🔒 WEBINAR: SA Champions – Brait the laggard as Naspers, Discovery, Glencore shine

JOHANNESBURG — The Biznews SA Champions portfolio was built on the Warren Buffett foundation of ‘hold the stock forever’. Launched in January 2017, the portfolio has seen two company changes, with WBHO and Blue Label swapped out for Glencore and a doubling up on the Naspers stake. The portfolio now comprises eight stocks, the two mentioned plus Discovery, Brait, MTN, MediClinic, Investec and Steinhoff. The portfolio is up 5 percent year to date inclusive of costs, lagging the JSE Top 40 which is up 11% exclusive costs. Brait is the major laggard, off over twenty percent from when we included it in the portfolio. In this monthly update, Alec spends a lot of time explaining why it is offering even more value at current valuations. – Stuart Lowman

Let’s just start with our view and it will come through a little bit more clearly as we go into the webinar. We believe that SA is being poorly managed economically. We believe that it’s very unlikely with the current government that there is going to be much change in that focus and, as a consequence we think that the share price of SA, in other words, the SA Rand (ZAR), is going to be weaker over time. Although there will be all kinds of volatility in the short term, in the long term you need to ensure yourself against this continued decline in the value of the currency caused by poor economic management.
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This is a view that we’ve had for a few years. It has worked out pretty well in our global portfolio, which has invested in offshore shares (non-SA shares) but the local portfolio, the SA Champions portfolio is only those stocks based on the JSE and, also the stocks that have a SA connection. We aren’t saying let’s go and buy a bat for instance, or let’s by the RMB instrument, which gives you an investment straight into Treasury Bills in America.

We’re saying by into SA shares run by SA entrepreneurs which are doing their work outside of the country. They need to be listed on the JSE so, you need to be able to take your Rands and put your Rands into these shares at any time that you want to. So, it’s an alternative to buying the Satrix 40 or other kinds of ETFs, but the directive here is SA companies that are trading internationally or operating internationally and those that we think have got great potential.

Now, you’ll see as we get into the portfolio, that we’ve done pretty well of the 8 stocks, 3 have done unbelievably well. One has done unbelievably badly so far, and then the others have been bumping around there, those that we selected, and we have gone for only 8 of those shares. That is the primary driver and I’m going to spend a little bit of time on this because we’ve had quite a lot of political issues happening in the past month, in fact, in the past couple of days.

As you can see this portfolio will perform when the Rand weakens. Now, in the past month and I’m going to use another tool here so, if we have a bit of technical problems just forgive me. But in the past month, it was on the 13th July that we had our last webinar, it was around here. At that point in time the Rand was at R13.22 to the USD. We then had an improvement, a significant improvement of the value of the Rand as the USD came under pressure. We know that the USD is looking a little wonky at the moment. It’s gone from $1.24 to £1.30, against the Pound for instance. We then saw the Rand appreciating as everything else appreciated against the USD and it got down, roundabout 17th July, to below R12.90 against the USD. Once again, that was probably the best point in the past month, on the 25th July, when it almost hit R12.85.

Then we had the announcement or the finalisation of the date of the ‘no confidence vote’ and you can see what happened there. The Rand weakened all the way to R13.45. The day before the vote the Speaker Mbete, said that it would be a secret ballot and suddenly over here, international traders got terribly excited they were buying the Rand as though the secret ballot vote was going to make a big difference. It came down just before the ballot itself to around R13.10 and then you can see after the ballot it’s been shooting up in the other direction. In fact, getting to around R13.50, immediately after the vote.

So, what does all of this mean? Well, there’s all kinds of speculations on what the secret ballot meant and some media commentators are suggesting to us that Baleka Mbete is now the new hero. That she was prepared to go with the secret ballot. I have a completely different view on this and for what it’s worth, let me give you my insights.

198 ANC MPs voted with Zuma, and this was after they were given information, which showed the depth of the corruption that is occurring in SA at the moment. There can be no doubt in anybody’s mind that they voted for a perpetuation of a system that is being allowing the Gupta family to continue to, essentially appoint Cabinet Ministers. Those Cabinet Ministers have their positions on the basis of the favours that they give to the Gupta family. The Gupta leaks, we’ve seen those emails come through, which is really unpacking everything on that side. We also see that there is a country, at the moment, is ruled by a political party which doesn’t worry about these things.

