Giving us his insights into the markets today is CEO of RECM, Jan van Niekerk. Noteworthy market mover is ailing Lonmin, Jan discusses whether or not he believes this is at the levels of a value stock yet. He also gives his insights into the underlying messages that get sent by Director’s dealings, when buying and selling shares, with particular focus on Famous Brand’s most recent bulk share transactions. Net1 is another stock that has been making interesting gains after being heavily affected by legal controversy, it seems to be rebounding from its losses. Jan also lends us his perspective on Abil, given its most recent announcement to sell Ellerines. If you’re looking for insights into the big movers, Jan van Niekerk’s experience, value conscious perspective and credibility have much to offer. – LF
ALEC HOGG: For sure. Well Jan, the market is not doing it properly today, is it? There are always interesting ups and downs, but the one I’d like to pick up with you is Lonmin. You guys are well invested in the platinum sector. That’s the one that’s been perceived to be the most exposed of all the platinum mines, particularly through the strike. Since February, the share price (from R60.00), is down to R44.00 and under pressure again today. Is this something that you would perceive as an opportunity to stock up on more?
JAN VAN NIEKERK: Alec, we don’t really buy and sell on a daily basis but certainly, if the share price is under pressure we would normally look to buy, rather than to sell. You’re right. Lonmin is a bit of a poorer play if you consider the top three platinum producers. It’s also the riskier one if you think about a long-term play on that, but that’s why we think that over time if the scenario plays out the way we think it could, you’d probably make more money out of owning Lonmin than some of the others. The day-to-day movements…we don’t really concern ourselves that much about it and to get really excited, we would generally like to see a share price down a bit more than what it is at the moment.
ALEC HOGG: There’s a fabulous story, which was put together by a trio of reporters from Reuters where they explained what happened in the dying days of the platinum strike where it was nearly derailed. Three guys got together: the Bishop of Pretoria, Dali Mpofu, and Joseph Mathunjwa of course, from AMCU with the CEO of Lonmin – not the other two CEO’s. They worked out a deal with him. It is an interesting story. I don’t know if you’ve had a chance to look at it, but the reason they targeted Lonmin is because it was the weakest of the three. I suppose that reaffirms what you’re saying…it could have the biggest rebound potential.
JAN VAN NIEKERK: Yes, Alec. I think that’s very sensible of the guys to speak to the person who probably has the most to lose. We got the sense that the platinum miners took a stance and approached it together. I scanned the article quickly. I think it was a sensible approach and the right thing to do. Yes, that explains it. Remember the other two (Amplats and Implats) have more mining shafts and they have bigger operations. Lonmin is a poorer player, a smaller operation, and much more geared to the platinum price and I think one has to keep that in mind.
ALEC HOGG: At the other end of the scale, I know you (like me) keep an eye on directors’ dealings. If you’re following Famous Brands, you have to start thinking – and it isn’t one of the stocks that would come into your value investor radar – but you have to start thinking. ‘Hang on. Somebody knows something. Kevin Hedderwick sold about R10m worth of shares and in the last couple of days, John Halamandres sold a couple of million Rands’ worth of stock. Do you take this as a signal when you see directors selling shares?
JAN VAN NIEKERK: Alec yes, I think that valuation-wise, it’s certainly not a stock that would fit into our radar, but as regards management quality and the fundamentals of the business, it is certainly a business that we would keep an eye on and we understand quite well. At the price, we would be inclined buyers of that business on behalf of our clients. Yes, we do take directors’ dealings and directors’ actions into account when we consider an investment opportunity. Sometimes it’s wise not to look at the specific explanations of the individual transactions, but to rather look at the trend of what’s happening over time. When you see directors in large parts buying over a period of time, that’s a good indication. When you see directors selling, whether it is to stock up on options, to pay tax, or whatever the reason somewhere there’s a decision that says ‘this stock is expensive enough for me to get rid of it’.
