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Johannesburg - Shareholders can no longer be satisfied with Reinet, the Johann Rupert-managed investment group, simply being a proxy for its stake in British American Tobacco (BAT).
That's the view of Renaissance Capital (RenCap), which has a "sell" rating on the stock.
Reinet came to the JSE in October 2008 and has largely been viewed as a stock which would give investors access to Rupert's deal-making skills.
Since listing at about R20, the share has slipped to trade at around R11.80.
Throw in the fact that its primary asset remains the 84.3 million shares it holds in BAT and with Rupert taking home a management fee of about R700m in the current financial year for what is essentially a passive investment, there has not been much to impress investors.
However, RenCap believes there are two factors which will force the hand of Rupert in the next two years to make something happen at Reinet.
First up is a regulatory factor.
Reinet's prospectus and Luxembourg regulations require that no single asset can exceed 30% of total investment assets within a specialised investment fund (SIF) - the category in which Reinet falls.
At this point, BAT makes up 87% of the assets within Reinet and the group has until the end of March 2013 to comply with the rule. This could force a sell-off in BAT shares.
With BAT generating significant dividends and cash flow for Reinet, this is going to be a mindshift for both investors and Reinet management.
"The level of future management and performance fees require high-yielding investment assets. In the absence thereof, we believe shareholders are unlikely to receive sufficient dividends for at least the next three to five years," RenCap advised clients.
The second issue the firm identified is how BAT is treated by the local bourse and regulatory authorities.
At the moment the company is classified as an "inward listing". This means that it falls outside the investment ambit of certain index tracking funds as well as a number of institutional investors.
Should this change, more funds could buy BAT directly rather than use Reinet as the proxy.
"This may provide downside price risk to Reinet if BAT's inward-listed status is repealed," wrote RenCap's Rey Wium in a note to clients.
