Market commentator Sasha Naryhskine had a look at today’s markets with Alec Hogg on CNBC Africa’s Power lunch. In focus for discussion is Hulamin, a company that has struggled in the past but has come out with strong numbers, expecting substantial gains from its interim results. Another hot news story is the appointment of Neville Nicolau as Basil Read’s new CEO, given Nicolau’s background in mining. Also on our company radar was Spur Holdings, it released a sales update for its year-end period, which raises questions as to its profitability in the consumer environment and how it fairs against food giant Famous Brands. For insights into the movers in today’s market from seasoned experts, this piece has a wealth of wisdom to offer. – LF
: One thing that I want to find out from you and Sipho, Alec, is if you guys are gold bulls. Just the other day we saw DRD maintaining its run, up by nine percent on Friday and up by seven percent today. Is Sasha maybe keen on the yellow metal?
ALEC HOGG: Well, we’ll find out from him in just a moment, Gugu. Thanks for your cameo guest appearance. It’s quite nice, isn’t it, to have Thumi and Gugu on the top of the show.
SASHA NARYSHKINE: Next thing – holograms – and we can all sit around the same table.
ALEC HOGG: Well, this is CNBC. Anything could happen.
SASHA NARYSHKINE: Anything’s possible.
ALEC HOGG: Maybe pick up on that first question and what Gugu was saying: are you a gold bull?
SASHA NARYSHKINE: No. Warren Buffett said something along the lines that if you were watching from Mars, you would think people on earth are crazy. They dig it up from a hole in the ground, and then put it in another hole in the ground and guard it he said, and it pays no dividends so the short answer is ‘no’.
ALEC HOGG: He’s had some lovely things to say about gold over the years. He said that if you take all the gold that was ever mind and you put it together, you’d have a 67 cube…67 across…
SASHA NARYSHKINE: How many swimming pools is that?
ALEC HOGG: Sixty-seven top. I don’t know how many swimming pools.
SASHA NARYSHKINE: It’s like Olympic-sized swimming pools – not very many.
ALEC HOGG: It’s not that big. You can get on top of it. You can polish it. You can fondle it. You can look at yourself as a reflection, but if you sell it you can by ten Exxon Mobiles, all the farming land in the United States and have quite a few billion Rands in ‘walk around money’ as he calls it.
SASHA NARYSHKINE: Yes, I tend to agree with him.
ALEC HOGG: It’s not a rational investment.
SASHA NARYSHKINE: I think, for historic reasons, human adornment, and value or money, there is still an allure for many people. I believe the demand side on the jewellery basis – and maybe that ties into why Richmont is probably a better investment – high-end jewellery made out of these metals.
ALEC HOGG: We could go into… I’m kind of a ‘half a gold bug’. Put it that way.
SASHA NARYSHKINE: That’s the South African in you.
ALEC HOGG: It is. Remember, I started in journalism in 1980. It was the month that the gold price went from about $500.00 to $850.00 and I think it plugged me in. It just said ‘this boy’s a gold bug for the rest of his life. Hulamin: the shares didn’t react much, but the numbers look as though it’s finally going to turn around now.
SASHA NARYSHKINE: So after three or four really poor years, and that’s mostly as a result of… You must remember that their markets are North America, local (here), Europe, and Asia, so those are their three markets. Asia only represents I think, ten or eleven percent. The local market’s been very average. Europe as we know has been quite poor and North America – Alcoa – have had their own set of problems then. Alcoa interestingly, whose the world’s largest manufacturer of aluminium, have seemingly turned some sort of corner themselves and that’s in large part due to the aluminium price moving higher. After seven years of a surplus, we’re expecting a deficit this year.
ALEC HOGG: That’s relevant for Hulamin.
SASHA NARYSHKINE: I think so. That’s very relevant for Hulamin. Because they’re such a marginal company, any significant uptick in the aluminium price is usually positive for them. The problem is that when they were unbundled from Tongaat Hulett in July 2007/June 2007 (seven years ago), the share price was nearly five times higher than it is now so they’ve had an absolutely awful time. The way I look at it, if I wanted to be involved in that whole idea that you’re going to get more consumers, I think Nampak as a packaging company is probably a better investment to play that specific theme.
