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Finweek English Edition - - Market Place - By Shaun Muri­son ed­i­to­rial@fin­ Shaun Muri­son is a se­nior mar­ket an­a­lyst at IG.

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.

In­vest­ment case

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. ■

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