It has been a busy news day with a number of noteworthy announcements coming out on the Stock Exchange News Service (SENS), the markets however were somewhat subdued in terms of trading volumes. Woolworths came out with a trading update, and the news that the David Jones deal had been given the okay by Australian courts. A number of mining houses released production results, without much surprise given the troubles in the platinum sector. Head of Trading at Vunani, Gary Booysen, has a look at Anglo and Kumba Iron Ore in light of their output. He also discusses the complexities of the Naspers Stub, as well as Standard Bank’s alleged exposure to $170m of fraud in China. Gary shares his insights on the big stories, what is driving the markets, and how the Reserve Bank’s interest rate decision will affect us. – LFÂ
ALEC HOGG: …If you look at the Biznews top 20 traded shares by value today, only two of them are in the green. The rest are all red, so that tells you it hasn’t been a great day.
GARY BOOYSEN: No, it hasn’t but if you look at the value traded today, we are, I think, slightly lower than usual, for halfway through the day. I think that is just, maybe, guys taking a bit of a backseat ahead of the Reserve Bank announcement this afternoon.
ALEC HOGG: What’s the vote on that?
GARY BOOYSEN: It is very, very tight and very split. At the moment, the consensus estimates are 14 guys staying on hold, eight guys saying 50 basis points hike, and seven guys saying that there’s going to be a 25 basis point hike. You don’t really get tighter than that. What we can say is that there’s not going to be a cut. That’s the minority view but that’s what the markets say. You look at the Jibar and the FRA’s. They are pricing in at about a 50 basis point hike but…
ALEC HOGG: Wow, so that’s a minority view from the market.
GARY BOOYSEN: It is a minority view, but that’s what the market is saying, but from my point of view, I think if you have to bet, and we do, we’re looking at about a 25 basis point hike, as sort of the level where the…
ALEC HOGG: It’s kind of the middle road.
GARY BOOYSEN: It’s the middle ground. I think that’s what is not going to move the currency too much today. It is going to be what everyone is really expecting. It is the way the Reserve Bank can perhaps balance the, well the new term is now, inflation tolerance, so you balance the inflation against the growth. Obviously, the dismal growth figures that South Africa has been putting out.
ALEC HOGG: A tough job for Gill Marcus.
GARY BOOYSEN: Very tough.
ALEC HOGG: But if there is a 50 basis point hike today, we know that growth is already under quite a lot of pressure in South Africa, which is not helped by the strikers, but if that were to come through, would that hurt the market?
GARY BOOYSEN: Yes, I think, like you said, I think you are going to see the currency strengthening, which will be good for certain sectors and bad for others. It is very difficult to say. I think, economically, it’s perhaps not a bad idea but the problem is that a lot of our inflation is administered prices and currency based, and as you said, it is a very difficult job today. Will the 50 basis point hike really aid us in growth, probably not? Maybe in the long term but it is difficult, very difficult.
ALEC HOGG: But the electricity price has jacked up by 16 percent and you have six percent inflation rate, there’s not a whole lot you can do about that.
GARY BOOYSEN: Exactly.
ALEC HOGG: Specific news today, Woolies getting the go-ahead in Australia, for that huge acquisition. On the other hand, the market maybe not that enthused by it.
GARY BOOYSEN: Yes, it looks like buy the rumour, sell the facts is going on at the moment, because obviously, we’ve seen Woolies getting punished, quite hard today. It is a down day today. It is a down day today. The record high was yesterday, so the market is pulling back and, I think, Woolies pulling back, in line with the market but maybe, slightly more pressure on it, just with the resolution of the announcement. Remember, Woolies has run up incredibly hard on the back of that. The final hurdle in the deal now, I did see there is some speculation that the Courts in Australia might still have an issue with their Country Road sale, but I think, really, the last impediment being, taken away but a lot of that has been already priced into the stock.
ALEC HOGG: But David Jones is done. Woolies are going to now, have to try and digest this acquisition, which is half their market capital.
GARY BOOYSEN: Which, I think, yes…
ALEC HOGG: It’s in a different country.
GARY BOOYSEN: In a different country and a difficult country to do business in, but one, that they are well established in there already.
ALEC HOGG: Locally we always look at the mining sector as a driver for South Africa, or in fact a depressant when the guys are on strike, as they were in the platinum sector. Some good news out of Royal Bafokeng Platinum that they’ve got another three-year deal with NUM, but the production figures that came out of Anglo Platinum and Kumba…
GARY BOOYSEN: Yes, Royal Bafokeng, I think it is a five-year deal, at the moment that they’ve struck but they’ve always had a fairly good relationship with their workers as well, so I don’t think there are really any surprises there. As far as Amplats as well, we knew, everyone knew, we’ve been looking at this for five months, and trying to assess the impact on the industry. I don’t think there are any surprises there. If you look through Anglo, obviously their entire Production Report you can see the outlier there, they are 40-percent down on production, so obviously, looking at it, it is all coming from Rustenburg and Amandelbult but Mogalakwena and all the J.V. Partners are hitting record production in platinum, so I think, probably fully priced then. With regard to Kumba’s results, I think, not a bad set of results there. They did increase exports and volumes marginally.
