Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
‘even better margin of safety’
Dec 07, 2016
Since the unbundling of Richemont and British American Tobacco, Remgro has focused mainly on investing in South African financial and industrial assets. The Stellenbosch-based investment behemoth has been very active of late in terms of investments and corporate action, recently raising R9.3 billion through a deeply discounted rights issue.
Remgro’s listed investments contribute around 78% of the company’s NAV. One would expect that the 22% unlisted portion would be trading at a discount to its asset value, as there are several variables affecting the price of these unlisted investments – whereas listed assets are more fairly priced due to the efficiency of a liquid market.
In recent years, Remgro has added to the listed portion by increasing its stake in Mediclinic and the addition of Grindrod in 2011. The group also spun off its food-producing unlisted investments, TSB Sugar and Zam Chick, in combination with listed asset Rainbow Chicken to create the newly listed RCL Foods, which contributed to the decrease of the unlisted portion.
The investment group’s annual results to 30 June 2016 show that NAV increased over the reporting period by 6.1% to R306.44 per share. Earnings decreased by 26.4% and headline earnings per share decreased from 1 555.0 to 1 143.9 cents – mainly the result of once-off events including Mediclinic’s Al Noor Hospitals Group transaction amounting to R788 million.
Remgro’s unlisted assets performed well during the year under review. The value of the group’s significant minority stake in Unilever showed a marked increase to R10.65 billion from last year’s R8.7 billion, while fibre-optic cabling specialist CIV Group and industrial chemicals company Air Products also saw an increase in intrinsic value. The investment group’s stakes in unlisted empowerment group KTH, undersea cable specialist SEACOM and industrial products specialist Wispeco also edged up in value.
Remgro’s listed equity portion declined by R6.5 billion, mainly on the back of the weaker share performance by Mediclinic and RCL Foods as well as the group’s financial interests in FirstRand, Rand Merchant Bank and Rand Merchant Investment Holdings, which have been under pressure since speculation started about South Africa’s possible credit rating downgrade to junk status.
We believe that Remgro’s results on an earnings basis are distorted, as a result of the significant once-off events during the year under review. At Sanlam Private Wealth, we prefer to look at the group from a NAV to share price valuation. Historically, the share has tended to trade at an average discount of 15%, and the current 18.25% discount to NAV is highly attractive compared to its own history.
It should be noted that during the financial year, the group’s debt increased significantly due to the Mediclinic transaction. Debt levels are still relatively low compared to the market average debt to equity ratio, but one must believe they won’t be gearing up significantly in the shorter term. The R9.3 billion of new equity raised through the rights issue added 10% to the asset value. The cash has reduced the debt to equity ratio to 17.22% compared to 19.32% before the rights issue – the cash on the balance sheet is now R14 billion.
Indications are that Remgro will acquire Anheuser-Busch’s 26% stake in Distell, which at current prices will cost the group around R9.9 billion – close to the value raised by the rights issue. Remgro CEO Jannie Durand has made it clear that if the price is right, the group will likely buy the stake.
Mediclinic, which currently accounts for 42.41% of Remgro, will be a key driver of the group’s performance going forward. FirstRand will also be of crucial value as, along with Rand Merchant Investment Holdings, it accounts for about 20% of total value. The unlisted investments are continuing to perform above expectation with a 2016 NAV increase of 15.5%, and we believe this will underpin further NAV growth.
The risks for Remgro remain South Africa’s sluggish economic growth and currency headwinds, but conversely, rand strength will be relatively beneficial for the group. It is difficult to gauge the influence of the Rupert family in accessing new investment opportunities and in controlling the overall Remgro portfolio. As chairman Johann Rupert nears retirement, we expect his influence on the strategic direction of Remgro to wane.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
are they a good investment?
The great lockdown:
one year on
Head of Equities
IHG: focus on
quality pays off
Sanlam Active UK Fund
BUDGET 2021: THE RIGHT INTENT,
BUT RISKS ABOUND
Investment Economist at Sanlam Investments
INVESTING IN 2021:
WHAT TO EXPECT
Sanlam Private Wealth
MINING: IS THE
THROUGH THE HYPE
Head of Equities
Jack is back – business
as usual for Alibaba?
Global Equity Analyst, Sanlam UK
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.