ALEC HOGG: But it’s interesting. This is a stock that’s done very little in the past year, so if you’re going to be selling (as a director), maybe you would wait a little longer. Anyway, as you say, I suppose everything has its own reason. However, looking through the list of the SENS announcements, there’s been a lot of directors’ dealings in that stock in the last little while. Who knows? Another company that’s really interesting and maybe is on your radar – because it was on Allan Gray’s in a big way – is Randgold. They were caught up in the Brett Kebble story. The share price has come up very strongly in the last few months. It was up another five percent today. They are suing Investec for billions of Rands. Is it a little too messy for you?
JAN VAN NIEKERK: Yes, Alec. That’s probably one that we’ve put in the ‘too difficult to understand’ pile, as Charlie Munger calls it. We read with interest, but we don’t really follow it.
ALEC HOGG: You like the poultry sector. Astral Foods is having a good run at the moment. Is it one that you’ve been paying attention to?
JAN VAN NIEKERK: If you look at all the stocks in the poultry sector, they’ve had a bit of a trot lately. It seems like there’s a bit of better news and sentiments returning. Those stocks were just so bombed out with absolutely bad news. Both Sovereign and Astral have been doing well. I don’t know if there’s anything fundamentally changing but definitely, the sentiment is changing.
ALEC HOGG: And another one where the sentiment really took a hammering but seems to have come right again, is Net1. That’s a stock that’s moved up again today – a little bit further – but it’s come from eight-and-a-half thousand to twelve-and-a-half thousand in the last few months. It was under pressure because of the court case it’s involved with, with the social welfare payments. I wonder if, with that bad news and the decline in the share price, it would be one that caught your attention.
JAN VAN NIEKERK: When you have those kinds of share movements, we certainly always look, Alec. I think the implication of Net1 is when you have a smallish company, which is dominated by a single line of business and there’s regulatory risk to it – as you see, with the litigation coming through – a massive contract that is dependent on a single client, one has to take that into account. If your style of investing is to predict the outcome of these kinds of things and you have an edge, I guess you can take a view on it. It never became cheap enough to leave us with enough certainty there to say ‘well, whatever the outcome, we’re going to make money’. That’s the way we approach things – the price must imply such bad news that it doesn’t really matter what happens in future, you can make money from it. Net1 never became that cheap.
ALEC HOGG: We’re going to talk to Kokkie Kooyman in a moment – he’s over in Norway right now – about Abil. The share price is under pressure today, down three percent. Of course, it had a big bounce last week and now they’re talking about selling Ellerines. Is this another ‘too tough to call’ or are you invested there?
JAN VAN NIEKERK: Abil is one where we have been invested Alec, both in common equity as well as in some of the fixed income instruments. Our assessment was that your risk return on the fixed income instruments are much better than in the common equity, so we have a very small stake in the equity. Over the weekend, we saw the news that there are rumours about not just Ellerines, but also someone looking at the banking operation and I think you’re going to talk to Kokkie about the fact that it’s probably out of their hands now in terms of how the business played out over time. As an investor, you have to look at the risk and say ‘if the worst happens, what’s going to happen to your investment’ and if it turns out well. If Abil is a going concern and you get decent value for both of those businesses, we think it’s worth more than the current share price but there is a risk that it can fall over. It’s remote. I think it’s one of the better funded banks, if you look at it as a bank. Many other banks in South Africa are much shorter funded relative to the long-term liabilities. Abil is better funded, but there is a risk that the self-fulfilling prophecy kicks in.
ALEC HOGG: R7.66, though if the risk is remote. It must be an option, given that investors put R5.5bn in at R8.00 per share.
JAN VAN NIEKERK: There’s an incentive for many people to make it work. Some of the risks are outside of managements control and that’s the one that investors are watching at the moment. There’s a big fear that many of the clients repay less than they assume or less than the worst-case scenario, which could put the bank’s capital at risk. The big thing is if it can get rid of Ellerines (as there was an announcement yesterday), I think that will free up not only management time, but also a lot of effort and sentiment in the business, and that could be quite positive.
ALEC HOGG: Well, you’ve keyed us up really well for our next conversation. That was Jan van Niekerk from RECM. After the break, we’ll chat to Kokkie Kooyman.
