Alec Hogg was joined on CNBC Africa’s Power Lunch by Sasfin’s David Shapiro, one of South Africa’s favourite market commentators. In the spotlight today are Tiger Brands, Redefine International and ArcelorMittal following announcements from the companies on the Stock Exchange News Service. David and Alec analyse the results, updates and share prices of newsmakers for the day, sharing insights on stocks worth the nod and those worth a question mark. – LF
ALEC HOGG: Well, let’s get a more in-depth view of how the markets are operating and of course, the highlights of the trading today. David Shapiro from Sasfin is with us in the studio. Tiger Brands has grabbed all the attention. I was just looking at the share price graph, David. It’s really jumped in the last few months.
DAVID SHAPIRO: It’s crazy. It’s just, absolutely crazy. I can only attribute it to foreigners coming in. No locals are buying it. If you look at most analysts’ reports, at best they’re indifferent/neutral, most with a share price or a target price of around 300. Where are they now – 370?
ALEC HOGG: They’re at 381.
DAVID SHAPIRO: It’s just crazy. I would think that foreigners, as we’ve seen in retailers, buying the share on the basis of ‘it’s an entry into Africa’. If you look at the results as well, it’s mediocre results. I think that locally, it’s under a lot of pressure. I can’t forgive them for Dangote. No one’s taken any pain or suffered anything. They just wrote it off – just a journal entry through the books. ‘Sorry, we made a mistake’. No one suffers. Believe me, there won’t be any bonuses forfeited or anything like that for just writing off R1bn and I always question how they made the deal. Who sat around the table and actually decided to go into Dangote? Did Mr Dangote rub his hands and say ‘we have them’? It’s something, which has never been explained and something that really, angers me. Corporates never really explain or even apologise, for some big mistakes and we’ve seen quite a few made in South Africa.
ALEC HOGG: So the results generally, well I’ll be talking to Peter Matlare in a little while. Clearly, that R105m on top of R850m that they’ve written off on Dangote… The Nigerians saw them coming. Were there perhaps two sets of books?
DAVID SHAPIRO: Well, you don’t know. I think they wanted to do the deal because they felt that this was a nice entry point into Nigeria. Nigeria’s supposedly the biggest economy in Africa. It’s a huge growth area. However, did they do their homework? Did they really, do their homework on this one? Did they look at the books? Did they understand the books?
ALEC HOGG: Well, it’s a R72bn market cap, so losing R1bn in that context is nothing, really.
DAVID SHAPIRO: No.
ALEC HOGG: How big was the initial deal in Dangote?
DAVID SHAPIRO: I think they’ve virtually written it off. I don’t think it was much more than they’ve actually written off at the moment. This might be the goodwill, but at its biggest, it’s probably R2m but even so, R1bn is R1bn of shareholders’ money that has just vanished.
ALEC HOGG: It reminds me of when the Abil disaster hit, and Allan Gray and Coronation… Unfortunately, I wasn’t here when the Coronation CEO came in last week, but they were saying ‘in the context of our total portfolios, it’s really small’. It was hundreds of millions of Rands, which they wrote off.
DAVID SHAPIRO: They did.
ALEC HOGG: And this is even more.
DAVID SHAPIRO: I always question what the due diligence process was, and if it’s not big enough, why do it in the first place? In other words, why did they do it? Was it going to move the needle? I’m talking about Abil now, with Coronation and Allan Gray. Was it really going to make a difference to their performance? Likewise, with Dangote: if it’s not that significant, was it that important.
ALEC HOGG: There’s a question with Dangote. Has this spooked Tiger Brands? I.e. are they going to now say ‘we did have an Africa strategy but my goodness we got a bloody nose this time. Maybe we should be a little more cautious’.
DAVID SHAPIRO: Why did it go wrong?
ALEC HOGG: Dangote?
DAVID SHAPIRO: Yes. Why did it go wrong? What did they do wrong? Who made the decisions, and what influenced them to do it? That’s what I want to know, as a shareholder. I’m not a shareholder, but as a potential shareholder, I’m going to say ‘can they do this again’. Can they do this again as they try to expand outside of South Africa?
ALEC HOGG: Talking about expanding outside of South Africa, Redefine International has been quite a popular choice amongst many analysts. Today, they did a very interesting deal where the Intercontinental Group, which we know (top 5-star hotels), is now their 25 percent associate, is now the biggest operator of Intercontinental Hotels in Europe. That’s quite a move, with another 22 added to that.
