Watch that dis­count

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS

REM­GRO REM­GRO, THE PREMIER in­vest­ment com­pany on the JSE, is be­ing treated with some dis­dain af­ter the un­bundling of its stake in Bri­tish Amer­i­can To­bacco (BAT). In­deed, it’s now easy to knock Rem­gro. Pun­ters have prob­a­bly heard mar­ket mut­ter­ings that Rem­gro is a far less im­pos­ing (and cash gen­er­a­tive) in­vest­ment ve­hi­cle without BAT that there’s very lit­tle strate­gic fo­cus in its sprawl­ing port­fo­lio and that man­age­ment is overly con­ser­va­tive.

While those crit­i­cisms aren’t en­tirely un­founded I reckon Rem­gro re­mains a sound long-term in­vest­ment for risk-averse in­vestors on the JSE. At the time of writ­ing Rem­gro had slipped be­low 7000c, which is more or less in line with pre­dic­tions the share would tend to widen dis­count to in­trin­sic net as­set value af­ter the BAT un­bundling. Rem­gro’s in­trin­sic NAV is a lit­tle over 9000c/share, which means the share is of­fer­ing a dis­count of roughly 20%.

Tra­di­tion­ally, Rem­gro has traded at a dis­count of be­tween 15% and 20% to its in­trin­sic NAV. But that dis­count has widened at var­i­ous times – es­pe­cially dur­ing pe­ri­ods of mar­ket stress. Gut feel is that Rem­gro’s dis­count to in­trin­sic NAV could widen to be­tween 25% and 30% in the weeks ahead as the per­for­mance of the group’s un­der­ly­ing in­vest­ments are as­sessed.

The mar­ket al­ready knows that Nam­pak, Rain­bow Chicken, Trans Hex and MediClinic are set to de­liver lower earn­ings, while there will be an­other knock from the marked-to-mar­ket value in the size­able hold­ing in FirstRand/RMB Hold­ings as well as Im­pala Platinum in the year to endSeptem­ber 2008. Of course, the ham­mer­ing that mar­ket val­ues took in Oc­to­ber will also weigh on mar­ket sen­ti­ment.

Ac­cu­mu­lat­ing Rem­gro on weak­ness could stand in­vestors in good stead over the longer term.

And we shouldn’t for­get Rem­gro’s cash pile – much of which is held in hard cur­rency.

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