Marc Hasenfuss Editor-at-large
Picture: ISTOCK
Picture: ISTOCK

The influence of tobacco on Reinet, the investment vehicle controlled by the Rupert family, continues to wane.

A management statement covering the first quarter to end-June, released on Tuesday, showed the value of Reinet’s 2.97% stake in cigarette giant British American Tobacco (BAT) had fallen to €2.95bn (end-March €3.2bn).

This meant the holding in BAT represented just 60.7% of Reinet’s net asset value of €4.86bn at the end of June compared with 62.4% at the end of March.

BAT was Reinet’s mainstay investment when the company listed more than 10 years ago. But there has been a steady decline in BAT’s dominant presence in Reinet’s portfolio, so much so that some market watchers are questioning whether the group can still be tagged as a proxy for the tobacco company. At the end of March 2017 BAT accounted for 71% of Reinet’s net asset value. Five years ago the BAT stake, which has also been reduced over the years by share sales, represented 82.5% of Reinet’s portfolio value. In the 2007 financial year, when Reinet was listed, BAT represented 85.7% of the portfolio value.

In the quarter under review BAT was the main cause of a €270m decline in Reinet’s net asset value.

BAT’s share price on the London Stock Exchange decreased from £41.31 at the end of March to £38.30 at the end of June, causing an €232m decrease in the value of Reinet’s holding.

Reinet CEO Johann Rupert said the carrying value of BAT was also affected by the weakening of sterling against the euro during the quarter. This amounted to about €20m.

Rupert said this decline in value was partially offset by dividends received from BAT, increases in the estimated fair value of certain investments and increases in the estimated fair value of derivative assets.

A pending BAT dividend of €38m (due to be paid in August) was included in the net asset value estimate.

In a note to clients, FNB Securities said while the drop in net asset value was disappointing, it was not as large as the fall in BAT’s share price. This implied improved performance from other unlisted assets.

The value of Reinet’s second largest holding, UK-based financial services specialist Pension Insurance Corporation (PensCorp), reduced 5% to €1.24bn, but still represented about a quarter of net asset value.

Rupert said PensCorp’s new business pipeline in 2018 remained strong with new business premiums of £3.2bn written in the six months to June. The largest deals transacted were with the Siemens Benefits Scheme at £1.3bn and the PA Pension Scheme at £850m.

Rupert disclosed that Reinet acquired additional shares from other PensCorp shareholders for an amount of £6.3m, marginally increasing the stake to 43.72% (previously 43.45%).

Rupert said the decrease in the estimated fair value of the PensCorp investment reflected a decrease in the company’s estimated embedded value and decreases in comparable valuation multiples used in valuing listed companies in the UK insurance sector.

The weakening of sterling against the euro in the quarter was also a factor, he said.

FNB noted Reinet was trading at a discount to net asset value of about 38%, which had increased significantly over the past 12 months and was well below the five-year average discount for the stock.

"The share price reaction to BAT’s share price drop seems to have been very severe and a steady performance from PensCorp was not priced in," FNB argued.