Lunchtime market update on CNBC Africa’s PowerLunch with Sasha Naryshkine talking about Telkom, Astral Foods, Barloworld and life with oil at $80 in Africa. Strong opinions and some sound advice. Sasha has some things to say about our news makers today and you should have a listen. – CPÂ
ALEC HOGG: Sasha, we have been a little early in introducing you to our viewers.
GUGULETHU MFUPHI: But we’re happy to have him in our studios.
ALEC HOGG: Without a tie though, again. What are we going to do to this man? That’s the difference. At CNBC, they wear ties. At Bloomberg, they don’t.
SASHA NARYSHKINE: But why is a tie useful?
ALEC HOGG: Well, it restricts the blood flow to your brain.
SASHA NARYSHKINE: So we must wear it like Nouriel Roubini  – hanging somewhere around here.
ALEC HOGG: Telkom.
SASHA NARYSHKINE: Yes.
ALEC HOGG: Talk to us.
SASHA NARYSHKINE: It’s interesting because you have to ask yourself a question. They did say that they were going back to paying a dividend next year. Having suspended their dividend, with the last one paid in 2011 that tells you a story that the restructuring and the hardships of the last three-odd years, are probably past us. The problem is that now you’re competing in a market where South Africa is relatively mature. You’re competing against MTN – and yes, MTN are a partner in some senses – and Vodacom, and so you’ll be competing against them in data.
ALEC HOGG: And the worst cellphone provider on earth, according to some guy with a banner I saw last week…
GUGULETHU MFUPHI: When I saw that, I knew you might actually agree with his sentiments, Alec.
ALEC HOGG: Shame. They’re trying hard. It must be hard. When you lose a guy like Allan Knott-Craig at Cell C, what do you do?
SASHA NARYSHKINE: That is actually, a problem. The race to the bottom for voice and data has actually…
ALEC HOGG: At the bottom? Cell C and Telkom?
SASHA NARYSHKINE: No, I’m talking about a race to the bottom in terms of pricing and that will have a bigger impact on Telkom in the year. Their core/old legacy business still sucks ones down in terms of minutes called. With the growth business, which is data, you’re competing against other people who have quietly been expanding their infrastructure at an aggressive rate. Even if you look on a localised basis… Take the Parkhurst example – one that people love to talk about – laying fibre. I spoke to some of those people last week. They are inundated with calls from residential areas/customers who just want better services. Telkom have responded. They’ve offered higher LTE in the segment because nobody wants their roads and sidewalks all messed up, anymore. However, what’s interesting is that it’s becoming more and more competitive in the data space.
ALEC HOGG: With Dark Fibre Africa. Here’s a really, interesting question. If you were Government – now we know Government finances are really, strained – you own 39.8 percent of Telkom… Given this set of results would you be a seller to try to bolster the Treasury?
SASHA NARYSHKINE: Well, it’s not as big as it used to be. They own roughly 40 percent of R33bn. That’s roughly, the market cap. Obviously, the stake in Vodacom, which is 13.8 percent, is bigger than the stake that they own in Telkom. Maybe they can continue to be a shareholder in Telkom because as they said in the set of results, Government (and with control over the Government Employees’ Pension Fund) owns over 12 percent.
ALEC HOGG: But my question was nothing to do with Vodacom.
SASHA NARYSHKINE: I would sell in a heartbeat, but I don’t think they are going to.
ALEC HOGG: It doesn’t matter what they’re going to do…it’s ‘what would you do’.
SASHA NARYSHKINE: I would sell in a heartbeat.
GUGULETHU MFUPHI: Well, given that answer, I think investors who are watching the show know what to do.
ALEC HOGG: Exactly. Take the money and run, says Sasha.
GUGULETHU MFUPHI: Not in so many words… Looking at Astral Foods (poultry producer): are there concerns that this is from a low base – HEPS up by 99?
SASHA NARYSHKINE: If you look at the share price, it’s performed remarkably. I think it’s up over 50 percent, year-to-date (the Astral share price). It’s trading on what looks like a very expensive – relative to its historic performance… These, are companies that traditionally, traded at cheaper multiple, relative to the market – that’s talking about the share price. Let’s talk about the business because I think they’ve done a pretty good job in some pretty tough circumstances. What would obviously be in the favour is lower soft commodity prices and they say that will start to feed through to the first half of the year. Perhaps you can ask Chris the question, ‘what do you expect for the first half with the low commodity prices in the feeds and poultry business, specifically’ because those are your lower input costs. To the consumer, the chickens have actually become more expensive as a result of intervention from one of Alec’s favourite government Ministers.
