An investment in Reinet since its inception late in 2008 would have yielded a shareholder return of 16% per annum when including both the capital gains and dividends paid.
reinet Investments SCA (Reinet) essentially evolved out of Richemont SA to become an investment holding company whose primary asset was (and still is) British American Tobacco (BAT).
An investment in Reinet since its inception late in 2008 would have yielded a shareholder return of 16% per annum when including both the capital gains and dividends paid. While past performance provides no absolutes in terms of guaranteeing future gains, there is merit in the group’s past consistency in yielding a return for shareholders. At current levels Reinet is trading at a historically high discount to its net asset value (NAV), making for a compelling value investment case at present.
Reinet wholly owns the Reinet Fund, which manages the group’s cash and asset investments. The fund’s most significant holding, as alluded to earlier, remains BAT, accounting for 70.8% of the portfolio.
About 19.6% of the portfolio is made up of its holdings in the UK’s Pension Insurance Corporation, with the balance of the portfolio made up of private equity holdings, other investments as well as cash and funding resources.
British American Tobacco
Reinet owns 3.7% of BAT’s issued share capital. BAT remains an asset of the highest quality. The company’s portfolio of leading brands includes Dunhill, Peter Stuyvesant, Kent, and Benson & Hedges, to name but a few. BAT’s products cover a multitude of price points spread across a wide global geography – the Asia Pacific region, the Americas, the Middle East, Eastern Europe, Western Europe and Africa. The company’s vapour business has grown to become the largest outside of the US, while this product line will be enhanced by the acquisition of Reynolds American Inc. The group seems bullish on these “next-generation products” being a lever for long-term earnings growth, with the acquisition providing further product diversification for the group.
Pension Insurance Corporation
The Pension Insurance Corporation makes up Reinet’s largest unlisted asset (19.6% of total portfolio and second-largest group asset). It is one of the UK’s leading providers of risk management solutions to defined benefit pension funds. The group has raised additional capital to support an expected increase in demand for its product offerings over what is anticipated to be a growth phase for the corporation.
Private equity & partnerships
Private equity and related partnerships account for around 13% of the Reinet portfolio. These investments grew by nearly 20% in the past financial year, led by growth in private equity in North America and Western Europe, and supported by fund growth in Asia.
Other listed investments, cash and funding resources
About 5% of Reinet’s investment portfolio is held in SPDR Gold Shares (the largest gold exchangetraded fund in the world) and Selecta Biosciences (a Nasdaq-listed biopharmaceutical company). The SPDR Gold investment is in part an inflation hedge and not surprisingly in a low inflation environment, has been an underperforming asset for the group. The group’s cash and funding obligations provided a negative (-8%) contribution to the portfolio.
The Reinet portfolio is made up of a number of quality assets and while share price movements are skewed towards a heavy weighting in BAT, no value (perhaps a negative value) appears to be assigned to the other assets, in particular that of the Pension Insurance Corporation and the private equity and partnerships operations.
We estimate a sum-of-the-parts valuation for Reinet at around R44.77 per share. As the stock is trading at a share price of around R30, this would assume a 33% discount to this valuation, meaning that BAT accounts for roughly 105% of the price of Reinet. While management fees will most often equate to investment holding companies trading at discounts to their NAV, the current discount for Reinet appears too large. With this in mind we think that the company is offering a value investment opportunity for those investors with a longer time horizon. ■