Alec is joined on the Power Lunch by regular market commentator on CNBC Africa, Sasha Naryshkine. Alec and Sasha discuss the biggest news items in the markets for the day. In the spotlight is Anglo American Platinum (Amplats), not only did it release its interim results today, it also announced that it would be looking to sell its most labour-intensive mines in the country. This news saw Amplats’ share price increase by 4%, with many noting that the restructure was expected after the five month mining strike. This piece offers in-depth insights into the goings on at Amplats, happenings in the property sector and the general mood of the market as the week’s trading commences. – LF
ALEC HOGG: Well, let’s get a more in-depth view of the individual features of the market. As usual on a Monday, Sasha Naryshkine, Director of Vestact, is with us in the studio. Anglo Platinum – the share price is three percent up, Sasha.
SASHA NARYSHKINE: I suppose it depends where you draw your line in the sand. The restructuring that they’ve announced… Union, we know, is up for sale so it’s about seven thousand, I think.
ALEC HOGG: Union Mine, and not the trade union.
SASHA NARYSHKINE: Seven-thousand-three-hundred/seven-thousand-four-hundred people work there and they actually have reduced the workforce, if you compare it on half by half basis to over 5000 people. The workforce used to be over 50,000 this time last year. Now it’s under 45,000. It’s quite subtle and what they’ve basically said is they’re going to employ capital at open casts, track lists, and mechanised mines. That’s the future of mining for them in Southern Africa because it’s basically Unki, Greenfields, Twickenham, and then of course, the open pit for open pit mines. The response from business to what they can see in a very tense labour environment is to have less labour. That’s the reality. Whether or not your idea is that they’re going to have more profitable ounces in the future…that’s obviously the short knee-jerk reaction today, but these numbers aren’t really comparable because of the once off in the South African mining context.
Everybody must recognise that there’s a reaction from business to a situation that’s untenable. They’re going to shut down mines that are unprofitable. You can’t keep mining.
ALEC HOGG: Yes. Unfortunately, companies are about people. When one side feels that they’ve been run over roughshod – as I guess the managers are feeling right now – they will have a reaction. How do they react? Just by not employing more, as you’ve said. The share price is an interesting reaction – up three-and-a-half percent today on the day that the results are released, so somebody’s taking the view that the worst might be over.
SASHA NARYSHKINE: I don’t know. Ultimately, the demand side will flesh out the longer-term fundamentals. Jewellery demand from China seems to be strong. There’s no doubt that European motor vehicle sales are starting to move upwards.
ALEC HOGG: Is this a reaction to the global demand side of platinum?
SASHA NARYSHKINE: I think this is to the company specifically, so the demand side looks better than it probably was this time last year. The problem around substitution – remember, the Russians have a lot of palladium – so how will economic sanctions, if they’re more rigid on the Russians, impact positively on Southern Africa as a platinum producer/PGM producer?
ALEC HOGG: When you look at the big picture, nobody knows. Even Buffett doesn’t know. The specific here is that the numbers that came out were obviously a little better than were anticipated.
SASHA NARYSHKINE: Obviously.
ALEC HOGG: But you have to consider if it’s worth jumping into a war-torn Anglo Platinum now.
SASHA NARYSHKINE: Yes, for many investment managers, single commodity stocks are a big no-no.
ALEC HOGG: Are you in there? Do you own them?
SASHA NARYSHKINE: No, we don’t own any platinum exposure, not even through Anglo. We don’t even own Anglo.
ALEC HOGG: What about property? I’ll tell you this: today, we got a news release out that there’s a new shopping mall in a town called Tugela Ferry. Do you know Tugela Ferry?
SASHA NARYSHKINE: Yes, I’ve heard of it.
ALEC HOGG: According to the 2011 census, there were 2093 people who lived in Tugela Ferry. The reason I know about Tugela Ferry is I had a guy I went to school with whose father was the doctor at the Church of Scotland Hospital in Tugela Ferry.
SASHA NARYSHKINE: Just remind me from a geography point of view. Where is Tugela?
ALEC HOGG: KZN.
