RMB unbundling gets the big nod
RMB: SHAREHOLDERS SEE THE POTENTIAL TO UNLOCK VALUE
Move could make FirstRand more attractive to foreign shareholders.
The announcement by RMB Holdings (RMH) that it intends unbundling its 34.1% stake in FirstRand has largely been welcomed by local asset managers. The holding company notified the market on Tuesday that it intends distributing this stake to shareholders next year.
“I believe the RMH board made the right decision in deciding to unbundle, given that the existing structure adds no value to shareholders,” says Meyrick Barker, investment analyst at Kagiso Asset Management. “Since announcing their expansion into property, RMH has, at times, traded at up to a high teen percentage discount to its FirstRand shareholding.
“This decision will help to unwind the current discount and is positive from the perspective of RMH shareholders.”
More than 97% of RMH’s net asset value (NAV) is attributable to its stake in FirstRand. The remainder is its R3.5 billion property portfolio.
The stock has therefore largely been treated as an alternative entry point into the banking group. However, the holding company discount attached to RMH has meant there is unrealised value.
“The restructuring does away with a structure that was no longer necessary from RMH’s perspective,” says Victor Mupunga from Old Mutual Wealth Private Client Securities. “Despite the initial concerns about an increased large block of tradeable shares coming onto the market for FirstRand, over time, it is positive. There will be a ‘single entry point’ for investors seeking FirstRand exposure and increased free float.”
Impact on FirstRand
Shareholders in FirstRand have also welcomed the announcement, even though the banking group’s share price traded lower yesterday.
“FirstRand’s share price might be under pressure over the short term due to the unbundling process,” says Sophié-Marié van Garderen, portfolio manager at Truffle Asset Management.
“[However], over the longer term we see this as a positive as the combined distributions from RMBH and Remgro would significantly increase the free float in some of the key indexes.”
This will make FirstRand both more liquid, and more attractive to foreign shareholders.
Remgro also indicated it would be distributing its stakes in RMH and FirstRand “in full or in part”. Remgro holds an effective interest of 28.2% in RMH, and 4% of FirstRand.
There is potentially more of a short-term opportunity here to realise value than in RMH, since Remgro was trading at a 32% discount to its NAV at the time the announcement was made.
“Over time, Remgro has been trading at an average discount of 17% to its sum-of-the-parts value, so there is a lot of value to be unlocked,” says Schalk Louw, portfolio manager and strategist at PSG Wealth.
Once RMH has distributed its FirstRand stake, the company also intends to sell its property portfolio and ultimately delist from the JSE. This is also somewhat of a recognition that its intention to diversify its assets hasn’t been successful.
For Mupunga, this is largely due to the size and success of its exposure to FirstRand.
“We have seen this with a few holding companies – it is difficult to diversify your portfolio when your largest exposure company performs well,” says Mupunga.
WHO’S NEXT? Will more companies be looking at creative ways to realise value for shareholders?