SA’s favourite stockbroker David Shapiro on features of the day’s trading on Tuesday 12th August – Merafe’s share price jumps on interim results; Adcock Ingram’s turnaround in the offing; Macsteel in R2.7bn property sale to Redefine – en route to listing? – AHÂ
ALEC HOGG: Well, it’s the end of Tuesday’s trading day. David Shapiro from Sasfin is on the line. Dave, what kind of day did we have?
DAVID SHAPIRO: Alec, pretty slack. We lost 1.4% on the JSE All Share Index. I was a little disappointed because yesterday we had a magnificent surge, clearing around 1.7%. Unfortunately, no news today to actually allow the market to build on that. I think the biggest attractor was resources, which has been looking pretty good. We had a lot of money flowing into some of the diversified miners recently and that just fell flat today. Yet, gold and platinum were both stronger: gold on the back of worries in the Ukraine, which is still the most dominant feature on the market at the moment. The story there Alec, is that 280 Russian trucks apparently carrying humanitarian aid were stopped from entering the country because they weren’t cleared by the Red Cross. That was the dominant story on the mining market.
ALEC HOGG: On the individual shares, we did have Merafe bringing out results today, half-year results. They seem to be getting their act together and the shares are reacting again – up 112 percent in the year already and ten percent today – big volumes there, Dave.
DAVID SHAPIRO: Big volumes and it’s one of the analysts’ favourite small-cap shares. What was impressive was that we saw ferrochrome sales increasing, and this is where they specialise – ferrochrome used in the stainless steel industry. It’s a big market there in China, so ferrochrome sales were up. We saw higher prices, which we weren’t expecting and of course, a much weaker Rand helped the market there as well. I think the reason why the market responded is because finally, the small, little company has resumed dividend payment and that really cheered investors.
ALEC HOGG: It’s not a big dividend – just over one cent – but still, it’s moving in the right way.
DAVID SHAPIRO: The thing there Alec, is that they’re getting enough cash. They’re generating enough cash to pay dividends and of course, to keep the mine going. I know there was also a trading result from one of your favourite shares – Santam. A big turnaround there as well, which the market wasn’t expecting. Remember, last year we had huge problems with crop insurance and that underwriting has turned around, so they reported that results are going to be up by about 125 percent. The share is also responding very positively – up about five percent. I think those are probably the two big movers in the market, but still plenty of action on the market today.
ALEC HOGG: Well, talking about turnarounds, our dear friend Brian Joffe had a huge turnaround last year when he started sponsoring Sunderland Football Club. They were at the bottom of the league but improved to comfortably miss relegation on the last day of the season. I see Adcock today is up three percent. Is a turnaround in place there?
DAVID SHAPIRO: I wonder. We might have seen the worst there. I wonder whether people are not saying that this is perhaps the low. They did come out of an interim result now to catch up with Joffe’s half-year, which is at the end of June to bring it in line with Bidvest. My view there is that they’ve written off everything and from now on, you will see better results. I’m waiting for the next set of results. I’d like to see that the turnaround is in place before going, but at least we’re seeing them bottoming at these levels.
ALEC HOGG: We’re also starting to see some good trade in Glencore, which is important Dave, because it needs to get South African shareholding to get into these indices of ours.
DAVID SHAPIRO: You’re dead right. It’s taken a bit of time. They’re close to a new high here and again, it’s just evident that resources are starting to attract a lot more money at the moment, particularly the diversified miners where they have a spread… They’re not on the pressured side. Glencore also has a trading side – or a marketing side, as they call it – and we have seen a lot more trade. It’s been a year. I think they came in around November last year and it took them a long time to attract any kind of attention from our local investors. Sooner or later, if they do build up quite a big stake here in the All Share Index – certainly, the Top 40 index – and that means that all the tracker funds will then have to top up.
ALEC HOGG: And I guess there’s a Merafe story there as well, because Merafe gets most of its income from a Glencore-managed mine, so that’s been pumping. Dave, just to close off with, an interesting property deal: the Macsteel property portfolio being bought by Redefine. There’s a couple of billion there.
DAVID SHAPIRO: I was looking at it. Yes, it’s a fascinating deal. Alec, why it’s fascinating is because for Redefine, I think it’s a great deal. Not only do they have a 12-year rent with eight percent escalation with a very solid company behind it, but I’m also trying to speculate why Macsteel have done it. Is this Eric Sampson getting out? Is the new management coming out? I think there’s a story behind that as well. Are they trading so badly that they need the cash? I’m not sure, but I think there’s going to be a lot more interest behind that. The lease goes on for 12 years, after which Mac Steel can buy back those properties. I don’t know at what price, and that seems to suggest that this is almost a leaseback deal, but I’m very interested in trying to establish what’s behind it.
ALEC HOGG: What if we just speculate a little? It’s an almost R3bn cash transaction that’s happening here. Could it mean that the investment analysts have gotten hold of Mac Steel and said ‘you shouldn’t really be sitting on all this property if you want to have a decent return on equity’? Of course, it’s a private company now, but what if it were to list?
DAVID SHAPIRO: That’s exactly… I think you have it. You might have the story there. They may want to list it and in order to do so, have to get their trading operation into a position where they’re not dragged down by heavy property. It does give them a lot more liquidity. They could pay off debt. I don’t know. Because it’s a private company, we don’t know. The first thing that alerted me is that we need to look further into this. There’s a story. This is not just an ordinary property deal.