[TOP STORY] Are holdcos done?

‘I want to see Naspers just disappear. With all due respect, there’s no reason why Naspers should still be holding Prosus’: says Schalk Louw from PSG Old Oak.

SIMON BROWN: I’m chatting now with Schalk Louw, portfolio manager at PSG Old Oak. Schalk, I appreciate the early morning. We have chatted a lot about holdcos [holding companies], so much so that maybe you became Mr Holdco. Is it time to retire the name? I ask because PSG is getting rid of their assets and exiting. RMI announced yesterday they’re going to list OUTsurance. We’ve got the Tencent/Naspers/Prosus mess. We’ve got Zeder kind of winding up. Is the day and age of holdcos done?

Read:
It’s sad to see PSG Group disappear
Discount problem continues to haunt holding companies

SCHALK LOUW: No. Good morning, Simon, and good morning to all the MoneywebNOW listeners. I think to your question, there are Holdcos, and then there’s the whole Naspers/Prosus debacle. In short we’re not going to focus on PSG because that is pretty much done. That’s the extreme forum for holdcos; that’s where you go into such a deep score of discount. You actually unbundle those assets, and that’s done; pretty much overnight it is unlocking all the value.

RMI – let’s start off. Remgro is the one that we chatted about I think, was it in September 2020, where the discount went as deep as 44% at the stage when you and I chatted. I said, this is a very, very wide discount. When you look at [it], the historic discount should be at around … let’s call it at 17%, 18% levels. At that stage 44%. Nowadays, since you and I chatted, that share price pretty much has improved, let’s call it 76%, or 70%. Since then the market has done pretty much 39%. We’ve seen them do a few transactions. We get this around RMB. [RMI’s largest shareholder, Remgro] did the Heineken with Distell [deal]; they’ve now done this Dark Fibre [Africa] – which I’m actually excited about – venture with Vodacom.

That’s why you want to invest in holdcos. This is pretty much what they want, [what] they should be doing. Take the cash, go and look for opportunities which the normal investor is not seeing.

That’s why at the current discount of about 30% for Remgro, I still think it has great opportunity.

RMI … you and I chatted about September, six months ago. Since then the share price improved 38%. At that stage the discount was 30%, when you and I chatted. [At] yesterday’s close the discount is only 4%. What did they do? They unbundled.

They started to unbundle Discovery. Metropolitan – in December they decided to unbundle Hastings. Now, you talked about it, OUTsurance. There’s no other way of getting hold – hey, there’s another ‘hold’ [Simon chuckling] – getting hold of OUTsurance. That’s the best way, OUTsurance is a great company …and for investors to want to get hold.

RMI:
RMI shares soar 9% on R8.7bn profit from sale of UK insurer Hastings
RMI to unbundle Discovery and Momentum Metropolitan

Now Naspers/Prosus – and I’m going to make this very, very short and sweet. I don’t understand the structure. I’ve said this pretty much since 2018. I don’t see this as a successful structure for investors and I’m going to tell you why again. You’ve got one holdco investing in another holdco, back investing in another holdco. Let’s just look at Tencent. At yesterday’s close Tencent’s actual value within the Prosus group is worth $130 billion. The whole Prosus market cap is less than $120 billion. That tells us that that the whole exercise didn’t work.

Read: The two wild horses called Naspers and Prosus

So Naspers – currently the value of Prosus in Naspers is $73 billion. When we look at Naspers’s total market cap, $52 billion, what do I want to see?

I want to see Naspers just disappear.

With all due respect, there’s no reason why Naspers should still be holding Prosus. If they hand back Prosus – and just by the way, that discount with yesterday’s close for Naspers is 64%. That is massive – 64% while Prosus itself is running at over a 32% discount.

So I really think that the whole Prosus/Naspers should revisit this. This is not to the benefit of shareholders in my point of view.

We know now the exercise didn’t work, because originally they said they want to do this whole Prosus unbundling, listing in Amsterdam to unlock value for shareholders. Well, surprise, surprise – it didn’t work.

SIMON BROWN: It hasn’t. But I take your point. PSG is exiting stage left. Remgro has worked, and what we get in essence is the board, CEO Jannie Durand and the like, are working on our behalf and they are helping us. Well, not helping us, they are doing investments, and if they do it well they do unlock value.

Okay. So maybe holdcos are not done. Schalk Louw, portfolio manager at PSG Old Oak.

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Holdco’s suffer discount when the market does not like Head Office. Its cost (almost all in the age of R40m superstar CEO) its competence (eg ARC), its clinging on to dead legacy assets (Naspers).

If Naspers HO had 6 staff, cost R6m a year and unbundled its no value media assets the discount would already narrow. Unbundling FiveCent is technically very difficult but would be ideal. It could unbundle some other stuff like the ecommerce for those holders with the stomach for never-never cashflows. TakeALot will not in my lifetime earn back a positive return on capital if one attached even a notional cost of capital to the investment to date. They are no Amazon.

This nonsense where the hired help forms its own valuations on the holdings (which valuations fuel their rewards), will stop one day. The food delivery rubbish will end the same way mail.ru did : zero or negative.

Look at Berkshire Hathaway as a VERY longterm HoldCo structure that does very very well. I wonder how many times in 60y Warren Buffett got his valuations of unlisted investments as wrong as what we see now?

End of comments.

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