Johann Rupert’s susprising decision has asset managers reassess their investments
Following in Rupert's footsteps
In January 2025, Reinet completely exited its investment in BAT, selling its last portion at a price of R650 (£28.20) per share.
Johann Rupert’s Reinet Investments announced earlier this year that it had completely exited its holding in British American Tobacco (BAT), the asset used to create the investment vehicle in 2008.
This decision has pushed asset managers to reassess their investments in the company, with Sanlam Private Wealth deciding to trim its stake in BAT.
Sanlam Private Wealth’s chief investment officer, David Lerche, explained that when a long-time shareholder sells its stake in a business, it is time to reassess the company.
This is even more true in this case, with the purpose of setting up the Reinet structure around 17 years ago to house the BAT investments of Johann Rupert and his family in a tax-efficient Luxembourg structure.
Lerche explained that Reinet’s initial portfolio, upon listing on the Luxembourg Stock Exchange, consisted of 84 million BAT shares worth around €1.5 billion.
In early 2009, BAT shares made up 80% of Reinet’s net asset value (NAV). This helped Reinet deliver an annual return of 8.6% for investors in euro terms and increase its NAV by 9.2% per annum.
In comparison, the All Share Index (in euros) returned 9.9% per year, the Euro Stoxx 50 Index 9.7%, and the MSCI World Index 14.0%.
As a result, since its inception, Reinet has been steadily diversifying its holdings to reduce its exposure to a single company.
This aligns with the investment company’s original intention of using its BAT holding, through both dividends received and share sales over the years, to fund other ventures.
These include Pension Insurance Corporation, now Reinet’s largest asset, accounting for over half the net asset value (NAV).
In January 2025, Reinet completely exited its investment in BAT, selling its last portion at a price of R650 (£28.20) per share.
At the point of exit, the BAT shares accounted for ~26% of Reinet’s net asset value, and Reinet’s holding was a little more than 2% of BAT.
Lerche explained that while Reinet’s stake in BAT did not mean it had access to unique information or control, its position as a long-term shareholder meant that it understood the business very well.
Sanlam Private Wealth is invested in BAT on behalf of its clients, so when Reinet sold its stake, it began to reevaluate its position in the tobacco company.
“We don’t have to read too much into Reinet’s BAT sale – we suspect that the primary reason was to raise cash for a large transaction,” Lerche said.
The company merely stated that the proceeds would be used for “ongoing investment activity”.
However, Reinet’s sale does give investors cause to question their investment thesis regarding BAT and whether its famed stability and cash generation can be counted on in the future.
Sanlam Private Wealth expects a five-year internal rate of return from BAT of around 11% in GBP terms.
This is ahead of the 9.5% that we demand from the stock but likely behind Reinet’s expected return from a potential new investment should the company be preparing for a significant transaction.
Despite this expected return, Lerche said that given that earnings growth expectations from the business have barely changed over the past year, upside to fair value is less than it was.
As a result, Sanlam Private Wealth has been trimming its exposure to BAT, selling shares for around R690 per share in September 2023 and again in January at R730 per share.
Lerche said this does not mean the asset manager will completely end its exposure to BAT, as the company still has a key role to play in client portfolios.
“In our view, BAT still has an important role to play from a wider South African equity portfolio perspective.”
“BAT remains an important defensive stock in our local equity portfolios. The business delivers predictable earnings and dividends in hard currency, which provides an anchor,” Lerche said.
Investors typically value predictability most during times of market stress, leading to outperformance.
In addition, as a UK-listed, primarily hard-currency business, the company tends to provide local investors additional benefits during market stress periods when the rand weakens.
Having provided defence, BAT’s role is then to act as a source of cash. In challenging times, stocks are usually available at highly attractive prices for those with the stomach to think long-term.
“For these reasons, we are currently comfortable with our remaining BAT holding.”
“As far as Reinet is concerned, we will continue to assess the investment case for this holding, particularly given the possibility that it might announce a substantial new investment soon. However, for now, we are content to remain on the sidelines.”
-DAILY INVESTOR
This decision has pushed asset managers to reassess their investments in the company, with Sanlam Private Wealth deciding to trim its stake in BAT.
Sanlam Private Wealth’s chief investment officer, David Lerche, explained that when a long-time shareholder sells its stake in a business, it is time to reassess the company.
This is even more true in this case, with the purpose of setting up the Reinet structure around 17 years ago to house the BAT investments of Johann Rupert and his family in a tax-efficient Luxembourg structure.
Lerche explained that Reinet’s initial portfolio, upon listing on the Luxembourg Stock Exchange, consisted of 84 million BAT shares worth around €1.5 billion.
In early 2009, BAT shares made up 80% of Reinet’s net asset value (NAV). This helped Reinet deliver an annual return of 8.6% for investors in euro terms and increase its NAV by 9.2% per annum.
In comparison, the All Share Index (in euros) returned 9.9% per year, the Euro Stoxx 50 Index 9.7%, and the MSCI World Index 14.0%.
As a result, since its inception, Reinet has been steadily diversifying its holdings to reduce its exposure to a single company.
This aligns with the investment company’s original intention of using its BAT holding, through both dividends received and share sales over the years, to fund other ventures.
These include Pension Insurance Corporation, now Reinet’s largest asset, accounting for over half the net asset value (NAV).
In January 2025, Reinet completely exited its investment in BAT, selling its last portion at a price of R650 (£28.20) per share.
At the point of exit, the BAT shares accounted for ~26% of Reinet’s net asset value, and Reinet’s holding was a little more than 2% of BAT.
Lerche explained that while Reinet’s stake in BAT did not mean it had access to unique information or control, its position as a long-term shareholder meant that it understood the business very well.
Sanlam Private Wealth is invested in BAT on behalf of its clients, so when Reinet sold its stake, it began to reevaluate its position in the tobacco company.
“We don’t have to read too much into Reinet’s BAT sale – we suspect that the primary reason was to raise cash for a large transaction,” Lerche said.
The company merely stated that the proceeds would be used for “ongoing investment activity”.
However, Reinet’s sale does give investors cause to question their investment thesis regarding BAT and whether its famed stability and cash generation can be counted on in the future.
Sanlam Private Wealth expects a five-year internal rate of return from BAT of around 11% in GBP terms.
This is ahead of the 9.5% that we demand from the stock but likely behind Reinet’s expected return from a potential new investment should the company be preparing for a significant transaction.
Despite this expected return, Lerche said that given that earnings growth expectations from the business have barely changed over the past year, upside to fair value is less than it was.
As a result, Sanlam Private Wealth has been trimming its exposure to BAT, selling shares for around R690 per share in September 2023 and again in January at R730 per share.
Lerche said this does not mean the asset manager will completely end its exposure to BAT, as the company still has a key role to play in client portfolios.
“In our view, BAT still has an important role to play from a wider South African equity portfolio perspective.”
“BAT remains an important defensive stock in our local equity portfolios. The business delivers predictable earnings and dividends in hard currency, which provides an anchor,” Lerche said.
Investors typically value predictability most during times of market stress, leading to outperformance.
In addition, as a UK-listed, primarily hard-currency business, the company tends to provide local investors additional benefits during market stress periods when the rand weakens.
Having provided defence, BAT’s role is then to act as a source of cash. In challenging times, stocks are usually available at highly attractive prices for those with the stomach to think long-term.
“For these reasons, we are currently comfortable with our remaining BAT holding.”
“As far as Reinet is concerned, we will continue to assess the investment case for this holding, particularly given the possibility that it might announce a substantial new investment soon. However, for now, we are content to remain on the sidelines.”
-DAILY INVESTOR
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