Corp, which accounts for almost half the portfolio value. It was not too long ago that punters would ask: “Why buy Reinet when you can get BAT and the full flush of dividends?”

Remgro mini-rally

Sticking with Rupert family-controlled companies, I could not help noticing a mini-rally in Remgro over the past week. The share briefly breached the R150 level — though the discount to intrinsic NAV still probably sits at about 40%. Interesting, this. Shareholders seemed a tad disgruntled at the recent AGM, and a meaningful vote against the nonbinding resolutions on remuneration prompted Remgro to engage regarding the latter. Tallying the high-voting B shares showed that the remuneration resolutions actually passed — so it’s commendable that Remgro is still prepared to discuss the always prickly matter with shareholders.

The B share vote did ensure that certain directors remain on the board and on relevant committees after the ordinary votes in favour fell short of the 50% mark. Perhaps the most surprising, even shocking, turn was that the vote on the (re-)election of Remgro chair Johann Rupert showed a thumbs down of 14.83%. The last time Remgro shareholders voted on the election of Rupert was back in 2020, when he received overwhelming support of 99.56%.

In the last edition for 2023 of sister publication Investors Monthly, I asked readers to send me a five-strong share pick combination for 2024. In a flurry of early correspondence there are some really interesting trends. The five most popular picks would be Blue Label Telecoms, Reunert, Sibanye-Stillwater, Hulamin and Grindrod.