Watch that discount
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.