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Prepared comments from RAC shareholders meeting
RECM and Calibre Limited
(Incorporated in the Republic of South Africa)
Registration number 2009/012403/06
Preference Share Code: RACP
ISIN: ZAE000145041
("RAC" or "the Company")
PREPARED COMMENTS FROM RAC SHAREHOLDERS MEETING
At a director’s meeting with preference shareholders, which was held directly after the Annual General
Meeting on 27 July 2016, the following prepared comments were shared with attendees. In the
interest of sharing the information equally with all shareholders, the statement is also published on
SENS and on the RAC website www.racltd.co.za.
PORTFOLIO CHANGES SINCE YEAR END
As disclosed in our year end results, RAC entered into a transaction to take over control of Goldrush
from the founding family. This transaction has now become unconditional. RAC will pay R100mn in
cash, and issue 2.2 million shares at a price of R23.18 per share. There is a further payment of
R70,2mn due by September 2017. RAC now owns 52% of Goldrush.
College SA is progressing well on its path from a traditional distance learning business towards
becoming a blended learning provider offering its own qualifications, with a focus on tertiary education
and training. College SA is in the process of acquiring two businesses that provide training and
continuous professional development for accounting students and professionals globally. RAC will
provide R16mn for its share of the acquisitions.
RAC has continued to add to its minority stakes in certain listed businesses which it regards as
undervalued. After the above transactions RAC has deployed most of the capital at its disposal,
including the R150mn facility it obtained last year.
BUSINESS UPDATES ON OUR SIGNIFICANT INVESTMENTS
Goldrush (44% of Portfolio)
Business at Goldrush is progressing well. Organic growth from existing operations is running at mid-
teen levels. This growth is being enhanced through the roll-out of existing licenses, acquisitions and
applications for new licenses. Both the transactions to purchase Boss Gaming and Entertainment
(Pty) Ltd. (“Boss Gaming”) and Crazy Slots (Pty) Ltd. (“Crazy Slots”) have closed since year end, with
regulatory approvals expected in due course. After acquiring Boss Gaming, Goldrush now has over
30 Bingo licenses nationwide. Crazy Slots adds a 1000 machine route operator’s license in Gauteng
to Goldrush, of which 280 machines have been rolled out. This brings the total number of licensed
Limited Payout Machines in the group to 4 800, of which about 1 100 have been rolled out. Both
transactions bring scale synergies to bear. Goldrush has recently been awarded 2 further Bingo
licenses and 4 sports-betting licenses. The 7 Bingo licenses in KZN are still subject to further
regulatory developments in the province.
Transhex/West Coast Resources (15% of Portfolio)
At Transhex, the Baken mine continues to struggle as it approaches its end of life. Mining operations
in Angola are doing well, but the macro-economic environment in the country is challenging. West
Coast’s operations look promising at this preliminary stage, but it is still too early to come to any firm
opinions about the expected grades. The management team at Transhex is continually evaluating
new projects.
Retail (13% of Portfolio)
Dischem continues to grow organically. It seems that a listing of the business could be on the cards.
This could unlock significant value for RAC shareholders, as our investment in Dischem is via Fledge
– an entity which offers no liquidity and where we have no influence. As such, we value our stake in
Dischem at roughly half of what similar listed companies are trading.
Outdoor Investment Holdings continues to trade well, as management executes on its stated growth
strategy of brand extension and backwards integration into the supply chain.
Shareholders will note that we have now disclosed the valuations of OIH and Fledge (the company
that holds our stake in Dischem) separately.
College SA (3% of portfolio)
College SA is transitioning from a traditional distance learning provider that primarily distributes and
supports third party education material in printed format, to an e-learning provider with its own
accredited qualifications. As such it is investing in infrastructure, designing accredited qualifications
and made a few acquisitions which speed up our progress in both of these areas. We believe the
tertiary education sector has tremendous growth potential, driven by demographics and the reduced
availability of public funding. However, our insights are not unique; there are many competitors in this
space. Despite these competitive forces, management of College SA believes they are building a
credible and differentiated product. RAC supports them in this.
JB Private Equity Investors Partnership/Sentula (5% of portfolio)
During the past year Sentula continued to suffer from losses in its contract mining activities while the
drilling and blasting as well as crane lifting businesses suffered from a slow-down in revenue growth
and some margin compression. A portion of the proceeds from the recent rights issue was used to
reduce the debt of the group, while the rest was primarily invested in working capital. A restructuring
of the contract mining business has been completed and further future losses should be limited.
