Just do the maths

Iwonder if little old Trematon Capital Investments might reinvent itself along the same lines as fellow investment company RECM & Calibre (RAC)?

RAC found itself heavily weighted towards its investment in alternative gaming specialist Goldrush, and the market largely ignored its other investments. Subsequently, most of RAC’s other investments were bundled into a separate listing using the Astoria vehicle. This means RAC is really (aside from a few bits and bobs) a pure gaming play, and will presumably need to assume a new corporate identity.

Could Trematon follow suit? Initially, it was a property play with a slight gaming flavour since its investment in Club Mykonos Langebaan had a minority stake in the Mykonos casino attached. The casino investment was sold to Tsogo Sun some time back, and Trematon once again became mostly a real estate play.

But the group’s encouraging early success in private schooling via its Generation Education (GenEd) brand has led to a noticeable shift in the past 18 months.

GenEd makes an interesting pitch by offering internationally accredited education at affordable rates. In the six months to end-February GenEd generated R65m (against R45m for the same period last year), and its student body expanded to 2,124 from 1,514 a year earlier. The pre-tax loss was around

R2.2m. This is not a Curro-style rapid expansion but a steady rollout that aims to establish the brand as a high-quality private education alternative.

There is some significance in GenEd opening its eighth campus in Somerset West. This site was taken over from private school powerhouse Reddam with effect from January. It might have raised a few sceptical eyebrows, but Trematon reported that the re-branded school now has more students than in 2020. I reckon that says a lot about brand recognition.

Meanwhile, its older schools are full and overall capacity across all campuses sits around 75%. I’m not terribly surprised then that Trematon has upped the value of its investment in GenEd from R359m to R399m — which makes the private education business by far its biggest individual asset. That translates into about 190c a share, more or less 35% of Trematon’s R1.1bn portfolio.

But the promising GenEd is likely to remain buried under Trematon’s property investments for some time to come. Its stakes in Aria, RESI Investment Group, Club Mykonos Langebaan and the UK-based ASK Partners are collectively worth R580m, or 277c a share. If we assume that the bulk of R100m cash on hand will be earmarked for GenEd, then the education interests are worth around 239c a share.

Division equals multiplication

My point is that investors might have difficulty in discerning the real value play in Trematon. At the moment the share price is asking some serious questions. If the (I think conservative) value accorded to GenEd is reasonable, the market is valuing Trematon’s property assets at a discount of more than 75%.

This is the kind of discount investors were applying to RAC’s investments outside Goldrush, before the decision to split these off. The property market has obviously taken a serious knock from Covid. But Western Cape property (see the recent Spear trading update) seems to be holding up fairly well. Such a gaping discount seems excessive, but will hopefully spur Trematon’s strategy to realise value by selling mature assets.

The bottom line is that splitting the real estate and private education assets into separate listings would focus the market’s attention on the merits of the respective businesses. GenEd is still a fledgling company, and property rental flows would provide a reliable funding source. But the market — which still carries a candle for such stocks as Curro and AdvTech — would certainly not be averse to fund an early-stage specialist growth story.

Investors might have difficulty in discerning the real value play in Trematon. The share price asks serious questions