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You might expect shareholders in investment company Reinet to hang on to every word uttered by chairman and principal shareholder Johann Rupert in his comments accompanying its year to end-March 2010 financial statements. After all, Rupert – who also serves as the asset manager at Reinet Investments [JSE:REI] – should be full value after collecting more than R1bn in fees (€86m owed in performance fees since listing in late 2008, plus the annual management fee of €23m) over the past financial year.
For those who feel there’s value in being bearish, then Rupert won’t disappoint. But those who might have expected more “action” for a R1bn fee had better read the chairman’s comments carefully. Indeed, it’s probably significant (and timely) that Rupert reiterated why Reinet (initially conceived, Finweek believes, as a private Rupert family venture) was founded.
In his year-end commentary Rupert reminded shareholders that, in expectation of major financial disruptions, “we” (presumably the Rupert family) began planning a “defensive option” for Richemont and Remgro shareholders.
So far so good, then…
While Reinet hasn’t been the sexiest investment vehicle on world markets, the vehicle has managed to grow its intrinsic value while making a handful of smallish deals. Rupert notes: “Policy makers across the world have injected enormous liquidity into the markets. The bailout has led to an appearance of stability. Knowing where we are today is complicated. Do we face deflation, inflation or stagflation and, importantly, in which order?”
Rupert says although the global economic environment appears to have stabilised over recent months, Reinet remains very concerned about the longer-term impact of the quantitative easing activities of the US Federal Reserve and other central banks. “The potential consequences of the bailout of weaker members of the Eurozone – such as Greece, Ireland and now Portugal – by stronger EU countries remain a concern.”
Recalling a point made at a Remgro AGM, Rupert added guardedly that highly qualified observers are still making “very compelling” arguments diametrically opposed in their outcomes. “Until we are more certain, we have decided that we serve our shareholders best by not making ‘major bets’ on the future.”
At this point more than a few shareholders may wonder just how deserving Rupert the Bear is of such a large performance fee. After all, Reinet owes its performance solely to “resilience and cash flow generation” of multinational cigarette maker British American Tobacco (BAT). With a holding of just more than 4%, its BAT investment represents 85% of Reinet’s €2,8bn portfolio. Rupert again hints its BAT position isn’t permanent, suggesting Reinet is merely holding on to that investment “until we find alternate hedge strategies”.
There’s also a strong hint Reinet shareholders shouldn’t hold their breath for dividends – despite the generous dividend flows from BAT and a healthy cash balance of more than €200m. Reinet received around R1bn in dividends from BAT over the past financial year – a payout shareholders might have noticed is roughly equivalent to how much was paid out to the asset manager in fees.
Although we have repeatedly argued Reinet has to be viewed over the long term it would be easy to understand any misgivings about whether the fee-earning Rupert family and “sans dividend” ordinary shareholders are really in the same boat (at this point).
Rupert says after only two full years of activity – and given that the profits to date are largely unrealised – Reinet doesn’t propose any dividend payment this year. It would seem dividends will only be considered once the non-BAT portion of the portfolio begins to prove its worth.
As most investments – including a number of buy-ins to other specialised investment funds – are at early stages of development it seems reasonable Reinet’s shareholders should shelve dividend hopes for at least the medium term.
So how do you argue against the increasingly audible contention that Reinet shareholders would be better served simply swapping into BAT? Obviously, Reinet would attain some allure if its investment portfolio outside BAT continues to broaden. With Rupert determined not to make major bets it clearly won’t be easy to whip up too much excitement on the deal-making front… at least yet.
What’s currently on the boil – the Jagersfontein diamond venture, alternative energy plays, the old Lehman Brothers investment bank business, the US mortgage initiative, the specialised investment funds, the advisory business and the new Pension Corporation opportunity – won’t detract investors from pegging Reinet as an alternative (discounted) entry into BAT.
Frankly, Finweek doubts any deals announced since Reinet’s formation have sparked enough interest for investors to start looking past its BAT holding with any genuine excitement.
But perhaps a little perspective is needed here. Rupert says if the recent Renshaw Bay and Pension Corporation opportunities are taken into account, Reinet has to date committed more than €1bn (almost R10bn) to its investments other than BAT. That’s a big number, considering Reinet’s current market capitalisation of around R25bn and might convince investors that – over the medium to long term – there could be plenty of life outside BAT.
It might also be reassuring that Rupert says Reinet is exploring a number of investment opportunities. While steering clear of big bets, there remains a commitment to make select acquisitions when quality assets can be acquired at reasonable prices. Reinet’s willingness to make an investment in British-based Pension Corporation, a provider of risk management solutions to defined benefit pension funds, looks fairly inspired.