Kolomela is still steaming ahead and looking very good. The problem again with Kumba is more from a demand side than a production side. We know that it is an inefficiently run business. It is the iron-ore price that’s been damaging it lately but interesting, on Kumba, we were chatting to our clearing banks yesterday, and they’ve sort of given us now, put out a trade idea around the diversifieds. They are saying, ‘at the moment you should actually be long Glencore, short Billiton on the relative, but you should try and re-put in the iron-ore exposure that you’re shorting out of Billiton by buying Kumba. They’re looking at Kumba and saying, ‘this is actually a better iron-ore asset than someone like Billiton’s Holding’. It’s interesting in a rather complex way but one that the banks are putting out and, quite interestingly, something that we’re looking at.
ALEC HOGG: Something else that’s complex t that I was reading about is the Naspers Stub. Have you come across that?
GARY BOOYSEN: No, but I’ve heard of it, because I think it is an OTC instrument that you can trade, where you can actually strip out the Tencent and just trade the DSTV assets. It is interesting. It is not one that I’ve actually valued and had a look at, where I can say it’s a great value or not, but definitely interesting if you’re looking at their Multi-Choice assets.
ALEC HOGG: It is certainly a lot more stable than what’s going on with that Chinese operation.
GARY BOOYSEN: With Tencent, which is obviously the bulk of Naspers evaluation… If you listen to Koos Bekker he’s always – he’s obviously on holiday now – but he’s always very positive about what he’s doing in Africa and bringing in all sorts of, you know, such as how to get Multi-Choice’s offering into Africa. It’s an exciting story. As I’ve said, exciting stories are not necessarily what you’ve got to buy.
ALEC HOGG: But at least you are banking a bit of the profit, potentially, from the Tencent story.
GARY BOOYSEN: On Naspers?
ALEC HOGG: If Tencent were, for any reason to hit any obstacle in the road, because it is priced for perfection…
GARY BOOYSEN: Yes, definitely.
ALEC HOGG: Then the Naspers share price… I see today, it is still the biggest traded stock on the JSE, at the moment, and it’s down about one percent. I guess that’s not really much of a move but that Stub is an interesting insight.
GARY BOOYSEN: Yes, and, looking at it last night, Tencent in Hong Kong, came off one-percent, so even these things track each other so closely because essentially, if you’re buying Naspers, you are buying Tencent, at the moment. You trade Naspers, from our point of view, on a daily basis. If Tencent comes out with results, we’re trading around Tencent’s results. Naspers is almost a proxy for Tencent anyway.
ALEC HOGG: So you’ve hit a run and you’re up… How many times? One hundred times or 150 times.
GARY BOOYSEN: Yes, it is just sick.
ALEC HOGG: So you might sell a little and put it in there. What about Standard Bank? They are talking China and that whole aluminium stockpile story.
GARY BOOYSEN: Yes, that was interesting because we were looking at that. If you look at the amounts of aluminium that was in that bonded warehouse, it was like a fifth of the worlds’ aluminium and someone must have said, ‘wait a minute, where did all this aluminium come from?’ It looks very suspicious. I only saw it on the breaking news. Standard Bank, obviously, through its partnership with ICBC, is very active in Africa as well. The banks at the moment – it’s difficult. We’re still steering clear of Standard Bank. We think it’s good but we see better opportunities in Nedbank and FirstRand.
ALEC HOGG: But when you hear $170m loss, on a trading position that came out of London into China…
GARY BOOYSEN: Into China, where the warehouse receipts were wrong and this aluminium wasn’t actually there, and you’ve got to start worrying.
ALEC HOGG: It’s an extraordinary situation. We’ve actually got a really interesting program coming up, talking to Peter Major on the mining stuff and talking to Michael Hewson about the banks. We’ll play around a little bit with that Standard Bank story in China and, of course, with Barclays with the Dark Pool. What’s the question that you’d ask those two guys?
GARY BOOYSEN: That’s difficult. I’d like to see, I’ve been looking at… I’d particularly like to get Peter Major’s evaluation on Kumba because I think, if you look at the sale side analysts, and they’ve been so negative on the stock, all around the falling iron-ore price. As I said, we’re just hearing from the banks now that there’s a little bit of, a very early interest in this counter. I’d be interested because we’ve been seeing in probably the last weekend as well, there seems to be huge buying supported around these levels. You hear every time there is anyone selling into it, the stock is just disappearing. I’d be very interested to see how he values that, but as far as Dark Pools – that’s very complicated stuff.
ALEC HOGG: We’ll see if Michael can actually unpack it all for us.
GARY BOOYSEN: Just clear it up for us. It’s always interesting to see how Absa is going to deal with this, on the back of the Libor rigging as well, just not…
ALEC HOGG: Barclays?
GARY BOOYSEN: No, not Barclays.
ALEC HOGG: Not Absa. Poor old Absa, they got tarred with the same brush with Bank Corp. They can’t get tarred with the Barclay’s brush as well.
GARY BOOYSEN: Yes.
ALEC HOGG: Gary Booysen is from Vunani Private Clients bringing us up to date on all the action that has been going on in the markets today.
