Our opinion on the current state of REINET(RNI)

11月22日

Reinet (RNI) is an investment holding company with its main asset being a 2.12% stake in British American Tobacco (BAT), valued at approximately $1.8 billion, which constitutes about 31% of its net asset value (NAV). This is a significant reduction from 85% a decade ago, primarily due to the decline in BAT's share price as the tobacco industry faces increasing regulatory challenges, particularly in the US.

The US Food and Drug Administration's potential regulatory changes on menthol cigarettes and the global trend of declining cigarette sales in developed markets have contributed to BAT's declining valuation. However, BAT continues to deliver solid dividends, driven by growth in emerging markets where tobacco demand remains relatively strong.

Diversification and Portfolio:
1. Pension Insurance Corporation (Penscorp): Reinet holds a 46% stake in Penscorp, now representing 36.8% of its portfolio. This has grown in prominence as BAT's contribution has declined.
2. Private Equity Investments: Private equity holdings now account for around 15% of Reinet's portfolio, contributing to its diversification strategy.
3. Compound Growth: Since March 2009, Reinet's portfolio has achieved a compound annual growth rate of 8.8%.

Financial Performance:
- For the six months ending 30th September 2024, Reinet reported an NAV of 3625 euro cents per share, up from 3089 euro cents a year earlier.
- The company stated that it has no direct exposure to geopolitical risks such as Russia, Ukraine, or the Middle East and has been minimally affected by interest rate fluctuations or inflation.

Technical Performance:
- The share price fell sharply from its high of R343 in February 2020, hitting lows in January 2021.
- A clear upward break through its long-term downward trendline occurred on 16th September 2019 at R270 per share.
- The share has since recovered strongly and is now trading at R480.31.

Outlook:
- The BAT announcement of a GBP25 million write-down on its US operations recently impacted Reinet, reflecting BAT's ongoing challenges. However, Reinet's diversification into other asset classes, particularly Penscorp, has helped offset BAT's declining value.
- As a rand-hedge investment, Reinet is sensitive to fluctuations in the rand. Prospective investors should assess the rand's future trajectory before investing.

Reinet remains a diversified holding with a steady track record and benefits from its balanced exposure to high-dividend assets like BAT and growth-focused assets like Penscorp and private equity investments. However, its reliance on BAT, despite diversification, makes it partially exposed to the challenges in the tobacco industry.