Remgro Group’s Resilient Growth: Surging Earnings, Healthcare Boost, and Investment Opportunities

  • Remgro Group reports an 8.7% increase in headline earnings for 2023, reflecting robust financial performance despite challenges.
  • Mediclinic acquisition strengthens Remgro's healthcare portfolio, indicating a strategic move towards future growth and resilience.
  • Intrinsic net asset value per share surges by 16.6%, signaling potential investment opportunities, with shares trading at a discount.
By Lethabo Ntsoane

Remgro Group, a prominent investment holding company in South Africa, has released its consolidated report for the year ending June 30, 2023. The report reveals an 8.7% increase in headline earnings, reaching R7,056 million, compared to R6,494 million in the previous year. This substantial growth indicates a robust financial performance for the company, despite facing various challenges and corporate actions during the year.

Performance Across Reporting Platforms

The report highlights the performance of Remgro Group across various reporting platforms:

  • Healthcare: Mediclinic, a key player in Remgro’s healthcare segment, contributed significantly, with a 33.5% increase in earnings, reaching R1,691 million. This growth was partly attributed to additional provisions for transaction costs associated with Remgro’s acquisition of Mediclinic.
  • Consumer Products: Distell, a prominent player in the consumer products sector, reported a contribution of R555 million, reflecting a decrease from the previous year due to merger integration and deal compensation costs related to the Distell/Heineken transaction.
  • Financial Services: OUTsurance Group’s contribution to headline earnings increased by 11.6% to R888 million, as it unbundled its investments in Discovery and Momentum Metropolitan.
  • Infrastructure: CIVH’s contribution increased to R206 million, mainly due to improved performances in its underlying businesses, including Dark Fibre Africa Proprietary Limited and Vumatel Proprietary Limited.
  • Industrial: Air Products reported a 12.8% increase in its contribution to Remgro’s headline earnings, reaching R476 million, despite facing mixed trading conditions.
  • Portfolio Investments: Remgro received dividends from FirstRand and held investments in Discovery and Momentum Metropolitan.
  • Social Impact Investments: The social impact investments primarily included interests in the Blue Bulls rugby franchise and Stellenbosch Academy of Sport Proprietary Limited (SAS).

Intrinsic Net Asset Value

Remgro Group’s intrinsic net asset value per share increased by 16.6% from R213.10 in 2022 to R248.47 in 2023. The closing share price at the end of June 2023 was R147.05, representing a discount to the intrinsic net asset value.

Mediclinic Acquisition

One of the significant developments during the year was Remgro’s acquisition of Mediclinic. On September 26, 2022, Mediclinic shareholders voted in favor of a cash offer by Manta Bidco Limited (Bidco), a company jointly owned by Remgro and MSC Mediterranean Shipping Company SA. This acquisition was completed in June 2023, with Mediclinic shareholders receiving 501 pence per Mediclinic share.

Healthcare Sector Thrives

The healthcare sector emerged as a significant contributor to Remgro’s headline earnings for the year ending June 30, 2023. Mediclinic, a leading healthcare provider, played a pivotal role in this success, contributing R1,691 million, which represented a remarkable 33.5% increase compared to the previous year.

The increase in earnings was not without challenges. Included in Mediclinic’s contribution was an additional provision for transaction costs amounting to R539 million related to the acquisition by Manta Bidco Limited, a newly formed company jointly owned by Remgro and MSC Mediterranean Shipping Company SA. This provision was made in addition to the R73 million already accounted for in Medicinic’s results for the year ending March 31, 2023. As a result of the acquisition, Remgro’s indirect interest in Mediclinic increased from 44.6% to 50.0%.

Mediclinic utilizes adjusted earnings to assess financial and operational performance, which removes volatility associated with certain types of significant income and charges. Adjustments for the year under review included transaction costs, a positive Swiss cantonal tax rate change, a decrease in a redemption liability, and an accelerated depreciation charge. Despite these adjustments, Mediclinic reported an increase in adjusted earnings.

Consumer Products Facing Challenges

In the consumer products sector, Remgro’s contribution was led by Distell, known for its wide range of alcoholic and non-alcoholic beverages. Distell’s contribution to Remgro’s headline earnings amounted to R555 million. However, this reflected a decrease from the previous year due to challenges faced during the year under review.

One significant factor affecting Distell’s performance was the Distell/Heineken transaction. During the year, Distell disclosed normalised earnings, adjusted for abnormal transactions and currency movements. These abnormal transactions included merger integration and deal compensation costs of R619 million, relating to the Distell/Heineken transaction. For the ten months ending in April 2023, Distell reported an increase in normalised headline earnings of 16.3%, mainly due to increased revenue and volumes.

Financial Services Continues to Grow

The financial services sector witnessed significant growth, with OUTsurance Group’s contribution to Remgro’s headline earnings increasing by 11.6% to R888 million. OUTsurance Group, a well-known South African insurance company, unbundled its investments in Discovery and Momentum Metropolitan during the 2022 financial year.

