Investment firm RECM and Calibre (RAC) — headed by investment personalities Piet Viljoen, Jan van Niekerk and Theuns de Bruyn — has made rosy returns on its holding in healthcare retailer Dischem, which is reportedly being prepped for a JSE listing.

At a meeting of shareholders, Viljoen disclosed for the first time the value of RAC’s interest in Dischem. Previously, the pharmacy chain was reported as part of the retail segment, which included the company’s stake in specialist retailer Safari & Outdoor.

A breakdown of RAC’s intrinsic value showed the Dischem stake to be worth R127m, which Viljoen stressed was about half the valuation of similar JSE-listed companies.

RAC invested in Dischem indirectly via private equity company Fledge in mid-2013 at a cost of only R30.5m. RAC holds 50% of Fledge, which holds 50% of a company with a 10% stake in Dischem. RAC effectively owns 2.5% of Dischem.

Viljoen said the structure offered no liquidity and RAC had no influence at Fledge.

But he said Dischem continued to grow organically.

"It seems that a listing of the business could be on the cards. This could unlock significant value for RAC shareholders."

De Bruyn cautioned against using RAC’s valuation of its stake to determine Dischem’s total value. He pointed out that RAC’s investment in Dischem was complicated, and that there was "gearing everywhere".

RAC’s biggest investment is alternative gaming group Goldrush, which specialises in limited payout machines, electronic bingo, and sports betting.

Recently, RAC took control of Goldrush from the founding family for a R100m cash payment and the issue of 2.2-million new RAC shares at R23.18 each (plus a further R70.2m payment due by September 2017).

A shareholder queried how RAC could issue shares at such a large premium to its ruling JSE price of R18.50. RAC’s latest intrinsic value estimate is R20.43 per share. Viljoen said R23 per share was closer to the real value of its portfolio "based on an arms-length transaction between two knowledgeable parties".

RAC has stakes in diamond miners Trans Hex and West Coast Mining, poultry firm Sovereign Food, liquor group KWV and mining services specialist Sentula.

Viljoen said RAC executives were not happy issuing new scrip at R23 per share, which undercut the real value of the portfolio by as much as R10.

Numerous questions were raised about RAC’s investment in struggling Sentula.

Viljoen would not dismiss the possibility of another Sentula rights issue, but reassured shareholders that the risk in the business was decreasing daily.

"There is tremendous upside in Sentula if things go right. The business will trundle along if things go wrong."

He said Sentula had begun a number of strategic initiatives since Jacques Badenhorst had joined as CEO. "These are progressing as planned and will give Sentula a strong foundation."

Viljoen said South African industrial companies were being shunned by investors.

"They would rather invest in Polish real estate companies … but there are great opportunities in this country. We see some value in smaller listed companies. But these won’t move the needle at the moment."