Focusing on the biggest news in today’s markets, Alec Hogg and RECM’s Piet Viljoen applied their collective insights on CNBC Africa’s Power Lunch. In the spotlight was Steinhoff’s history-making R63bn acquisition of Pepkor; as well the results coming out from Naspers, Omnia and Transaction Capital. Alec also got insights from Viljoen on the value to be found in Cadiz and the ‘inevitable’ future of Rio Tinto – LF
ALEC HOGG: Well, let’s get a more in-depth view of how the market’s trading today. Piet Viljoen from RECM is with us in our Cape Town studio. I made a little bit of a slip of the tongue there Piet, by saying that in the Steinhoff deal the big winner was Brait. In fact, the big loser was Brait if you judge by the way that the market’s reacted. That share price, down 15 percent at the moment. Have you had a chance to look through the details?
PIET VILJOEN: Look, I haven’t looked through all the details, but in the detail that is available it is clear that the price that Steinhoff is paying to acquire the Pepkor Holding of Brait, is probably slightly lower than what the market was imputing the value to be in the add-up value of Brait. That’s why I think the Brait share is under pressure.
ALEC HOGG: Just looking at the transaction overall, it is two guys who know each other terribly well – Markus Jooste and Christo Wiese. Both live in Stellenbosch, very close to each other. I think Wiese is on the Steinhoff Board as well so it shouldn’t come as a surprise, particularly because Wiese is getting on in years.
PIET VILJOEN: Well, I think Mr. Wiese is buying and selling because he’s a big shareholder in Brait himself, and he’s going to become a big shareholder in Steinhoff. He has a finger in many pies and I think the way Steinhoff is going, possibly Pepkor is a better fit there. Steinhoff is becoming more retail orientated and Brait will have ammunition to make further transactions, which they’ve been proven to be very good at over time. I think it’s effectively a win-win for both parties.
ALEC HOGG: But Christo Wiese is actually, a much bigger part of the transaction as clearly, his sale of Pepkor… As you said, he’s going to picking up 600-million shares in Steinhoff, because of that. Are we likely to see Brait then sell off its Steinhoff shares into the future because it’s going to have about 200-million of them?
PIET VILJOEN: No. It’s going to sit with a big stake in Steinhoff. It depends on what alternatives they have, because they have a lot of cash as well. It depends on what investment alternatives they are presented with. At this point, it’s hard to say what their future is for their investment in Steinhoff. Steinhoff is a good business run by good management, and it has proven to be a good investment over time, so I don’t think they’d be in any rush to sell it.
ALEC HOGG: Piet, the other big news coming out this morning were interim results from Naspers, heavily influenced by its investment in Tencent in China.
PIET VILJOEN: Yes. There are two main profit contributors (Tencent and MultiChoice), which is a significant contributor to trading profits and both have done well. Of course, Tencent is growing much faster. It is the faster-growing part of the Naspers business and the most value in the Naspers stable comes from Tencent, but it’s a good result from them.
ALEC HOGG: I’m not sure if you checked in the detail that the print media side has now completely fallen out of bed. Trading profit there dropped 96 percent, to just over R8m. Can you believe it?
PIET VILJOEN: Yes, that’s right. It seems to be going backwards but Naspers is a media company. The print media might be going backwards, but the electronic media is going forwards and that’s where they’re making their money.
ALEC HOGG: But it shows you how farsighted Koos Bekker was because his competitors (going back a few year) are still heavily reliant on print media. We’ve also seen a cautionary coming out from Times Media for instance, which relies on the Sunday Times (a print media publication). What do you think might be going on there?
PIET VILJOEN: I have no idea. I have no idea what’s going on at Times Media. I’m pretty sure that if one looks at the Media24 results, the newspaper publishing business of Times Media can’t be going very strongly but there are other aspects to that business as well. It’s not only media. The newspaper businesses, such as Times Media and Independent, etcetera cannot be doing very well at this point time.
