The all-in-one share Remgro has been per­form­ing very well and holds great in­trin­sic value. Schalk Louw ex­plains why this share is an ex­cel­lent in­vest­ment for the long term.

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­week.co.za is a port­fo­lio man­ager at PSG Wealth.

iwill never for­get how rev­o­lu­tion­ary Pan­tene 2-in-1 sham­poo (shortly fol­lowed by the well-known Di­men­sion 2-in-1 sham­poo) be­came in the late 80s. Be­fore then, you were forced to pur­chase sham­poo and con­di­tioner in sep­a­rate con­tain­ers if you needed those prod­ucts. The in­ven­tion of 2-in-1 sham­poo wasn’t only a mat­ter of con­ve­nience for con­sumers, who could now en­joy both prod­ucts in one bot­tle, but it also meant that they could save money in the process.

In the same way that we had to pur­chase sham­poo and con­di­tioner sep­a­rately be­fore the 80s, many in­vestors look­ing to buy shares are still made to be­lieve that if they don’t have enough cap­i­tal to dis­trib­ute over more than one or two shares, their choices are lim­ited to unit trusts and more re­cently, ex­change-traded funds (ETFs) only. But this is com­pletely in­ac­cu­rate. In fact, there are sev­eral other op­tions avail­able to such in­vestors. A hold­ing com­pany is a lot like 2-in-1 sham­poo: in one bot­tle (share) you can have ex­po­sure to sev­eral listed and un­listed com­pa­nies. This type of com­pany, as its ti­tle sug­gests, is the holder of sev­eral other com­pa­nies.

Remgro remains one of the best-known South African hold­ing com­pa­nies and due to the amaz­ing value that these types of com­pa­nies cur­rently of­fer, I would like to fo­cus your at­ten­tion on Remgro this week.

Remgro was founded in the 1940s by well-known en­tre­pre­neur, Dr Anton Ru­pert, made its ini­tial ap­pear­ance as the to­bacco com­pany, Voor­brand, and later be­came known as Rem­brandt Group. Rem­brandt was listed on the JSE ex­actly 60 years ago this year, and made its de­but as Roth­man’s In­ter­na­tional on the Lon­don Stock Ex­change (LSE) in the 1970s. In 1980, Rem­brandt de­cided to sep­a­rate its South African in­ter­ests from its off­shore in­ter­ests, which led to the rise of Richemont. Since then, the com­pany has been re­struc­tured sev­eral times, and it has dis­tanced it­self from quite a few com­pa­nies in the process, of which the most fa­mous trans­ac­tion has to be the un­bundling of Bri­tish Amer­i­can To­bacco Com­pany (BAT) in 2008.

There was great con­cern that Remgro wouldn’t be able to keep up its suc­cess­ful run af­ter this un­bundling, but these ru­mours were un­founded as Remgro not only man­aged to out­per­form the FTSE/JSE All Share In­dex by 20% since the BAT un­bundling in 2008 (28 Oc­to­ber 2008 to 18 May 2016), but when com­pared to the South African Gen­eral Eq­uity Unit Trust Sec­tor, of the 78 funds avail­able, only 36One, Fo­ord, NGI Prive Wealth and PSG As­set Man­age­ment man­aged to out­per­form Remgro over the same pe­riod.

To­day, Remgro con­sists of eight listed com­pa­nies, which make up 80.2% of the hold­ing com­pany, along with quite a few un­listed com­pa­nies. Its largest hold­ings can be found in the lo­cal and LSE-listed Medi­Clinic, RMB Hold­ings and RMI Hold­ings. Both RMB and RMI are hold­ing com­pa­nies in their own right and, in turn, own sev­eral well-known com­pa­nies and banks, in­clud­ing Dis­cov­ery, FNB, MMI and Out­surance.

What prob­a­bly at­tracts me to Remgro the most is its dis­count to in­trin­sic value. Be­cause more than 80% of Remgro is listed, it makes it easy to mon­i­tor when the com­pany of­fers more value com­pared to other times. At cur­rent mar­ket prices, Remgro’s net as­set value (in­trin­sic value) per share amounts to R310, while the share price is trad­ing around R235. This not only means that you’re get­ting more than one prod­uct in one bot­tle, but also that you get ‘310ml’ for the price of ‘235ml’.

Since 2010, Remgro has traded at an av­er­age dis­count to in­trin­sic value of roughly 14%. This dis­count now stands at 30%, its widest lev­els in six years, which looks very at­trac­tive to me, even at these un­com­fort­ably high­priced JSE val­u­a­tion lev­els.

Remgro is a fan­tas­tic com­pany with a long and rich profit his­tory. As a West­ern Province and Storm­ers sup­porter, I could only wish that it owned more than its cur­rent 24.9% hold­ing in WP Rugby, ver­sus its 50% hold­ing in Blue Bulls Com­pany. Ir­re­spec­tive of my rugby in­ter­ests, how­ever, Remgro remains an ex­cel­lent value propo­si­tion over the long term.

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