Remgro flagged as much as a 43% jump in half-year profit on Tuesday, citing improved performance across its portfolio, lower finance costs and the absence of corporate action.
The conglomerate, whose interests range from private healthcare to financial services and consumer foods to internet infrastructure, said headline earnings per share (HEPS) were likely to come in a range of 645c-694c in the six months to end-December compared to the restated 485c a year earlier.
The restatement of the prior year’s earnings, initially reported at 381c, reflects the correction of an accounting error related to Remgro’s investment in TotalEnergies’ SA business.
Founded in the 1940s as a tobacco company, Remgro has grown into one of the biggest names in SA and is worth about R80bn.
However, its market value was about 40% less than the value of its underlying assets as of last fiscal year, potentially reflecting investor distaste for investment holding companies in the age of “competitive edge” and “synergy”.
For years, these companies have thrived on the notion that they make shareholders richer by managing a hodgepodge of businesses across various economic sectors. It is not uncommon for investment holding companies to trade at a discount to the asset value but the acceptable shortfall is 15%-20%. Nor is Remgro the only SA company grappling with this financial inefficiency. Remgro’s problem mirrors the dilemma faced by African Rainbow Capital and Naspers.
To tackle the valuation mismatch, CEO Jannie Durand has been preoccupied with a series of corporate actions to close entry points into Remgro. Last year, it completed the sale and delisting of winemaker Distell to Heineken in exchange for a stake in the Dutch brewer’s SA business. This came before the move to buy out minorities in private healthcare group Mediclinic International, which has since been taken private.
The finalisation of both deals marked an inflection point in Remgro’s history, upending the ratio between the value of unlisted and listed portions of its portfolio. The portion of unlisted assets now sits at about 70%, a 180º turn before the transactions.
The full results, set for release on March 25, are expected to shed light on whether Durand’s strategic manoeuvres have alleviated the valuation headache.
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