Now, I’m not saying this to be emotional or saying it so that you can get yourself caught up in the emotion because it’s very easy to do that. It’s very easy to get angry about it but I’m rather saying to you that this is the reality of the country that one lives in and it’s the reality of the investment climate that you have to deal with. The no confidence vote showed us that the ANC, of 251 seats in Parliament, of which 13 members weren’t there. There were 238 who were there. The others were sick or they were not in Parliament or they were bi-elections. But 238 were the number of votes that the ANC could count on. 40 of those decided to vote either with the opposition or to spoil their ballots, or to abstain.

That tells you that the ANC essentially, of those who are in Parliament for the ANC – 5 out of 6 are Zuma deployments, and 1 out of 6 is with the Pravin Gordhan, the Reformist Camp. There’s a brilliant book that has been written by Jakkie Cilliers, I’m going to be interviewing him next week. It’s called ‘Fate of the Nation’ it’s well worth reading. As you can see, I’m about halfway through it, which is not bad if you’re going to be doing an interview with the author in a few days’ time so, I’ll finish it over the weekend. But in this ‘Fate of Nation’ he unpacks things beautifully. Where he tells us that the ANC has got traditionalists and they have got reformers. What we now know after the vote on Tuesday is that the traditionalists, in other words, the Zuma camp are 5 out of 6 of ANC members in Parliament. Whereas the reformers, if you like, the Pravin Gordhan camp are only 1 out of 6.

What this means that we’re going to head into an election for the next president and clearly the traditionalists are the ones who are going to be deciding who that next president is. After that no confidence vote, which remember was a secret ballot. I’m of the opinion that now, as things stand now, unless we have some seismic event between now and December, and in SA, who knows this can always happen. As things stand right now Dlamini-Zuma will be the next president of the ANC, which will make her the next president of the country until the election in 2019. Then the nation is going to have to decide what kind of a future it wants.

Bear that in mind as a background to where the country is sitting and then you have to ask yourself how is the ZAR going to react to this. That increase in the value of the ZAR over here, that was all to do to with the possibility that Zuma would be voted out, the possibility because of a secret ballot. The secret ballot failed and now we have more of a reality that has set in that this is a country that is going to be going along a particular path. Economically a path that is unlikely to be one that is going to be growing the economy. We do know that SA’s economy has been flatlining now for something like 5 years.

We also know that if you look at the data from around the world and there’s a very good breakdown in the Economist every week of 42 countries, and if you look at the 42 countries, with the exception of Venezuela, which is imploding, the other country that performs worse in the world in its economy is SA, which has an economy that is contracting right now. So, you have in power traditionalists. They are applying certain economic policies and they have a consequence which is a consequence for the economy and a consequence for the ZAR. That is the reason why we feel very confident about the way that this portfolio has been structured.

The Rand depreciation as you can see down at the bottom there has, in the past month, was 1.3% and the month before the depreciation was down to 3.4%. As a consequence of that we’ve seen an improvement in the portfolio, remembering that this is a long-term portfolio so, it is something that is going to take us… The idea is that you buy the shares and hold them indefinitely. Now, that hasn’t been the case. We haven’t been able to do that initially because we have been sorting the portfolio out from the 23rd January.

We started with an investment of R100.000. You can replicate this in your own account with EasyEquities. Why have we done EasyEquities? Because they’re cheap and why do we think that cheap is important is because Warren Buffett tells us that you have to look in the long-term performance at your costs. If you can get your costs down it makes a massive impact when you are making a long-term bet. We are taking a long-term bet on this portfolio in the view that we want to keep the costs as low as possible. We want to go with that strategy of investing in investible companies in SA, in Rands that are going to be around the world.

Here was the investment, the changes we’ve made – on the 4th May we sold Blue Label shares and bought additional Naspers shares. There’s no mystery in that. Naspers, at the moment, is 25% of the SWIX Index. In other words, if you take SA pension portfolios of the equities that they own, 25% is in Naspers shares, and that’s the reality of it. Thankfully Naspers is a fantastic performer and we’ll talk about that in a moment as well.

