In a candid conversation with BizNews editor Alec Hogg, Chris Logan – Owner and CIO at Opportune Investments, and seasoned activist investor – delves into the challenges and opportunities at Remgro, once a hallmark of South African investment. Logan highlights Johann Rupert’s push for executive ownership, the pivot to capital-intensive industries like MediClinic, and the path to unlocking value in a company trading at a steep 45% discount to its net asset value. Could a return to “owner-manager” principles revive Remgro’s fortunes? Logan shares insights on this and other market moves, including the Boxer IPO success.
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In an engaging interview with BizNews editor Alec Hogg, seasoned activist investor Chris Logan shared his insights on Remgro’s challenges, its recent AGM, and the potential for a turnaround. Logan, founder of Opportune and widely regarded as one of South Africa’s top money managers, did not mince words when discussing the company’s significant underperformance over the past 15 years. ___STEADY_PAYWALL___
Remgro’s Decline: A Shift in Philosophy
Remgro, once the “gold medal” of South African investments, has seen its returns lag behind market indices for over a decade. According to Logan, this stark decline can largely be attributed to a shift in the company’s investment philosophy.
“Your biggest holdings used to be the old RMB group… FirstRand, insurance, RMB holdings, and inadvertently, Remgro has pivoted out of these owner-managed high-return businesses into capital-intensive, regulated investments,” he said, citing MediClinic and CRVH as examples.
This pivot, Logan explained, has placed the company in industries that deliver lower returns on invested capital and are highly susceptible to external regulatory and economic pressures. MediClinic, now Remgro’s largest investment, posted returns of less than 4% on invested capital.
Logan highlighted that this change marks a philosophical departure from investing in owner-managed businesses, which historically delivered robust performance. “It’s quite scary that a philosophical difference… can make such a big difference,” he added.
The Role of Ownership in Driving Performance
At the AGM, Johann Rupert, Remgro’s chair, emphasized the importance of aligning executive incentives with shareholder interests. Rupert’s view, supported by extensive research, is that companies perform better when their executives hold significant equity stakes.
“If you want your companies to perform, make sure the directors have a lot of shares,” Logan said, quoting Rupert. Logan expanded on this concept, referencing global studies showing that companies with CEOs holding over $50 million in shares tend to achieve higher economic value-added (EVA) margins and momentum.
Remgro recently adopted a minimum shareholding requirement, mandating that its CEO must hold shares equivalent to 3.75 times their total guaranteed pay. While Logan acknowledged this as a step in the right direction, he noted that it pales in comparison to global standards. “Jamie Dimon at JP Morgan Chase has to hold 50 times his basic salary in shares,” he explained.
Logan believes that such ownership principles could inspire better performance across South Africa. “It’s a lesson that needs to be learned… skin in the game and alignment and performance is key,” he asserted.
Bright Spots in a Cloudy Portfolio
Despite its struggles, Remgro still holds gems in its portfolio, Logan noted. Companies like Discovery and Outsurance remain strong performers. He also singled out Wispeco, a standout in the aluminium extrusion industry, which attributes its success to profit-sharing incentives that align all staff, from executives to shop-floor workers.
Wispeco’s innovative approach contrasts sharply with Huleman, a competitor in the same industry that has floundered despite state support. “Wispeco has eaten their lunch and has done incredibly well,” Logan remarked, adding that such success highlights the broader importance of incentive alignment.
The Road Ahead for Remgro
While Logan is cautious about Remgro returning to its former glory, he sees potential for improvement. At a 45% discount to its net asset value (NAV), the stock presents an opportunity for investors willing to take a long-term view.
“It can improve from a 45% discount to, say, a 25% discount, and then you make a huge return on your investment if you get in now,” he said. Logan also pointed to changes in management, including the addition of Carel Vosloo, whom he described as “a very competitive guy” with the potential to drive improvements.
However, Logan tempered his optimism by noting the challenges of breaking free from the current portfolio mix. “You’re not locked into your existing portfolio, but… a lot of those are highly capital-intensive regulated industries,” he said.
Final Thoughts
As the conversation wrapped up, Logan reflected on the broader lessons from Remgro’s journey. Companies that maintain a strong alignment between management and shareholders, he argued, are better positioned to succeed. With a renewed focus on these principles, Remgro has a chance to rebuild value, though a full return to its past glory may remain out of reach.
For now, Logan remains cautiously optimistic: “It would be wrong to say forget about Remgro at these levels. You can make a case for some quite marked improvements off this base.”
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