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 weâre happy to have him in our studios.
ALEC HOGG: Without a tie though, again. What are we going to do to this man? Thatâs the difference. At CNBC, they wear ties. At Bloomberg, they donât.
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  â hanging somewhere around here.
ALEC HOGG: Telkom.
SASHA NARYSHKINE: Yes.
ALEC HOGG: Talk to us.
SASHA NARYSHKINE: Itâs 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 youâre competing in a market where South Africa is relatively mature. Youâre competing against MTN â and yes, MTN are a partner in some senses â and Vodacom, and so youâll 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 weekâŚ
GUGULETHU MFUPHI: When I saw that, I knew you might actually agree with his sentiments, Alec.
ALEC HOGG: Shame. Theyâre 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 actuallyâŚ
ALEC HOGG: At the bottom? Cell C and Telkom?
SASHA NARYSHKINE: No, Iâm 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, youâre 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 â 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. Theyâve offered higher LTE in the segment because nobody wants their roads and sidewalks all messed up, anymore. However, whatâs interesting is that itâs becoming more and more competitive in the data space.
ALEC HOGG: With Dark Fibre Africa. Hereâs a really, interesting question. If you were Government â now we know Government finances are really, strained â 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, itâs not as big as it used to be. They own roughly 40 percent of R33bn. Thatâs 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 Employeesâ 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 donât think they are going to.
ALEC HOGG: It doesnât matter what theyâre going to doâŚitâs âwhat would you doâ.
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 â HEPS up by 99?
SASHA NARYSHKINE: If you look at the share price, itâs performed remarkably. I think itâs up over 50 percent, year-to-date (the Astral share price). Itâs trading on what looks like a very expensive â relative to its historic performance⌠These, are companies that traditionally, traded at cheaper multiple, relative to the market â thatâs talking about the share price. Letâs talk about the business because I think theyâve 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, âwhat do you expect for the first half with the low commodity prices in the feeds and poultry business, specificallyâ 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 Alecâs favourite government Ministers.
ALEC HOGG: Not just mine. Its Peter Bruceâs favourite, as well. He now calls them âthe terrible twinsâ â Patel and Davies. At least I havenât called them âthe terrible twinsâ before.
GUGULETHU MFUPHI: He just said that theyâre your least favourite.
SASHA NARYSHKINE: Think about the impact. Essentially, youâre saving many jobs in an environment where you want to promote employment but youâre saying to the consumer who would have more money in their pockets â maybe, to create more retail jobs â âIâm sorry. Youâre going to have to pay more for your chickenâ.
ALEC HOGG: When you start interfering in the economy, youâre 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 itâs R150.00/ R160.00. Is this another one where youâd be cashing in your chips?
SASHA NARYSHKINE: Traditionally, theyâve been a very good dividend payer when the times are good, and so I think that if youâre going to own Astral, you have to own it through the cycles. The performance is very patchy over five years â very patchy â 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 weâre in recovery mode, but if youâre 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 Guguâs favourite stock of the morning â 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 thatâs going to impact their customers. Iâd like to know what sort of heat their customers are feeling and how theyâre delaying big projects because youâd 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 â 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, itâs 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. Donât discount that from a project point of view.
ALEC HOGG: And donât forget oil. Africa gets 60 percent of its export earnings from oil, and thatâs 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, itâs almost as though weâve ignored it on the continent. Weâre still thinking of an African Renaissance â a booming Africa. However, if youâre cutting your capital import (in other words, the money you get for the exports that youâre sending out there), youâre 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 youâve 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 youâre right. The disposable income that consumers will then have in their pocket as a result of low energy pricesâŚyou shouldnât discount that either because energy and food are big consumption items.
ALEC HOGG: Theyâre massive exporters â 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 timeâŚÂ  Itâs nice to get the cash coming in. I think thatâs 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 donât steal any of the money because thatâs been a big problem as well â that a lot of it has been diverted, as our Nigerian colleagues keep telling us. Anyway, thatâs 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 heâs veryâŚ
GUGULETHU MFUPHI: Alec.
ALEC HOGG: With his hat.
GUGULETHU MFUPHI: Yes, he always wears a hat but heâs actually quite friendlyâŚ
SASHA NARYSHKINE: Maybe itâs his jazz hat.
ALEC HOGG: Jazz hat â thatâs it â not a gangsterâs hat.