ALEC HOGG: Not just mine. Its Peter Bruce’s favourite, as well. He now calls them ‘the terrible twins’ – Patel and Davies. At least I haven’t called them ‘the terrible twins’ before.
GUGULETHU MFUPHI: He just said that they’re your least favourite.
SASHA NARYSHKINE: Think about the impact. Essentially, you’re saving many jobs in an environment where you want to promote employment but you’re saying to the consumer who would have more money in their pockets – maybe, to create more retail jobs – ‘I’m sorry. You’re going to have to pay more for your chicken’.
ALEC HOGG: When you start interfering in the economy, you’re always going to be on a hiding to nothing. For example, what is dumping? There are all kinds of things on that. Astral Foods (as you rightly say), only six months ago, was R80.00. Now it’s R150.00/ R160.00. Is this another one where you’d be cashing in your chips?
SASHA NARYSHKINE: Traditionally, they’ve been a very good dividend payer when the times are good, and so I think that if you’re going to own Astral, you have to own it through the cycles. The performance is very patchy over five years – very patchy – and the dividends are very, very patchy. You were getting R2.20 last year. What did you say you were getting this year?
GUGULETHU MFUPHI: About R4.00.
SASHA NARYSHKINE: About R4.00. The year before that, I think you were getting close to R8.00. You can obviously see that we’re in recovery mode, but if you’re owning this business, you have to own it on the basis that times are going to be really bad and times are actually going to be very good. As a whole, if you want to buy a foods business, our preferred entry is Tiger Brands.
ALEC HOGG: What about Gugu’s favourite stock of the morning – Barloworld?
SASHA NARYSHKINE: Again, heavy machinery, specifically on the mining front. If you look at Caterpillar and Bucyrus, you have to ask yourself; with the lower commodity prices, how that’s going to impact their customers. I’d like to know what sort of heat their customers are feeling and how they’re delaying big projects because you’d only be comfortable on a project if you can see the outlook for commodities is much higher than the current levels are. Many people are talking specifically about some of the bulk iron-ore projects – globally. Many of those are starting to become a lot more marginal. You were talking about fracking earlier. I think the cash cost in the U.S. in shale is $60.00 so we still have quite a fat margin built in. Now you would think that with some of the newer start-up African businesses, particularly in commodities, it’s going to be much tougher.
In fact, many of those iron-ore projects in West Africa have been shelved now and of course, the negative outlook towards Western African economy is impacted by Ebola. Don’t discount that from a project point of view.
ALEC HOGG: And don’t forget oil. Africa gets 60 percent of its export earnings from oil, and that’s gone from $100.00 to under $80.00. The impact of that on budgets and on economies on this continent is going to be significant. So far, it’s almost as though we’ve ignored it on the continent. We’re still thinking of an African Renaissance – a booming Africa. However, if you’re cutting your capital import (in other words, the money you get for the exports that you’re sending out there), you’re getting less for it. Be careful. It has to have an impact. It has to have a significant impact. That would knock on to Barlows, surely.
SASHA NARYSHKINE: And you’ve seen a big shock in the Nigerian Stock Market. I think that was one of the worst performing stock markets for the month of October, and of course, the Naira got weaker. How does it impact here, locally? Well, you saw the MTN share price actually take a R20.00-odd haircut as a result of that so I think you’re right. The disposable income that consumers will then have in their pocket as a result of low energy prices…you shouldn’t discount that either because energy and food are big consumption items.
ALEC HOGG: They’re massive exporters – 60 percent of our exports.
SASHA NARYSHKINE: What the countries then need to do is get a bigger entrepreneurial base in order to get more income.
ALEC HOGG: Which takes time…  It’s nice to get the cash coming in. I think that’s really, the point here.
SASHA NARYSHKINE: Well, maybe this is a good outcome in the long run.
GUGULETHU MFUPHI: As long as the policies are right, though, Sasha.
ALEC HOGG: Yes, and they don’t steal any of the money because that’s been a big problem as well – that a lot of it has been diverted, as our Nigerian colleagues keep telling us. Anyway, that’s Sasha Naryshkine telling us he would sell Telkom in a heartbeat. I wonder what Jabu Mabuza would say about that. Watch out for him. He looks a bit like a gangster, but I think he’s very…
GUGULETHU MFUPHI: Alec.
ALEC HOGG: With his hat.
GUGULETHU MFUPHI: Yes, he always wears a hat but he’s actually quite friendly…
SASHA NARYSHKINE: Maybe it’s his jazz hat.
ALEC HOGG: Jazz hat – that’s it – not a gangster’s hat.
