Race for shares

Rem­gro lead­ing Richemont by a short head

Finweek English Edition - - Companies & Markets - VIC DE KLERK vicd@fin­week.co.za

REM­GRO OR RICHEMONT? Which is the bet­ter route for get­ting to Bri­tish Amer­i­can To­bacco (BAT)? That was the in­vest­ment ques­tion many an­a­lysts puz­zled over dur­ing the past week. The bal­ance is tilted slightly in favour of Rem­gro Trea­sury, which has opened the door to “in­ter­na­tional dou­ble dip­ping” but only very slightly, as the share is still trad­ing at a dis­count of about 15% to its net as­set value.

More than half of those net as­sets com­prise its in­ter­est in BAT. And since the in­ter­est could be di­rectly in the hands of the share­hold­ers in Oc­to­ber, there should be no dis­count on it. Rem­gro with­out BAT is there­fore trad­ing at a dis­count of nearly 30% to its other as­sets – and that may be too much.

No, not nec­es­sar­ily, is the re­ac­tion of many an­a­lysts, if you look care­fully at Rem­gro’s re­main­ing port­fo­lio of bor­ing South African as­sets.

Of those, the big­gest is the in­ter­est in RMBH/FirstRand, fol­lowed by a small 4,4% in­ter­est in Im­pala Plat­inum. Both can be bought on the JSE by in­vestors them­selves. Its larger di­rect in­ter­ests – such as its 100% of Transvaal Sugar, 74% of Rain­bow Chicken and 46% of Medi-Clinic – don’t re­ally ex­cite any­body.

Nor has Rem­gro’s cur­rent man­age­ment done any­thing re­cently to make in­vestors sit up and take note. The un­bundling of BAT was forced by changes in the tax sta­tus in Lux­em­bourg rather than dy­nam­ics in Stel­len­bosch. For that rea­son the cur­rent large dis­count of as much as 25% on Rem­gro’s SA as­sets is prob­a­bly jus­ti­fied. The pos­si­ble “green en­ergy gi­ant” that could arise from Rem­gro’s in­ter­ests in Transvaal Sugar and 25% in To­tal SA, even though the lat­ter is rea­son­ably valu­able in its own right, is a dream for the very dis­tant fu­ture.

Un­like Rem­gro, which is purely an in­vest­ment com­pany, Richemont of­fers in­vestors the ben­e­fits and dy­nam­ics of an op­er­at­ing com­pany. Af­ter the un­bundling of its in­ter­est in BAT to its share­hold­ers, Richemont is still one of the world’s largest spe­cial­ist man­u­fac­tur­ers and dis­trib­u­tors of lux­ury goods. Its mar­ket is free of sub-prime com­plaints and ail­ments, but if UBS, the world’s largest wel­fare man­ager, car­ries on mak­ing such a mess of things even the money of the rich could dry up.

How­ever, Richemont re­mains an ex­cel­lent op­er­at­ing com­pany and few in­vestors have made a mis­take by buy­ing the share through the thick and thin in the world econ­omy.

The an­swer to the ques­tion of whether you should get to BAT via Rem­gro or Richemont is there­fore sim­ple: it re­ally doesn’t mat­ter – as long as you make sure that you do get to BAT.

Reinet, the new in­vest­ment com­pany di­rectly un­der the con­trol of the Ru­pert fam­ily, could also be in­ter­est­ing for the fu­ture. The fund is kick­ing off with 10% of Rem­gro’s and Richemont’s ex­ist­ing shares in BAT, a good deal of for­eign cash (euro) and hope­fully a new dy­namic man­age­ment that will no­tice good op­por­tu­ni­ties.

Cur­rent in­vestors in Rem­gro and Richemont can also ex­change their al­lo­ca­tion of BAT shares for larger in­ter­ests in Reinet. But it’s bet­ter not to do so. Rather sell what’s left of Rem­gro af­ter BAT has been un­bun­dled, or use new money to buy the listed Reinet.

SA in­vestors pay large fees to as­set man­agers to look af­ter their in­vest­ments over­seas. That may be un­nec­es­sary now that BAT will soon be read­ily avail­able on the JSE.

The first graph shows the value of an in­vest­ment in BAT in Au­gust 2003. It would now have in­creased by 200%. Nei­ther the FTSE 100 nor the Dow Jones was able to achieve a to­tal in­crease of 50% over those five years. As­set man­agers are usu­ally quite happy if they can beat the in­crease in the FTSE 100.

Over the past few years re­sources shares, headed by world leader BHP Bil­li­ton, fared ex­cep­tion­ally well and beat re­turns on, es­pe­cially, fi­nan­cial shares by far. How­ever, BAT stood up for it­self against BHP Bil­li­ton (see graphs).

SA in­vestors don’t need any spe­cial knowl­edge to in­vest in BAT, which is listed on the JSE. Ac­cess to the views of the world’s lead­ing in­vest­ment an­a­lysts about the com­pany is free and read­ily avail­able (see ta­ble).


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