Sasha Naryshkine on today’s big movers in the markets – Anglo, Shoprite, Steinhoff and much more

There have been some strong winners in the markets today, as well as some sore losers. Giving us some insights into the drivers of the share prices is Sasha Naryshkine, a Director at Vestact. If you find yourself baffled by the moves of the likes of Shoprite and Anglo Platinum, then this is the most succinct place to gather all of the information you need to make informed decisions. Sasha has a look at market market movers, Steinhoff, Abil and Lewis, and ties together where they are in the markets in light of the bigger picture. He also has some very interesting insights into the global position that South Africa is in with regards to the Numsa strike. As we know, the car export business is a shrewd one, and if pushed far enough business will simply take its money elsewhere, a scary reality for the economy of South Africa. – LF 

ALEC HOGG:  Well Sasha, the tale of two trading updates there – Anglo Platinum not as good…or the reaction from the market’s not as good – that one down.  Shoprite: we’ve seen and we’re going to be talking in a while to Chris Gilmore about the details there – that share price up.  I suppose its good news/bad news.

SASHA NARYSHKINE:  Yes and of course, a clearer picture’s starting to emerge around Anglo American because it was also Kumba Iron Ore earnings announcement from last week Friday.  Expect Amplats results next week Monday, with a little bit more clarity around what they’re doing, specifically with their Rustenburg mines and what the future of the business is probably going to look like.  More open cast, more eastern limb, and less Rustenburg mines.  I think that’s maybe what some people are anticipating.  With Shoprite specifically, it’s easy to sit here and say the retail prices got ahead of themselves or the stock prices got ahead of themselves.  Last January I think, was the high of Shoprite – somewhere around R206.00/R207.00 per share. 

Now we’re seeing levels from August 2012, more or less, they’re not as bad as they were in January/February this year, (the stock price specifically, of the retailers) but it’s still trading under a pretty demanding forward multiple – somewhere around 20.  Bear in mind that we’re looking for results from June here, but as Gugu said, it’s the first time the company’s crested R100bn in terms of turnover, so it’s positive news all around.

GUGULETHU MFUPHI:  Thanks, Sasha.

SASHA NARYSHKINE:  You’re welcome.

ALEC HOGG:  It’s interesting on Shoprite because it also gives you some insight into the different returns that can be achieved in Africa (excluding South Africa) versus Africa (inside South Africa).  If we get conditions getting even more difficult within South Africa, I guess you can see more money finding its way north of the Limpopo.

SASHA NARYSHKINE:  Well, it has to.  I think that’s what investors, both locally and internationally, pay such a high multiple for.  You’re paying a 20 times forward multiple for growth rate in constant currencies of around 17 percent north of the Limpopo River, so that’s where you’re expecting the company to continue to expand into virgin territories – into underserviced territories.  Remember that the logistics around this has improved dramatically over a 15/20-year period.  I’m always reminded that management had great foresight.  Remember, they tried to take this off the market at around R30.00 per share not so long ago – so an explosion in the share price anticipating faster growth.  For instance, if you were sitting in Dublin and you wanted to make an allocation to a retailer in Africa, you have very limited choices and very limited liquidity.  Shoprite of course, is a great business in order to be able to tick all those boxes.

GUGULETHU MFUPHI:  Indeed.  Well, that obviously does raise concern for South Africa Inc. companies.  Just out of interest Sasha, the likes of Steinhoff, Abil, and Lewis are all trading in negative territory today.  I’m speculating that maybe it’s in reaction to the sale of Ellerines from Abil.  Lewis and Steinhoff might be potential suitors, but could this also be related to the retail sales numbers, as you mentioned?

SASHA NARYSHKINE:  Of course, you need to remember that Steinhoff rights start trading today too.  For every 100 portions that you currently own, you have to buy an extra 17 I think, at R52.00 per share so it’s not an insubstantial amount of money.  People might be selling their ordinaries in order to participate in the rights issue.  That could be happening at the fringes, but as you mentioned it’s detailed inside the Shoprite numbers that furniture sales are okay.  I think it’s almost like a ‘wait and see’ type of process in South Africa because we have an interest rates decision soon.  I think now that we’ve gotten past this January period where everyone was really anxious about emerging markets, what we might see is we keep lock-step with ECB and the Fed in terms of the rates environment.  I guess that’s one positive for the consumer.  Everyone says the consumer’s under pressure, but they’re still able to increase sales by ten-odd percent.  I’d hate to see it when the consumer makes the comeback.  Maybe that’s why these things are still priced pretty aggressively – the retail companies.