Then on the 1st June we sold Wilson Bayley shares. They were in the portfolio because I was quite excited about their potential in Australia. I’m not so excited about their potential in SA, which is half of the business. It’s a very well-run company but with the kind of economy that is likely to eventuate in SA, a company like Wilson Bayley is not well positioned. If you’re a construction company there’s not a lot of construction going on, clearly, you’re not going to outperform.

Then we switched into Glencore and the reason for that, those of you who were in the discussion on the June portfolio, you’ll recall that it is a bet on electric cars. How does that all work out? Well, Glencore is the world’s biggest producer of the minerals that are going to be used in electric cars. So, we’ve gone from Wilson Bayley, which was construction focussed SA, to Glencore – a bet on electric cars in the long term.

Here’s how the portfolio has performed and you can see, in the last month there were some quite interesting changes. Naspers was the best of them. The share price of Naspers going from R26.50 to R28.77 – that’s R2.877.75 to be precise and that was based on Tencent. What happened in the past month is that Tencent came under pressure for various issues in China. Remember, Naspers is trading, it’s Tencent shares alone are worth 130% of the Naspers share price so, you’re really are getting in at a bargain there but you’ve got to believe in Tencent and I believe hugely in Tencent. In fact, we have Tencent as a separate holding in our global portfolio.

The improvement there, you can see it quite clearly, that our 3 big performers were Naspers, Discovery, and Glencore. Glencore is the most recent addition, has done amazingly in 2 months, it’s up more than 20%. On the downside though Brait down nearly a quarter of its value since we bought in January. The rest are kind of here or there. The JSE all share Index is beating us at the moment, it’s up 11%. Whereas this portfolio is up 5%. I’m not worried about that. In the long term, I’m quite comfortable that as the Rand deteriorates this portfolio will outperform and I’m also very happy with the structure of the portfolio and we’ll know why as we go through the different constituents of it. Stu, are we open for questions?

Yes, we’re open for questions but it looks like a secret ballot as there’s nothing coming this side. Just click on the question bar on the right-hand toolbar and I’ll pass them on to Alec.

It’s pretty easy to request those questions, so go for it as you can. As you can see the portfolio overall, R105,651. Remember that’s also after costs so, we’ve taken the VAT and the trading costs and everything else into account. If you’re buying this bundle through EasyEquities, literally, you don’t have to worry about anything else. You put whatever it is, you can put from R250, and then it will be put into this proportion into these stocks and then, every month that you come back here you’ll see exactly how your portfolio has performed.

Let’s get into the portfolio itself. Starting off with Naspers. There’s Bob van Dijk, he hit the news in the past month because of the share options that he was granted. He’s a quality man, a very high-class executive. He is Dutch, lives in the Netherlands and he’s done some incredible deals. In fact, I think as a shareholder of Naspers, and all of us who are in this portfolio are shareholders of Naspers, we should be sending Bob bunches of flowers for a transaction that he did last month. We discussed it, with Delivery Hero – he bought into just before its listing and that deal alone gave Naspers a few billion Rand. They bought in at a price of €16, ahead of the listing of Delivery Hero, which is an eCommerce business headquartered in Europe, but it’s a global business. But that share price then promptly, once it was listed, jumped to €28, so Bob put… Well, the value of the investment has gone up. It’s a R24b valuation there. He’s also done some good work in India, where Naspers is a big shareholder in Flipkart, where it’s now a 16% shareholder. Other shareholders there are Tencent, eBay, and Microsoft so, you can see.

People can say that Naspers was a one trick pony with Tencent and nothing could be further from the truth. You have to dig into this business and see what they have been doing. South Africans of course, see Naspers only for Multi-Choice and the newspaper division but those are really small beer, when you compare with the investments, clearly in Tencent as a starting point and with the investments elsewhere.

In the past year Naspers’ share price has done well, as you can see, from R2.000 a share, this is the JSE share price. Up until yesterday it was at R2.950. It’s come back a little bit this morning, R2.877, but since we bought into Naspers, which was in January it was around about this level here, you can see that Naspers has performed extremely well. Hence, that 27% gain that is being shown in the portfolio. We also sold the Blue Label shares to increase the Naspers holding and giving that Naspers is such a big constitute now of the JSE. It makes 20% of the Aussie 40 Index – 25% of the SWIX, which is the SA register. To have what we have in the stock, which is about 18% is actually underweight. If anything, I would rather be overweight in this share but anyway, they say you’ve got to be diversified and you’ve got to be careful about these things and not to overdo it and that’s part of the challenge that we have. Anyway, that’s Naspers and it’s been a wonderful performer it has been for us.

