Is The Discount Still Valid?

Do diversified investment houses such as Remgro still offer value in the midst of the discount to their share prices compared to their intrinsic net asset value?

- Jaco Visser

“Remgro’s aim is to render outstanding returns through ensuring sustainable dividend and capital growth to shareholders over the long term.”

A series of unbundlings from investment companies over the past couple of years has raised the question among many investors as to whether these companies, together with the discounts on their net asset value, or even their intrinsic net asset value, are at all worth investing in.

One of the largest investment holding companies in South Africa is undoubtedly Remgro, with its interests in private healthcare, food processing, optical fiber infrastructure, and banking – to name but a few.

Despite the group’s apparently sound underlying companies, its share price is trading at a firm discount to its intrinsic net asset value. The latter is a measure used by Remgro to determine its underlying value.

Over the past number of years, the unbundling of investment houses and large companies listed on the JSE was the order of the day. In 2016, Bidvest unbundled its food services division, Bidcorp, to shareholders. Two years later, Old Mutual distributed its British interests to shareholders. It also reduced its interest in Nedbank from 52.2% to 19.9% by splitting its Nedbank shares among its Old Mutual shareholders. Last year, Naspers* unbundled most of its internet businesses as Prosus (which houses its key 34% interest in the Chinese Tencent) in what some analysts describe as an attempt to get rid of the discount on its underlying asset value and to retain a controlling stake. Its subscriber television division has been fully distributed to shareholders as the MultiChoice Group. These are but some of the examples.