Our opinion on the current state of REINET(RNI)Reinet (RNI) is an investment holding company with its primary asset being a 2.12% stake in British American Tobacco (BAT), valued at around $1.8 billion, which now represents 31% of its net asset value (NAV). This is a significant decrease from the 85% share of NAV BAT held ten years ago. The reduction in BAT's contribution is largely due to the decline in its share price, driven by a more challenging legal environment for tobacco, particularly in the US, where the Food and Drug Administration is considering regulatory changes to menthol cigarettes.
Despite these challenges, Reinet has not shown urgency in divesting its BAT stake, as BAT continues to provide substantial dividends, especially from its growth in emerging markets, while cigarette sales in developed markets decline. The lower valuation of BAT has also increased the significance of Reinet’s other assets, particularly its 46% stake in Pension Insurance Corporation (Penscorp), which now represents 36.8% of its portfolio. In addition to Penscorp, Reinet holds a range of private equity investments that account for about 15% of its portfolio.
Since March 2009, Reinet has achieved a compound annual growth rate of 8.8%. The company reported an NAV of 3669 euro cents at 30th June 2024, and by 30th September 2024, its NAV had increased to 3848 euro cents.
Reinet is considered a rand-hedge stock, meaning it benefits from any weakness in the South African rand. After falling from its high of R343 in February 2020, the share reached lows in January 2021. Investors were advised to wait for a break through the long-term downward trendline, which occurred on 16th September 2019 at R270 per share. The share is now trading at R451.42.
The share was negatively affected by a 10% drop in BAT’s share price after BAT announced it was writing down the value of its US operations by GBP25 million (R595 billion). Investors should consider the future prospects of the rand when evaluating Reinet, as further weakness in the currency could benefit the stock's performance.