Moving onto MediClinic. This is an amazing company. South African’s don’t quite get yet what an incredible business MediClinic is. It has a vast private hospitals business in Switzerland. Its big question mark at the moment, is the private hospitals business that they bought in the UAE. It’s in the market to buy a big UK business as well. All of those deals are aligned with getting it out of the exposure to the SA market. MediClinic, not long ago, was a fully focussed SA business. Its investments in Switzerland, and the UAE, and another big one coming in the UK soon. It already owns 20-odd percent of Spire but it’s looking to do a bigger transaction there, one believes, which will make it even more offshore focussed.

Remember, MediClinic is a member of the FTSE 100. This is something again that SA doesn’t get their heads around. That’s how big or how much the company has grown. It’s a bet, to a large degree, on the Rand and from time to time, as the Rand strengthens MediClinic share price falls. This has not been the best performer in the portfolio as you are well aware but it’s only down by 4% now on what we bought it at and if you consider that its major or primary listing is in London, where we’ve had the impact of Brexit on the Pound then a 4% decline is not that serious.

Alec, a question from Dereck Jordaan on Discovery. He said, ‘ordinarily I’d be worried to buy a share like Discovery after a rise of around 25% in 6 months or so. Is it too late to start buying it now?

Derek, I think the best way to invest in this portfolio is monthly. Then you get Rand cost averaging. You’ll be buying Discovery at a higher price today than we bought it in January but, by the same token, you’ll be buying other constituents of the portfolio at a lower price. I think Discovery is a big call but if you were to take of an operating business in SA, I would say it’s the best operating business SA has. It’s an amazing team. I see what they’re doing here in the UK and they really are making deep inroads in the UK market. Once they get that right the rating of this company is going to change quite significantly. Not that it isn’t very well rated but we’re going to talk about Discovery in just a moment and I’d rather hold that conversation for later. Principally though, the best way to invest in this portfolio is to do it on a monthly basis. So, if you’ve got, let’s say R5.000 extra per month, just stick it into the bundle, that R5.000. That’s the fantastic thing about technology nowadays. EasyEquities will organise everything for you. They charge very little in fact, a fraction of what other stockbrokers are charging and that’s a way of getting in. I think Discovery, by the way, is very cheap at the moment. But just to finish off with MediClinic, I also think this one is very cheap so, very happy to have a big slug in Mediclinic and nice to see it seems to have found a nice bottom there, for the moment anyway.

Here’s the one I need to spend time on. There’s Christo Wiese, he’s a great entrepreneur. He hasn’t got a flawless record, who has. At the moment, the market is saying ‘he’s lost it.’ Christo is in his 70’s, he’s not 100 year’s old, he’s not a Robert Mugabe (in his 90’s). I don’t think he’s lost it. I don’t think he’s being absolutely brilliant in his timing of one the purchases in the UK but on the other hand he’s very good at making turnarounds and making decisions when things are wrong. Now, Brait came out on the same day that the rest of SA were interested in the no confidence debate with its update of its net asset value. In March 2016, its net asset value was R136 a share. The latest net asset value figure is at R74 a share, and that’s almost a 50% decline and what the devil went on there?

In 2015, Brait did its deal with Steinhoff and got a whole lot of cash. Essentially, what happened was that Christo Wiese has a big chunk of Pepkor shares that he put into Brait, which was then sold by Brait into the Steinhoff deal, when Pepkor and Steinhoff merged. It’s easy enough to imagine. The return on investment for Brait on the shares Wiese put in there for his shareholding was something like 70% per annum, in the 3 years or so that they held. So, he did Brait shareholders a very good turn in that regard.

