Value investment houses led by Allan Gray could soon be banking some big profits after Blue Label Telecoms announced this morning that it has received an unsolicited takeover offer. Allan Gray recently disclosed that it owns a fifth of Blue Label’s equity and Piet Viljoen’s RECM has also been buying. After this morning’s news the share price jumped almost 10% to R10 a share. In today’s Market Watcher slot on CNBC Africa, Absa’s Chris Gilmour offered his perspective on the proposed deal; weighed in on Ketso Gordhan’s side in the PPC furore; and offers insights into Gijima, Anchor Group and the recent Scottish vote. – AH Â Â Â
ALEC HOGG: Let’s get a more in depth view of how the market is trading today, Chris Gilmour, Investment Analyst at Absa Investments. The new David Shapiro, I say that because you are everywhere, Chris. Before we get into the market news, update us on your views about the Scottish vote.  Are you feeling a little unhappy that the vote went the other way?
CHRIS GILMOUR:Â No, and I think a lot depends on what happens to the promises that were made shortly before the vote took place. I think what that did, it got a lot of the…
ALEC HOGG:Â (As a Scot) Do you think an Englishman is going to keep his word – David Cameron?
CHRIS GILMOUR: I’ve got a lot of respect for David Cameron.
ALEC HOGG: Now he’s talking about ‘Home Rule’ for the English as well.
CHRIS GILMOUR: I think he has to do that because he’s got a crowd called UKIP bombarding the sails, notably a fellow called Nigel Farage, so I think that’s going to be on the boil. If he doesn’t – and I’ll give you a couple of little stats here – if you look at the membership of the political parties in the U.K. it’s been declining for quite a few decades now. Currently it stands the Labour Party have got 190.000 paid-up members, Tories have about 134.000, until two weeks ago, Scottish National Party had 23.000 or thereabouts. They now have just under 70.000. The actual membership has almost tripled. I think what’s going to come as a result, as a direct consequence of this, is that Scottish Labour,  depending on what they see as being the outcome at Westminster. You might see a lot of people changing their votes, as seen as a protest vote, going from Labour to SNP. You might see the number of Nationalists MP’s in the Westminster of Chamber increasing quite significantly, from a very poor six out of what…close on 60.
ALEC HOGG: Very interesting, and it’s a mega trend that is impacting around the world.
CHRIS GILMOUR: Categorically, yes.
ALEC HOGG: It’s not totally out of the scope of what we need to talk about on the markets today. First off  Blue Label. There’s a share price up nearly eight-percent today on a very short little cautionary to say that someone’s approached them to buy the company.
CHRIS GILMOUR: Yes, as we were saying, just before we came on air, I think these guys are in exactly the right space. I think with more and more municipalities, particularly struggling to get people to pay, the imperative now is going to get more and more in the way of prepaid meters into peoples’ houses. I don’t know if you’re on prepaid, we went a couple of years ago, and it’s actually superb. It really makes you very disciplined on what you spend, so it’s a win-win. The municipalities get their money upfront. You can’t spend what you haven’t got, so I think, in terms of the way that they’ve rolled this thing out, it’s been exceptionally good. It’s worked and I think they are obviously in big demand.
ALEC HOGG: Have you seen, just from a personal finance perspective, that you’ve reduced your electricity consumption, as a consequence?
CHRIS GILMOUR: Huge, yes, we’re down to about less than 500 kilowatts per month. From 700 to 800, yes, it’s significant. It makes you much more disciplined.
ALEC HOGG: That’s good, so Blue Label is in the right space, somebody has identified this, possibly an international party…?
CHRIS GILMOUR: I think it’s got that whiff about it, hasn’t it because don’t forget Blue Label isn’t just in South Africa. It is all over the Continent.
ALEC HOGG: Mexico and India.
CHRIS GILMOUR: Yes, so there’s obviously that international feel about it as well, so yes…
ALEC HOGG: Would you buy the shares now because some traders love this, when they see that a company is in play, they jump in and coat-tail it?
CHRIS GILMOUR: You’ve got to be careful, jumping in and buying anything that is under corporate action because it may or may not materialise and this could all fall in a heap, as far as the actual corporate action is concerned. You’ve got to do your homework and the fundamentals. Now, the problem that I have with Blue Label is that ever since it was listed I struggled to actually, find a set of financials that I understand, because there’s about half-a-dozen of different ones there. Look, as you say, it’s got its major adherence out there and you can’t convince them this is anything other than brilliant, so it’s definitely got a big following there.
ALEC HOGG: Some of the value investors, Piet Viljoen have got a stack there; I think Allan Gray is involved big time as well.
CHRIS GILMOUR: Yes.
ALEC HOGG: So they might have got a winner. PPC used to be a value stock. Not so much anymore, after Ketso Gordhan’s departure last Monday, we’ve had all kinds of drama there. How are you reading it?
CHRIS GILMOUR: I think it’s important that the media and investors understand more deeply what Ketso Gordhan was trying to achieve. In a word, it’s sustainability. I think this is a guy who’s understood very beautifully that we can’t carry on with this kind of slash and burn mentality, at a Corporate Governance level, when it comes to executive pay. Something has to happen, in terms of reducing that gap. Now, I was on a CNBC program with him a few months ago, and we had a long chat about this and he made it quite clear that in terms of reducing the pay there’s a number of things you can do. You can drop it from the top and/or you can increase it from the bottom. He said ‘the guys at the bottom, if they want more pay it comes with improved productivity. There’s no free lunch in any of this’.
If we are going to have a sustainable situation I think guys, like Ketso are leading the charge and I think it’s important that he get back into the operation. He’s done a phenomenal job in the past two years, and I think there are a lot of – and I can only refer to them as political dynamics that may have resulted in trying to edge him out. I think it’s vitally important, not just for PPC but for many other JSE and other companies, that we get back onto an even track and understand that if we are going to have a sustainable, industrial economy out there, this is where it starts.
