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About Trematon Capital
Below a summary of Trematon Capital as provided by the Chairman of the group himself.
"The group has made a very successful transition from a passive investment company in 2005 when the current management took control, to a hub of entrepreneurial businesses with strategic and operational skills and a proven ability to source and execute value-added transactions across a wide range of industries.
Four out of the five largest businesses (Aria Property Group, Resi Investment Group, Generation Schools and ASK Partners) in the group were established and co-founded by the group from scratch and Club Mykonos, although it was an existing business, has been dramatically reshaped and has had several new profitable operations added. The group has a philosophy of making well-priced investments but the real skill in these endeavours is the selection of partners and management who can add value. The management of the various businesses is independent, and each group company has its own unique culture and uses the group skills in different ways. Some businesses are relatively passive investments while others have full operational involvement depending on the business's individual needs and operating life cycle.
We own some businesses entirely and have the capacity to manage those and we continue to seek out partners and co-investors in areas where we can bring complementary skills to a transaction.The majority of our businesses are focused in the Western Cape and the past financial year brought
some unique challenges borne of overall economic weakness and the drought. Despite this, all of our operations added value and performed creditably.
All of the businesses in the group have the ability to grow. When the economy recovers from the current recession the growth in intrinsic value should meet or exceed expectations. The Trematon Group is fortunate to be able to call on an engaged and high-quality board of directors and experienced and committed management, most of whom have been with the group for at least a decade. I thank them all for their hard work and dedication. I have conferred with my colleagues on the board and have indicated to them my intention to retire from the board at the next AGM. The Trematon journey has been very positive and I have enjoyed watching the executive group develop into a well-balanced team with diverse skills and a well-earned reputation for innovation, attention to detail and fair dealing.
Monty Kaplan
Chairman"
The image below shows Trematon's main investments. A lot of people will be surprised to see Club Mykonos in Langebaan is whole owned by the group.
"The group has made a very successful transition from a passive investment company in 2005 when the current management took control, to a hub of entrepreneurial businesses with strategic and operational skills and a proven ability to source and execute value-added transactions across a wide range of industries.
Four out of the five largest businesses (Aria Property Group, Resi Investment Group, Generation Schools and ASK Partners) in the group were established and co-founded by the group from scratch and Club Mykonos, although it was an existing business, has been dramatically reshaped and has had several new profitable operations added. The group has a philosophy of making well-priced investments but the real skill in these endeavours is the selection of partners and management who can add value. The management of the various businesses is independent, and each group company has its own unique culture and uses the group skills in different ways. Some businesses are relatively passive investments while others have full operational involvement depending on the business's individual needs and operating life cycle.
We own some businesses entirely and have the capacity to manage those and we continue to seek out partners and co-investors in areas where we can bring complementary skills to a transaction.The majority of our businesses are focused in the Western Cape and the past financial year brought
some unique challenges borne of overall economic weakness and the drought. Despite this, all of our operations added value and performed creditably.
All of the businesses in the group have the ability to grow. When the economy recovers from the current recession the growth in intrinsic value should meet or exceed expectations. The Trematon Group is fortunate to be able to call on an engaged and high-quality board of directors and experienced and committed management, most of whom have been with the group for at least a decade. I thank them all for their hard work and dedication. I have conferred with my colleagues on the board and have indicated to them my intention to retire from the board at the next AGM. The Trematon journey has been very positive and I have enjoyed watching the executive group develop into a well-balanced team with diverse skills and a well-earned reputation for innovation, attention to detail and fair dealing.
Monty Kaplan
Chairman"
The image below shows Trematon's main investments. A lot of people will be surprised to see Club Mykonos in Langebaan is whole owned by the group.
Trematon Capital main investments
Financial results
When looking at holding companies such as these its hard to look at the regular numbers such as revenue, cash generated by operations etc. As the group is not neccesarily an operating entity, but a holding company. So they buy assets (be it companies, buildings, properties etc) at hopefully discounted rates and then hold and work on these assets to unlock maximum value for the group's shareholders. So holding companies such as these are usually measured against its Net Asset Value (NAV) per share. Essentially this is the value of their assets - value of their liabilities divided by the number of shares. Other measures of valuing holding companies include a Sum of the Parts (SOTP) approached as used by PSG group and Zeder. Other holding companies calculate an "intrinsic net asset value" (INAV). This is a management estimate of the realistic value of the business. In saying that below the CEO and CFO of Trematon Capital discuss the group's INAV in detail
Management commentary on the financial results
Group intrinsic net asset value ("INAV") exceeded R1 billion for the first time in 2018 and represents an important symbolic benchmark. In April 2005 Trematon was a very small company with a limited capital base and no operational businesses. Thirteen years later, the group is now a recognised innovator with the ability to purchase, establish, manage and exit projects in the areas of commercial property, residential property, education and leisure.
Trematon's earnings patterns are lumpy. The business has grown its annuity income operations substantially over the past few years but investment disposals, acquisitions and fair value adjustments can always create once-off swings in earnings. Over the past year there have been several realisations and revaluations which have resulted in an 8.5% increase in INAV. A large portion of the group's investments is backed by property values and the performance of this asset class has been muted in the past 12 months. This performance compares favourably with our industry peers.
An important measure of Trematon's value is INAV, which gives shareholders a realistic valuation of the underlying assets of the business. This is calculated and explained in detail in a separate INAV report which can be found below.
Trematon's earnings patterns are lumpy. The business has grown its annuity income operations substantially over the past few years but investment disposals, acquisitions and fair value adjustments can always create once-off swings in earnings. Over the past year there have been several realisations and revaluations which have resulted in an 8.5% increase in INAV. A large portion of the group's investments is backed by property values and the performance of this asset class has been muted in the past 12 months. This performance compares favourably with our industry peers.
An important measure of Trematon's value is INAV, which gives shareholders a realistic valuation of the underlying assets of the business. This is calculated and explained in detail in a separate INAV report which can be found below.
The 2018 distribution of 5.25 cents per share is an increase of 5% over the prior year, which represents eight years of uninterrupted distribution growth. The group has five major investments of which four were new ventures from inception. Head office involvement in each business varies depending on the stage of growth and the specific needs of the business. Each entity has committed, incentivised and competent management and each has growth prospects which have the potential to achieve the group's target internal rate of return ("IRR") of 20% per annum. We are under no illusions that this target will be easily achieved, and the South African economy would need to improve in order for us to meet our objectives, but we are well positioned to access growth in each market segment.
Trematon Capital share valuation
Well since it is a holding company, and one cannot use the regular valuation models used to estimate a value of the company's future cash flows or dividends, the best bet is to look at the company's net asset value or intrinsic net asset value. Based on the latest financial results the INAV of the group is sitting at R4.68 a share. While the share price of R2.75 is well below the estimated value of the business by the group, a discount to the value of the assets is to be expected. Most holding/investment companies trades at a 10% to 20% discount to their assets. In this case the group is trading at 41% discount to their INAV. So why is the gap between the share price and the value of the assets per share so big?
Perhaps the market does not trust the valuation of the group's assets by management? Or the market is worried about the future prospects of the group's assets, and its large dependence on activities in the Western Cape. We will go against the market and say the group should be trading at a 20% discount to its INAV. Thus we value the group at R3,74 a share. This is still 20% less than what the group's net assets per share is worth, and still well above the current trading price. So it provides limited down side while providing potentially a lot of upside for investors. It must be noted though that the shares are not very liquid (doesnt trade a lot). So the spread between bid and offers might be substantial. Thus getting in at the right price might be hard to do due to the illiquid nature of the group's shares.