Where Brait shareholders are pretty cross with Christo at the moment, is that he used that money to go and acquire 2 companies in the UK. One was to get 81% of a company called New Look, and that’s been a disaster. The other one was to acquire 71% of Virgin Active, which has done pretty well. On the 8th August, Tuesday, the latest net asset value figures came out for Brait, and remember Brait is an investment company, so it owns New Look, Virgin Active and another company in the UK called Iceland, which is a retailer and has almost a thousand outlets. They’re big businesses, all 3 of those in the UK, then in SA it owns the old Premier Milling. If you remember, a food business that has a lot of mills and produces a lot of SA’s bread. It is unlisted, Premier Milling, as are the others. That’s what they do, they find a good listed company, buy it out, delist it and, in that way nurture it and the idea is to (A) globalise – get away from the SA base, and that’s what they’ve done very successfully. (B) is to find very good value firms. Well New Look has been exactly the opposite of what was anticipated.

When Brait went into New Look, when it bought the company in June 2015, it paid over £700m for it and that £700m has now been slashed down, written down to a fraction of that value. It was £783m indeed. It is now supposedly worth only £400m so, they’ve lost half their value in Pounds on a company that at the time had 872 stores. The problem with New Look is it is continuing to stagger. It has got a new CEO, called Anders Kristiansen. Anders Kristiansen’s claim to fame, if you like, is that he worked half of his career in the Far East. What Brait is doing now is building aggressively in China. In its update to bond holders, it’s not listed any more so, it doesn’t give updates to shareholders but to bondholders, those people who’ve leant it about £1b. Brait explained that in China it opened 17 new stores in the past quarter, that was the 3 months to the end of June. It now has 127 stores in China and 86% of them are profitable.

While you’ve got a UK market that is looking at the UK at the nearly a thousand stores that New Look has got and is saying, ‘this company is a dog.’ What’s not being appreciated is what’s going on in China where they’re growing profitably and very aggressively. There’s an interesting dichotomy going on here. I’m a bull on Brait, especially at this level. Although New Look hasn’t bottomed out yet. Their EBITDA profit was £27m as against £43m the same quarter, a year before. Their operating profit is not looking that great, £5m now and £27m then but they are reinvesting. If you want to unpack the numbers, and I’m not going to go into too much detail on it, but if you were to unpack the numbers you would see that they are reinvesting. The difference between a profit of a year ago and the profit today is the money that’s being reinvested into strategic initiatives, as they call it. Are they going to be able to turn this thing around? There’s some who say no. I like their free cash flow number and that doubled in the first quarter of the new financial year, which was the 3 months to June, and that doubled to £24m.

You must remember also, they aren’t pumping these results by any means because Brait is investing heavily in buying back its own shares. It bought R168m worth of its own shares in the quarter to the end of June, 2.6 million shares, and it bought them at R62.75. So, Brait’s share price is at R60.29. Their own company is prepared to put more than R150m on the table, to buy its shares back at R62.75. If nothing else, I believe, it’s bottomed. The upside, already you’re getting in at a discount on net asset value and how strong is that net asset value? In my opinion, very strong indeed. They have valued New Look at a 28% discount to its peers so, it values what they call an enterprise value to EBITDA ratio of 10.3 and they can use that to look at other companies who are similar to it.

It’s also valued Virgin Active at a 17% discount and Iceland at a 20% discount to its peers. In fact, Iceland is only at a 9 times valuation, which those are the major constituents of Brait. What I’m trying to say is they’re not pumping up the share price. They’re not selling you that Brait is worth R74 a share when it’s actually worth only R60 a share. They’re trying to be as conservative as possible, which is a rational expectation if you’re trying to buy back your own shares, which is they’re doing quite aggressively, at the moment. I hope all of that makes sense and lets you understand why I still think that notwithstanding the challenge with New Look that Brait remains a very good part of our portfolio.

Getting onto Dereck’s question on Discovery. Their results are coming out soon. Remember they’re a June year end company. All the indications that we have is that the figures are going to be excellent. All we’re looking for is further progress in the UK. You can see that when you walk around the UK you’ll see Vitality, their brand here, has a very high profile. Increasingly people are getting worried about the National Health in the UK. It’s fantastic if you haven’t got any money and you are prepared to spend a whole day waiting to get yourself cured if you’re sick but if you have got money and if you are time poor then you really need to have an alternative to National Health, which is creaking and unlikely to get any better, given the demographics of the UK.

