Investment behemoth Remgro has done the right thing by opting to abstain from voting on a contentious specific share buyback at its 71%-owned subsidiary RCL Foods.
The buyback exercise was aimed at helping RCL’s top executives cash out shares awarded to them in the share incentive scheme.
Late in March, a number of RCL minority shareholders cried foul at the proposal to spend a not-insubstantial R149m to buy back these shares from executives that included CEO Miles Dally and CFO Rob Field.
Even though the buyout price of R10.10 was — at the time — not a premium to the market value, some shareholders felt this afforded the executives preferential treatment that was not extended to ordinary shareholders.
RCL shares are notoriously illiquid, and consequently sellers — especially in the current climate — might have to settle for offers that are markedly lower than the ruling share price.
Shareholder activist Chris Logan welcomed Remgro’s decision as a responsible gesture.
But he reiterated that the “far bigger” issue was that the scheme highlighted that, like most JSE listed companies, RCL Foods had misaligned incentives.
Logan suggested the RCL board study rival company Astral Foods, which had incentives aligned with shareholder value.
With Remgro abstaining, it will be interesting to see how minority shareholders vote at the AGM in May.
In recent years, there has not been much for shareholders to celebrate. RCL has worked hard to build a sturdy grocery brands business to offset the cyclicality of its commodity-type business in poultry and sugar. But the effort has not yet produced a fatter bottom line.
Executives would probably be in a better position if the RCL share rallied well beyond the buyback price. That seems unlikely at this juncture.
Siris Real Estate benefits from not being a Reit
Sirius Real Estate, the only JSE-listed property company invested solely in Germany, is standing out as a tenacious investment, even in the worst economic conditions globally since the 2008/2009 global recession. Not being a real-estate investment trust (Reit) has been a big win for the company, because it doesn’t have to pay out at least 75% of its income as dividends.
While many JSE-listed Reits invested in SA and abroad have spent the past couple of years trying to find ways of meeting their dividend targets, often using a plethora of financial engineering techniques, Sirius has been able to hoard cash. That cash can then be used to enhance existing assets and to offer tenants better services, especially in tough times when tenant retention is more important than buying assets.
All companies rely on some luck to see them during difficult times. However, they also need the right fundamentals to shine through and, in Sirius’s-+ case, these are burning bright.
The group listed on the AltX board in December 2014 and later moved to the main board, investing in Europe’s largest economy, Germany, and it has never swayed from this strategy.
It owns business parks that attract mostly small and medium-sized businesses, something that Germany has no shortage of. It also owns a secondary personal storage business that adds supplementary income.
Germans largely rent their homes, which often tend to be apartments and other small living spaces. They spend large portions of their personal income on travel, both in the winter and summer. This means they need to store items such as skis, camping equipment and hunting equipment, providing demand for Sirius’s storage space.
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