Weekly Roundup 2022-06-10
Lunar Capital Weekly Roundup
| Index / Fund / Rate | Start of Year | Last week | This Week | % change YTD |
|---|---|---|---|---|
| JSE ALSI | 73 723 | 70 920 | 67 803 | -8.03% |
| NASDAQ Composite | 15 833 | 12 013 | 11 340 | -28.38% |
| S&P 500 | 4 797 | 4 109 | 3 901 | -18.67% |
| Prime Lending Rate | 7.25% | 8.25% | 8.25% | 13.79% |
| Lunar BCI WW Flexible Fund | 165.68 | 142.61 | 138.08 | -16.66% |
| USD/ZAR | 15.96 | 15.54 | 15.88 | -0.50% |
| EUR/ZAR | 17.95 | 16.68 | 16.73 | -6.80% |
Source: iress
Company and Market News
Remgro Focus
Remgro is a holding company with several listed and unlisted investments. It has a market capitalisation of R70.3bl. As at the end of December 2021, it had a net asset value (NAV) of R114.2bl, giving it an estimated discount to NAV of approximately 38%.
Management has been attempting to unlock this discount to NAV, by cleaning up their portfolio through distributing certain listed investments to their shareholders, offering to acquire certain listed investments and delisting these, and bulking up some of their unlisted investments in joint ventures with other industry players. By acquiring listed companies and making them private, Remgro will have greater influence in the management and strategic direction of those companies. If this strategy is successful, then these companies could be brought back to the market at a later stage and provide substantial returns to Remgro shareholders.
One of the companies in their portfolio is Mediclinic, of which Remgro own approximately 44.5%. On 31 May 2022, Remgro together with MSC Mediterranean Shipping Company, offered to acquire the shares not already owned by Remgro at a price of 463 British pence per share. Perhaps, the consortium of Remgro and MSC viewed Mediclinic to be undervalued or that they be able to reposition Mediclinic’s strategic direction and grow its value faster. The take-over proposal for Mediclinic was rejected by the Mediclinic Board. The Mediclinic board (excluding Remgro representatives) believed that the bid undervalued the company. Remgro and MSC have until 7 July 2022 to decide whether to make another offer or withdraw any intention to do so.
Remgro was also a beneficiary of the unbundling of certain assets in the Rand Merchant Investment Holdings (RMIH) portfolio. At 31 December 2021, Remgro had a stake in RMIH valued at R21.2 bl. The RMIH unbundling would effectively unbundle Discovery and Momentum Metropolitan Holdings (MMH) from the RMIH stock. There doesn\’t seem to have been any indication from Remgro as to what they will be doing with their Discovery and MMH assets. Remgro has also unbundled most of its stake in FirstRand after the Rand Merchant Holdings (RMH) unbundling.
We believe that Remgro’s strategy is an interesting one to keep an eye on, and if they are successful in acquiring companies at good prices and repositioning their strategy, it may yield good returns over the long-term.
Inflation Update
On Friday, The US released inflation figures for May. The consumer price index increased 8.6% from a year earlier, compared to the expected 8.1%. Shelter, food and fuel were the biggest contributors to the increased prices. Due to the higher than expected inflation figures, the market anticipates that the US Federal Reserve will likely increase the US interest rates by more than they currently planned to.
On Thursday 9 June 2022, The European Central Bank (ECB) said it plans to raise key interest rates by 0.25% in July, and a further unspecified-increase later in the year. This would be the first time in more than 11 years since the ECB has raised rates. The ECB has been lagging the US in terms of interest rate hikes. The ECB\’s interest rate is currently -0.50%. And the latest inflation figures for the Eurozone are 8.1% (well over the targeted 2%).
On Friday the S&P 500 closed the day 2.91% lower.
Disclosure: Remgro is held in the Lunar BCI Worldwide Flexible Fund
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