Remgro

  • Remgro has through the years undergone a   number of restructures however the current streamlining was a major event,   with the unbundling of a 28.2% stake in RMH, whose major underlying   investment was in FirstRand shares

  • The rationale for this restructure by   Remgro, an investment holding company, was to unlock value by reducing the   portfolio weighting of listed investments to that of unlisted investments,   which would in theory reduce the discount to its NAV.

  • The NAV declined by 11% to R154.50, with the   underlying listed portfolio reflecting sharp declines such as First Rand   (down 53%), RMI (down 14%), Distell (down 41%) and RCL Foods (down 24%),   while the value of the unlisted investments increased by 7%.

  • The impact at year-end resulted in the NAV   discount reaching a new high of 41%, however the impact on earnings was more   severe due to the Covid-19 pandemic and subsequent lockdown which brought the   economy to a standstill.

  • For the year to June 2020 total headline   earnings decreased by 61.4% to R3167 million, with total HEPS declining by   61.3% to 560c. This was partially due to the unbundling of RMH, which was   only equity-accounted for nine months versus twelve months in 2019.

  • A better measurement of performance is that   of continuing operations, with HEPS falling by 68.7% to 307.5c reflecting the   perilous state of the SA economy.

  • The infrastructure division, with Dark Fibre   and Vumatel under the CIVH banner, provide high speed broadband services and   resulted in operating losses escalating from R204 million to R649 million due   to robust demand for its services.

  • Corporate transaction costs and a   significant increase in interest costs due to higher debt levels will result   in in the CIVH group having raise additional funding of R6 billion to   refinance upcoming debt maturities.

  • The CIVH valuation metrics was the major   reason for the 26% increase in non-listed investments and is based on long   term projections of future growth.

  • Dividends flows were hampered by the absence   of income from RMH which was previously the jewel in the crown. In some   cases, dividends of the underlying portfolio investments were bypassed in   order to preserve cash. As a result, the Remgro dividend was cut by 53% to   R2.65 as a cash preservation measure.

  • Remgro has a well-diversified portfolio   encompassing, consumer products, financial services, health, industrial, and   digital services in the form of broadband.

  • The conglomerate era for companies such as   Remgro are no longer an attractive form of investment, especially with the   demise of FirstRand’s dividend flow which shareholders received as a dividend   in specie, following the recent unbundling.

  • The share price has underperformed the JSE   All Share Index over the past twelve months with relative underperformance of   25.5%, and a portfolio of investments is unlikely to show growth in an   economy facing significant challenges in the year ahead.

  • In a recent interview with the Financial   Mail, the Remgro CEO stated that the only reason for Investment Holding   companies to exist is that of the underlying unlisted assets. So the jury is   still out as to whether Remgro, in its new format, can narrow the discount by   following its new investment strategy.

Remgro