They’ve come into this market with Vitality at probably the right time. Remember, there’s lots of other initiatives that Discovery is driving internationally in its shared value model, we won’t go into huge detail there but it is innovative, it is something completely different. It has been quoted by Harvard Business School. Michael Porter, who’s rated as the top business thinker at the moment, is a huge promoter of the shared value model, which he got from Discovery. So, these are… It’s like that story of a missionary in your own background, you don’t get properly recognised. I’m a very big fan of Discovery. If you were to take the cream of SA brains every year you would find a good percentage of them end up working for Adrian Gore and his team at Discovery.

I see what they’re doing in the UK. I see what they clearly have done in SA. Their challenges in SA with the National Insurance proposals but you can’t spend money you don’t have and as much as it’s an idealistic idea of the Zuma administration and if they’re perpetuated into the future by his ex-wife that they’d want to go with National Insurance. It’s not going to be great for Discovery but it is more and more going to be encouraging people who live in SA to invest in private health care. If you just consider that the UK can’t afford to run its National Insurance any more, not properly anyway. When you take it back to the SA situation where the GDP per capita is 1/5th of what it is in the UK, you can just see how huge that challenge is. Discovery is…

I often say probably the best business in the world is Tencent. The second-best business in the world, a close second, would be Amazon.com, and probably the best business in SA, for my money, is Discovery. I hope that answers your question, Derek.

Thanks Alec, if anyone else has any more questions please push them through. Dereck is the lone ranger at the moment.

Just moving onto Investec. Isn’t that a nice picture of Dr Stephen Koseff, who would have known a boy from Benoni would be given that. Well, he’s clever enough to be a doctor many times over but Koseff given an honorary doctorate, you can be sure he’s not one of those egotists who’s going to use it. But it’s a nice thing for him to have. He did go to Wits anyway, so it’s nice to have his Alma Mater giving him that acknowledgement. It’s a great company this one too. You see it in the UK. You see the way that they focus their marketing expenditure in areas where it really hits their market.

I’m a client of Investec so, I can talk from personal experience but you see it when you phone the call centres. You’re talking to graduates. They only employ graduates in the call centres in SA, by the way so, if you’ve got a UK account, as I have, and you phone the call centre and you get through to Thabiso or to somebody who is extremely well informed and can give you a great idea of what the weather is like in SA and also, great information. They really are on top of their game and they continue to do extremely well. Investec, I think, operationally we’ve seen the numbers, they were excellent (their last set of financial results), but Investec labours under this problem that banking shares around the world have got. The market doesn’t like banking shares right now, we’re seeing in the UK publications. Lots of experts coming out to say that it is the cheapest sector of the market and it’s time to be buying banking shares.

They don’t look at Investec in that light. They will talk more about things like Barclays, HSBC, Lloyds and in fact, we even looked at Lloyds and thought it might be a good one to add to our global portfolio a while ago. Investec is a stock that I’m very happy to have a significant holding in. It hasn’t done much but it’s up 4% since we bought in to it in the first place and a very solid business to have in the portfolio.

Here’s one of my absolute favourites, Markus Jooste, who is the CE of Steinhoff and people who know him rate him as one of the smartest that they’ve ever met. He has a binary mind and a very brilliant one as well. He doesn’t buy on emotions. In fact, a lot of his way of going about acquiring businesses is, first of all, get to know the people and after you get to know the people then do the deal. You might notice that a few years ago he brought Sean Summers on board as part of the Steinhoff team. Sean was then given a very small portfolio. Sean, the guy who used to run Pick ‘n Pay for many years, was given a very small portfolio in the UK to run the bedding businesses but that wasn’t to last very long. Sean is now based in Houston, Texas, where he’s running the biggest foreign acquisition ever by a SA company, a business called Mattress Firm, which is the biggest mattress company in the US. It is a huge part already of Steinhoff’s operations and likely to get bigger in the future.

If you were to find a fellow South African who you’d like to put into this business to run it for you, I don’t think you would look very much further than Sean Summers. A brilliant retailer, as he’s shown and, also an excellent marketer. Sean is very much part of the Steinhoff team. I’ve had the opportunity of seeing a bit of him here, in the UK. He hasn’t yet been able to tell me about updates from Mattress Firm but that is a huge bet for Steinhoff. What it means is the acquisition of Mattress Firm now gives Steinhoff a very big slice of the US market. It also is one of the few companies that is immune to an Amazon.com bulldozer.

