It could go ei­ther way

Finweek English Edition - - MARKETPLACE - editorial@fin­week.co.za By Mox­ima Gama

Remgro, the in­vest­ment hold­ing com­pany con­trolled by the Ru­pert fam­ily, holds stakes in a num­ber of listed and un­listed com­pa­nies, in­clud­ing Dis­tell, Medi­clinic, Unilever, RCL Foods and FirstRand.

Af­ter plum­met­ing from a high of 26 540c/share to a low of 20 500c, Remgro re­gained mar­ginal up­side be­fore trad­ing side­ways be­tween 23 395c and 22 015c from De­cem­ber 2016. This side­ways mo­men­tum marks mar­ket in­de­ci­sion, there­fore a break­out in ei­ther di­rec­tion is pend­ing. It seems investors, who ini­tially chose Remgro largely be­cause it has his­tor­i­cally traded at a dis­count to its net as­set value (NAV) and be­cause they trust Jo­hann Ru­pert’s in­vest­ment ex­per­tise, are now undecided.

Also, be­cause the bonds is­sued last year to fi­nance Medi­clinic’s Al Noor Hos­pi­tals Group ac­qui­si­tion are ex­change­able into Medi­clinic shares and/or cash, the fair value ad­just­ments on the op­tion are ex­pected to cause volatil­ity in Remgro’s head­line earn­ings dur­ing its five-year term, the group warned.

Remgro said ear­lier this month that it ex­pects head­line earn­ings per share (HEPS) for the six months to end De­cem­ber to be be­tween 21% and 26% higher than in the same pe­riod in 2015, mainly due to a pos­i­tive fair value ad­just­ment of R667m re­lat­ing to the de­crease in value of the bond­hold­ers’ ex­change op­tion. The group’s re­sults were ex­pected to be re­leased on 16 March, af­ter this is­sue of fin­week went to print. How to trade it: A bear­ish break­out may well be on the cards, since Remgro is fail­ing to re­sume its pre­vi­ous bull trend, and is cur­rently trad­ing on the bear­ish end of its side­ways pat­tern. Down­side through 22 015c/share would trig­ger a short with po­ten­tial losses to the 20 500c/share prior low. Fail­ure to hold there could see Remgro retest the 19 460c/share sup­port mark.

Oth­er­wise, Remgro would have to trade above 23 395c/share to pos­i­tively end the con­sol­i­da­tion and re­turn to the 26 540c/ share level. In this case, go long above 23 395c/share.

It seems investors, who ini­tially chose Remgro largely be­cause it has his­tor­i­cally traded at a dis­count to its net as­set value and be­cause they trust Jo­hann Ru­pert’s in­vest­ment ex­per­tise, are now undecided.

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