Remgro’s frustration with South Africa’s authorities was tangible in its half-year results presentation, with CEO Jannie Durand calling the length of time it takes to do deals here “totally unacceptable”.
Otherwise, though, things are looking up for the investment holding company which owns assets like RCL Foods, Rainbow, CIVH, Total, Mediclinic, Heineken, and stakes in Outsurance and Discovery. Headline earnings jumped 38.6% to 672c a share, the dividend is 20% higher at 96c and intrinsic net asset value (NAV) has moved up by a 10th, to R276 a share. Currency spoke to Durand.
The big uncertainty for Remgro is still what the competition authorities will decide with regards to the merger of Vodacom and Maziv, the subsidiary of your CIVH fibre optic business. How long has it taken already – three years?
Longer. It was 2021. Time is money and the uncertainty also creates uncertainty among your workforce. It doesn’t matter how much you try to focus them, they’ll wonder what’s going to happen to my job, how’s the integration going to work. That affects performance. If company XYZ wants to invest and it takes two to three years, and then you have regulatory requirements that they don’t understand, it just makes it so difficult. It’s not investor friendly.
The Vodacom deal hearing will be at the Competition appeals court on July 22. Then there’s a separate deal: we bought 49% of a company called Herotel, so the Competition Commission has heard it and they’re recommending it to the tribunal but they might only be able to hear it in 2026.
In the results statement you said ‘much more work’ still needs to be done to ‘unlock and optimise the performance of the portfolio’. What exactly?
So, though the performance at Mediclinic is improving across all the regions, we’re still not where we want to be. South Africa is performing quite well, the [United Arab Emirates] is performing very well, but there’s still underperformance on the Abu Dhabi side, and then in Switzerland the margins are still not where we want to be because we need to get to the cost of capital. That’s Mediclinic. For Heineken, we need to get to double-digit margins, and then the third one is CIVH. We’ve got more demanding targets for the underlying investments.
Has that been a distinct shift in Remgro’s approach?
No. But we went through a tough time and all we want is to get back to where they should have been in the past. It’s as simple as that. All our investments should make cost of capital.
What are they making now?
Mediclinic is about 4.1%, for example.
You said the listed part of the portfolio – specifically Outsurance and Discovery – accounted for more than 80% of the increase in NAV for Remgro. That’s quite a bit.
It was about a R12bn uplift – because Discovery’s share price rerated, as did Outsurance, so they were a big portion of that.
But presumably that’s not exactly what you want given that the theory of Remgro is that you’re the only access point for unlisted investments – so the unlisted companies should be doing the heavy lifting?
I’m not complaining [laughs]. If they perform well it’s fine. I won’t mind if they double their share price in the next year again.
Fair enough. But you must be happier about the performance of the unlisted portfolio.
Absolutely – you can see that in the results. The only negative contributor was Total but that was due to stock revaluations. It’s quite cyclical and depends on the oil price when you mark down your stock. But the rest of the portfolio we’re quite proud of what they’ve achieved.
On the calculation of your intrinsic NAV, you seemed at pains to stress that you have valuation subcommittees, and interrogation of the valuations. Do you emphasise that in light of the criticism that African Rainbow Capital, say, has attracted on its NAV calculations?
We want to be totally transparent that’s why we give all the information of how we do the valuations; we don’t want people to say we’ve overvalued these assets so we’re very sensitive to that. Which is why, typically, we’re quite conservative. If you just look at what we’re carrying, the CIVH valuation on our books and what the Vodacom deal was done at – it’s significantly higher than our valuation. But the market’s not rewarding us for that.
Is it still as frustrating to be an investment holding company, with this perennial discount (intrinsic NAV of R276 being a long way off Tuesday’s share price of R160)?
I’ve been used to it for so long now that it doesn’t keep me awake; the underlying performance does. If we can get that right and where we want it to be then we are cautiously optimistic that the discount should narrow.
After a tough couple of years you suddenly have cash and no borrowings. How are you going to use that? Will it be on dividends or share buybacks or are you keeping your cards close to your chest?
The latter part of that is probably right but we have increased the dividend; clearly we must reward our shareholders via dividends. I’m a shareholder too so I enjoy the dividends as well.
Are there many opportunities to spend money on? Do your existing businesses need capital?
None of our existing businesses need capital, it’s only if they see opportunities and want to do acquisitions, but let’s enjoy our de-gearing for the time being.
Are you seeing any improvements in the business environment in South Africa?
The engagement is better. I sit on some of these workstreams and people in government are much more engaged with the business community. We don’t always agree on everything but at least there’s talk and debate.
Is there anything tangible though?
I think you will see on the transport and logistics side, they’re talking about bringing private rail operators in. We’ve seen on the splitting of Eskom’s generation and transmission business … it’s not an easy process so it’s not going to happen overnight but it’s going to happen.
But I think there’s the realisation that you can’t grow at 1.7% and population growth is higher than that. We need to grow at 5% or 6% and the only way you’re going to do that is by having a much more business-friendly environment.
Government doesn’t create jobs, well, they create jobs but it’s at the expense of the taxpayer. We need foreign direct investment and, like us, if there were a much easier business environment we might invest more. Simple as that. And speed is of the essence when you want to do deals.
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