It could go either way
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.