RECM & Calibre financial results: Piet Viljoen - executive chairman, RECM
ALEC HOGG: Piet Viljoen from Regarding Capital Management joins us now to talk about his listed entity, RECM & Calibre Limited. Results out today for the year to end-March. Piet, you don’t really disclose a whole lot in this. You say that you don’t want to tell people what shares you own because it might turn the prices against you. You do tell us, though, that the margin of safety has deteriorated a little bit in those shares in the past 12 months. Just take us through what that means.
PIET VILJOEN: A couple of interesting angles. The first one is yes, we don’t disclose what we own because what we mainly own are shares in very small listed companies, which are generally neglected by most investors and that’s why they are cheap. But if one starts talking about these shares their prices can go up, and we don’t want their prices to go up; we want them to stay low we can buy more. So it would be against the interests of our shareholders to talk our book, so to speak. So we prefer not to talk about what we invest in, and hopefully the prices will stay lower for longer and we can buy more of them. That’s the first point. So we hate increasing prices. We like low prices.
ALEC HOGG: I notice you bought a few more shares. But you talk about this “margin of safety”. Last year 58%, now 68%. What's that?
PIET VILJOEN: What we do is we calculate the fair value of the interest of the businesses that we own. So we own shares in certain listed businesses, and we calculate the fair value of the intrinsic value of that business, and we compare the quoted share price to that intrinsic value. So a year ago in the aggregate of what we owned we thought that the share price was 58% of the intrinsic value. Prices have gone up a lot in the small cap sector – there’s been quite a bull market there – so that margin of safety has narrowed to 68%, the number we quoted.
ALEC HOGG: Is it getting you nervous – are you selling any shares, given that they’ve ridden so strongly?
PIET VILJOEN: There are some individual holdings where we've sold, where the share price has more than doubled over the past year, which is disappointing. We’d have liked the prices to stay lower, so we've been forced to sell some of them. But those have been small. Generally we still own what we have and the margin of safety has narrowed, but it's still sufficient to keep it comfortable. You know, 68% discount to fair value – we are quite happy with that.
ALEC HOGG: We spent a bit of time on your equity portfolio – it's only about a quarter of your money at the moment. Most of it is tied up in cash or in unit trusts, but you’ve also got quite a big bet it seems on Namakwaland Mines. What's going on there? It's taking a while to conclude.
PIET VILJOEN: That's right. That transaction has been more than a year in the making, and basically has to do with the regulatory environment in the mining industry, where one is – well, De Beers is waiting for the government to make some rulings, and we can't finalise the transaction until De Beers has got those rulings from the government… So we are patiently waiting, and once those have been made we will be able to consummate the transaction.
ALEC HOGG: You are sitting on a lot of cash, Piet.
PIET VILJOEN: Yes, that’s right. At the moment we've got 28% of the company invested in equities, and we reserved another R90m for the Namakwa transaction, which will take us up to close to half invested. And then we are continuously pursuing private transactions. We haven't consummated any of those yet, but we are always looking and waiting for the phone to ring.
ALEC HOGG: So if you want to have an investor and you are a small-cap business, and you think you have something that’s well priced, don’t phone Warren Buffett, phone Piet Viljoen – one of his supporters, and gentleman who no doubt will tell you all about Warren’s investment philosophy and what we were talking about on fair value and the margin of safety – two very key important issues that Warren Buffett believes in. And Piet has followed him.
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