Remgro shares in South Africa rise 22% despite discount to asset value — Daily Maverick

In South Africa, shares in investment holding company Remgro rose 22% over the past year, while its intrinsic net asset value (iNAV) increased by 4.6%. As Daily Maverick reports, the market price of the company’s shares was about 206 rand per share, while iNAV stood at 305.80 rand. Thus, the shares traded at a discount of approximately 33% to this figure.

iNAV reflects management’s estimate of the value of a company’s assets, taking into account debt and taxes that would have to be paid if the assets were sold. For holding companies, a discount to this metric is common, including because of the costs of maintaining the corporate structure. It may widen if investors disagree with asset valuations or have concerns about capital allocation.

Comparison with Sabvest

Remgro’s competitor, Sabvest, traded at a discount to intrinsic value of only 12%. One reason for the difference may be the portfolio structure: nearly all of Sabvest’s assets are unlisted, whereas listed assets accounted for 34.2% of Remgro’s iNAV in the latest reporting period.

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Remgro’s largest listed investments include OUTsurance, Rainbow and RCL Foods, whose shares investors can buy directly. Over the year, the value of Remgro’s listed assets declined by 8.3%, while their share of iNAV after tax fell from 39.1% to 34.2%. The share of unlisted assets in iNAV simultaneously decreased from 57.5% to 55.4%, although their total value rose by 1%.

Cash and dividends

Remgro used its strong cash flow to pay a special dividend of 550 cents per share, in addition to a regular dividend of 595 cents. In the article author’s view, this policy may signal to the market a lack of attractive investment opportunities and management’s insufficient confidence in the iNAV valuation to buy back its own shares at a discount.

Remgro’s largest source of headline earnings was Mediclinic, which the holding company delisted. Its headline earnings rose by 23.6% over the year. At the same time, cash at the group centre increased by 143% and amounted to about 12% of iNAV, compared with 5.1% in the comparable period. Adjusted free cash flow at the group centre grew by 28.6% per share.