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UNDERSTANDING INVESTMENT HOLDING COMPANIES

April 21, 2024
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2019
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These structures can be complicated but you can simplify anything through research and understanding

 

There are some amazing companies in the world that are not listed on stock exchanges. These are called unlisted or private companies. Investment holding companies are an excellent way to get listed exposure to unlisted companies. I am always searching for investment holding companies with solid portfolios and track records.

 

SEVEN ASPECTS TO LOOK FOR IN INVESTMENT HOLDING COMPANIES

 

  • What do they own? Investment holding companies typically own financial assets, such as stocks, bonds, real estate, or equity stakes in other companies. These assets are held for the purpose of generating returns on investment, such as dividends, interest income, or capital appreciation.

 

  • They need to be passive, not active! Unlike operating companies, which are actively involved in producing goods or providing services, investment holding companies generally play a passive role in the businesses they invest in. They do not manage day-to-day operations but instead focus on overseeing their investment portfolios.

 

  • Diversification protects wealth! Investment holding companies often diversify their investments across different industries and asset classes to spread risk and reduce exposure to any single investment or sector.

 

  • These companies will not make you rich overnight! They typically have a long-term investment horizon, aiming to generate returns over an extended period rather than seeking short-term gains. You need to look at their growth targets. It is always published on their websites and in their financial statements.

 

  • Where exactly do the allocate their capital money to? These companies allocate capital among different investment opportunities based on their financial goals, risk tolerance, and market conditions.

 

  • How do they manage risk? By holding a diversified portfolio, investment holding companies can mitigate the impact of poor performance in one investment by the success of others in their portfolio.

 

  • Who gets the assets? Investment holding companies can also serve as vehicles for wealth preservation and wealth transfer from one generation to the next. They allow families and individuals to maintain control over their assets and pass them on to heirs.

 

SHARE PRICE VS NET ASSET VALUE PER SHARE

You must understand the difference between a share price and the net asset value per share to fully comprehend investment holding companies.

 

  • Share Price (also known as the market price or stock price) is the current market value of one share of a publicly traded company's stock. It is determined by the supply and demand for the company's shares in the stock market. Share price can fluctuate frequently throughout the trading day based on market dynamics.

 

  • Net Asset Value (NAV) per Share represents the total value of all the assets (e.g., stocks, bonds, cash, and other assets) minus its liabilities, divided by the total number of outstanding shares in the fund. NAV per share reflects the intrinsic value of each share.

 

From the above it is clear that share prices are calculated continuously and the NAV per share not. The share price is determined by willing buyers and willing sellers, while the NAV is determined by financial statements.

 

JSE LISTED INVESTMENT HOLDING COMPANIES

 

We will dig into some of the below investment holding companies over the next few weeks. It is critical to understand their structures as well as the net asset value of the businesses. The investments that they have in unlisted entities use subjective valuations, so it is critical that you can distinguish fact from fiction.

  1. African Rainbow Capital (Ticker: AIL)
  2. Astoria Investments (Ticker: ARA)
  3. Brait SE (Ticker: BAT)
  4. EPE Capital Partners (Ticker: EPE)
  5. Hosken Consolidated Investments (Ticker: HCI)
  6. Naspers (Ticker: NPN)
  7. Prosus (Ticker: PRX)
  8. Remgro (Ticker: REM)
  9. Sabvest Capital (Ticker: SBP)
  10. Universal Partners (Ticker: UPL)

 

Disclaimer: Nothing in this article should be seen as financial advice. Everything stated is for educational purposes only. Always do your own due diligence.


 


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