Much value to be had The assets of this investment company are significantly undervalued. It is an option for investors looking for a safe harbour in the current uncertain environment.
born out of the Compagnie Financière Richemont (CFR) stable, Reinet Investments SCA was established as a separately listed investment vehicle, with the group’s primary asset being that of the former Richemont’s interest in cigarette manufacturer British American Tobacco (BAT).
The group has a keen focus on a wide range of asset classes, including both listed and unlisted equities, bonds, real estate as well as derivative instruments with a view to take on long-term investment opportunities while placing an emphasis on the protection of shareholder capital.
The group trades on a very conservative price-to-earnings ratio (P/E) of around 5 times, with a forward P/E estimate of around 7 times, although with investment holding companies it is prudent to look at the net asset value (NAV) as a more meaningful metric in terms of assessing the value proposition.
As guided by the group’s most recent results, for the year to end March, the Reinet Fund SCA (a wholly owned subsidiary of Reinet Investments SCA) had a NAV amounting to €5.2bn, reflecting a yearon-year increase of 3%. A rough estimation regarding the group’s asset composition sees the investment in BAT at nearly 70% thereof, the holding in the Pension Corporation (in the UK) is around 17% of NAV and the balance of the unlisted assets around 13% of NAV. Net borrowing from medium-term financing provides about a 5% negative contribution to the NAV figure.
Dividing the NAV by the number of shares in issue and converting into a rand value (using an exchange rate of R17/€) results in a NAV value per share of around R45. The value of the Reinet Fund will vary from that of its parent company, Reinet Investments SCA, when considering the parent company’s assets, liabilities and including amounts payable and receivable (from the fund), although it does make up the most substantial element of the group’s balance sheet and valuation.
Even if the NAV figure is discounted further, the current share price appears a significant undervaluation relative to the wealth of its assets. While it is often the case that an investment holding corporation will trade at a discount to NAV, the apparent discount for Reinet looks to be between 25% and 30% (depending on exchange rate and current share price), which is substantially larger than that of its sector peers.
As the BAT investment accounts for slightly more than 70% of the group’s NAV, we can deduce that the current share price is essentially fully valued in terms of the BAT holding. This means very little value has been assigned to the share price in terms of the group’s unlisted investments. Valuing the unlisted assets does have an air of subjectivity, especially that of a pension fund (Pension Corp), which finds uncertainty in terms of valuation through being a liability-driven investment as well as being reliant on actuarial assumptions. However, we think it is think is unfair to apply little to no value on these assets.
Reinet Investments SCA, through the Reinet Fund, provides a defensive edge in an uncertain marketplace. The quality of assets appears significantly undervalued within the company’s current share pricing, which in turn provides a potential arbitrage opportunity for the far-sighted investor.