What’s worth a tilt in tough times?
THERE WAS A TIME when I firmly believed Remgro — the Stellenbosch-based investment behemoth — was the share all South Africans should own. That opinion may have changed. That said, cash flush Remgro still offers a diversified spread of quality and cash spinning assets that are capable of funding a progressive dividend policy.
The Rupert family-controlled vehicle has also shown that over the long term its portfolio is capable of building steady (rather than spectacular) value.
But at the time of writing Remgro’s share price was floundering at the same levels of late 2013. That would suggest things have gone slightly awry strategically.
Remgro’s biggest mistake, in terms of portfolio value damage, was backing a reverse takeover that secured its private hospitals subsidiary Mediclinic International a listing on the London Stock Exchange.
With hindsight, Mediclinic probably did not strike the best deal terms, and this has come back to haunt Remgro as the market value of the private hospital business, once the group’s biggest investment, has plummeted.
The discount that Remgro’s share price offers on the intrinsic value of its portfolio — comprising mainly listed entities such as Mediclinic, Distell, Rand Merchant Bank Holdings (RMH), RCL Foods and RMI — has also widened markedly in recent months.
A few years ago the discount was reduced to a sliver, but now probably sits north of 20%. The wider discount can be interpreted as the market doubting Remgro executives can unlock or enhance value in the short to medium term.
Sentiment is not helped by the fact that Remgro, despite Mediclinic’s global span, is perceived as one of the most typical SA Inc stocks. Even though Remgro has exciting investments in fibre-optics, the consumer goods and financial services interests are unlikely to manage anything but pedestrian growth in a sluggish economy.
I prefer other investment counters. I think the deeply discounted HCI is much more than a proxy for Tsogo Sun, Trematon Capital has an interesting property-backed private schools thrust and Sabvest has an intriguing portfolio.
I even like AEEI, where overwrought media reports have precluded investors delving into a simple value proposition.
Don’t disregard Remgro. The portfolio in better times will rock. CEO Jannie Durand will probably play it cool — especially with the recently acquired Unilever spreads business being bedded down (and probably eventually ushered towards RCL Foods).
The question is whether to nibble now, or wait? I’d suggest the latter — but don’t quote me … not in this awful market.