In­vest­ment com­pa­nies are a mixed bag when it comes to po­ten­tial risk and re­ward. Which counter is the smart money on?

Financial Mail - Investors Monthly - - Contents - Mark Hasenfuss The writer and his spouse hold shares in Reinet In­vest­ments


Share price: R11.92 JSE code: ARA

BUY IT IS DIF­FI­CULT NOT TO VIEW As­to­ria In­vest­ments as a low-risk “buy”. For a start, the in­vest­ment com­pany trades at a sig­nif­i­cant dis­count to the value of its un­der­ly­ing port­fo­lio, which is mostly made up of large global com­pa­nies such as Ap­ple, Face­book, Black­stone Group and Star­bucks.

At end-March, As­to­ria held a NAV of US$1.20. This trans­lates into a rand value of about R15.85/share — well ahead of the rul­ing share price on the JSE.

On top of the value propo­si­tion, there is a tilt by in­vest­ment firm RECM & Cal­i­bre (RACP), which has made a cash of­fer of R13.50/share to buy 50.1% of As­to­ria. The of­fer is com­pli­cated by the fact that RACP wants to also of­fer as set­tle­ment a part pay­ment in scrip — at a size­able premium to its share price — should As­to­ria share­hold­ers want to sell out en masse.

There’s no doubt the in­vest­ment phi­los­o­phy will change markedly if RACP gains con­trol — per­haps even a liq­ui­da­tion of the port­fo­lio to make way for deep-value in­vest­ments. Should it not be suc­cess­ful, the ag­gres­sive tilt will likely light a fire un­der As­to­ria’s man­age­ment. Ef­forts to close up the dis­count — in­clud­ing share buy­backs and sell­ing out of cer­tain in­vest­ment po­si­tions — will surely be con­tem­plated.

What­ever tran­spires, As­to­ria should be trad­ing closer to its NAV in the months to come, with the only ma­jor risk be­ing a marked strength­en­ing in the rand.


Share price: R246.84 JSE code: RNI

HOLD THE DIS­COUNT REINET’S SHARE price of­fers on the in­trin­sic value of the in­vest­ment ve­hi­cle’s port­fo­lio has in re­cent weeks nar­rowed some­what. The dis­count is still more than 35% — tak­ing into ac­count that the value of Reinet’s sig­nif­i­cant mi­nor­ity hold­ing in British Amer­i­can To­bacco (BAT) is lower than it was at the end-March fi­nan­cial year. BAT now con­sti­tutes “only” about 62% of Reinet’s port­fo­lio, with the promis­ing in­vest­ment in UK fi­nan­cial ser­vices com­pany Pen­sion In­vest­ment Corp (Pen­sCorp) much more prom­i­nent.

The hitch over the short and medium term is that there is no cat­a­lyst for a value un­lock. BAT — a source of gen­er­ous div­i­dend flows — is un­likely to be sold and Pen­sCorp, which rep­re­sents a quar­ter of Reinet’s last stated in­trin­sic value, will need to build op­er­a­tional bulk be­fore it can be listed in Lon­don or at­tract se­ri­ous suit­ors.

The rest of the in­vest­ment port­fo­lio is an un­tidy col­lec­tion of pri­vate equity and spe­cial­ist fund in­vest­ments. Share­hold­ers can but hope there is an out­right win­ner tucked away in the ar­ray of funds, or in the small di­rect in­vest­ments in spe­cial­ist tech­nolo­gies.

There is also not much to woo yield seek­ers: the BAT-driven div­i­dend flows are fairly stingy, al­beit in line with the group’s strat­egy to use its cash to di­ver­sify the port­fo­lio. Reinet re­mains largely a cap­i­tal preser­va­tion play, and a “hold” for in­vestors jit­tery about global devel­op­ments.


Share price: R15.50 JSE code: UPL

SELL THIS FAIRLY NEW IN­VEST­MENT firm, which in­vests mainly in the UK and Europe, trades at a more than 25% dis­count to its last stated NAV of £1.04/share.

On pa­per the dis­count looks fairly en­tic­ing. But Uni­ver­sal Part­ners (UP) does not have a port­fo­lio of in­vest­ments that pun­ters can re­ally get their teeth into — yet.

The port­fo­lio is a bit out of the or­di­nary, with stakes in Den­tex Health­care Group (a net­work of UK den­tal prac­tices), Pro­pelair (pos­i­tive-pres­sure flush­ing toi­lets), mo­tor man­u­fac­turer Yasa and in­ter­na­tional bank­ing and fi­nance group SC Lowy. Last month it bought into JSA Ser­vices, a pro­fes­sional em­ploy­ment or­gan­i­sa­tion in the UK.

It will be some time be­fore the po­ten­tial of th­ese in­vest­ments can be prop­erly gauged. In the mean­time, UP as­set man­ager Argo has in­di­cated that a pipe­line of po­ten­tial in­vest­ment op­por­tu­ni­ties has been iden­ti­fied. Th­ese are go­ing through a “thor­ough due dili­gence” be­fore be­ing pre­sented to UP’s in­vest­ment com­mit­tee.

UP seems in­tent on build­ing a di­ver­si­fied port­fo­lio of un­listed in­vest­ments. Though this negates some risk, it does not make it easy to build valu­a­tion mod­els. With­out an in­spired deal, sus­pects the share will con­tinue to lag NAV, and the dis­count could widen if deal flows are slug­gish.

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