SASHA NARYSHKINE: Where?
ALEC HOGG: In the middle of nowhere, 47kms away from Greytown. Now you ask yourself, has the world gone mad when you have a shopping centre in Tugela Ferry with a Cashbuild, Ellerines, OK Furniture, J.D. Group, KFC, of course Liquortown or whatever it’s called, and the post office. It just doesn’t sound right.
SASHA NARYSHKINE: How many people live in the broader rural area?
ALEC HOGG: Well, there are 2000 people who live in the town. In the broader area, who knows? The reality is, you are talking about shopping centres being put in tiny little villages.
SASHA NARYSHKINE: Well, those are also to replace away from the regular main street type of activities. I think Napoleon famously said ‘Britain is a country of shopkeepers’, so its individual shopkeepers supplying services to people in the area. I would have thought that people like Cashbuild would definitely have done that. That is Cashbuild’s model – operating in rural South Africa and being able to get supplies cheaper than anyone can do sourcing them from elsewhere.
ALEC HOGG: My question is property investment: if you’re in the property investment field and you’re having to go to places like that to get yield and to get returns…
SASHA NARYSHKINE: Oh, I get your point. Your contention is that it’s getting harder and harder.
ALEC HOGG: No, that’s why I’m asking you. You’re the expert. When you see this happening in the property field, what is your reaction?
SASHA NARYSHKINE: We don’t own any property companies because typically, in our private clients’ lives, they have significant property holdings of their own. In our equity portfolios, there’s no exposure to any properties.
ALEC HOGG: So no Anglo Platinum…no property… When you have a look at the rest of the market today, is there anything there that’s starting to jump out at you?
SASHA NARYSHKINE: What’s quite interesting about these geopolitical events is ultimately, earnings take charge of where equity markets head. It’s quite interesting to see GE and Google specifically, with results overnight in the U.S. on Thursday, drive the market on Friday. Notwithstanding the fact that you have areas of conflict, a lot of geopolitical tension, and a lot of unanswered questions; at the end of the day, it’s earnings. You can look at all these points and say ‘I’m worried’, but there are so many of them. At the end of the day, it’s about the businesses you own, what their profitability is, and what you’re prepared to pay for it.
ALEC HOGG: That’s a good point. Quite often, people are terribly caught up in the big picture, which always has two sides to every story. You’re buying a share for the return it can give you over a long period, and that’s what you should be looking at rather than ‘well, will people shooting planes out of the sky have an impact on the world’. We can’t tell that, but we can tell if Anglo Platinum is cheap at the current price, given the results that came out today.
SASHA NARYSHKINE: Exactly. What’s quite murky is that these aren’t comparable results. This is just management indicating where they’re going to allocate company resources in the future. People are starting to say ‘okay, they’re doing exactly what we want them to do’. When I said ‘people’, I mean their investors. Those are the people who ultimately own the company. Otherwise, they just won’t allocate any more capital to that business specifically. They’ll just say ‘sorry. Thanks, but no thanks’.
ALEC HOGG: What’s your best short on the market today?
SASHA NARYSHKINE: Typically, we don’t go short on a short-term basis. We do more like a structural short. We’ll say, which industry do we think is in terminal decline? There are many of those but typically, rather than shorting it, you avoid it.
ALEC HOGG: It’s a manner of speech. What is most overvalued on the market today?
SASHA NARYSHKINE: I wouldn’t say any specific sectors. I would be contrary and say something like Naspers is undervalued, but you and I have had this conversation before. Where many people think Naspers is overvalued, we’d be at the opposite end of the market. We’d say the chances of enormous ecommerce growth – we’re only starting to see them now and it always seems as though Koos Bekker is two or three years ahead of everybody else. Now you’re starting to see them roll out business locally that they haven’t rolled anywhere. I don’t like going short because you can only get – even on a geared basis – a maximum return, whereas even on an ungeared basis – if you have long equities – the return can be (I won’t say infinite) far greater than the short will ever be.
ALEC HOGG: Sasha Naryshkine is a Director at Vestact.