On a normalised basis, which excludes certain anomalies, OUTsurance Group reported a substantial increase of 62.2% in earnings from continuing operations. This remarkable growth was primarily driven by higher earnings from OUTsurance Holdings Limited (OUTsurance), the most significant remaining asset in OUTsurance Group.

OUTsurance’s earnings (excluding its share in Hastings in the comparative year) increased by 44.4%. Youi Australia, a subsidiary of OUTsurance, delivered strong gross written premium growth, aided by a weaker Rand against the Australian Dollar. The claims ratio also improved significantly. In South Africa, accelerating premium inflation contributed positively to the growth in gross written premium.

Infrastructure Shows Promise

In the infrastructure sector, CIVH (Community Investment Ventures Holdings) contributed R206 million to Remgro’s headline earnings. CIVH’s underlying businesses, including Dark Fibre Africa Proprietary Limited (DFA) and Vumatel Proprietary Limited (Vumatel), reported improved performances. This improvement was attributed to network expansion, which offset an increase in finance costs.

DFA’s revenue increased by 6.8% to R2,653 million, with annuity income reaching R213 million per month at the end of March 2023. Vumatel’s revenue increased by 15.1%, driven by its fiber infrastructure expansion program and subscriber uptake growth.

Grindrod and SEACOM Capital Limited (SEACOM) also made contributions to Remgro’s headline earnings, with Grindrod reporting R61 million and SEACOM contributing R47 million. Grindrod was equity accounted until September 26, 2022, when Remgro agreed to unbundle the investment. These investments helped diversify Remgro’s portfolio in the infrastructure sector.

Industrial Sector’s Mixed Trading Conditions

The industrial sector, which includes Air Products and TotalEnergies, faced mixed trading conditions. Air Products contributed R476 million to Remgro’s headline earnings, showing a 12.8% increase despite challenges.

Overall trading conditions in this sector were characterized by erratic and generally lower levels of demand from large tonnage customers, along with rising electricity costs. However, improved oxygen volumes in the metallurgical industry and a better exchange rate environment had a positive impact. The enhanced performance from air separation units also contributed to the increased earnings.

TotalEnergies made a notable contribution to Remgro’s earnings due to higher commodity prices, which boosted the exploration and production (E&P) sector. TotalEnergies’ earnings amounted to R107 million, contributing positively to the industrial sector’s overall performance.

Intrinsic Net Asset Value Soars

Remgro Group’s intrinsic net asset value per share increased by a substantial 16.6%, from R213.10 in 2022 to R248.47 in 2023. This significant increase is a testament to the company’s sound financial performance and its ability to create value for shareholders.

Table: Remgro’s Intrinsic Net Asset Value

YearIntrinsic Net Asset Value (per share)
2022R213.10
2023R248.47
Increase16.6%

Despite the increase in intrinsic net asset value, the closing share price at the end of June 2023 was R147.05, representing a discount to the intrinsic net asset value. This indicates that Remgro shares may be undervalued in the market, presenting potential opportunities for investors.

Mediclinic Acquisition: Completed and Positive

The acquisition of Mediclinic by Remgro, in conjunction with MSC Mediterranean Shipping Company SA, was one of the major developments during the year. After receiving approval from Mediclinic shareholders, the transaction was completed in June 2023. Mediclinic shareholders received 501 pence per Mediclinic share.

This strategic acquisition increased Remgro’s indirect interest in Mediclinic from 44.6% to 50.0%, further consolidating its position in the healthcare sector. The Mediclinic acquisition is anticipated to strengthen Remgro’s portfolio and its influence in the healthcare industry, aligning with its strategy for sustainable growth.

Investor Outlook and Prospects

Remgro Group’s robust financial performance, with an 8.7% increase in headline earnings, is a positive signal for investors. The company’s diversified portfolio across various sectors, including healthcare, consumer products, financial services, infrastructure, and industrial, has allowed it to weather challenging economic conditions and capitalize on growth opportunities.

With an intrinsic net asset value per share that has surged by 16.6%, Remgro continues to provide value to its shareholders. Moreover, the closing share price at a discount to the intrinsic net asset value presents a potentially attractive investment opportunity.

The completion of the Mediclinic acquisition is a strategic move that strengthens Remgro’s presence in the healthcare sector, an industry of critical importance in South Africa and globally. As healthcare remains a fundamental sector for the future, this acquisition positions Remgro well for future growth and success.

Remgro’s consistent commitment to creating shareholder value and its track record of responsible and sustainable investments make it an appealing choice for investors seeking stability and growth.

Conclusion

Remgro Group’s consolidated report for the year ending June 30, 2023, paints a positive picture of the company’s financial performance. Despite facing challenges in some sectors, the company has shown resilience and adaptability, reporting an 8.7% increase in headline earnings. The acquisition of Mediclinic, together with other strategic moves, strengthens Remgro’s portfolio and positions it for further growth. With a substantial increase in intrinsic net asset value and a closing share price at a discount, Remgro presents an attractive opportunity for investors seeking stability and value in the South African market.

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Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted: Email: lethabo@rateweb.co.za Twitter: @NtsoaneLethabo