Piet Viljoen: Remgro is stuck in the last century. Run, Forrest, run!

Remgro loves to talk about revenue and EBITDA. Piet Viljoen would rather talk about return on capital, the one number the Stellenbosch stalwart never seems to mention. And that number is ugly. Since 2010, Remgro has grown its intrinsic NAV by about 7% a year. That's barely better than a bank account, and well behind the All-Share's 13%. Was it Covid's fault? Leave out the pandemic years, and the gap stays stubbornly at six to seven points a year. Relative to the index, the share price is down more than 40% in a decade. Fund managers get fired for less. Viljoen's advice is blunt: run..By Piet Viljoen*.Rembrandt Group (Remgro) is widely seen as South Africa's pre-eminent investment holding company, with a history dating back to the 1960s. Unfortunately, it still seems stuck in the 20th century, unable to adapt to 21st-century realities. In the past, size and growth impressed the Stellenbosch crowd, and Remgro scored well on these metrics.But in doing so, 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.Since 2010, Remgro has grown its Intrinsic Net Asset Value (iNAV) 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 All-Share Index’s total return of 13% p.a.In their results presentation this week, management seemed to blame COVID for some of their poor performance. So, I looked at the numbers post-2021.In the five years since then, iNAV per share has grown by a much improved 12% p.a., but still substantially below the All-Share Index total return of 19% p.a.Interestingly, 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.The discount should be bigger. Remgro management seems to share this view; how else do you explain paying special dividends rather than share buybacks?In the results presentation, 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.Management is stuck in the last century, playing to the Stellenbosch gallery by consistently overpaying for trophy assets. Capital allocation remains the Achilles’ heel of this business.Here is how badly they have performed over the past 17 years (with 1 being 2010 and 17 being the latest data, including dividends and unbundlings). If this were a fund manager’s returns, they would have been fired a long time ago:.Here's a chart of the Remgro share price relative to the All Share Index, down by over 40% over the past decade:.My take: I see nothing in these results that will change Remgro's trajectory. Management still doesn't understand their job – or, if they do, they are not communicating it properly. There is only one thing to do here, and that is to run, Forest, run!.*Piet Viljoen is the founder of Re:CM and portfolio manager of the Merchant West Value Fund..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.

Piet Viljoen: Remgro is stuck in the last century. Run, Forrest, run!

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