Just the mere suggestion that Amazon is going into a market is enough to send panic into share prices in that sector. Well, there was a very good report, I wrote about it in the premium section, which you can go and read that story on Steinhoff. It was about a week ago when I did some research into something that Morgan Stanley had put together because clearly, they’re worried now as investment advisors when clients of theirs have got shares in companies that can get affected by Amazon. They’ve done this whole research report to say, ‘What won’t Amazon hurt?’ You can almost write Steinhoff’s name there because it won’t be hitting low margin businesses. It won’t be hitting bulk businesses. It’s very hard to deliver a bed. And it won’t be hitting, what they call, the cut-price area and that’s where Steinhoff operates, in both Pep Stores and in Poundland, for instance.

Poundland is an incredible business. When you go to the UK next time, Steinhoff paid a pretty penny for it but it’s a fabulous business model. In that what they do is they almost negotiate great deals with suppliers and you can buy a tin of shaving cream through to a huge chocolate for literally £1. In SA terms, R17 is quite a lot of money but £1 it doesn’t get you hell of a lot in the UK yet, in Poundland it does. It buys you a fair amount and that’s another area, and you also look at Pep Stores and the way that that’s positioned is another area that is Amazon proofed.

If you’re going into retailing all the retailers are being smashed, they’ve all been hammered because of the concern that Amazon is going to take them out, across the board. Now finally, the investment analysts are saying, hang on, not all retailers are equal. Some of them are going to be hammered by Amazon, sure, but quite a few of them aren’t. So, who isn’t? Steinhoff isn’t. Add the SA connection, add Mattress Firm, where Sean Summers is running it and, incidentally he won’t be much of a culture shock to those people in the business because Mattress Firm, which is a R20bn business was started by a South African, a guy who sold mattresses in Durban and then went off to the US and built it there. Very exciting stuff, all around for Steinhoff. Again, a little bit like Discovery, not being fully appreciated by people in its own market.

Thanks Alec, I’ve just copied the link to the Steinhoff story in the chat box, for anyone who is interested. It’s there just under the question box.

Thanks Stu, that really is a worthwhile piece if you didn’t read it when it was put into your inbox. It was well worth doing. Now, okay, it’s a bit of a stretch to have Glencore in the portfolio. I would love to be able to put Tesla in here but you can’t buy Tesla on the JSE. If you could buy Tesla on the JSE, because it’s a South African who runs it and built it, Elon Musk, that would definitely be in our portfolio and Tesla has been a fantastic performer for our global portfolio but on this one, Ivan Glasenberg is a South African. He’s from Johannesburg. Glencore recruits in SA. He’s got assets in SA so, it’s listed on the JSE so, it does qualify for this portfolio.

There you can see as Glencore’s share price has performed in the last little while. Since we bought in, we bought in, in June. There’s the performance of this stock since we bought in and remember it was a switch as well from Wilson Bayley, which makes it even better because WBHO has gone down since this time. The reason we went in there was I had listened to the annual general meeting, which was webcast. In that discussion Glasenberg spent 30 minutes in explaining how Glencore’s portfolio had been refocussed and finetuned to benefit from electric cars. He’d been thinking about electric cars long time before Volvo decided that they were no longer going to be producing internal combustion engines.

It’s one of the great exponential themes of investing at the moment, and that is how do you get, when you have an industry as big as the motor industry, which in many countries makes up 5% of GDP, in some countries even more. When you have a business like that, which is transforming dramatically, what do you do about, first of all, lightening your load towards the internal combustion engine? Secondly, how do you benefit from the boom that is coming? Well, if you look at any goldrush the ones who make the money are the people who sells the picks and shovels. That’s exactly what Glencore does. It sells the picks and shovels to the electric car industry, through cobalt, through nickel, through copper, where it’s amongst the world’s biggest producers.

