Remgro, the investment group with stakes in companies such as Rainbow, Mediclinic, Heineken Beverages, OUTsurance and Discovery, anticipates it will be able to increase its dividend yield over the next few years and pay out bigger dividends.
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Remgro believes its three biggest non-performing unlisted investments, CVIH, Hirslanden and Heineken South Africa are largely to blame for the continuing discount to intrinsic net asset value that the investment group trades at on the JSE, CEO Jannie Durand said Monday.
Speaking in a presentation to capital market investors, Durand said these three investments, which comprise 20% of Remgro’s total portfolio by value and contributed no earnings or dividends to Remgro in the last financial year, would be turned around.
CIVH, or Community Investment Ventures Holdings focuses on building and managing fibre-optic networks through its subsidiaries, such as Dark Fibre Africa and Vumatel. Hirslanden operates hospitals, clinics, and specialised medical institutes in Switzerland. Heineken Beverages, part of the global Heineken company, produces beer, cider, and other drinks in South Africa.
Durand mentioned that the high gearing of all three businesses means that sound operational performance did not always translate into growth at the earnings or dividend level.
He said there had been some market commentary suggesting that Remgro overvalues its assets, which has led to the “stubbornly high” discount to intrinsic net asset value. However, companies like CICH and Heineken have been valued relatively lower compared with their average peer group valuations, he said.
He said Heineken South Africa had suffered from the regulatory approval process, “that put us in the dark for 18 months, but we will turn it around.” Heineken was in a “closed period,” so Durand could not provide further details on this investment.
Remgro's involvement with Heineken South Africa is tied to its investment in Distell, which merged with Heineken South Africa and Namibia Breweries to form Heineken Beverages in April 2023. Remgro owns 18.8% of Heineken Beverages.
Durand expressed confidence that after years of steady dividend growth at Remgro, the dividend yield could be increased, and the group “can become a high dividend player in the future.”
Over the past five years, the group had allocated R80 billion of capital, with 50% returned to shareholders, 20% used for new investments, and 20% used to repay debt. He said Remgro has de-geared from R14bn of debt in 2019 to zero debt at present.
He said their investment portfolio had transformed in the past five years, with 63% of its assets now privately held, compared with only 23% being unlisted in 2019. The group holds 35 commercial investments, with 10 of them accounting for 90% of the value.
Through its Venfin subsidiary, the group also holds investments in 15 venture capital companies, mostly in the technology and consumer space.
Durand highlighted that these investments are important for the group in identifying new opportunities and getting to know entrepreneurs. “Some of them may not move the the needle, but maybe some will,” he said.
He added that the venture capital market is very small in South Africa, and the group chooses to remain in this market because it wants a role in the development of entrepreneurs.
Remgro released a trading statement on Monday regarding Manta Bidco, the company that, on April 1, 2023, on behalf of Remgro and MSC, acquired the Mediclinic Group and delisted it.
Mediclinic’s revenue growth was expected to be 5% in US dollars, with adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) margins of 15% compared with 14.7% previously. In Switzerland, Hirslanden expects to report revenue growth of 2% in Swiss francs, and an EBITDA margin of 13.5% versus 13.4% previously.
Speaking more broadly about the volatile macro environment, Durand stated that uncertainty about the GNU (Government of National Unity) and the National Budget process is reflective of a healthy democracy. While the jury is out on the proposed increases in VAT, he believes that if illegal tobacco smuggling and illegal copper smuggling are stopped, the government would not need to raise VAT.
He emphasized that the group actively manages its investments and prefers the management of those investments to be entrepreneurially focused, stating, “we don’t look for a safe pair of hands,” even for the group’s mature businesses.
He said Remgro was a patient investor in terms of returns but not so when it came to financial performance fof the investment.
“We are unashamedly Africa-centric, and we see a lot of green shoots in South Africa. We will navigate through the challenges,” he said.
Remgro’s share price increased by 2.98% to R150.34 on Monday afternoon. The intrinsic net asset value per share at December 31, 2024, was R276.89.
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