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The Finance Ghost — Rupert lights up Reinet’s war chest with £1.22bn BAT exit

The Finance Ghost — Rupert lights up Reinet’s war chest with £1.22bn BAT exit
The Finance Ghost
By The Finance Ghost
21 Jan 2025
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Johann Rupert’s full exit from British American Tobacco goodbye raised a packet for Reinet. Will they invest this fortune in a new core asset, or spread it across the various funds they have already invested in?

Reinet is Johann Rupert’s global investment vehicle. The two core assets have been British American Tobacco and the Pension Insurance Corporation, with a variety of peripheral positions built up in other investment funds over time. The fund has generated acceptable hard currency returns over a substantial period, so things have worked out well, even if it is generally seen as a bit boring.

The boredom has been beaten by a full exit from British American Tobacco, a surprising and meaty transaction that just raised £1.22-billion as an acquisition war chest for Reinet. This gets added to the proceeds of nearly £150-million achieved through on-market sales of British American Tobacco shares in November and December.

How did they raise this kind of money? Well, when the company in question is as vast as British American Tobacco, it’s easier than you might think. You don’t have to run a process here to find a specific buyer who then goes through a due diligence and finally pulls the trigger. No, at this end of the spectrum, it’s as simple as appointing bookrunners to pick up the phone to institutional investors and place the shares. JPMorgan got it done in the space of a morning and added some fees to its coffers along the way. This is why I hold shares in JPMorgan (and Goldman Sachs) instead of local banks.

With a little help from the market infrastructure, Reinet has turned 24% of its net asset value into cash. All eyes will now be on what they do with the money. There are no special dividends coming here. After all, Rupert doesn’t exactly need the cash! Instead, they will look to reinvest the funds. Will it be in a new core asset, or will they spread this fortune across the various funds that they have already invested in?

Only time will tell. The share price is flat year-to-date, so the market isn’t pricing in anything spectacular.

As for British American Tobacco, the share price is trading almost exactly where it was 10 years ago. This means that shareholders have only received dividends along the way, although there has of course been volatility that some might have taken advantage of. It’s clearly a sunset industry and perhaps Rupert finally spoke to enough young people to realise it!

… and Richemont just made Rupert even richer


Richemont’s share price is up 44% in the past year. That sounds great, but 14.5% was achieved in a single day after the release of quarterly earnings! Until that point, there was plenty of uncertainty and many false starts in the share price, with Chinese demand weighing heavily on sentiment.

The Chinese issues are far from over, with sales down 18% in the latest quarter. The difference is that the rest of the group has performed a lot better, with double-digit growth across all the major regions except for Asia Pacific. This did wonders for the group, with the quarter reflecting growth of 10% versus the year-to-date number of just 4% in constant currency.

The Jewellery Maisons were the big winners, up 14% and showing that there’s still demand for jewellery at the luxury end of the market despite the issues we are seeing for diamonds and emeralds at De Beers and Gemfields respectively. Specialist Watchmakers fell 8% and took some of the shine off the result, with positive contributions from other areas like Fashion & Accessories (up 7%).

The online business was the surprise, up 17% in constant currency and well ahead of retail sales (up 11%) and wholesale and royalty income (up 4%). Despite the rich and famous showing more of an inclination to shop online, disastrous online platform YOOX NET-A-PORTER saw none of that love. Sales fell by 15% in that business and it really does seem like a lost cause. Richemont is selling it to Mytheresa in exchange for shares, perhaps hoping that two ugly ducklings somehow combine to create a swan.

As for further catalysts in this share price, any improvement in China would certainly do the trick. In the meantime, investors can enjoy the growth coming from elsewhere.

Karooooo keeps delivering


I’m long Karooooo, although not as long as I wish I was. I reduced my stake in the aftermath of the pandemic when they were struggling with lockdowns in South East Asia that left them with an expensive office structure and very little ability to generate revenue from it. I retained a portion of my stake in the hope that things would come right, as I knew there was a strong company underneath all this. There’s a good lesson here in the difference between reducing a position and walking away entirely – and that’s also why Reinet’s full exit of British American Tobacco is such an important sign for both those companies!

Back to Karooooo, we find a business that is as focused as the vowels in its name. There are only two divisions and one is much bigger than the other. Cartrack is the core operation, generating R316-million in operating profit in this quarter. Karooooo Logistics was good for R9-million in operating profit, so it has a long way to go before it really moves the dial for the group.

Success and failure are therefore defined by Cartrack itself. Thankfully, things are firmly on the up. Subscribers increased by 17% and revenue was up 14% in rands or 19% in dollars. It’s so unusual to see the rand growth below the dollar growth, but such has been the trajectory of our currency over the past year!

Operating profit only increased by 7%, so margins are a focus for investors. Margin contraction from 32% to 30% for this quarter was largely driven by a jump in sales and marketing costs. Before panicking, it’s helpful to look at three quarters and get a year-to-date view. On that basis, operating margin increased from 29% to 30% and all is well. Quarterly reporting can lead to distortions and it’s vital to distinguish between temporary volatility and structural problems.

Karooooo is up 88% in the past year. As I said – I wish I had more!

PPC backs the Western Cape


PPC has been consistently sending a message that the South African market has overcapacity of cement manufacturing. Despite this, they are investing R3-billion at an existing PPC site in the Western Cape to replace and increase existing capacity. The lesson here is around national versus regional demand. Although South Africa may not have the infrastructure investment to absorb the amount of cement that we could theoretically manufacture, the Western Cape is booming.

In addition to making more cement, this will allow PPC to reduce costs (and emissions) by achieving manufacturing efficiencies. They plan to start construction in the second quarter of 2025 and expect to commission the plant by the end of calendar year 2026. The investment will be funded by debt facilities that will keep PPC within the current debt covenant of 2x net debt to EBITDA.

In addition to sending a strong signal about the Western Cape, this is also evidence of just how much progress PPC has made with its balance sheet and overall business health. Investment like this would’ve been unthinkable a couple of years ago! DM

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