Sasha Naryshkine: Richemont slump won’t last, we’re sticking with the stock

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 The share price of luxury goods group Richemont has been under pressure lately falling from July's peak of R112 to the current R97 – a 13% reverse. The new Chinese President's aggressive approach towards conspicuous consumption has been tagged as the major reason. In our CNBC Africa Power Lunch interview today, Vestact's Sasha Naryshkine explained why he wasn't surprised by the fall in Richemont's price, and explained the reason his clients won't be selling their shares – AH


ALEC HOGG: Let's get a more in-depth view now on how the market is trading so far on this Monday, the 22nd of September. Sasha Naryshkine is a Director at Vestact. He's with us in the studio. It's interesting, just looking at the wires as Thumi was telling us. It's just come out so you obviously haven't had a chance to look at it.

SASHA NARYSHKINE: I can peek around.

ALEC HOGG: A little bit small – SENS – you know. Pallinghurst has just brought their numbers up: $100m profit.

SASHA NARYSHKINE: That's now R1.1bn.

ALEC HOGG: Proper money…so Brian Gilbertson now has a proper business.

SASHA NARYSHKINE: When Pallinghurst listed, perhaps it was the wrong timing towards the end of the last listings boom. I don't know. It's been tough for miners in general and increasingly lately, where you've seen iron ore price at another five-year low over the weekend and into Monday. That's why the resource numbers in particular are under big pressure. We're seeing iron ore prices at $81.5. Remember, they were more than double that not so long ago and so everybody's worried about Chinese consumptions, but Pallinghurst are obviously different here.

ALEC HOGG: The Faberge Eggs.

SASHA NARYSHKINE: The Faberge Eggs. Yes, of course.

ALEC HOGG: The platinum prospects and all kinds of interesting little bits and pieces.

SASHA NARYSHKINE: Little bits and bobs. Everyone's expecting the Gilbertson magic to rub off to some extent, but I think this is this third big hit at it inside of a decade. They've obviously been at an Indian steel producer and then the formation of BHP Billiton (his baby), and then it obviously links into the wilderness a little bit, after having done that. Credit must be given where it's due. I know Investec have been hard backers of this one, too.

ALEC HOGG: The share price nearly doubled in the past year. A year ago, it was at R2.50 and now it's sitting at R4.68 today. It's a good move if you could have gotten some of the stock. Anyway, it's doing well and it's turned around from a loss to a profit. I 'm sure those who own the shares will be running their mental slide rules over this. We saw when Thumi started off – the market has a lot of red ink everywhere and one that's been coming back at me all the time (it hasn't moved much today), but in the last month, has been Richmont.   Many portfolios hold this stock. Are you guys in there?

SASHA NARYSHKINE: Heavily invested in Richmont for a long time, ever since they've unbundled from British American Tobacco. The whole crackdown by Sishen Ping and of course, this version of the Chinese Communist Party and this specific government, is a crackdown on the culture of gifting. It's where you and I would want to do a deal and I'd give your spouse, or you, a watch, and you would give that back to me.

ALEC HOGG: i.e. a bribe.

SASHA NARYSHKINE: Well, it's called gifting.

ALEC HOGG: i.e. a bribe.

SASHA NARYSHKINE: Perhaps a bribe, but a lot of the time these things are above board.

ALEC HOGG: How can it be above board?

SASHA NARYSHKINE: In the Chinese Government context, if you're using State resources to buy you a gift, then I suppose you could say…

ALEC HOGG: How could it be above board?

SASHA NARYSHKINE: You make financial provisions for the gift specifically, but remember that in our industry, if you accept anything over $100.00 – I don't know what constitutes $100.00 as a gift – I wouldn't think it's too big a bribe in that sense. Alec, luxury goods: you and I can go out and buy a Michael Kors handbag for our respective spouses, but that's like a $200.00 or $400.00 purchase. More importantly, brands such as Cartier have been around for many decades and in some cases, for centuries. You can't replicate that in a hurry, so the whole idea that you're going to get more middle-class entrance and upper to middle-class people…as you said in the intro, wealthier are becoming wealthier. I think that bodes well. I think Johan Rupert has it right. You cannot replicate these luxury brands overnight and if you hold them, that makes them even more valuable.

ALEC HOGG: The utility is not really, what comes into play there. It's the brand. If you have everything else, why not have a Cartier watch or whatever the case might be? We're going to be talking about the latest Wealth-S figures, and they do this together with UBS who are also a high nett worth bank. They look pretty good in most parts of the world, except in Brazil and Latin America. Even China's down.

SASHA NARYSHKINE: Well, Eike Batista obviously, would be a big of the part of the reason why Brazil would have lost its place there, I guess.

ALEC HOGG: Coal of Africa has had a good day today.

SASHA NARYSHKINE: Well, I guess it depends on where you draw your line. I think for thermal coal specifically – maybe not in a South African context, but globally – I don't think the future for thermal coal bodes very well. I was speaking to an Eskom…

ALEC HOGG: They've just dumped it. That's the reason why they've gone up today. They've sold their operation and the share price at Mooiplaas…

SASHA NARYSHKINE: Correct.

ALEC HOGG: You have to give David Brown from ex-Impala credit. He knows how to run a business.

SASHA NARYSHKINE: He does. Perhaps the timing of leaving Implats was pretty good too on his part, but I if you're in a single commodities business, you can see a big downturn in the price, which you have no control over, ultimately. Most commodity producers are price-takers, and not price-makers – the demand side. Thermal coal is probably a business that you'll see shrink even in a South African context, where 90-odd percent of our power is still produced by coal. Even Eskom have a longer-dated plan to reduce their exposure to thermal coal.

ALEC HOGG: It's an interesting subject. Before we go, you would have been following Peter Armitage's Anchor Capital. I see the share price coming back a little bit, resembling normality this morning, at R4.10. Have you followed it?

SASHA NARYSHKINE: I followed his career and he's a great, energetic guy at the forefront of those types of business. Whether or not his listed entities are correct… Many of these businesses have a lot of history globally. Remember, Goldman Sachs wasn't listed until 1997, I think. In their founding statement, they said it sounded like shareholders always stood behind the staffers, but you knew that in the prospectus. What I mean by that is people are always going to be well-remunerate in the industry because those are your best assets. They go up and down the list every day. I think it bodes well for the broader industry. We were certainly surprised that the share price did what it did, but being in the industry ourselves – happy.

ALEC HOGG: Yes. Well, the share price today is down a little. In fact, it's bounced back in the last few minutes. It's back to R4.40, which puts the capitalisation of this business at R415m. They have about R5bn worth of assets under management. That's quite a premium. If you want to extrapolate that to Coronation, it would be substantially higher than it is at the moment but obviously, people are hoping that Anchor Capital will become another Coronation in time. That was Sasha Naryshkine, Director at Vestact.

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