Financial markets can be an overwhelmingly complicated thing, even to seasoned experts. For the lay person trying to decipher the proverbial wood for the trees, it can seem an insurmountable and very risky task. The resultant variable overload confusion is often added to by the deluge of information that is available, how does one even begin to sift through it all? It is for this reason that we are grateful to the market experts who share their insights and help us to make decisions based on their experience. Today’s expert is Travis Robson from IG, he offers us some very clear perspectives on what is happening in the markets, with a particular focus on Bidvest and its latest acquisition, as well as its relationship with Adcock. He also unpacks what is currently understood to be going on with Standard Bank’s R2bn exposure to fraud in China. – LF
ALEC HOGG: Well, let’s get an in-depth view of how the market is trading. Travis Robson is Head of Premium Client Management at IG. He’s with us in the studio. There’s quite a lot of news that we can unpack, but the first of the SENS reports, which I thought was very interesting, was the Don Group. This is one I’ve been following for many years. It’s been a complete disaster – badly managed. What is interesting about the SENS report today, is that the JSE are telling them they’ve got to get off the market because they haven’t managed to put any assets into the cash shell. You would have thought, with new listings coming to the market from time to time, cash shells would be valuable, but this must be telling us something.
TRAVIS ROBSON: Yes, but if you look at the share price, I know guys who are buying this for R2.00/R3.00 or somewhere around there. It’s dropped down to 17 cents. I’ll give you one example. I was trading for a client and he told me to sell out a very small percentage of his position, just because he’d had enough and I moved the market 33 percent. Not the market, I mean the share price – 33 percent.
ALEC HOGG: Danger.
TRAVIS ROBSON: Very much so. There was a news headline the next day, saying ‘rogue traders move Don Group 33 percent’ and all I was selling was about 55,000 shares at 17 cents – really small and insignificant. The company hasn’t done well. The results haven’t been good. They haven’t produced good results. They haven’t actually produced financial statements on time. There was a period when there was worry and concern over that, so it just hasn’t been a good road for the company over the last…
ALEC HOGG: They had a lot going for them. They had wonderful properties.
TRAVIS ROBSON: I thought there would even be a boom and an uptick in the share price during the football World Cup in our country, and there wasn’t. We didn’t see any increase in occupation compared to Tsonga Sun and Southern Sun. The share price didn’t do a lot.
ALEC HOGG: Well, it won’t be missed by many people.
TRAVIS ROBSON: It won’t be missed.
ALEC HOGG: Bidvest’s international deal yesterday: it’s interesting to see another big acquisition by Bidvest – about R2bn.
TRAVIS ROBSON: Very fast concession from the previous one. It aligns with Brian Joffe’s strategic plan to really go into that food services group. He has a guy named Lindsay Ralph, who’s heading up the food services, and he’s putting onto the board in terms of Adcock and now, I’m sure he’ll be involved in this new deal in Italy. It aligns to his strategic plan and it seems that Bidvest is just going from one move to another, very quickly.
ALEC HOGG: They haven’t managed to get into America yet. They looked at America a few times, but they haven’t quite cracked it there. I suppose that’s something we must watch Joffe for.
TRAVIS ROBSON: He’s a renowned businessman, very shrewd, came into property with a lot of negative reasons with the CFR, very aggressive approach on the back door with the PIC. There was a lot of stifling of foreign investment, which our country greatly needs. There was a lot of concern there, but he’s a very shrewd businessman and give credit where credit’s due.
ALEC HOGG: Adcock…the jury is still out. Brian has his supporters who believe that if he’s prepared to pay R70.00 at R52.00/R53.00, he should be loading up on that.
TRAVIS ROBSON: Yes, from a shareholder’s point of view, if you look at the deal on Adcock, you wanted to be favouring the CFR. If you look at what CFR’s done going forward, it would have been in favour of the shareholders, so the shareholders have lost by this Bidvest if you calculate the numbers. However, we can all look with hindsight: would you rather have Adcock?
ALEC HOGG: Yes, but the story there is that CFR itself has been acquired, so all the promises that they made to South Africa would have been worthless.
TRAVIS ROBSON: But if you look at the share price, it would have helped.
ALEC HOGG: Oh, so the shareholders would have made money, but the country would have lost.
TRAVIS ROBSON: Yes, the shareholders would have benefitted from that. That’s why I’m saying from a shareholder’s perspective, you would have benefitted more from the CFR in terms of the acquisition and in terms of the buyout, versus where the shareholders are sitting at currently. I think Bidvest as a company, is a very strong company, so you’d back Brian and his team. He’s come and put new management in place.
