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Remgro (REM) is the stock in focus for 15 February 2016 to 19 February 2016: At time of writing REM was trading at R239.10
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Background and overview of Remgro (REM)
Remgro invests in businesses that can deliver superior earnings and dividend growth over the long term. This involves the acquisition of meaningful interests in companies in order to have significant influence. Sound management is an important investment criterion. Some of Remgro's significant holdings include:
Remgro is run by Johan Rupert, who during the financial crises earned the nickname "Rupert the bear" due to his negative outlook on financial markets and the business environment. While the largest impact of the sub prime mortgage crisis has come and gone, Rupert has remained pretty negative over the years. This negative mindset has meant that Remgro (and other Rupert run enterprises such as Reinet (REI) and Richmond (CFR) has not been very aggresive in expanding their businesses. For these companies its been more of a hunker down and wait in the bunker for better days. While some might see the approach as prudent, others see it as them having missed great opportunities to purchase quality assets on depressed prices over the last number of years. We tend to agree with the latter and do feel that REM's management (under the leadership of Rupert the bear) has been overly conservative and could have done more to unlock value for their shareholders.
- 25.8% of Unilever
- 31% of Distell
- 42% of Mediclinic (MDC)
- 28.2% of RMB Holdings
- 30.3% of Rand Merchant Insurance
- 24.3% of Total South Africa
- 23% of Grindrod (GND)
- 25% of SEACOM
- 50% of Blue Bulls
- 24.9% of WP Rugby
- 50% of Premier Team Holdings (Saracens Rugby)
Remgro is run by Johan Rupert, who during the financial crises earned the nickname "Rupert the bear" due to his negative outlook on financial markets and the business environment. While the largest impact of the sub prime mortgage crisis has come and gone, Rupert has remained pretty negative over the years. This negative mindset has meant that Remgro (and other Rupert run enterprises such as Reinet (REI) and Richmond (CFR) has not been very aggresive in expanding their businesses. For these companies its been more of a hunker down and wait in the bunker for better days. While some might see the approach as prudent, others see it as them having missed great opportunities to purchase quality assets on depressed prices over the last number of years. We tend to agree with the latter and do feel that REM's management (under the leadership of Rupert the bear) has been overly conservative and could have done more to unlock value for their shareholders.
Scroll over or click on the funnel chart to get more details of REM's latest financial results. (will be updated 15 February)
Financial review
Remgro is known as one of the biggest investment holding companies in South Africa, along with others such as Brait and Hoskens Consolidated Investments (HCI). It therefore does not have a specific industry or company it owns and runs, instead, its holds large stakes in certain companies and/or industries and gets their share of those companies' profits. With significant shareholdings Remgo gets board representation which means that their management can influence the management of the companies they have large shareholdings in.
It is therefore difficult to place a valuation on Remgro based on normal valuation techniques such as dividend discount models, PEG ratios etc. It is therefore easier to value Remgro based on the valua of their holdings (as is common practice when valuing investment holding companies). As a general rule of thumb, investment holding companies do tend to trade at anything between 0% to 20% discount to the value of their holdings. The discount is to offer investors an incentive to invest in the holding company instead of buying the shares they hold directly. The draw card for a lot of investment holding companies is the fact that they holding substantial shareholdings in large unlisted shares in which the public cannot easily buy shares in, for example Unilever and Total SA in Remgro's case. Often the greater the quality the assets an investment company holds, the smaller the discount between the price and the value of the assets.
Below a graph showing the main contributors to Remgro's profits as at their last financial year end.
It is therefore difficult to place a valuation on Remgro based on normal valuation techniques such as dividend discount models, PEG ratios etc. It is therefore easier to value Remgro based on the valua of their holdings (as is common practice when valuing investment holding companies). As a general rule of thumb, investment holding companies do tend to trade at anything between 0% to 20% discount to the value of their holdings. The discount is to offer investors an incentive to invest in the holding company instead of buying the shares they hold directly. The draw card for a lot of investment holding companies is the fact that they holding substantial shareholdings in large unlisted shares in which the public cannot easily buy shares in, for example Unilever and Total SA in Remgro's case. Often the greater the quality the assets an investment company holds, the smaller the discount between the price and the value of the assets.
Below a graph showing the main contributors to Remgro's profits as at their last financial year end.
Valuation
Based on Remgro's current investments and their value as listed or valued by Remgro, Remgro's intrinsic value (the value of all their holdings after debts paid) is between R248 and R252 per share (as at 15 Feb 2016).