ALEC HOGG: The same way that you say Richmont is better than going straight for those gold producers. Basil Reed’s appointment of Neville Nicolau – he is ex-Anglo Platinum. He didn’t get the top job at Anglo Platinum and he’s now gone off to run a construction company. As we were talking off-air, there is method in the seeming madness of the directorate.
SASHA NARYSHKINE: Well, I had a look at the annual report and saw that the base margins were in their mining division, so that was their most profitable division in their 2012 financial year. I thought to myself ‘a lot more companies moving towards mechanised mining here in South Africa and looking for longer term contractors on open pit mining.’ Maybe this is an opportunity that Basil Read can explore with his mining expertise and specifically, with Amplats. Maybe something interesting will transpire there.
ALEC HOGG: It’s a bit of lateral thinking by the board, and good luck to Neville Nicolau. Clearly, he’s been well trained. There’s not much you can teach him about the mining industry, so if they are moving into that direction, he could be inspiring.
SASHA NARYSHKINE: He’s had lots of experience from the bottom up. This is a guy who came through the ranks. I think he worked at Goldfields in Welkom for 13-odd years, so he certainly has a lot of experience in hard-core South African mining. He must be a gold bug.
ALEC HOGG: Well, I’m sure he’ll be a mining bug now that he’s joined Basil Read. The numbers that came out of Spur Holdings today: it’s just a trading update, but they had quite a lot of detail, telling us that their recent acquisition of Captain DoRego’s (not where you and I eat, I presume).
SASHA NARYSHKINE: No.
ALEC HOGG: When I lost all my money at the races, I’d end up at Captain DoRego’s.
SASHA NARYSHKINE: Really?
ALEC HOGG: It’s like fish and chips – similar end of the market – but it doesn’t seem to be doing that well.
SASHA NARYSHKINE: Yes, where they’re very different from Famous Brands is they’re not really a takeout. You’re not really going to go to their core brand Spur for a takeout. You’re going to go down as a sit-down, and that appeals mostly to middle income South Africa. It’s a fabulous brand in a South African context. Who would have thought a North American Indian-type brand would appeal so well to South Africans, but it’s the ‘meat and chips’ type of model, which is… I guess when the economy is going well and middle income South Africa has surplus cash, it’s going to do better. However, if they were doing okay in this sort of environment then I would say they’re pretty well placed for an economic recovery, and I think that will come in a South African context. We just have to watch interest rates. Joe Consumer is not in a great place, but they’re not in the worst place. We’ve seen households repair their own balance sheets and reduce debt levels, so they are in a position to be able to spend more when there’s an economic recovery.
ALEC HOGG: The new listing this morning – Delta International.
SASHA NARYSHKINE: I didn’t get a chance to have a look in detail. I guess, if you took the broader context you could say that ten years ago, the most money to be made would be to engineer some sort of property transactions together. What were we thinking? We should rather have performed that. I don’t know. The question then becomes ‘are you getting the right yield relative to where you think cash rates are going to next’ and whether or not you think the interest that you’re going to be paying on the debt associated with commercial, residential, and industrial properties in South Africa, which one will be the better investment in the coming five years. You could certainly say they had a great time over the last six or seven years because (a) interest rates were pretty low and there still a strong demand side and I think the strong demand side still exists. Even though you’ve seen people stretched, I think the strong demand side still exists. Although, as you pointed out last week ‘what’s all this with building new shopping in outlandish places’, to which some guy replied…
ALEC HOGG: I saw that reply.
SASHA NARYSHKINE: About 180,000 people live in the general area, so maybe the mall is warranted there.
ALEC HOGG: Two thousand people in the census. It must be just a couple of blocks. Sasha, as always, it’s good to see you. You know that if it Sasha Naryshkine, it must be Monday. He’s here with us every Monday. He’s a Director from Vestact.
