Amelia Morgenrood.
Amelia Morgenrood.

JSE investment trusts in drive to unlock value for shareholders

By Amelia Morgenrood Time of article published Dec 2, 2019

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JOHANNESBURG - The investment trusts listings on the JSE are on a drive to unlock shareholder value and decrease the discount to net asset value that they're trading at. Historically, a good quality investment company's discount was never more than 10percent, but the last few years saw these discounts going to 20percent and more.

Initially established in the 1940s by the late Dr Anton Rupert, Remgro’s investment portfolio has evolved substantially and currently includes more than 30 companies. Remgro has a few operating subsidiaries of which the material companies are RCL Foods, Distell, Siqalo Foods and Wispeco.

These companies have autonomous boards of directors and management structures, and Remgro only exerts its influence through non-executive representation on their boards.

Remgro’s other investments comprise both listed and unlisted companies that are not controlled by Remgro and which are mostly associates and joint ventures due to the significant influence or joint control exercised by Remgro through its board representation in those investee companies.

Where Remgro does not have board representation, such investments are treated as portfolio investments.

Remgro manages its investments on a decentralised basis, and its involvement is mainly focused on the provision of support rather than on being involved in the day-to-day management of business units of investees.

Support provided to the investee companies can either be in the form of strategic, financial and managerial support, or the creating of an environment for corporate transactions.

Remgro holds 28percent of Rand Merchant Holdings (RMH), and on November 19 RMH announced its intention to distribute its FirstRand stake to shareholders. Remgro announced that it would distribute both its RMH and FirstRand holding to current shareholders of Remgro.

Remgro currently holds 3.92percent of FirstRand. FirstRand and RMH are two of Remgro’s most significant investments, and they contribute approximately 11 and 24percent respectively to net asset value.

Both the announcements mentioned above have an impact on the way the share price is assessed.

Remgro’s share price is likely to outperform its listed investments following the decision, as the holding company discount narrows.

Remgro was trading at an estimated 23percent discount to its market net asset value (with listed investments valued at current market prices) before the announcement. Given its intention to distribute its FirstRand and RMH investments, the traditional holding company discount applied should no longer apply to these investments. This should theoretically unlock approximately 1500cents per share of value for Remgro shareholders.

The RMH announcement should positively impact the RMH share price as the holding company discount (discount to its holding in FirstRand) closes. The increased float of FirstRand shares in the market could place pressure on the FirstRand share price. The RMH and Remgro distributions will effectively release 2130.26 million shares or 38percent of FirstRand’s issued shares into the market. Given that Remgro’s exposure to RMH is larger than in FSR, the RMH transaction will probably be positive for the Remgro valuation.

Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Remgro shares are currently held on behalf of clients.


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