Beyond British American Tobacco and the case for investing with the Rupert dynasty
Can this family business navigate the "three-generation rule" and continue to generate wealth, while developing the economies of Sub-Saharan Africa?
Welcome to 2025, and may you be blessed this year across all dimensions of your life, including seeing your wealth grow while serving broader society.
This newsletter is aimed at encouraging investment in South Africa, primarily through companies listed on the JSE. There are of course, many other worthwhile destinations for your savings, but if you want to see Sub-Saharan Africa succeed in bringing wealth to its people, and if you want to do so profitably, with sustainable returns, then the JSE is a good place to start. Besides, this is the universe that we, here at FarSight, know best.
Rupert’s Reinet exits from British American Tobacco
Last week’s business headlines focussed on the news that Reinet, a company controlled by the Rupert family, had exited from British American Tobacco (BAT), netting the company about 24% of its net asset value in cash.
For many socially-conscious investors, the Rupert family’s involvement in the tobacco industry has long been troublesome. It is not my place to debate the societal merits and harms of this industry - let’s just say it is complicated. While free market proponents could argue that a well-regulated sin industry should provide a gentle glide path towards a far less harmful product, we also know how corrupting corporate lobbyists can be. On the other hand, regulation that is too onerous, or worse, non existent, gives rise to a free-for-all, underground economy, where rampant exploitation of the most vulnerable becomes the norm.
Whichever way one looks at it, the Rupert family’s decision to exit the industry that gave their founder, Anton Rupert, his start in business 80 years ago, is probably, on balance an astute one. The public has become more health-conscious and prone to activism, raising the risk of reputational damage to the broader Rupert family brand.
The length and breadth of the Rupert family business
Who are the Ruperts and why should this family merit first place on FarSight’s list of this year’s articles on investing in Africa?
Across the business landscape, founder-led businesses have often well outperformed the market. Ma Huateng founded and continues to run Tencent, one of the largest internet and technology companies; Steve Jobs’ name is synonymous with Apple, as is Bill Gates with Microsoft and Buffet with Berkshire-Hathaway.
One of the most successful homegrown entrepreneurs in South Africa was Anton Rupert, founder of Rembrandt, the tobacco company. This was no one-horse pony; Rupert leveraged the profits from this business into investments in banking, mining, printing and packaging, medical services, engineering and food. These interests (added to by his son, Johann) are now largely held within the Remgro group and are significant contributors to the development of our local economy. Companies include:
Healthcare: Mediclinic, comprising 49 hospitals and two day clinics in South Africa, with over 8,000 local inpatient beds and 2,000 in operations abroad
Food: RCL Foods, comprising the Rainbow and Farmer Brown chicken brands, Selati Sugar, Supreme Flour, Nola Mayonnaise, Yum Yum Peanut Butter, and the pet food brands, Bobtail and Catmor
Financial services: OUTsurance (direct-to-client short-term insurance broker) and BusinessPartners (financing solutions for SMEs)
ICT infrastructure: Community Investment Ventures (Vumatel and Dark Fibre Africa), and SEACOM (Africa’s largest ICT infrastructure provider, including ownership and operation of undersea cables connecting Africa to other continents)
Energy: Ubiquity Energy, supporting Remgro’s strategy to address energy security through its energy exchange, a service matching supply of renewable energy with energy consumers
Industrials: Air Products (oxygen, nitrogen, argon, hydrogen and carbon dioxide), TotalEnergies (supplier of a broad range of energy sources), WISPECO Aluminium (largest supplier of aluminium extruded products in Africa), and PGSI (trading of crude oil and middle distillates)
Diversified investment vehicles: kth (Kagiso Tiso Holdings), Prescient (asset management and fund administration), and Invenfin (venture capital investments in technology, food and beverage, and health care)
Media: eMedia (broadcasting and content creation)
Second-generation entrepreneurship - and beyond
Not too many families have managed to continue building wealth into the second generation. Johann Rupert, son of Anton, started out working for Chase Manhattan and Lazard Freres in New York, before returning to South Africa in 1979. Far from being content to quietly manage the family’s investments, Rupert turned out to have inherited his father’s entrepreneurial flair and bold ambition.
