Amelia Morgenrood. Photo: Supplied Amelia Morgenrood. Photo: Supplied
JOHANNESBURG - On March 18 Remgro released half-year results, with headline earnings per share up 2.14percent and the intrinsic net asset value (NAV) per share 3.4percent higher. Revenue missed, while book value per share beat estimates.
Declines in infrastructure, insurance, and central treasury expenses were more than offset by the 37percent jump in headline earnings by Mediclinic, which contributed 20percent to total headline earnings.
There were substantial improvements in Siqalo Foods, continued higher profits from the banking platform, and a 64percent spike in headline earnings from Total South Africa.
There was a more significant loss contribution from Community Investment Venture Holdings (CIVH), but their assets seem to be growing at a healthy pace. Remgro holds 54.4percent in CIVH, which is the parent company of Vumatel and Dark Fibre Africa (DFA).
Despite the increase in losses, DFA’s revenue increased to R1.21billion, from R1.06bn the previous year, thanks to the steady growth of 17percent in annuity revenue, and Ebitda grew by 19percent. DFA’s contribution was negatively impacted by higher depreciation and finance costs as a result of the expanding network. Included in CIVH’s results were higher finance and transaction costs due to the acquisition of a further 65.1percent stake in Vumatel in May 2019.
Vumatel’s revenue and Ebitda increased by 74and 109percent respectively, but its results were also negatively impacted by higher depreciation and finance costs driven by the expanding network.
Remgro also has a 30percent stake in fibre operator Seacom, but attracts a zero carrying value, meaning the group will only account for the company’s profits once these exceed the accumulated losses not accounted for in prior reporting periods.
Remgro’s portion of Seacom’s headline earnings amounted to R21million, from a loss in 2018 of R1m. This increase is mainly due to positive growth in the traditional business, as well as more robust performance in the service provider segment due to the inclusion of FibreCo, which it acquired in 2019.
Remgro Group intrinsic NAV per share was up 3.4percent with Banking representing almost 35percent. Healthcare 20percent, Consumer products 17.5percent, Insurance 11percent, and Infrastructure 8.6percent. The group’s market NAV per share has come under pressure, given the bout of volatility currently being experienced in the market, as listed investments declined in line with the broader market.
The operational impact of state and societal responses to the Covid-19 concerns is still difficult to quantify.
The estimated NAV discount has widened to more than 30percent compared with its 18percent historical average, despite the FirstRand and RMH unbundling initiatives.
Remgro announced in November that they would distribute their RMH and FirstRand holdings to Remgro shareholders. This was received positively by the market and initially lead to a decline in the discount to NAV, as a more focused portfolio and a reduction in entry points should improve the scarcity of the investment. However, this discount has opened again recently. It is estimated that, excluding FirstRand and RMH from the discount calculation, the holding company discount increases to around 40percent.
Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Remgro shares are held on behalf of clients.
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