Vestact’s Naryshkine on the markets – Ascendis Health, Telkom and Steinhoff’s bookbuild

It’s been a mixed day in the markets, with news coming from Moody’s regarding the potential of future negative reviews for South Africa in light of a violent metal workers strike affecting trade. The subdued environment has been added to by American markets being closed due to 4th of July, Independence Day celebrations, despite the quiet environment the market did see a percentage spike in resources where financials and industrials were down. In amongst the trends there have been some interesting market movers for the day, Sasha Naryshkine, gives his insights into strong gainer, Ascendis Health. He also unpacks exactly what is going on with Steinhoff, in light of its $725m bookbuild as it seeks to move its main listing to Frankfurt, and gives a level opinion of Telkom and its purported ‘dream team’ turnaround strategy.  – LF

 


ALEC HOGG: Well, let’s get a more in-depth view on how the market’s trading. You had him very well billed beforehand – Sasha Naryshkine is in the studio. Gugu had to ask that question that she asked me.

SASHA NARYSHKINE: Which one was that?

ALEC HOGG: About the…

GUGULETHU MFUPHI:  I thought it was too clever. Obviously, we’re seeing a lot of low volumes on the local markets today on the back of the…

ALEC HOGG: But term it correctly. It was those very complicated words you used that got me.

GUGULETHU MFUPHI:  Complicated…subdued volumes?

SASHA NARYSHKINE: Low volumes.

GUGULETHU MFUPHI:  Low volumes.

SASHA NARYSHKINE: The people remember when the JSE didn’t even turn over R1bn in day – and that was like 15-odd years ago.

ALEC HOGG: Fifteen’s not long ago.

SASHA NARYSHKINE: This is the time of electronic settlement.

ALEC HOGG: David Shapiro remembers when there was R100.00/day turnover.

SASHA NARYSHKINE: R100.00/day. How many Lorraine Gold Mining shares was that, Alec? I think the Americans and Japanese – if I remember correctly – control of the world’s investable assets is roughly half. If the Americans are on holiday and the Japanese are a whole time zone away and they’re not going to participate, you can pretty much bet that you’re not getting much action externally today. That’s for sure. Happy 238th birthday to the Americans.

ALEC HOGG: It’s the 4th of July. Well done to them. It’s a great country.

SASHA NARYSHKINE: It shows what they can do in 238 years.

ALEC HOGG: And today, we had Ascendis, which is one of our stocks we’ve been following on the program getting above R13.00. Remember, we spoke about it and I still asked you what it was listed at, and you said R11.00 and then it was trading at R10.00 or even lower. That’s a good return for a supposedly solid kind of performer.

SASHA NARYSHKINE: Yes, quite an energetic kind of CEO who believes in the business specifically. There’s a great example of someone who’s chosen to make South Africa his home. Those skills have been put to work and they’re creating value for local investors.

ALEC HOGG: You’re talking about Karsten Wellner. I wonder if he’s shouting for France tonight.

SASHA NARYSHKINE: I’m not so sure.

GUGULETHU MFUPHI:  I don’t think so, though. Karsten Wellner?

ALEC HOGG: Isn’t he German?

SASHA NARYSHKINE: He might be Swiss-German, in which case he’s not shouting for anyone. He’s shouting for Roger Federer today – maybe, if he’s Swiss.

GUGULETHU MFUPHI:  Back to the markets, which is something I understand a lot better than football. Perhaps we can touch on the Steinhoff bookbuild that was announced recently. The share price did take a bit of a beating yesterday, but it’s managing to recover today

SASHA NARYSHKINE: Yes, Steinhoff are not afraid of a complicated deal or ten. I think the tricky part is that they don’t have the go-ahead. They just have an indication that they’ll be able to list in Frankfurt, so you’re trying to attract external shareholders without 100 percent surety that those shares will be listed in Frankfurt, even though it seems that’s the direction it’s heading. It has to be priced in Euros and Dollars in order to attract those funds. Because of that, maybe they won’t get as much demand. Hence, the discount to where the ruling price was, just to be able to track people and say ‘okay’. Remember, the controlling shareholders here in South Africa are not participating in this rights issue because they want to attract offshore demands. They’re basically giving up their portion to those people, and then anyone in the local share register will be able to get shares at R52.00 per share as well, which is why I think they went with a round number.

