GLOVES OFF IN HEATED REMGRO DEBATE
Chatter about the group suggests that many readers are wondering about the wisdom of buying shares in it for the long term
My typing has been severely hampered since I suffered “fogbite ”— a less extreme case of frostbite — when I drove my motorbike sans gloves through banks of pea soup mist to an early morning tennis match. I probably suffered more damage by trying to warm my hands on the hot engine. Not that it’s a great idea to steer one-handed on wet roads on the curves of Boyes Drive.
Speaking of chattering, there has been lots of correspondence about Remgro. With the share price still trading close to the 12month low of R116, many readers, it seems, are debating the merits of accumulating stock for the long term.
Our recent cover story (April 11-17) listed plainly the various challenges besetting Remgro at this juncture. For the record, I don’t at the moment hold Remgro stock. But I still have a penchant for investment holding companies, though at this stage prefer Hosken Consolidated Investments, Reinet and ... uhm ... Brait.
But back to Remgro. While a discount of close to 50% is enticing enough, I suspect that sentiment will firm up only when there is a dose of good news. That might come if the competition authorities give the thumbs up to Vodacom’s investment in Remgro’s fibreoptic technology cluster in CIVH. Sentiment might also turn frothier if Heineken Beverages can find profitable traction — which won’t be easy in a competitive liquor market. Mediclinic, Remgro’s biggest investment, looks like a slow heal rather than a quick fix. In short, I think I’d prefer to watch and wait at Remgro.
That said, there has been some encouraging news from the periphery — involving Mediclinic, to be specific. I see that the share price of UK-based Spire Healthcare, in which Mediclinic has a 29.7% stake, is trekking to a new high following a recent capital markets day presentation. The share price is on an encouraging trend, shifting from 211p in November to 248.50p now. Mediclinic’s stake in Spire is worth £300m, or more than R7bn, at the moment.
I’m not sure if Mediclinic has any ambitions to increase its influence in Spire, having tried once before. On paper there seems to be an opportunity for Mediclinic to unlock value from an investment, remembering Spire is trading on a trailing earnings multiple of about 37. It’s by no means a fair comparison, but JSElisted Life Healthcare and Netcare both trade on earnings multiples of 11. Mediclinic, incidentally, traded on a historic earnings multiple of 21 when it was still listed on the London Stock Exchange. Remgro’s share of Spire’s value is R3.5bn, or 5.6% of the group’s market value of R62bn. Just saying ...
Gaming giant Sun International, I see, is finally making its exit from Nigeria. The group confirmed last week it would flog 43.3% of its 49.3% stake and loan in the Tourist Company of Nigeria (TCN) to Rutam Finance
Company. Sun will bank
R275m — not an enormous sum by any means, but a nice cash inflow at a time when debt is about to bloat again following the proposed purchase of rival gaming business Peermont in South Africa.
It’s also worth remembering that with TCN no longer consolidated in Sun’s financial results, group debt will drop by about R800m. That’s over and above the proceeds of R275m from the sale of TCN.
Of course, the market will be mulling other debt reduction opportunities from selling some of the smaller parts of the casino portfolio. Whether Sun can sell a packaged portfolio of smaller casino properties or will dispose of individual casinos on a sporadic basis will be fascinating to gauge in the next 18 months or so.
With a serious thrust into sports betting and online gaming under way, a more streamlined casino portfolio — perhaps comprising Time Square, Emperors Palace and Carnival City in Gauteng, Sibaya in Durban and GrandWest in Cape Town as well as the Sun Slots alternative gaming offerings — may very well appeal to investors and serve Sun’s cost base better.
Moving into deeper waters, Oceana’s trading update for the six months to end-March was largely in line with market expectations, and has given some buoyancy to the share price. The share still looks like succulent value — remembering the seasonality in the group’s offshore earnings — with headline earnings set to come in between 565c and 595c a share.
Oceana attributed a strong first-half performance to Louisianabased Daybrook’s higher fishmeal and fish oil sales volumes at record US dollar fish oil pricing, as well as a good showing by canned pilchard super brand Lucky Star on improved canned food sales volumes for March.
Much is being made of Daybrook’s current sweet spot, with production from rivals in Peru still limited by catch restrictions in anchovy. Once the supply-side equation rebalances, Daybrook might not be generating such bumper profits, agreed. But it should still fare strongly, with global demand for fishmeal and fish oil — mostly used in the burgeoning aquaculture segment — predicted to show steady demand for the next 10 years.
This week’s parting shot is the inward listing of the Marula Mining venture — not on the JSE, but on A2X. The UKheadquartered mining business, which focuses on battery metals and critical metals, already has a primary listing on the Aquis Stock Exchange in London, where its market value is reflected as about £16m (or R385m).
This sounds like a bit of a coup for A2X, and if I’m not mistaken, I seem to remember Marula mentioned as a potential listing on the JSE during the group’s recent final results presentation.
Trading volumes on the A2X in this intriguing little junior miner will be interesting to monitor.