Today I’m going to show you why you need investment holding companies in your portfolio, but more importantly the 3 you should be holding right now.
I’ve uncovered these three companies through a 3 step process where I’ve scrutinized the following criteria:
Diversification: I’m sure you’ve heard the phrase ‘don’t put your eggs in one basket’, well investing directly in Investment holding companies eliminates this type of risk. These firms usually diversify their investment in different sectors or different companies.
Exceptional management teams: These firms usually attract exceptional management teams with proven track record.
Exposure to unlisted companies: Some investment firms owns majority stake in great businesses that are unlisted, and thus by investing in them you get direct exposure in these businesses.
So now that you know how I’ve uncovered the 3 investment holding companies you have to have in your portfolio right now, what are they?
The Three Must-Have Holding Companies
Must-Have Holding Company #1: Brait’s (BAT)
Brait is an investment holding company focused on driving sustainable long-term growth and value creation in its investment portfolio, which is comprized of sizeable unlisted businesses operating in the broad consumer sector.
Brait’s primary listing is on the Luxembourg Stock Exchange and has a secondary listing on the JSE.
Brait usually targets a portfolio of 5 – 6 large quality assets, whilst some of their investment criteria includes:
• Investing in market leading businesses with proven track record
• Investment size that “moves the dial’ meaning they can influence decisions
• Deep understanding of customers/clients
On 31 March 2015, Brait sold their Pepcor business to Steinhoff, receiving R15billion in cash and 200m Steinhoff shares. R15.8 billion proceeds were raised from the sale of their Steinhoff shares.
They intend to use these funds to settle debt raised in the market and increased their holding in Iceland retailer, leaving them with a cash balance for further acquisitions.
In July 2015 they invested 691 million pounds in Virgin Active acquiring 78% interest.
Currently their investment portfolio is made up of the following:
• 89% interest in New Look Retailer Group
• 78% interest in Virgin Active Health Clubs
• 90% interest in Premier Foods
• 57% interest in Iceland Foods
• Other investments include Console Glass, PRIMEDIA and Buildmax (10% interest)
Brait’s Net Asset Value is currently R123.50 per share
So, why would you own this share?
As I mentioned earlier, owning Brait shares would give you the exposure of unlisted companies with potential exciting returns.
Must-Have Holding Company #2: PSG Group
PSG Group is an investment holding company consisting of underlying investments that operate across numerous industries, including financial services, banking, private equity, agriculture and education.
PSG invest in companies with uncomplicated business models operating in industries with attractive growth prospects and led by talented, hard-working and passionate people.
They believe they add value by challenging management to innovate and grow their business, both organically and by means of acquisitions, and provide funding when needed.
PSG investments include Capitec Bank, Zeder, Curro Holdings, Thembeka Capital, PSG Konsult, PSG Capital, PSG Coporate Services and PSG Private Equity.
With a market cap of R46.2 billion, their biggest investment include the following:
• 30.7% interest in Capitec
• 58.5% interest in Curro Holdings
• 62.7% interest in PSG Konsult
• 33.8% interest in Zeder
Why would you own this share?
All businesses mentioned above are listed individually on the JSE. Thus by investing in only the PSG Group you’ll receive exposure in all of these listed companies, which is great for diversification purposes. Also housing an exceptional management team makes this one of my favorite Investment holding firms.
PSG currently trades at a 5% discount to its Sum of the Parts.
Must-Have Holding Company #3: Remgro
Remgro invests in businesses that can deliver superior earnings and dividend growth over the long term.
This involves the acquisition in companies in order to have significant influence. Sound management is an important investment aspect during this process.
Remgro’s group structure mainly consist of the following industries:
• Food, Liquor and Home Care
• Media and Support
Some of their investments are every day brands you know.
These include Unilever, Distell, RCL Foods, RMB Holdings, First Rand, Mediclinic, E-TV, Grinrod Limited and Seacom.
Remgro investments comprise of both listed and unlisted companies that are not controlled by Remgro, which are mostly associated companies and Joint ventures due to Remgro having board representation in said companies.
Remgro only has interest in two operating subsidiaries: RCL foods that are listed, and Wispeco which is unlisted.
If Remgro does not have board representation, such investments are treated as portfolio investments.
So why should you own this share?
Remgro fulfills the diversification criteria and as such holding one share means exposure to over 30 different businesses. Unlike the strategy of Brait, Remgro does not try to influence management decisions and as a result have a minority stake and acts as support. Either way, with an exceptional management team, Remgro is an Investment holding company to own.
If you would like to know how I calculate these discount/premiums or would like to discuss the best entry levels for these stocks, get in touch with the trading desk.
Here’s to profitable trading,
Private Client Trader | Vunani Private Clients