ALEC HOGG: That’s an interesting point. I suppose many shareholders would maybe have liked to have the R70.00 cash and then they could have made an alternative investment. What about the Standard Bank story in China? I saw yesterday that they have an exposure of around R2bn to it, which is about ten percent of their earnings, so it’s not insignificant.
TRAVIS ROBSON: From what I’ve read is that there are mixed feelings about the exposure. There’s R200m in exposure in China itself. In this particular one, I heard only R40m, so there was a bit of a mix. There are three other international companies that are involved in this Chinese fraud. Basically, the Chinese government has gone out and done an investigation on a trades metal company and there’s a couple of companies involved, including Standard Bank, in terms of…
ALEC HOGG: Well, there’s a warehouse, which is supposed to have aluminium in it, but it has no aluminium. Yesterday, Standard Bank said in that warehouse, they have an exposure of $160m plus another 40-million elsewhere or 170 rather than 40.
TRAVIS ROBSON: Yes, round about 80,000 metric tons of aluminium in that warehouse, but they also hold exposure in other warehouses.
ALEC HOGG: Who owns it and the confusion…?
TRAVIS ROBSON: Now there’s legal action from Standard Bank as well as the three other international companies, just to recoup losses, since this investigation.
ALEC HOGG: And legal action in China…interesting.
TRAVIS ROBSON: Well, it’s good in the sense it’s the Chinese authorities who’ve launched the investigation, so they’re practically taking it from their side to launch an investigation into that.
ALEC HOGG: I wouldn’t want to be the guys who’ve done the fraud, because in China, they kind of disappear. Don’t they? I think they go to jail for a year or two.
TRAVIS ROBSON: I think I’d be very cautious. Well, in China you can actually send someone else to jail if you have enough money. That seems to be the new fad.
ALEC HOGG: Okay, Hulamin is trading up today.
TRAVIS ROBSON: Yes, very positive. I’m very surprised. A lot of these mining or linked-to-mining houses and metal companies have always produced subdued results, citing troubled economic conditions, but this is very promising. It’s interesting to see because we also talked off-air about the CEO taking a sabbatical for medical reasons, – which is quite concerning – to October, but these results…I don’t know what’s going to happen going forward. Looking at these results, they look pretty decent.
ALEC HOGG: And the share price has done pretty well, as well, particularly if you were trading it in the last year; you would have been a happy person. Have many of your clients gone into…?
TRAVIS ROBSON: We obviously offered on a CFD, which means there’s volume and leverage available for that stock, but it’s a very small stock, so we have few clients trading, compared to the top 100/more aggressive stocks out there, such as your top 40.
ALEC HOGG: R6.80 less than three months ago and it’s R8.40 at the moment…R8.41, as we speak.
TRAVIS ROBSON: We used to get some sort of volatility on it. It was very much like DRD Gold, where you get a three/four percent move in short succession so you could trade the peaks and troughs of the ranges. I haven’t looked at that stock in a long time, just from a volatility or from a trading range. It’s nice to see the spike up. Maybe there’ll be more interest from the traders and the like, but really good results. I haven’t looked at their price earnings ratio relative to the share price.
ALEC HOGG: It’s only a trading update, so we’re going to have to see when the numbers actually come out. BCX and Telkom: we’re going to have a discussion about that later. The circulars are now being sent out. What’s your take on that?
TRAVIS ROBSON: Well, from my side, I’m a shareholder of BCX. I bought BCX on a whim, on the fact that there was French company – Orange – looking at taking a sniff in the business and I liked the corporate action. I thought something would come of it. Nothing came of it. The share price plummeted. I had bought in at R5.00. It went down and we’ve seen an uptick. Then an announcement came with Telkom looking to buy it out. The share price actually rallied past its offer price, which was at R6.40. I thought ‘this is an opportunity to probably sell my stock’, but I didn’t. I kept it, and it’s come back down on the death of a very young CEO at BCX. I was a bit worried because it’s been very muted. I actually contacted Simon Brown just to see what the situation was because I was just a bit concerned that we hadn’t heard any news. It’s just very stale and very muted.
Telkom’s been in the press for other reasons of job cuts from their side, and I was just worried that this deal had fallen through, but I think new CEO talks, new management consulting etcetera… Now, the circular came out that the quarterly is back in and the next talk is on the 11th of August, so I’ll be watching your show to see what happens going forward, if anybody can disseminate news on the deal.
ALEC HOGG: It’s most unlikely that it will fall over even though we all miss Benjamin Mophatlane. The transaction wasn’t predicated on him, no doubt. Travis, thanks for your input and your thoughts today.
TRAVIS ROBSON: No problem.
ALEC HOGG: That was Travis Robson, who’s Head of Premium Client Management at IG.
