Remgro results for 15 months.

We had results yesterday from investment holding company Remgro. This one is slightly complicated because they have changed their yearend so these results are actually for 15 months. This makes valuations a bit difficult. Firstly and most importantly, let's look at the group structure so we know what we are analysing. Check out this link from the website. See that through Remgro, we get exposure to financial services, diversified industrials, media, mining and technology. In truth however Industrial contributes 47.2% to earnings whilst financials contribute 46.9%. The rest are fairly insignificant.

Because the periods are not comparable I'll just give you the earnings numbers without percentage comparisons. For the 15 month period headline earnings per share came in at 1082c. They do give us the 12 month results which came in at 788c compared to 690c from the previous period, growth of 14%. In terms of valuing an investment holdings company, the rules are different. Investors look at the intrinsic value of all the companies under management. According to management, this came in at R135.97 a share. The stock trades at R114 a discount of 16.1%. This means that the sum of the parts is worth more than what the market is valuing the company. Is this a buying opportunity?

Investment case for Remgro. People who like the stock like the instant diversification. By buying the stock you are putting your faith in management to make the right decisions and the right allocations. Many people also believe in the Rupert factor. Johan Rupert who is the Chair has a knack for making the right decisions at the right time. You also gain access to some assets which are not listed and which you would not normally be able to invest in. You are getting all of this at a discount to NAV.

Investment case against Remgro. 75% of all their earnings comes from listed companies. If you like their mix why not just buy these companies on the market yourself? Not only do you avoid the Remgro management remuneration but you also have the choice of hand picking which ones of their asset mix you like. For example they have a stakes in Nampak and Distell which are companies we would stay far away from. As asset managers we prefer to make those allocation decisions ourselves. Plus if you are looking for the Rupert magic you can buy Richemont shares where he is CEO. Lastly, if you don't have the funds to get that instant diversification, rather buy into the Alsi 40. Cheaper fees and more diversified mix. Hence we feel they deserve that discount.

On a different note but concerning the same company, Remgro have offered to buy a 22% stake in Grindrod, the diversified shipping company. The structure of the deal is interesting. Basically Grindrod needs to raise money to fund new projects they are involved in. They are raising this through a rights offer to share holders. But instead of the offer being at a discount, it is at a premium to the current price. Remgro will subscribe for 133.3 million shares and assuming shareholders don't want to buy new Grindrod shares at a premium (which is a given) Remgro should get most of these shares. Grindrod is not a company we particularly like. Although we are optimistic about global growth, the shipping industry is too cyclical and extremely competitive. Again this reiterates why, in a world of choices, we stay away from Remgro.