ALEC HOGG: You have to scratch your head – you mentioned the Independent Group – as to why Iqbal Surve would have bought in at a time when where’s seeing these kinds of numbers from Naspers.  Moving across to other results though, Omnia, if I’m correct, is a company that you followed and in fact, been invested in, in the past.
PIET VILJOEN: Yes. We had quite a sizeable investment in Omnia a few years ago. Over the past year of two, we’ve reduced our shareholding significantly. Currently, as with many good quality businesses (and Omnia is one of those good quality businesses), we think they are somewhat overvalued. We think the market is ascribing too much certainty to their future and therefore, paying too high a price for their earnings stream. Therefore, we’re not a big shareholder of Omnia anymore.
ALEC HOGG: They’ve had a pretty rough ride in the chemicals division (or even worse so, in the mining division) – chemicals because of the strike and mining, I suppose, for good reason. However, you do like mining longer-term, so would you start looking at Omnia again son?
PIET VILJOEN: There will be a point. I think it’s still too soon. I think the whole cycle still needs to play itself out there. By no means is the market despondent about Omnia. We normally get involved when the market starts becoming despondent about shares become cheap. I don’t think the market’s despondent about Omnia at all, but these things come and go. Sometimes the market is optimistic, sometimes pessimistic, and you just have to choose when you want to make use of Mr. Market’s moods.
ALEC HOGG: Well, talking about Mr. Market, sometimes there’s a lot of information that doesn’t hit the public domain. This bit of information did. It was a senior U.K. banker, who spoke with hedge funds and said to them ‘it’s inevitable that Glencore is going to acquire Rio Tinto’. They’ve made their first bid. They’ve now had to have a six-month cooling off period before they come back again. Again, given your interest in the mining sector, do you think that this would be a foregone conclusion, the way it’s been painted in London?
PIET VILJOEN: I’ve much less certainly about these things and a whole lot of other things, the more time I spend in the market, and so I wouldn’t be able to say. I don’t think anybody really knows. They made a bid so they have a clear intention to acquire the business. Since they made the bid, things have changed. The iron ore prices have come under tremendous pressure. Iron ore business profits will be coming under tremendous pressure going forward, so maybe there will be a more opportune time in the future for them to acquire those assets. It’s not unreasonable that it could happen but again, there’s no certainty out there.
ALEC HOGG: So Glasenberg has not gotten wealthy by doing stupid things. He’ll probably just take his time.
PIET VILJOEN: Yes. Exactly, and if you can be patient, I think that puts you on the winning side most times.
ALEC HOGG: Piet, you also get onto the winning side by analysing stocks that other people have ignored. Transaction Capital is an interesting one. They did sell off their two major businesses – Bayport and Paycorp –, and are now left with a much smaller company. We’re going to be talking to David Hurwitz, the Chief Executive, a little later. Is it one that’s attracted your attention yet?
PIET VILJOEN: It’s definitely one, which we are looking at, have looked at for a while, and are continuing to look at. We like what they’ve done. The fact that they got out some of the micro lending (if you want to call it that) at a good stage, is quite opportune. What they have left is predominantly asset-based lending, we think those businesses are good businesses, and they have optionality in the form of cash. The business is therefore quite well positioned and it will be interesting to see what they do, going forward. At this point, we’re still looking. We haven’t committed to any yet.
ALEC HOGG: Still with financial services, you have a big chunk of Cadiz and I mentioned earlier the whole Times Media story, where the Chief Executive of that company Andrew Bonamour is the Chief Executive of Times Media as well. He’s just been appointed to the Board. They’ve bought some shares there. Have they been engaging with you at all on the Cadiz story, or are you seeing that there’s some opportunity that might come from Blackstar’s involvement?
PIET VILJOEN: We think there’s tremendous value to be unlocked in the Cadiz business and we think that Blackstar are the right people to go in there, and unlock that value. We have been engaging and we think there is value to be unlocked, going forward.
ALEC HOGG: Piet Viljoen is from RECM.
