Johannesburg - When the economy is tough. investors are always on the lookout for so-called defensive shares.
British American Tobacco (BAT) is just such a share and investors can get their hands on it through Reinet Investments.
A "defensive investment" relates to the products a company sells, products that consumers buy even in an economic downturn.
As a result the income of such a company keeps rising throughout different economic cycles.
Reinet is also regarded as a defensive investment owing to its stake in BAT, analysts reckon.
Reinet is the most recent investment company for the Rupert family under the headship of Johann Rupert. The company was established last year when Richemont and Remgro were restructured, at which time the two companies' stakes in BAT were unbundled to shareholders.
Reinet now holds about 4%of BAT, which is currently valued at R21bn. This holding represents about 80% of Reinet's net asset value.
Coronation portfolio manager Pallavi Ambekar considers Reinet an attractive vehicle for an indirect holding in BAT.
Rob Forsyth, Investec Asset Management's head of industrial shares, believes Reinet an attractive investment because buyers of the share are in fact buying a very good investment (BAT) at a discount.
Reinet's share price is lower than its net asset value (the combined value of its underlying investments).
Forsyth says Reinet's attractiveness depends on how investors regard the economic cycle.
"If an investor believes economic prospects look good, there are other shares offering better returns from these levels.
"Should an investor want less risk and a high degree of certainty that a company like BAT's cash flow will outperform inflation with a good yield, Reinet is very attractive."
But he points out that an investor should keep in mind that Reinet will in time sell BAT shares, to make other investments with the cash.
The discount is possibly too small for certain investors' appetites, taking into account future uncertainty and what future investments will be.
Forsyth says the discount to net asset value recently widened from 11% to 16%.
Allan Gray portfolio manager Simon Raubenheimer reckons the discount is very volatile, varying from 35% to 10%. He ascribes this to Reinet's company structure and management costs.
"And we do not believe the discount will narrow."
If the discount gets larger, the share could become more attractive.
The discount might widen if BAT is reclassified as a domestic asset under exchange control legislation.
Negotiations to change this are under way with Treasury. This will mean that fund managers no longer need to use their foreign allowance to hold BAT.
If BAT becomes a local asset, Reinet may be sold by investors for a more direct holding of the tobacco company's shares.
Forsyth reckons if this happens, Reinet's discount can be expected to get larger.
- Sake24.com
For more business news in Afrikaans, go to Sake24.com.