INVESTMENT APPROACH Unlisted proves attractive
Remgro has plainly stated a preference for collecting unlisted investments. And the more quality unlisted investments held in the portfolio, the better.
In a note to clients, Investec Securities analyst Thane Duff says he expects the percentage growth in Remgro’s net asset value (NAV) to be primarily driven by the unlisted investments augmented by a rebuilding of cash at the centre.
“We forecast a 9,6% appreciation in Remgro’s NAV over the next 12 months. Splitting that into the main components, we forecast only 6,6% appreciation in the listed investments, 15,7% appreciation in the unlisted investments and a 19,4% year-on-year improvement in the value of corporate assets [cash].” The listed component makes up more than 70% of the intrinsic value of Remgro’s portfolio.
If Remgro could push up its unlisted investment quotient to more than 50% of its portfolio then, considering most investors might not easily access these unlisted ventures, the group would increase its appeal as a unique investment option.
But hauling aboard sizeable unlisted investment options is not easily done, remembering that, aside from Brait, the bigger investment counters on the JSE like Hosken Consolidated Investments (Tsogo, Niveus and Seardel) and PSG (Capitec, Zeder and Curro) hold most of their value in listed investments. There are advantages to holding listed investments — brand building, performance transparency and staff sharescheme incentives, to name a few.
But it’s not as if Remgro isn’t putting a concerted effort into gathering more unlisted holdings. The last few investments it harnessed, namely Foodcorp and agribusiness ventures Senwes and NWK, involved substantial unlisted ventures. Unfortunately, Remgro thought it prudent to execute these deals through existing listed investments, RCL Foods and Grindrod.
The chances of Remgro buying out minorities in listed counter-controlled investments like RCL Foods, Mediclinic and Distell seem slim. Mediclinic and Distell’s earnings multiples are already fairly demanding and a prudent Remgro is unlikely to want to offer larger minority investors a further 15%-20% sweetener on top of these already heady ratings.
But there is some reassurance that certain segments of the unlisted portfolio could perform powerfully in the years ahead: Remgro’s 25,8% stake in household brands business Unilever, worth R9bn and generating headline earnings of over R400m, is the most valuable component of the portfolio. The Unilever stake will undoubtedly remain the main driver of earnings in the unlisted portfolio for the foreseeable future.
The remaining portion of the portfolio, leaving aside the influential stake in media investment company Sabido (see box), are relatively small.
Though the unlisted portfolio outside Unilever and Sabido probably accounts for less than 15% of Remgro’s intrinsic value, there are some intriguing investments.
These include stakes in perennially profitable gas business Air Products, empowerment investment company Kagiso Tiso Holdings (KTH), glass specialist PG Industries, fuel giant Total SA, fibre optic specialist Dark Fibre Africa (DFA), undersea cable specialist Seacom, small business backer Business Partners and aluminium building products group Wispeco.
Imaginative punters might ponder Remgro possibly bulking up some of these holdings through deals. For example, as regards Air Products, one might ask whether Afrox’s parent is that keen on SA. And Wispeco could be a profitable addition to a building supplies specialist like Mazor.
There are also some fringe holdings where an “anything’s possible” scenario might apply.
It’s worth noting that in recent years Remgro has enthusiastically increased its stakes in DFA and KTH, not to mention a seemingly philanthropic advance on Business Partners.
The push into DFA (where Remgro’s stake has grown to 43,8%) is central to the broader infrastructure thrust. DFA owns fibre network rings in Johannesburg, Cape Town, Durban (expanding to Pietermaritzburg), Midrand, Centurion and Pretoria. More recently this network has been extended to 17 smaller metros.
In the past financial Remgro’s push into Africa includes partnerships with
infrastructure funds