Amelia Morgenrood. Photo: Supplied
Amelia Morgenrood. Photo: Supplied

Reinet is a solid long-term investment

By Amelia Morganrood Time of article published May 27, 2019

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JOHANNESBURG - Reinet has been a serial underperformer. Not only did the net asset value decline in the last financial year, but the discount between the share price and the underlying assets has also widened. Reinet is an investment trust and investors usually value the share on its net asset value. In November 2018 the discount was 35percent; in 2016 it was closer to 30percent; and in 2014 it was 20percent, also the historical average discount.

Reinet has always been criticised for its dependence on British American Tobacco (BAT), but last week's results show that their investment represents 52percent of the total value of Reinet. One year earlier it still represented more than 60percent. This was mainly due to the decrease in the share price of BAT, but Reinet also sold more shares. BAT continued its strong underlying performance; however, the market still reflects uncertainty in respect of the impact of the changes the industry is going through and anticipated regulatory developments. Reinet remains confident that it is an attractive long-term investment, and the current industry challenges will be appropriately managed.

Reinet’s investment in the UK insurer Pension Insurance Corporation represented 30percent of Reinet’s net asset value at March 31, 2019, compared to 25percent a year ago. This is thanks to a stellar performance, writing £7billion (R127.89bn) of new business in 2018 compared to £3.7bn the previous year. New business transactions include BHS, Siemens and Rentokil. According to Reinet, the outlook remains positive for Pension Corporation as it is very well placed to compete for the ever-increasing pipeline of business coming to market in the UK.

New business volume in 2019 to date has remained strong. Pension Insurance Corporation is a specialist insurer of UK defined benefit pension funds. They provide tailored pension insurance buyouts and buy-ins to the trustees and sponsors of UK defined benefit pension funds.

The overall value of the business, as measured under Market Consistent Embedded Value methodology, increased by 24percent in the year. Pension Insurance Corporation has considered the risks associated with Brexit, with appropriate controls in place to ensure that contractual relationships with various stakeholders continue to operate as intended post Brexit - including the ability to pay policyholders, and relationships with banking and reinsurance counter-parties.

Investments totalling 217million (R3.49bn) were made during the year, including Pension Corporation, Trilantic, Snow Phipps, Prescient China Equity Fund, Grab and RLG Real Estate Partners. Grab Holdings is a Singapore based technology company offering ride-hailing transport services, food delivery and payment solutions.

In addition to the Prescient China Balanced Fund, Reinet also supported the launch of the Prescient China Equity fund. The fund uses a systematic, quantitative approach to seek long-term capital growth by investing primarily in China "A" shares listed on the Shanghai and Shenzhen Stock Exchanges. The equity fund has had a great start, rising by 28percent since its launch in October 2018.

Reinet's net asset value at year-end was 25.26, more or less R408, versus the share price of R233.

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. Reinet shares are held personally and on behalf of clients.


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