In this interview on CNBC Africa Power Lunch, the CEO of RECM, Jan van Niekerk, applies his considerable mind to a range of issues – the difference between value investors and contrarians (is there one?); the forthcoming listing of Old Mutual’s American asset management division on the New York Stock Exchange; and his firm’s continued confidence in diamond miner TransHex, despite a 5% price loss on the market today. – AHÂ
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ALEC HOGG: Well, let’s get a more in-depth view of how the market’s trading today.  Anyway, Jan van Niekerk from RECM…Jan, you’re not called Regarding Capital Management anymore.
JAN VAN NIEKERK: Alec no, we’ve shortened it a bit, to RECM.
ALEC HOGG: Okay, so you’re not Regarding Capital Management. You’re RECM. With R28bn under assets under management – you are positioned as a value investment house. I was reading a little bit about Simon Marais who’s doing very, very well in Australia and he’s now calling himself a contrarian investor, rather than a value investor. Is there any difference?
JAN VAN NIEKERK: Well, I haven’t spoken to Simon about exactly what he means by the term, but I think in general, a contrarian investor is someone who proactively goes against market wisdom. As a value investor, when you look for opportunities where few other people are willing to go, you end up being a contrarian in many of the cases, but as a result of where you scratch. I think we are not contrarian just for the sake of taking an opposite view.
ALEC HOGG: Well, you would have been contrarian if you’d bought Old Mutual in 2008, when the shares were around R4.50. Of course, they’ve improved dramatically since then and the next step in the rehabilitation perhaps, was announced yesterday with OM Asset Management – its US asset management arm – listing on the New York Stock Exchange. Have you had a chance to look at that?
JAN VAN NIEKERK: Alec, I haven’t looked at it in depth, but I think that is progress in terms of the strategy that management has set out. They’ve said that is something that they would want to do. As market participants, we’ve been studying and waiting for that for quite a while, so I think this is follow-through and kudos to management for actually bringing it to fruition. If you look at the general state of stock markets and investment markets around the world, it’s probably not a bad time to be listing an asset management business to get value for it.
GUGULETHU MFUPHI:Â Why do you say so, Jan?
JAN VAN NIEKERK: Look, asset management businesses in general, are capital-light. So it means that it doesn’t require a lot of capital to grow and build those businesses. A lot of the revenue is linked in some way to the performance of underlying markets, and we know after a sustained bull market things just go a little bit easier and it is just a little bit easier for asset managers to raise more assets and to grow their earnings. If you think back to the time that Alec mentioned, when Old Mutual’s holding company’s share price was trading around R5.00/R6.00, and if you wanted to list anything like an asset management at the time, it would have been very difficult. It’s a good time – valuation wise – and I think management will be unlocking value in this process.
ALEC HOGG: Jan, over the weekend the Sunday Times of London had a fairly lengthy interview with Philippe Mellier who is the Chief Executive of De Beers – the first non-South African to run that company. Obviously, De Beers is no longer listed. It’s part of Anglo American. What came out of that interview was that De Beers is actually pumping. They are really doing well. The diamond market has improved. They are making far better profits than in the past and indeed, they look like being the bulwark for Anglo American, which of course, has a struggle on its hands with the platinum side. You guys like another diamond company – Trans Hex – and I see today it’s under a bit of pressure, down five percent, but having read that story in the Sunday Times, I’m sure there would be some thinking like me ‘is it time to go and do some homework on Trans Hex’.
JAN VAN NIEKERK: Yes Alec, we’ve discussed Trans Hex in the past. It is a small market cap company. These days, not many people look at it. We understand from management, when they have the analysts’ presentations – if any people pitch at the presentations these days. Its kind of fallen out of favour, which means that it is the type of company that warrants a bit of research. The general news coming out of the diamond market is positive. The diamond prices have increased in line with a stronger world economy over the last while, and as a South African investor, diamonds are sold in Dollars and there’s been a currency weakness over the last two years, which is a benefit to that. We generally think that the diamond assets inside of Anglo American is a great benefit to investors in Anglos as well.
GUGULETHU MFUPHI:Â Jan, I just want to pick your brain on the likes of Protech Khuthele: today, publishing an update that it does seem as though the hopes of the Business Rescue for that company are not looking very positive and potentially, it might go on with the liquidation. Does this raise a concern perhaps for some of those shareholders there?
JAN VAN NIEKERK: We don’t know anything more than what’s public knowledge there, but it was quite a blunt statement out this morning to say that Protech…there’s no hope for the business in essence, and the Business Rescue Practitioner has applied for liquidation. What exactly the liquidation process entails, we’ll have to see. I think some of the assets will be sold to other businesses over time, but I think the share price was suspended at round about 17 cents. I’m not sure that the investors are going to get anything out of them.
ALEC HOGG: But surely, there needs to be some kind of accountability on this one. We did have Eqstra, which made an offer of 60 cents per share. Pricewaterhouse Coopers did their research and said it’s worth more. Well, it was actually worth nothing, and that was just over a year ago. What do minority shareholders do in a case like this? Say you guys had a big stake there on behalf of your clients: what would you do?
JAN VAN NIEKERK: Yes Alec, I think your point is valid. Firstly, if you do rely on the outside experts for those valuations – and I think people do generally rely on them for example, when PwC came out with their statement – they have to work with the information they get from the companies. If you look at Protech, the reason why the business is probably worth nothing at the moment was a liquidity issue. They didn’t get paid for a big contract that they expected payment for and they haven’t been able to make plans around that. The physical assets in the business are worth something, but if you get to the stage where it’s fire-sale and a liquidation, most people know about that and they will make fire-sale offers for prices. What do other investors do? As long as they’ve operated and disclosed the information as it became available… I think that legally and technically, it’s probably very difficult for anybody to do something afterwards, but I think it is worth asking questions from those advisors. In South Africa, we don’t have a track record of bringing people to account for something like that.
ALEC HOGG: A little bit of shareholder activism. Unfortunately, Theo Botha, who is the best-known shareholder activist, seems to only concentrate on the big companies, and not necessarily on the sore thumbs, but I’m sure someone will pick up on this one. Jan, thanks for your contribution, as always. Jan van Niekerk is with RECM.
