REMGRO EASES SOME PRESSURE IN 2021

One of SA’s largest holding companies struggles to narrow the discount to its net asset value. This may lure investors as the calls for share buybacks increase.

- Brendan Peacock

A 27% lift in Remgro’s share price since January is an indication that patient but potentially frustrated Remgro shareholders have seen the company turn a corner. With Covid-19 being the latest in a barrage of bad news for SA Inc, the last five years have not been kind to Remgro’s domestically focused portfolio, but management is taking action to make the best of a difficult situation.

The challenges facing Remgro are manifold. When the market is under pressure, investors prefer a more direct route to assets, eschewing the danger of discounts to net asset value (NAV) that plague holding company structures and bog down growth in their invested capital.

When markets turn, however, windfalls can be created from narrowing discounts to NAV and the sale or unbundling of underlying assets – by the holding company simply selling another listed asset at its market-related value, shareholders in the holding company receive an instant uplift in what they bought indirectly because the discount disappears.

Market sentiment, however, is not the only dynamic at play in Remgro’s share price slide of more than 50% since 2016. Despite a seasoned, high-profile board and management team including Johann Rupert and CEO Jannie Durand, some minor execution missteps – or, more likely, some bad luck – have seen some portfolio assets underperform both market peers and expectations.