ALEC HOGG: R55.00 today.

SASHA NARYSHKINE: I think the end game here is… Remember, Klaus Braun and Bruno Steinhoff probably, when they get the Frankfurt listing, will maybe even provide a little bit of liquidity on that side. In addition, they have other institutional external shareholders who understand the Conforama business – the furniture retailing business in Europe – a little bit better, so it’s a step in the right direction for them. Some people might say ‘well, they’re de-South Africanising themselves in a way’. No, the opportunities just presented themselves there in fairness to them, and I think they’re going to have a full go at Ikea, which is the world’s biggest furniture manufacturer. They’re only one-seventh of Ikea’s revenue, so there’s the size. I read an interesting factoid, specifically yesterday: they use one percent of the world’s timber – one percent.

ALEC HOGG: So one in every one hundred trees goes through Ikea. It’s interesting that you mention that because Marcus Jooste is one of those very smart guys who embraces complexity and another person who talks the same language is Adrian Gore. He says ‘of course the world is complex, but we must embrace it. We mustn’t try to simplify everything’.

SASHA NARYSHKINE: He’s an actuarial scientist, isn’t he?

ALEC HOGG: The point is that he doesn’t try to break everything down to its lowest common denominator because that way, you do lose a lot in your simplification.

GUGULETHU MFUPHI:  Alec, just before you go ahead, I wanted to pick up on the bookbuild. Just recently, I recalled when PSG announced their bookbuild, you mentioned that maybe they were taking advantage of the market at such high valuations. Redefine followed suit, together with Steinhoff. Is this indicative of the fact that…?

SASHA NARYSHKINE: You’ve seen lots of up years, globally. There’ve been a lot of tech up years, although it doesn’t feel anything like 1999.

ALEC HOGG: It doesn’t feel like a bull market.

SASHA NARYSHKINE: It’s because there’s still lots of naysayers and I think that can probably be attributed to our broader industry, probably being under pressure from a regulatory point of view – maybe not earning as much as they did in the go-go days. In Europe, there’s talk of splitting trading. Banking has been under a lot of pressure. There’ve been lots of fines. Maybe the people who are talking on these various platforms are not feeling as bullish as the business themselves that are listed on the indices.

ALEC HOGG: Telkom: another good day.

SASHA NARYSHKINE: Now there’s another one, which I think almost everyone got completely wrong. It depends where you draw your line in the sand. If I drew my line in the sand five years ago, and I’ve been holding them, it hasn’t been a great outcome. However, if I bought them in the last seven or eight months, I’d feel invincible. If you want to generally determine what the health of a business is, you go and have a look at when last they paid a dividend. With Telkom, I think it was in 2010 or 2011, so the proof will be whether or not trading forward on what looks like a multiple of over 22 – whether or not these earnings are going to follow through to justify that price… In the short-term, I can’t see how they’re going to get there one over the mobile companies – the 40 percent shareholder being the government – , which has a different agenda at hand and is not looking to drive shareholder returns. They’re rather looking for an agenda.

ALEC HOGG: It’s an interesting assessment by the way, going back to May 2013. Eighteen months ago, this share was around R12.00. It’s now at R45.00, so you almost quadrupled your money in 18 months. However, at that stage, they’d installed the dream team. There was a view that there was a big turnaround opportunity. If I’m hearing you correctly, you can’t quadruple the share price indefinitely. The turnaround might be there…now they have to deliver and that’s not going to be easy.

SASHA NARYSHKINE: They have to deliver R3.00/R3.20 worth of earnings next year, just to justify the share price. Whether or not you think that’s possible…maybe, but then the year thereafter, in order to justify that they have to grow at 15 to 20 percent.

ALEC HOGG: Take the profits.

SASHA NARYSHKINE: Well, I wouldn’t be invested anyway. We don’t have any clients who invested in them, so there are no profits to take.

GUGULETHU MFUPHI: Not as bullish on Telkom as Alec is but anyway, that’s where we leave it with Sasha Naryshkine. He’s a Director from Vestact.

 

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