‘SURVIVE UNTIL 2025, GO TO HEAVEN IN 2027’

Remgro chair Johann Rupert has echoed Nouriel Roubini’s market call as Remgro prepares to digest its big investment mistake of the past decade, Mediclinic.

If my record-keeping is correct, I attended my 20th Remgro/Rembrandt AGM last week. The first time I headed out for one of these auspicious occasions was in the early 1990s as a reporter for the old Argus newspaper. I was rather edgy about the assignment, as I had to try to file copy for the last afternoon edition. My passenger, the late, great Issy Goldberg, an incomparable shareholder activist, was even more jittery.

We were running horribly late coming into Somerset West, and my VW Beetle was backfiring with alarming regularity. Issy was straining against the seat belt, and kneading his black beret nervously. Suddenly he winced, slumped back in the seat and then popped a couple of interesting-looking pills. When I asked him to share, he shook his fist at me and muttered something threatening. We were great friends.

If my record-keeping is correct, I attended my 20th Remgro/Rembrandt AGM last week. The first time I headed out for one of these auspicious occasions was in the early 1990s as a reporter for the old Argus newspaper. I was rather edgy about the assignment, as I had to try to file copy for the last afternoon edition. My passenger, the late, great Issy Goldberg, an incomparable shareholder activist, was even more jittery.

We were running horribly late coming into Somerset West, and my VW Beetle was backfiring with alarming regularity. Issy was straining against the seat belt, and kneading his black beret nervously. Suddenly he winced, slumped back in the seat and then popped a couple of interesting-looking pills. When I asked him to share, he shook his fist at me and muttered something threatening. We were great friends.

That coupled with a reticence to comment on political matters — something he has not shied away from during previous shareholder gatherings — might be interpreted ominously, especially at this very delicate juncture for our politics.

Citing the latest downbeat work from celebrity economist Nouriel Roubini, Rupert advised shareholders to “survive until 2025, go to heaven in 2027”. Another worthwhile interaction at the AGM was around private hospitals subsidiary Mediclinic International, which is in the throes of a buyout involving Remgro and new partner shipping group MSC.

Rupert was asked why Remgro paid a premium to buy 44.6% owned Mediclinic when it could  rather have bought back its own shares at a large discount. He retorted that Mediclinic shareholders could take their buyout proceeds and buy Remgro shares at a discount. “That’s what sophisticated investors would do.” Rupert also revealed some background to the deal.

The Rupert family was approached by MSC (also family controlled) after the latter developed a fascination with the workings of the health-care sector. Rupert welcomed MSC as a partner, pointing out that Remgro could not have afforded to buy out Mediclinic’s minority shareholders on its own.  Still, Mediclinic, as documented in detail in this magazine, has been quite a drag on Remgro’s medium-term performance. Rupert disagrees, though. He reckons Mediclinic has been managed very well, but was hit by two bad financing decisions which have required the company to be recapitalised twice.

The Rupert family was approached by MSC (also family controlled) after the latter developed a fascination with the workings of the health-care sector. Rupert welcomed MSC as a partner, pointing out that Remgro could not have afforded to buy out Mediclinic’s minority shareholders on its own.  Still, Mediclinic, as documented in detail in this magazine, has been quite a drag on Remgro’s medium-term performance. Rupert disagrees, though. He reckons Mediclinic has been managed very well, but was hit by two bad financing decisions which have required the company to be recapitalised twice.

Less optimistic was the market’s pronouncement on Hosken Consolidated Investments (HCI) after the release of what I thought were stout interim results. Perceptions of where HCI — or rather its prime mover, Johnny Copelyn — sits on the political spectrum might explain a certain vulnerability in investor sentiment. Then again the market, especially newbie investors at HCI, could be mightily miffed that the much-mooted oil and gas interests once again got just  a passing mention in the results commentary.

Copelyn has previously explained clearly why he is not yet gushing over HCI’s interest in Impact Oil & Gas — because, quite frankly, this is a hit and miss enterprise where counting your eggs is never advisable at the best of times. Still, I was heartened by the recovery in the casino and hotels businesses as well as the continued cash flow reliability in overlooked interests including eMedia and Frontier Transport. While some may be fixating about the potentially huge profit strike in oil and gas, I would refer prospective HCI investors to the segmental performance breakdown.

Take a gander at the lines disclosing the performance of the unlisted coal operations. Revenue of R1.14bn was turned into earnings before interest, tax, depreciation and amortisation (ebitda) of R300m, profit before tax (PBT) of R283m and headline earnings of R225m. On a PBT basis the coal operations make a bigger donation to HCI than eMedia, and chip in more than the transport and hotel operations combined. On a headline earnings basis, coal made up a quarter of HCI’s bottom line. Yes, it’s good times for coal. But this is an astounding performance for a business segment that the market has completely underestimated — perhaps even entirely overlooked, at some points — when doing back-of-matchbox valuations of HCI.​

Source: Business Day – Marc Hasenfuss