'Capital allocation remains the Achilles' heel of this business' - fund manager
If a fund manager delivered returns in line with Remgro’s relative to the Alsi over the last 17 years, ‘they would have been fired a long time ago’. Image: Supplied
The gap between the share price and the intrinsic net asset value (NAV) of Remgro shares has narrowed over the past 12 months, but it remains at about the same elevated level it was six years ago – at the height of the Covid-19 pandemic.
At least the discount it was trading at in mid-2025 (46%) is now a more palatable 35%. Still, this is far off the ‘lows’ of 15-17% achieved a decade ago.
The drivers of the narrowing over the last 12 months seem to have been threefold: an improvement in the operating performance in underlying companies, a simplified Mediclinic ownership structure (this business alone accounts for nearly a quarter of Remgro’s NAV) and the repositioning of the portfolio towards unlisted assets.
Today, its top five unlisted investments (Mediclinic, CIVH, Heineken Beverages, Siqalo Foods and Air Products) comprise just over 50% of its intrinsic NAV (iNAV) excluding cash at the centre.
The premise is that the greater the proportion of unlisted assets in its portfolio, the more attractive Remgro becomes as it is the only entry point to these businesses.
After selling its remaining FirstRand holding in the year, a further two listed entities – OUTsurance and Discovery – account for a further 31% of iNAV before cash.
However, its intrinsic net asset value per share today (30 June 2026) of R305.80 is marginally lower than the same measure a decade ago (R306.44 on 30 June 2016). At that point, its share price was just above R250. In June, it was just under R200.
Fund manager’s take
Value fund manager Piet Viljoen of Merchant West Investments says that since 2010, it has grown this measure “by a mediocre 7% a year (including all the special dividends and unbundlings)”.
“Management has done marginally better than if it had kept its capital in a bank account, and is well behind the [JSE] All-Share Index’s total return of 13% per annum.”
Viljoen argues, in a recent ‘Regarding …’ weekly newsletter, that even if one factors in the Covid-19 pandemic, over the five years since, that measure “has grown by a much improved 12% per annum, but still substantially below the All-Share Index total return of 19% per annum”.
Interestingly, he says, “the gap remains the same: Remgro consistently grows its iNAV by 6% to 7% p.a. less than the Alsi”.
“That difference compounds into a big number over time, justifying the share price’s wide discount to iNAV.”
| At 30 June | Intrinsic net asset value | Share price | Discount to NAV |
| 2016 | R306.44 | R254.66 | 16.90% |
| 2017 | R251.48 | R213.46 | 15.12% |
| 2018 | R256.97 | R204.29 | 20.50% |
| 2019 | R233.03 | R187.90 | 19.37% |
| 2020 | R154.47 | R99.90 | 35.33% |
| 2021 | R177.30 | R114.60 | 35.36% |
| 2022 | R213.10 | R129.91 | 39.04% |
| 2023 | R248.47 | R147.05 | 40.82% |
| 2024 | R251.01 | R136.09 | 45.78% |
| 2025 | R292.40 | R158.20 | 45.90% |
| 2026 | R305.80 | R197.00 | 35.58% |
Viljoen contends that: “The discount should be bigger. Remgro management seems to share this view; how else do you explain paying special dividends rather than share buybacks?”
He says, “management has consistently neglected the key determinant of investment success: return on capital invested”.
“This has directly resulted in an exceedingly poor investment track record.”
In the recent results presentation, says Viljoen, “there was again a lot of talk about revenue and Ebitda (!) growth. But no one mentioned how much capital was invested to generate this growth, and definitely nothing about the return achieved on that capital.
“Capital allocation remains the Achilles’ heel of this business.”
He says if a fund manager delivered returns in line with Remgro’s relative to the Alsi over the last 17 years “they would have been fired a long time ago”.
Remgro vs the Alsi over 10 years
The share price tells that exact story. Relative to the Alsi, it is down by over 40% over the past decade.
This article was republished from Moneyweb. Read the original here.