Since Jacques Badenhorst joined Sentula as CEO, the business has embarked on a number of
strategic initiatives. These are progressing as planned and once implemented, will give Sentula a
strong foundation to build on for the future
LATEST NET ASSET VALUE (“NAV”) PER SHARE (ORDINARY AND PREFERENCE)
As at 25 July 2017, the NAV per share came to R20,43 – up by 3.9% from year end. This NAV has
not been audited or reviewed by the company’s external auditors. It should be noted that this change
only reflects changes in prices of our listed assets, as well as the effects of the Goldrush transaction.
Our unlisted, untraded assets (almost 75% of our portfolio) have not been revalued. This will happen
at the time of our interim results.
Our businesses are generally young and growing rapidly. As mentioned previously, it is hard to value
them with a high degree of certainty and judgement is required. We therefore tend to err on the side
of caution, building in a significant margin of safety in arriving at our fair values – a margin of safety
absent in the prices of many listed companies today. Put differently, at the stated valuations of our
assets we are eager investors into the various businesses.
We continue to believe that our accounting NAV understates the long term intrinsic value of our
business. Our recent issuance of participating preference shares in RAC at a price of R23.18 per
preference share probably provides a closer indication of the intrinsic value, as evidenced in an arms-
length transaction between two knowledgeable parties. We also received two independent offers to
buy out minorities in Sovereign Foods and Gooderson Leisure. RAC owns substantial minority stakes
in both companies. Both offers are at prices substantially above the price RAC paid to acquire the
stakes, as well as the ruling prices used for our year-end valuation. These offers, together with the
recently announced transaction at KWV Holdings Limited, where the operating assets are being sold
for a substantial premium to the recent market capitalization of the company, provides further
evidence of our above assertion.
The composition of our portfolio at 25 July 2016 is as follows:
% Cost Fair Value % of
Investment Ownership R’m R’m Portfolio
Gaming 403.3 626.7 44.3
Goldrush 52.2 403.3 626.7 44.3
Mining, Engineering 231.2 291.5 20.6
Transhex 25.1 94.2 98.6 7.0
West Coast Resources 27.2 39.0 112.6 8.0
JB Private Equity Investors Partnership 90.0 69.6 64.7 4.6
ELB Group 2.5 28.4 15.6 1.1
Retail 72.0 183.2 12.9
Fledge Holdings 50.0 30.5 126.8 9.0
Safari and Outdoor 28.3 41.5 56.5 4.0
Food, Beverage 85.6 124.9 8.8
Sovereign Food 11.3 48.0 72.6 5.1
KWV 5.1 32.3 40.4 2.9
KLK Landbou 5.8 5.3 11.9 0.8
Other investments 78.5 114.7 8.1
Conduit Capital 7.0 20.9 45.5 3.2
Excellerate Holdings 5.5 14.7 26.3 1.9
College SA 83.5 42.9 42.9 3.0
Non-core investments 34.6 24.8 1.8
Cash 49.3 3.5
Portfolio value 1 415.15
Liabilities (195.2)
ABSA Prefs (153.5)
Net Asset Value 1 066.46
Net Asset Value per share 0.43
GENERAL OBSERVATIONS
The combined effects of a weak currency and weak economy have transpired to reduce the
valuations of many industrial South African businesses to bargain basement levels. This has positive
implications on RAC. Whilst we are receiving premium priced buy-out offers for some of our
businesses, the price expectations of sellers in the listed market have reduced somewhat, making
more acquisitions possible at sensible valuations. Price expectations in the private market remain
stable for now.
As mentioned previously, we prefer to acquire interests in privately owned businesses, as the
management of businesses in the public, listed market are often subject to debilitating levels of
governance and bureaucracy. In this regard, our investment strategy is to buy good businesses, with
good management at good prices. If you are involved in any business that meets these criteria and
that needs capital or a responsible owner with a true long term orientation, please give us a call. We
don’t make many promises, but we promise not to waste your time.
Any forward looking statements in this announcement have not been reviewed or reported on by our
auditors.
Cape Town
27 July 2016
Sponsor:
Questco (Pty) Ltd
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