BAT still safest and best

Now time for Reinet share­hold­ers to show their cards

Finweek English Edition - - Cover - VIC DE KLERK

THE TO­TAL DIS­COUNT on the net as­set value of the old Rem­gro didn’t fall at the time of Bri­tish Amer­i­can To­bacco’s un­bundling. De­spite ex­pec­ta­tions, the com­pul­sory un­bundling of BAT due to pro­posed leg­isla­tive amend­ments in Lux­em­burg hasn’t yet un­locked part of the dis­count for share­hold­ers. The one old Rem­gro has now pro­duced is three in­vest­ment op­por­tu­ni­ties of­fer­ing in­vestors three clearly dif­fer­ent op­por­tu­ni­ties.

BAT is safe, steady as a rock and in no dan­ger of be­ing ex­posed too much, if at all, to the cur­rent global credit cri­sis. In fact, in Lon­don – ris­ing en­tirely above all the sto­ries about empowerment, sim­plis­tic ex­change con­trols and even leg­is­la­tion con­cern­ing smok­ing – BAT still at­tracts a per­fect rat­ing from the 11 recog­nised in­ter­na­tional an­a­lysts.

Ad­mit­tedly, the per­fect rat­ing of 1 (1 = buy, 3 = sell) did fall slightly re­cently, to 1,3, be­cause there could pos­si­bly be fu­ture sales pres­sure from SA on ac­count of BAT’s sec­ond-rank sta­tus as an in­ward list­ing on the JSE.

The con­sen­sus view of the 11 an­a­lysts is that for 2009 BAT will de­clare a 90,5p div­i­dend. Its cur­rent share price on the Lon­don Stock Ex­change is 1700p for an ex­cel­lent for­ward div­i­dend yield of 5,3%. That’s much more than can be earned on Bri­tish Trea­sury bonds and some­times it looks as if BAT is even safer than Bri­tain’s Trea­sury. The rec­om­men­da­tion is clear: hold on to what you have and buy even more. Make BAT the cor­ner­stone of ev­ery well-man­aged port­fo­lio in SA.

Reinet, with its cur­rent rights is­sue, of­fers a large va­ri­ety of op­por­tu­ni­ties. At this stage it seems as if in­vestors pre­fer Reinet’s of­fer of ob­tain­ing new shares in the com­pany by ex­chang­ing some of their BAT for the shares. But that’s by no means clear-cut. If you’re a long-term in­vestor with a bit of sur­plus SA cash, it may per­haps be a bet­ter op­tion to sell your al­lo­ca­tion of Reinet rights (JSE code REIN) rather than us­ing your pre­cious BAT to take up new Reinet shares.

But re­mem­ber that Reinet’s as­set value – and this con­sists largely of BAT shares – is cur­rently 1380c, while its shares are trad­ing at only 875c on the JSE. That’s a huge dis­count of 37%. It’s there­fore far cheaper to ob­tain a large ex­po­sure to BAT by sim­ply tak­ing or­di­nary rand and buy­ing Reinet shares.

There are two risks – which could also be op­por­tu­ni­ties. With an in­vest­ment di­rectly in BAT you know how much div­i­dend you’ll re­ceive ev­ery year. Once the div­i­dend has been de­clared to Reinet, the man­age­ment team ap­pointed by Jo­hann Ru­pert can do all sorts of things for Reinet. One is to take the div­i­dend they re­ceive from BAT and use it else­where, rather than giv­ing it to share­hold­ers. Reinet could even sell its in­ter­est in BAT and buy into an­other com­pany. That could be good or bad, hence the cur­rent huge dis­count of 37%.

But if you don’t have full con­fi­dence in the new as­set man­agers ap­pointed by Reinet, don’t sell your in­ter­est in it just yet. Wait a few weeks: the 37% dis­count will prob­a­bly fall to not more than 30%, per­haps even 20%, once all the un­cer­tainty about the com­pli­cated con­ver­sions is over and done with.

Thebe Se­cu­ri­ties cal­cu­lates the net as­set value of the leaner Rem­gro cur­rently at R95. It could be some­what lower if a few re­al­is­tic ad­just­ments are made to the value of cer­tain un­listed as­sets. Rem­gro is cur­rently trad­ing at 6970c on the JSE, a dis­count of 27% to its net as­set value. Even that dis­count should come down later to 20%, or even frac­tion­ally less.

Cur­rently, it’s un­clear what Rem­gro’s plans are. With its port­fo­lio of as­sets con­tain­ing con­sid­er­ably more fi­nan­cial shares and con­sid­er­ably fewer re­sources than Sa­trix 40, it now looks as if it could again beat the Sa­trix 40.

Source: fi­nance.ya­hoo


Jo­hann Ru­pert

Source: McGre­gor BGA


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