ALEC HOGG: Well, it is interesting when Ketso was here on Monday, I asked him (about the talk going around) if Tryphosa Romano, the 42 year-old Financial Director, was the person who he was trying to get rid-off, and his, quick as a flash response, was ‘no comment’.  If she wasn’t, he might have wondered slightly differently but there’s a Financial Director who, presumably is quite marketable, he doesn’t want her to work there. Maybe it is because he wanted her to cut her pay, whatever the case might be, but we really need to get a statement of some sort now, from the Board of Directors because, at this point in time, everything I see I would believe, as you clearly do in what Ketso is telling us.
CHRIS GILMOUR: Yes, and I think good manners prevent him from actually naming names and such, but I think we can read a lot into it. It looks remarkably similar to what we saw between David Constable at Sasol and the previous CFO there. In that instance it looks like the Board sorted it out and Constable was given the wherewithal to actually carry on, and again, he’s done a fantastic job. It may be a rerun of that and Ketso may have taken the thing to the Board and the Board has said ‘no. If you want to go like that, then that’s it’, type of thing. Now, what he’s maybe, having to do, well what he’s having to do obviously is go to the shareholders, the people who ultimately own the company, show them and demonstrate unequivocally what he’s done and how incredibly…
I think a lot of people don’t quite understand what a relatively poor company PPC had been for many years, until Mr. Paul Stuiver came along and then Ketso. I think, between the two of them, they’ve done a remarkable job in recent years; they’ve transformed this company, so I think the shareholders must now get a really good understanding of what has happened here, coupled with that a bit about sustainability. I think, commonsense will prevail in this, and hopefully Ketso will be reinstated.
ALEC HOGG: Talking about shareholders, the biggest loser on the JSE today is a little company called Gijima and Robert Gumede put R75 million of his own money into this company, not long ago, at 70 cents per share. It is now 30 cents per share. As the major shareholder, he must be feeling a little bit sore and perhaps needs to get back into the company, wouldn’t you?
CHRIS GILMOUR: Yes, Gijima has had a very chequered history. I think they were a victim of their own success, in many ways. In a sense that these big Government contracts, a lot of those contracts weren’t paid for, they are now, having to transform themselves, so it’s going to be a long process. They are in the right space. There’s no doubt about that. The IT space is exactly where you want to be but I still think that it is going to be a long haul for them, so Robert Gumede, he obviously understands and he knows the business, intimately, but I think he is going to have to be very patient with this one.
ALEC HOGG: Sometimes people within companies though can also get it wrong. Clearly, in this case, either he’s got it wrong or the shareholders are getting it wrong because there’s a big difference there. Similarly, with Anchor Capital, Peter Armitage was here on the day of listing. The share price was trading above R3.00 and I said to him ‘Pete, if you compare this rating to Coronation’s rating, they are giving you quite a premium’. He said ‘yes, well he thinks it’s a bit rich for the moment but hang in there. In a couple of years’ time you’ll get your money back’. It has now doubled in price – R6.20. What would cause this kind of escalation in a share price?
CHRIS GILMOUR: A number of things… Look, I think investing on the JSE is attracting a wider audience. If you put your money into a bank account or into the bond market, then you are not getting a great yield and I think a lot of people out there, they like the idea of buying into companies. Especially new companies and especially ones that have got a CEO of the charisma of Peter Armitage, now correct me if I’m wrong but I think he is the most highly decorated analyst that has ever existed, in South Africa.
ALEC HOGG: Well, that is what his website tells us but it is true. Pete is a Chartered Accountant, who went into Investment Relations.
CHRIS GILMOUR: Yes, he’s phenomenal.
ALEC HOGG: Then he went to Investment Analysts, so he’s got the communication skills as well as the analytical skills, which is a wonderful combination.
CHRIS GILMOUR: Yes, I’ve known Peter for a long time. He’s a great guy. I think with all of these things, you have to ultimately, come back to valuation. Is this thing fully valued and if it is, then you sit back and say ‘somebody else can go in and ride that for a while’. It’s a bit rich at this point in time and I suspect that maybe it needs to consolidate.
ALEC HOGG: Maybe they’ve got something happening though. I suppose that’s the other way, when you look at it from the outside.
CHRIS GILMOUR: It could be.
ALEC HOGG: Like with Blue Label, the share price goes up, although to be fair, it is down 50-cents today, Anchor Capital is down seven-and-a-half percent. If you’re buying at these levels, even the CEO says ‘we’re going to have to work hard to get there’. Just to close off with, Trevor Manuel moving to Rothschild yesterday. There was quite a debate that Viv Govender and I had on this program, on the decision. My view is if you come from the private sector to the public sector and from the public sector to the private sector, the more you can move between the two the better for both parties. His view was ‘be careful of crony capitalism’ etcetera, and he feels that Trevor shouldn’t have gone there. Where do you stand?
CHRIS GILMOUR: I don’t know. We’ve all seen and heard Trevor over the years and he’s made a remarkable imprint on South Africa. He was a fantastic Finance Minister, in his position as NDP, but I think I heard him giving a presentation at a BBC event about six months ago, and his grasp of international events, and his grasp of how South Africa interacts with the rest of the world, is really, quite incredible. I’ve never seen him in that kind of forum before and it put a new light on Trevor, as far as I was concerned. I think he can add huge value to Rothschild, given his background. I always thought he was going to go to something like Bank for International Settlements in Bern and this is a little bit of a surprise, him going to Rothschild but it doesn’t surprise me that he is in such huge demand. Crony capitalism, no, I don’t think so. Trevor is very much his own man.