As an aside, this is another issue that South African policy makers should be applying their mind to hugely because SA’s biggest export earner is platinum. Platinum is, by far, the biggest off take goes into catalytic converters. We make about 40% of all the platinum that is produced in the world. If you’re making all your money out of catalytic converters, which by the way, go into internal combustion engines. You’re making your money out of catalytic converters, which go into a product, which by 2040 will not exist in markets like the UK and France. They’ve already legislated it. No more internal combustion engines in those 2 countries in 2040, and the rest of the world is moving away from internal combustion.

You had better start thinking very smartly and very quickly about how you’re going to be playing this. I fear that not enough attention has been put onto this. We still have, and add to that, the fact that the SA industrial policy is promoting motor vehicles. The motor vehicle industrial policy is what and what are those motor vehicles making – internal combustion engines. Think for a minute, just a minute, you’ve got a finite date now when those cars will not be allowed on the roads in the UK and France as starting points, then the rest of the world will follow and you can be sure that China will be doing something similar. So, that means in 2040, then you go back from that. Well, you’re not going to buy a car 3 years before the deadline because what’s the point in having a car that in 3 years’ time you’re going to have to get rid of it. That takes you down to 2035. We’re in 2017.

If you’re going to do an investment in a new plant are you going to make that investment if you can only see a 15 – 17-year return? It becomes a very difficult scenario to work out for yourself. Hence, this drive aggressively towards the electric cars. So, SA has got a lot of questions to ask itself on that issue alone, quite apart from everything else. But as an investor or a shareholder in Glencore you can be sure that you’re in with the pick and shovels of the next big goldrush, which is the transformation of the internal combustion engine towards electric cars.

Then MTN. Poor old MTN. It seems to get a nice, little uplift and then something hits it from the side. We saw the results or the trading statement from them. It really wasn’t awe inspiring but I’m not expecting anything from MTN in the short term. This is a company that is bouncing around now at a level where it is massively undervalued, relative to the audience that it owns. We’re also seeing from all over the world that those who have the relationship with the mobile phone are the ones who are going to benefit from the new media into the future. MTN is being looked at by analysts on current figures and not on potential. It’s been looked at by analysts on what the old management has delivered and not the new management. I’ve gone through in previous webinars who the new management are. They really have, and Phuthuma Nhleko has gone out and got the very best people that he can from both SA and Rob Shuter, the CEO, from Vodafone in Europe. They’ve got the right team. They’ve got the right assets invested. They’ve got big potential in Nigeria as that expands, obviously SA, other parts of Africa, Iran is a good market as well. They have that connection with the customer and at these share prices I’m very happy to put it in the portfolio, almost put it in the back drawer and not to worry about it, into the future.

That, dear friends, is the final slide in our portfolio. Just to remind you again on how we’ve performed. If you put your money into the Satrix 40 you would have got, well not quite 10.9% because you’ve got to take a couple of percentage points off for the fees, etcetera, but you would have done better than we’re doing at the moment. That doesn’t bother me. I’m, as you’ve heard, this portfolio is a long-term bet. You buy the shares, hold them indefinitely, and we’ve had some very good performances by 3 of those stocks in there, Naspers, Discovery, and Glencore. A big part of the reason for the all share index performing as well as it has, it has an even bigger slug in Naspers – 20% of it is invested in Naspers, which, as you can see, is our star performer in our portfolio.

Thanks Alec, no more questions, thanks again for your time.

Just to remind you that we will be transcribing this. We’ll be putting it onto the BizNews site, once the transcription is there. As a premium subscriber, you do have access to our global webinar which is going to be in a couple of weeks. We’re going to be bringing in other webinars as well. Not just on these 2 portfolios every month but other webinars of interest. I guess that’s one of the reasons that Bob is here. We’re looking to do stuff on leadership. As you’re aware, that’s a field that Bob knows a lot about and has studied a lot in so, he was just sitting in to see how the process goes through. We’re talking to Dr van Wyk, who has a fascinating insight on something called holism, which is a study that Jan Smuts gave to the world. When Einstein saw it, he said that his theory of relativity and Smut’s theory of holism were the 2 that would be the key drivers of society in the Century that we’re now in so there’s lots coming up on these webinars. Thank you again for joining us today. We’ll be back with an update on the Champion’s portfolio in a months’ time. Until then, from me, cheerio.