SIMON BROWN: I’m chatting now to Schalk Louw from PSG Wealth Old Oak. Schalk, I appreciate your early morning. We chatted earlier in the year around holdcos (holding companies) and the discounts at which they were trading to their underlying assets. One of the things obviously proposed is ‘spin out the assets’ – and boom, suddenly it’s happening. I don’t think folks are listening to us, or maybe they are; maybe RMI (Rand Merchant Investment) and Telkom are listeners. But we’ve seen RMI say they’re going to get rid of Discovery and Momentum Metropolitan, leaving them with OUTsurance. Telkom [aims to list] Swiftnet and then in time Openserve. This is working; both stocks have responded positively to the announcements.
SCHALK LOUW: Good morning, Simon, and good morning to all the MoneywebNOW listeners. Yes, I think I should be changing my name from Mr Local to Mr Holdco, because clearly that’s the only way we speak lately.
Just a bit of a history lesson. Let’s start off with RMI, because this is a very interesting one….the group RMI took a controlling interest of Momentum Metropolitan in 1992, and they provided Adrian Gore and Barry Swartzberg with seed funding and a licence to build Discovery in 1993. Now, close to 30 years later, they’re unbundling these two listed entities, saying they now want to be focusing on becoming more a ‘general insurer’.
Why I like this company is, if you look around, one of the strongest insurers out there is OUTsurance. It’s an unlisted entity. I’ve always told my clients: if you want to get exposure to this wonderful company, the only way of really doing so is by investing in the holding company. It basically owns just over 89% of OUTsurance. That’s RMI.
To get back to the discount – we’ve been chatting about this – what will trigger these discounts to narrow? We chatted about Remgro, Remgro trading I think the end of last year at 44%. We’re not even going to touch on Naspers again, because we know that story.
RMI is a company that was trading pretty much at its intrinsic value a little more than two years ago. Just prior to the announcement a week ago, this company was trading at a 29% discount to its intrinsic value. So a massive, massive discount developed in a very, very short period. How do you unlock that? And then – there’s the answer.
SIMON BROWN: Yes. Then you are left with OUTsurance. These are great assets. They’ve some Hastings and a bit else, but predominantly they have OUTsurance.
Then Telkom – Telkom is a slightly different deal with the outgoing CEO saying, “We’ve got some great assets [but] the market’s not recognising it”. They’re going to list Swiftnet – that could be worth R13 billion or so. It does about R1.2 billion revenue on an Ebitda margin of 80%, almost, and this is a R13-billion asset. Telkom is only a R23 billion market cap.
SCHALK LOUW: This is a bit of an MTN playbook, Simon. I must say I wonder if they’re going to be copying and pasting what’s being done. But we know that recently [IHS Towers in] Nigeria is also a tower company and it is now going to be listing on the New York Stock Exchange – and MTN holds about a third of this. Telkom is doing the same.
Back at Telkom, I think it caught the market by surprise because we know that since the announcement was made the share price popped 19% – we’ll get back to RMI and what they’ve done. But this is pretty much what [Telkom] said. When we look at the trading update for the quarter ended June 30, which was brought out on August 4, they clearly stated their intention to unlock value for shareholders.
September 21 was just a bit of a reminder. It’s not new news. This is just a bit of a reminder: “We are going to unlock value.” And this is wonderful news on Swiftnet, with outgoing CEO Sipho Maseko saying that the Swiftnet business is valued at about R13 billion, as you mentioned. This could be really, really good. Nobody wants these let’s call them ‘tower companies’, and Swiftnet is now sort of taking up all these towers, managing them as a separate entity. So now [Telkom] can be focusing [on] the mobile companies, basically sell the towers – Telkom – sell their towers to Swiftnet and basically rent them back. They don’t have to focus on the maintenance guys and the infrastructure and [can] really be focused.
I’m really excited about this one. I think for Telkom this is a great injection, definitely helping them after recent years where they’ve been under pressure – in both cases.
We’ve just heard about RMI’s discount, which was 29%. As with yesterday’s close that 29% discount to Nav for RMI came down from 29% to just under 18% in a little over a week. So this is one we just want to see. Well done by RMI and Telkom. I’m excited to see what the future holds for both these companies.
SIMON BROWN: And of course for Telkom we actually get a new listing: Swiftnet in a different asset class – something for investors to really look forward to.
Schalk Louw, PSG Wealth Old Oak, I appreciate your early morning this morning.