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Johannesburg - Remgro is now substantially exposed to the South African economy.
Rey Wium, an analyst from Nedgroup Securities, says with the unbundling of British American Tobacco (BAT) Remgro lost a large offshore hedge, as became evident in this year's results.
BAT is regarded as a defensive stock because, thanks to the products it sells (cigarettes), it should do well across all economic cycles.
Half of Remgro's earnings come from the financial sector and more than 40% from industrial companies.
Wium reckons that the counter is a good barometer of the state of the South African economy.
He forecasts moderate profit growth for Remgro for the financial year to end-March 2010, and expects better economic conditions only the year after.
Simon Raubenheimer, portfolio manager at Allan Gray, also says that after the unbundling of BAT Remgro is a very different company from what it was before. Before the unbundling BAT
comprised 60%-odd of Remgro's intrinsic value.
Raubenheimer says Remgro remains a moderately defensive share with its stakes in Unilever, Distell and Medi-Clinic, as well as its net cash. But it is clearly less than it was previously.
What has not changed, however, is the management team and the investment philosophy.
Remgro has a "modestly attractive" investment portfolio with a 23% discount to intrinsic value, plus smart management that determines the asset allocation.
Raubenheimer says the price/earnings ratio is irrelevant to the company.
He points out that the company has a variety of underlying investments, some of which are being consolidated, some converted into equity and some handled as an investment that only reflects dividends.
The best way to value Remgro, he explains, is to simply look at the share price versus the intrinsic value (the value of all the assets it owns).
In his view the discount, which is the intrinsic value per share divided by the share price, is currently fairly close to the long-term historical value.
- Sake24.com
For more business news in Afrikaans, go to Sake24.com.