His first initiative was to launch Rand Merchant Bank (RMB), serving as CEO until 1984, when he merged it with RCI to form RMB Holdings. After the merger, he returned to the family business and created a vision to focus on the luxury goods market, alongside the family’s tobacco business. Rupert launched Compagnie Financière Richemont in Switzerland, in 1998, buying some of the most iconic luxury brands (referred to as maisons), including Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, Jaeger-Le Coultre, IWC Schaffhausen and Montblanc. Richemont, now worth some R1.8 trillion, ranks as the fourth largest luxury group after LVMH, Hermès, Christian Dior and Kering SA.
Johann Rupert is now chairman of the three major companies mentioned above: Richemont (valued at around R1.8 trillion), Remgro (R76 billion) and Reinet (R87 billion). At 74 years old, he can continue to provide strong and sound leadership for some time to come (note that Buffet is now 94 and still chairman of Berkshire-Hathaway), but there is strong evidence that the family expects its business interests to pass into the hands of Anton Rupert, grandson of the founder.
Enter Anton the younger
At 53 years-old, Anton Rupert has a B.Com from the University of Stellenbosch, as well as an MBA in International Business and Management from INSEAD, France. He has been actively involved in the development of luxury brands under the Richemont umbrella and contributed to the the development of innovative marketing strategies, bringing his skills in marketing and consumer behaviour. He has built considerable experience serving on the boards of both Richemont and Remgro, being actively involved in strategic direction and investment decision-making.
As the company enters this transition phase between the generations, how the group is managed becomes particularly important. Does this collection of companies have the resilience to reduce the inevitable risk of transitioning into the third generation of the Rupert dynasty? With reference to the FarSight model, do the underlying companies have clarity of Purpose, do they stand on stable Foundations (financially and operationally), do they build positive Relationships, and are they managed by trusted and capable Leadership?
Previously, we have commented on Berkshire-Hathaway and Bidvest as good examples of well-run, diversified industrial conglomerates. Investing in the Rupert family’s three companies would provide similar breadth, though across different industries from Berkshire-Hathaway (insurance, energy, logistics and utilities) and Bidvest (industrial services).
How does this collection of businesses, controlled by the Rupert family, rate against the FarSight model?
FarSight analysis of the Rupert family business empire
Our FarSight team has analysed Richemont, Remgro and Reinet every year since 2018. Here is a summary of our findings:
Richemont
Richemont has a clear Purpose: to preserve and enhance the heritage of luxury brands. The company has emphasised craftsmanship and tradition, while aligning with modern consumer values of authenticity and sustainability through strong provenance and ethical sourcing. Over time, Richemont has capitalised on consumer preferences for enduring luxury products such as jewellery and watches, over soft luxury goods, such as fashion and leather products.
Foundations: The Rupert family have always maintained strong balance sheets underpinning their businesses, and Richemont is no exception, with debt at less than two-thirds of equity, and earnings (before interest and tax) of more than double Richemont’s interest payments. The stability of Richemont’s business is also strengthened by the diversity of the luxury brand portfolio, with each maison making a positive contribution to financial health.
Relationships: Richemont’s annual Integrated Reports are useful and transparent, and deal with material issues and risks proactively. Chairman Rupert is known for candid engagement with shareholders, taking their questions seriously and answering thoughtfully - albeit in refreshingly frank language! Richemont reports on the management and nurturing of talent across its maisons and other divisions, with well developed apprenticeship and internship programmes feeding the company's niche skills requirement. The employee value proposition appears well integrated with the core values of the business.