DAVID SHAPIRO: They’re shrewd. I like Redefine. I actually like our property developers. I think they stand out, maybe not against the Americans but certainly, outside of America I think they’re very, very shrewd operators. If you bought NeppI…if you bought Redefine International…even in you bought Investec International, you’ve done pretty well. They’ve been able to pick up good properties at good yields and it’s currently becoming a popular area of investment. I think that this is one where you have to have faith in the people running it and say ‘you’ve done well. We assume you’re going to keep doing well for us’.
ALEC HOGG: It’s R8.81 today – the share price. I guess it’s a wonderful Rand hedge if that’s what influences you, but it’s been higher – Redefine International – given what has happened to the Rand lately. I guess that in Pound terms, it’s actually been sliding.
DAVID SHAPIRO: Yes, I suppose you have the currencies to consider.
ALEC HOGG: You’re saying that it’s one you’d consider adding.
DAVID SHAPIRO: Yes, I like management.
ALEC HOGG: ArcelorMittal, my original hometown… Johannesburg is my hometown – Newcastle. Newcastle in KZN has a steel plant and the steel plant there has been having a little bit of difficulties, but even more difficulties now. They’ve had their biggest investment in relining the blast furnace and they can’t get it started again. Did you see that on SENS?
DAVID SHAPIRO: I haven’t seen that.
ALEC HOGG: What is the story?
DAVID SHAPIRO: So you mean it’s going to take ArcelorMittal down.
ALEC HOGG: I’m not sure when they are going to start it. They say ‘unforeseen circumstances’…
DAVID SHAPIRO: Do they want to start it?
ALEC HOGG: They certain do, but due to unforeseen circumstances, they haven’t been able to get it going. They’ve made their biggest investment in South Africa, they say, in the blast furnace at Newcastle but they can’t get the plant going.
DAVID SHAPIRO: What’s the consequence of that? I haven’t been able to read that.
ALEC HOGG: Well, they say we’ll be able to supply our customers until early in the new year. I see that Paul O’Flaherty’s back. He has quite a difficult job there.
DAVID SHAPIRO: Yes, he’s gone from Eskom to ArcelorMittal.
ALEC HOGG: Group 5.
DAVID SHAPIRO: He’s a good operator.
ALEC HOGG: Well, we’ll have to see.
DAVID SHAPIRO: He’s always open and tells the truth, so we’ll get to the bottom of it.
ALEC HOGG: What about Austro-Group, (or soon to be the ENX Group)? It’s a power business. You remember Tony Phillips.
DAVID SHAPIRO: Tony from Barloworld – sure.
ALEC HOGG: He was the Chairman. He’s now left. Stephen Joffe’s come in.
DAVID SHAPIRO: From Silver Sun or Gold Reef…
ALEC HOGG: That’s not a very popular…
DAVID SHAPIRO: I wonder why he’s going in. That’s interesting.
ALEC HOGG: It’s strange. However, they are going to call themselves ENX Group. Now the question is – well, they’re in the power field – why does a company change its name?
DAVID SHAPIRO: I suppose Austro didn’t give it the… It’s almost as though they’re changing that whole character and they’re probably going to inject businesses now, and give it a whole new…
ALEC HOGG: It sounds like Enron to me, though – e, and n with a capital X.
DAVID SHAPIRO: I don’t know. ENX. Maybe that’s not the right name. Power’s becoming a big story.
ALEC HOGG: Energy
DAVID SHAPIRO: If you can develop energy independently from Eskom, you’re sure to be able to sell it.
ALEC HOGG: No doubt, some marketing guy is being paid a fortune to come up with that name, almost like with Piet Viljoen’s RECM. Remember…it was Regarding Capital Management and now it’s RECM.
DAVID SHAPIRO: I still don’t know what RECM means.
ALEC HOGG: It was Regarding Capital Management. Now, it’s just RECM.
DAVID SHAPIRO: RECM.
ALEC HOGG: It’s not the names of the Founders, or anything.
DAVID SHAPIRO: It’s like Prince: he gave himself a symbol for a name.
ALEC HOGG: Prince.
DAVID SHAPIRO: Don’t you remember the musician, Prince?
ALEC HOGG: I thought he was the musician formerly known as Prince.
DAVID SHAPIRO: Oh, that’s right.
ALEC HOGG: Then he became something else. All right, why do doves cry? David Shapiro is with Sasfin, giving us his insights into the movements on the markets today and those big stories there on Tiger Brands.
