SIMON BROWN: I’m chatting now with Nesan Nair, who is of course from Sasfin. Nesan, I appreciate the early morning time. Coronation’s results came out yesterday. In many senses, Coronation has been doing what it should be doing. We’ve seen decent markets. They’ve got their revenue up nicely, earnings up 44%, paying a strong dividend as they normally do – most of those earnings go out as dividends – and making good performance fees.
NESAN NAIR: Yes, Simon, good morning. One hundred percent right. That’s what they should be doing. When the markets go up, Coronation Fund Managers, whose revenue is basically tied to the level of the market, should also go up. Of course, profits go up a little bit more than the market goes up because there’s that what we call the operational leverage effect that revenue grows and costs don’t grow as much. As a result, earnings can grow even higher.
What surprised me was that even though there was a recovery in the Coronation share price in the last year, it wasn’t really reflecting that potential operational leverage, that 44% we spoke about at the moment. So in terms of Coronation’s life, hopefully the worst is over for them. They saw a massive slump in that share price to below R40 not so long ago. But the recovery in financial shares hasn’t really reflected that recovery in the overall market. So I will be keen to see what the mainstream insurers come out with.
Investec’s results weren’t that great. I think … results, just to compare a few of the peers. It’s been a little bit of a mixed bag. What concerns me is that there hasn’t been the sort of recovery I would have thought there should have been, given what we’ve seen in the overall market.
SIMON BROWN: Yes. I take your point there. Perhaps there’s some opportunity there. I’ve had Coronation for a while. I very much liked the dividend – R54 and some change. Perhaps it could have been a little bit more.
What about the Reinet results? Basically, they own two assets – the Pension Insurance Corporation in the UK, British American Tobacco. They are at a 40%-plus discount to net asset value. We’ve seen some big discounts on our market and this is undoubtedly another one of them.
NESAN NAIR: Absolutely. Just ask Naspers and Prosus. It has a lot of CEOs scratching their heads because there’s a need to unlock that, certainly from the perspective of shareholders wanting to see that. It’s interesting. How long has §been around? Maybe 12, 13 years, slightly longer. British American Tobacco has gone from over 80% of its net asset value to sort of the mid-fifties now, and is going down – I think as a result of their selling some shares but also because the share price of British American Tobacco has slumped so much. You spoke about dividends. This is a great dividend pair. Of course, there are lots of concerns around the potential to maintain their earnings, given the regulation that’s coming in on tobacco-related products. I always think that’s not something new. Tobacco has been a problem for the last 50 years for regulators, but these companies still make good dividends and still pay them out. So perhaps another opportunity. Whether I’d go with British American Tobacco or Reinet? I still think maybe notwithstanding the discount, unless there’s a plan in place to properly unlock the discount, I’d still be buying British American Tobacco rather than Reinet.
SIMON BROWN: British American Tobacco over Reinet. I take your point. I like that. We’ve known about the problem of tobacco for my entire life. This is not suddenly a new thing.
Nesan Nair from Sasfin, I appreciate the early morning, sir.
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