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RECM & Calibre share analysis |
2012-01-11 RECM & Calibre Preference Limited (RACP) is a 50:50 joint venture, where RECM manages the portfolio & uses Calibre (a private equity company) for the unlisted equity. Although legally it's a preference share, this entity is best thought of as a portfolio you invest in with an asset manager, where they select stocks & there's leakage in the form of fees paid.
At first glance RACP looks good value - at the time of writing it last traded at R10 and had a reported NAV of R10.87 at 31 Dec 2011, meaning it's trading at a discount of 9%. However, I think it needs to be trading at a discount to NAV of 27% (see below) to make it fair value for me (i.e. R7.94), relative to investing in the underlyings myself. This discount could narrow in the future if there are significant investments in undervalued instruments I don't have access to or the ability to access in as good a way, but as last reported this wasn't the case, with 74% of the portfolio sitting in cash (and it isn't specified what the equity is invested in).
Including VAT, 1.14% p.a. is paid to RECM (as a precentage of the market value of the portfolio) and R136,800 secretarial fees per annum.
RAC pays "all bank charges related to the bank & safe custody accounts, and all brokerage & other charges as stipulated by the recognised exchange, as well as securities transfer tax or any other tax or duty on securities".
It was proposed that Gerrit Pretorius be paid a director's fee of R100,000 p.a., with no directors' fees or remuneration being payable to the other directors.
Accumulated losses are divided between the ordinary & preference shares (there are 45m preference shares & 5m ordinary shares, so preference shares attract 90% of the accumulated losses).
Over the 6 months to 30 Sep 2011, RAC racked up operating expenses of R3.5m & paid taxes of R2.2m; i.e. total leakage of R5.7m on average assets of R520m (or 2.2% p.a.). Since paying fees is a certainty, to get the present value it should be discounted at the risk-free rate of return (my risk free rate over 5 years is 8% p.a. as I can achieve that on a retail bond investment), giving a present value of 27%.
Listing of RACP commenced on 8 June 2010, with 45m preference shares (about 39m in a private placement & 6m in terms of a public offer), which resulted in R450m being raised.
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