Reinet lit up the market with an exit from British American Tobacco (JSE: RNI | JSE: BTI)

Reinet just got a whole lot more interesting for me

Aside from my eternal irritation at how British American Tobacco is seen as an ESG-friendly investment (a reflection of absurd ESG rules rather than anything else), I also just don’t like the investment characteristics of the firm. It’s clearly a sunset industry that is built around putting inflationary price increases through on people who struggle tremendously to get off the product. I’ve noticed a strong trend of declining alcohol consumption among my peer group and younger, so you can imagine how few are smoking these days.

Regulators have made it almost impossible for volumes to grow in cigarettes and many regulators hate the “Smokeless World” alternatives just as much. Also, having been around people who vape and use other cigarette alternatives many times in my life, the word “smokeless” is working very hard in the British American Tobacco ESG lexicon.

Still, the company is seen as a rand hedge that pays dependable dividends and offers mid-single digit growth in earnings. There’s demand for that in many portfolios. As for Reinet though, Rupert’s international investment portfolio, that view has now changed.

For the longest time, British American Tobacco has been a cash cow for Reinet. It allowed them to earn dividends and build up investments in all kinds of other areas, including private equity funds. The other core asset in the group is of course Pension Insurance Corporation, another solid underpin that anchored the group over time.

Now, British American Tobacco will no longer be a feature of the Reinet balance sheet. Reinet isn’t just selling down the stake – they sold the entire thing! That’s a casual 24% of the net asset value of Reinet, transformed from shares into cash in a single morning. The markets really are amazing when you think about them.

How was this achieved? A placing with institutional investors of course. JP Morgan was appointed as the bookrunner, which means they picked up the phone to their little black book of major investors and took orders for the shares. Of course, they earned a juicy fee along the way.

The placing has raised £1.22 billion, which gets added to the tally of £148.5 million that was raised in November and December through on-market sales of shares.

All eyes will now be on the use of those proceeds. There are no special dividends coming. Instead, they will be used for “ongoing investment activity” – and one wonders if they have a blockbuster deal lined up!

As for British American Tobacco, this makes no difference to them. Reinet was a small shareholder and this is a transaction between shareholders, not between the company and shareholders.

Little Bites:

• Director dealings:
  • A director of Visual International Holdings (JSE: VIS) bought shares worth R25k.

• The all-important Barloworld (JSE: BAW) circular for the take-private deal has been delayed due to the drafting period falling over the festive season. The Takeover Regulation Panel has granted an extension, as the rule is that it must be out 20 days after the firm intention announcement. When I worked in advisory, deals weren’t interrupted by things like holidays. Hopefully things have changed and people are living slightly more balanced lives out there!

• The changes to the Murray & Roberts (JSE: MUR) board continue, with Clifford Raphiri resigning from the board. Alex Maditsi has been appointed as the interim chairman. It really is a mess on that side.

• Cilo Cybin (JSE: CCC) has released its financials for the six months to September 2024. During this period, the group focused on negotiating the acquisition of Cilo Cybin Pharmaceutical, with the terms of that deal (and the rather daft purchase price) recently announced. So, in the financials, all you’ll find in revenue is interest earned on cash held in escrow from the IPO. As at reporting date, they had just over R60 million in cash on the balance sheet.