ALEC HOGG:  It’s interesting.  When you mention the Steinhoff story and particularly, with the turnovers we’re seeing in the stock, it looks like you’ve got it on the money there.  However, we also saw that Glencore had R31m worth of turnover already so far, today.  The more turnover there is in that stock, the more it becomes owned by South Africans, the higher the likelihood that it’s included in our indices, and we know that’s going to make a change, Sasha.  Do you have any idea of how far off that might be?

SASHA NARYSHKINE:  I have absolutely no idea.  I’ll take a check and tweet it to you.  Maybe we can interact that way, Alec.

ALEC HOGG:  Okay, Lewis down four percent – any thoughts?

SASHA NARYSHKINE:  I don’t know.  I didn’t look at the dividend dates, specifically.  Sometimes there are funnies on a Monday, from a pricing point of view and always, my first thing to check is ‘are they trading ex-div?  Maybe have a look there.  If I recall, maybe Omnia’s also trading ex-div today.  I don’t know.  I must brush up.  I must do my homework a little bit more thoroughly.

GUGULETHU MFUPHI:  Sasha.

SASHA NARYSHKINE:  Yes, it’s a shocker.

GUGULETHU MFUPHI:  We expected this from you every day but nonetheless, you’re forgiven.  Out of interest, we’re seeing a lot more automobile manufacturers in the country shutting down or rather, halting operations – the likes of Toyota and Ford giving us an update today, that on the back of the strikes again, they’re going to slow down production.  Quite clearly, one almost wishes that the union members might be able to listen to this information and see what it’s going to do to the economy.

SASHA NARYSHKINE:  Whilst everyone suggests that we should have focus on mathematics and English, maybe we should do a little bit more in the geography sense.  If you turn the globe of the world upside down, you can see hardly anyone lives in the Southern Hemisphere.  Where are all these potential customers going to come from?  There’s that funny circle thing, which says more people live inside of this circle.  It includes India, Southeast Asia, and China in between.  The point I’m trying to make is that if we’re exporting these motor vehicles, that is who we’re competing against.  From a geographical location, South Africa’s not a perfect place to be an exporter of bulk goods/bulk durables like automobiles.  We’ve been protected because of past laws that have kind of cracked into the new dispensation.  We pay a lot for motor vehicles here. 

Maybe we should just pay a lot less because the unfortunate part for the manufacturing jobs in South Africa is it’s a capital allocation question at the end of the day.  Someone says ‘well, I can make these automobiles cheaper in Brazil, Vietnam, or China’.  That’s how the company’s going to react at the end of the day.

ALEC HOGG:  Absolutely spot on there, Sasha.  Just to close off with, ArcelorMittal’s up three percent today.  You would think, with the NUMSA strike and the arguments that you’ve just articulated so well now, that perhaps ArcelorMittal would be one of the losers.  Is it so far gone, that the value investors are now having their day?

SASHA NARYSHKINE:  Well, there was quite a strong run in ArcelorMittal, all the way up to R40.00-odd when it was looking beaten down in the mid-twenties.  There are two components here, (1) there input costs, namely iron ore, which has gotten cheaper…  That’s one of the worst performing commodities this year, and you can see that in the Kumba trading update and (2) coal, specifically metallurgical coal.  I would think that in terms of their cost base and maybe electricity costs – those are what they are – but from that point of view, they’re starting to…  My overwhelming view of steel producers is that they’re even more cyclical than the shipping companies and they’re in a void for the retail investor.  I think that if you have longer dated timeframes – as you mentioned, institutional money – then they look really cheap or really expensive.  However, when they look really expensive, they’re super profitable in paying out special dividends left, right, and centre.  Just for individual investors, you have to time the cycle perfectly.

GUGULETHU MFUPHI:  That’s not always an easy thing to do.

SASHA NARYSHKINE:  It’s very hard.

GUGULETHU MFUPHI:  Maybe we’ll ask you about that next time – how to tie in the market quite accurately.  Well, that was Sasha Naryshkine – he’s a Director at Vestact – giving us an update on the market performance today.