Trusted and capable leadership: On balance, FarSight has found Richemont’s leadership to be highly capable, and the family’s actions have proved trustworthy over the long term, despite shareholder concerns over its voter control. Interests between family and shareholders are aligned, with a general bias towards conservative day-to-day management of finances, while taking advantage of this leverage to make large, strategic investments when opportunities are presented. This agility is also expressed in the management of the leadership team, with strong mentorship of new leadership and rotation of key maison CEOs when necessary. Generally, maisons are given the space to run their own businesses relatively independently, retaining their long and patiently-built cultures of excellence.
Remgro
Despite Remgro’s diversified portfolio, the company’s Purpose is to invest in initiatives that contribute positively to the development of the South African economy and to society, with the aim of creating sustainable value, rather than pursuing short-term gains. A number of the businesses in this portfolio provide basic services, such as the Mediclinic hospital group and RCL Foods. These are stalwart companies, along with some of the industrial holdings. On the other hand, much of the portfolio comprises highly innovative companies operating at the cutting edge of technology and assisting the continent of Africa in entering the 4th technological revolution, with high bandwidth and renewable energy market solutions (see the bullet list above).
Foundations: This balance between young growth companies and more established cash-generating companies is an inherent strength for the company, but also demands disciplined allocation of capital, both in terms of where it is sourced (profits, disposals, financing, or equity) and where it is deployed (new business investment, repayment of loans, payment of dividends, or the repurchase of shares). Remgro’s reporting on this function is useful, indicating its thoughtfulness in dealing with this most critical of issues. Remgro exhibits strong financial health, with debt at less than 5 percent of equity - indeed it earns more interest on its cash than it pays in servicing debt! Short-term assets exceed long-term liabilities by nearly four times, indicating strong foundations capable of weathering the sub-continent’s volatile political and economic environments.
Relationships: Considering Remgro is fundamentally a holding company that manages investments across a range of independent businesses, how leadership builds its relationships with these independent management teams is critical to its success. While Remgro has high influence and control over these companies, its philosophy is to allow significant autonomy in an “empowered partnership” at investee company level, but within a culture of accountability, characterised by rigorous governance structures and performance metrics. Over time leadership has adapted to the requirements of investee companies, with early-stage investments typically requiring closer involvement; likewise assisting companies facing adverse market conditions or operational challenges.
Leadership: Similar commentary as for Richemont, i.e. capable and trustworthy, managed by the highly experienced CEO, Jannie Durandt.
Reinet
Reinet is different from the other two companies in the Rupert stable in that it tends to invest in businesses that don’t require active management. Thus, its Purpose is simply to achieve long-term capital growth. In this regard, its growth since March 2009 has been relatively steady, at a compound annualised growth rate of nearly 9 percent in euro terms. The company’s holdings now include a 49.5 percent stake in the Pension Insurance Corporation (with 340,000 fund members in the UK), some technology investments, and of course, some R32 billion it can now redeploy (following its exit from BAT). While this cash pile may suggest strong financial Foundations, its purchasing power will be eroded if not deployed somewhere where it can earn more than simply stuffed under the proverbial mattress. Similar commentary to that given for Remgro, above, applies for Reinet’s Relationships and Leadership, being fundamentally a Rupert-governed investment business.
Conclusion: A dynasty set for the long run
In conclusion, the Rupert family has created a broad collection of businesses run by excellent leaders, incentivised to drive long-term value for the family and fellow shareholders. Leadership has shown its deep commitment to building value through a combination of bold investments and solid business practices, built on solid financial foundations. Each company in the portfolio values its reputation amongst its customers, suppliers, regulatory authorities and shareholders. Our reading of the three companies’ annual reports provides us with confidence that the family’s leadership teams understand their risks and opportunities, providing thoughtful accounts of how they navigate through an uncertain world. While disclaimers always point to the past not being an indicator of the future, the Rupert dynasty’s track-record continues to stand the test of time.
The content on this article represents my personal opinions and ideas based on our research and analysis. It is important to note that I do not hold any licenses or certifications to provide investment advice. Therefore, nothing published in this article should be taken as a recommendation to buy, hold, or sell any shares in the companies listed above. Do your own research before making any investment decisions. See here our full disclaimer.