Rupert reports: “Reinet Fund is in exclusive negotiations with Pension Corporation and its key stakeholders for a transaction involving the reorganisation of its capital structure and an investment by Reinet Fund of approximately £400m (around R4,4bn), through which it would become a principal shareholder in the business.”
A few more deals of that nature and Reinet could take on a whole new complexion.
For those who feel there’s value in being bearish, then Rupert won’t disappoint. But those who might have expected more “action” for a R1bn fee had better read the chairman’s comments carefully. Indeed, it’s probably significant (and timely) that Rupert reiterated why Reinet (initially conceived, Finweek believes, as a private Rupert family venture) was founded.
In his year-end commentary Rupert reminded shareholders that, in expectation of major financial disruptions, “we” (presumably the Rupert family) began planning a “defensive option” for Richemont and Remgro shareholders.
So far so good, then…
While Reinet hasn’t been the sexiest investment vehicle on world markets, the vehicle has managed to grow its intrinsic value while making a handful of smallish deals. Rupert notes: “Policy makers across the world have injected enormous liquidity into the markets. The bailout has led to an appearance of stability. Knowing where we are today is complicated. Do we face deflation, inflation or stagflation and, importantly, in which order?”
Rupert says although the global economic environment appears to have stabilised over recent months, Reinet remains very concerned about the longer-term impact of the quantitative easing activities of the US Federal Reserve and other central banks. “The potential consequences of the bailout of weaker members of the Eurozone – such as Greece, Ireland and now Portugal – by stronger EU countries remain a concern.”
Recalling a point made at a Remgro AGM, Rupert added guardedly that highly qualified observers are still making “very compelling” arguments diametrically opposed in their outcomes. “Until we are more certain, we have decided that we serve our shareholders best by not making ‘major bets’ on the future.”
At this point more than a few shareholders may wonder just how deserving Rupert the Bear is of such a large performance fee. After all, Reinet owes its performance solely to “resilience and cash flow generation” of multinational cigarette maker British American Tobacco (BAT). With a holding of just more than 4%, its BAT investment represents 85% of Reinet’s €2,8bn portfolio. Rupert again hints its BAT position isn’t permanent, suggesting Reinet is merely holding on to that investment “until we find alternate hedge strategies”.
There’s also a strong hint Reinet shareholders shouldn’t hold their breath for dividends – despite the generous dividend flows from BAT and a healthy cash balance of more than €200m. Reinet received around R1bn in dividends from BAT over the past financial year – a payout shareholders might have noticed is roughly equivalent to how much was paid out to the asset manager in fees.
Although we have repeatedly argued Reinet has to be viewed over the long term it would be easy to understand any misgivings about whether the fee-earning Rupert family and “sans dividend” ordinary shareholders are really in the same boat (at this point).
Rupert says after only two full years of activity – and given that the profits to date are largely unrealised – Reinet doesn’t propose any dividend payment this year. It would seem dividends will only be considered once the non-BAT portion of the portfolio begins to prove its worth.
As most investments – including a number of buy-ins to other specialised investment funds – are at early stages of development it seems reasonable Reinet’s shareholders should shelve dividend hopes for at least the medium term.
So how do you argue against the increasingly audible contention that Reinet shareholders would be better served simply swapping into BAT? Obviously, Reinet would attain some allure if its investment portfolio outside BAT continues to broaden. With Rupert determined not to make major bets it clearly won’t be easy to whip up too much excitement on the deal-making front… at least yet.
What’s currently on the boil – the Jagersfontein diamond venture, alternative energy plays, the old Lehman Brothers investment bank business, the US mortgage initiative, the specialised investment funds, the advisory business and the new Pension Corporation opportunity – won’t detract investors from pegging Reinet as an alternative (discounted) entry into BAT.
Frankly, Finweek doubts any deals announced since Reinet’s formation have sparked enough interest for investors to start looking past its BAT holding with any genuine excitement.
But perhaps a little perspective is needed here. Rupert says if the recent Renshaw Bay and Pension Corporation opportunities are taken into account, Reinet has to date committed more than €1bn (almost R10bn) to its investments other than BAT. That’s a big number, considering Reinet’s current market capitalisation of around R25bn and might convince investors that – over the medium to long term – there could be plenty of life outside BAT.
It might also be reassuring that Rupert says Reinet is exploring a number of investment opportunities. While steering clear of big bets, there remains a commitment to make select acquisitions when quality assets can be acquired at reasonable prices. Reinet’s willingness to make an investment in British-based Pension Corporation, a provider of risk management solutions to defined benefit pension funds, looks fairly inspired.
Rupert reports: “Reinet Fund is in exclusive negotiations with Pension Corporation and its key stakeholders for a transaction involving the reorganisation of its capital structure and an investment by Reinet Fund of approximately £400m (around R4,4bn), through which it would become a principal shareholder in the business.”
A few more deals of that nature and Reinet could take on a whole new complexion.
