Gary Booysen’s essential market analysis: Investec, Woolies, Tsogo Sun & Anchor Capital

Following the biggest news coming out on the Stock Exchange News Service today, Alec Hogg was joined by Vunani Private Clients’ Gary Booysen in the CNBC Africa studios to get in-depth insights into the day’s newsmakers. At the top of the agenda was Investec coming out with interim results, leading the pack in terms of outperformance, followed by an analysis of Woolworth’s trading update – focusing on the separation of food and fashion. Hogg and Booysen further look to unpack Tsogo Sun’s interims and the subsequent dip in its share price, as well as market darling, Anchor Capital. – LF

ALEC HOGG: Let’s get a more in-depth view of how the market is trading today, and pick up on some of those stories that were mentioned in the headlines. Gary Booysen, Head of Trading at Vunani Private Clients is with us in the studio. Interesting, what’s coming out in the United States: I see this morning, Goldman Sachs have now dumped their uranium portfolio. They seem to be wanting to distance themselves as quickly as possible from this, but the banks really did strange things in the late ‘noughties’.

GARY BOOYSEN: Late ‘noughties’ – yes, some naughty things. This is obviously coming on the back of a wave of fines across the European banks as well, for currency manipulation and manipulation in the FX markets. These guys were definitely taking advantage of an environment where there wasn’t the heavy regulation they’re facing these days. As everyone tightens up after the financial crisis in 2008…

ALEC HOGG: And lack of information as well, I guess. Now people know more.

GARY BOOYSEN: Yes, the information age is definitely changing the whole way the financial system is working. Even you look just five years ago, at how trades were done compared to the high frequency trading of today; it’s a massive leap forward.

ALEC HOGG: Chalk and cheese. Investec…look five years ago at where they were, and look at them today. They were the top-rated share in South Africa. Probably not five…maybe eight to ten years ago. They did very well with their U.K. business and the share price has actually run nicely in the last year – up by 50 percent. Are the results that we’re seeing today, justified?

GARY BOOYSEN: I think it’s a fairly decent set of results. It did beat expectations, but not by too much. I think we did get what we were expecting. Investec is bucking the trend and it is up today by about half-a-percent. Yes, you mentioned that Investec was obviously hit harder than the rest of the retail banks in South Africa, after 2008.

ALEC HOGG: Well, they bought that Kensington Group, remember, at exactly the wrong time.

GARY BOOYSEN: Exactly the wrong time… Their strategy really has to have been to sell off some of their European operations and unbundle some of their Australian operations. I think the market’s really been liking that this year and it seems to have really, focused on its core business, which is that specialist banking, especially in the U.K. with real focus on the private wealth. It’s doing very well for them and you can see across their divisions. Yes, we are talking in a rising market, but just their numbers…their asset management is up 26 percent, wealth investment up 46 percent, and specialist banking up 22 percent, so across all the divisions, they’re doing really well. If you look at them now compared to the retail banks, they’re sitting up about 40 percent for the year, where the banking index is only up about 21, so massive outperformance coming from Investec.

ALEC HOGG: The number I like to look at in banks is the book value – the tangible net asset value. Perhaps they do their adjustments at the end of the year, which for them, is March but that’s only up one percent – R54.87. The stock is trading just below 2 times book, which is starting to get to a level now where you have to wonder what kind of delivery is coming in future.

GARY BOOYSEN: No question, but again, as I said we’re talking about an investment bank in a rising market as well. They do benefit from bigger portfolios as the equity market rises.

ALEC HOGG: Do you like this one? Would you stick with it?

GARY BOOYSEN: Yes, we do like Investec. The financial sector…if we’re looking at retail banks, we still prefer (probably) Nedbank and FirstRand, but Investec is definitely in there as one of our slightly higher risk, but more speculative players.

ALEC HOGG: Woolworths, with its trading update today: what do you make of that?

GARY BOOYSEN: I thought, looking at it…maybe a little bit flat. Obviously, it’s the 20-week sales and you’re obviously seeing the massive impact coming through from David Jones. When you strip out the David Jones numbers, sales are only up 11.9 percent, which is a very decent result. However, if you look at the clothing business it’s under a little bit of pressure when you look at the like-for-like. They were obviously opening new stores and they got about eight-and-a-half percent growth there, but it was about three-point-four percent growth in clothing.

ALEC HOGG: Like-for-like. You need to watch out.

GARY BOOYSEN: That’s what I always look at in Woolies as well because remember, Woolies has that stability of the food business but the clothing business is really where you can get big swings. If they miss on a fashion line or anything like that, you can get massive swings in their earnings so that’s really, where you need to look. The market is punishing them a little bit. When I left the office, I think they were down about three percent. It’s not a bad set of results, but perhaps expecting a little bit more.

ALEC HOGG: The real punishment today though, was Tsogo Sun – six percent down at the moment. Is it justified on the set of numbers that came out there?

GARY BOOYSEN: Again, Tsogo Sun is not one that we cover in a lot of detail, but I did go through the SENS today and the earnings/operating income is very flat, but a massive amount of CAPEX from the company. Obviously, we have that 12 percent share buy-back. I think you mentioned that earlier. Again, they’re operating in a very difficult environment and they pointed out that their offshore businesses are suffering, especially in Africa because of Ebola. People aren’t travelling as much as they were. If you look at the local businesses as well, they’re suffering. These Government officials that were flying all over the place…now there’s a move towards more austerity and they’re mentioning that in their announcement as well, saying ‘we just don’t see that sort of Tender business from Government anymore’.

They did manage to push up their average rate per room by about five percent, which isn’t terrible but they’re operating in a very difficult environment. With the amount of investment they’re putting into this, they’re clearly expecting a turnaround.

ALEC HOGG: It’s becoming more competitive in South Africa, as well – Marriott coming into the market, too. You have to like a business that’s investing heavily in a down cycle because if you always look back at the companies that flourished, they’re the ones who go against the tide.

GARY BOOYSEN: Exactly. What comes to mind is Grindrod that we’ve just put out as a speculative buy.

ALEC HOGG: That’s why they’re up so strongly today.

GARY BOOYSEN: I don’t know how many people are following us on that, but exactly, in ports and shipping they were printing money, in other very cyclical businesses used all that additional cash to invest in the ports and terminal business. It’s done incredibly well for them and it’s been a great strategic move, so we’ll see with Tsogo Sun, but I hope that this CAPEX pays off for them.

ALEC HOGG: Well, it’s interesting. Grindrod’s up by two percent today. Tsogo Sun on the other hand – down by six percent, so maybe it’s a good time to bank those little bits of profits that Gary gave you this morning and put them into Tsogo. Moving across to Anchor Capital. That’s an interesting business. Peter Armitage was in the studio here – when the share price had gotten to about R4.50 – and he said he was getting a little bit worried. At R7.50 (where it is today), he must be delighted because they have a rights issue. They’re going to go and raise more money tomorrow. Maybe he’s underestimating his own worth.

GARY BOOYSEN: Perhaps. If you look at their business, I know many of those guys personally and I think they run a very tight operation. I followed them long before their listing and they grew very aggressively and are a very good business. They have about five-point-six billion under management and Peter mentioned a while ago, that about one-point-six percent is what they make off their assets. At R5.00, it looks expensive to me. I would love to get into this business, but I would love to get into this business at R2.00/R3.00.

ALEC HOGG: I think you should have gotten in at listing.

GARY BOOYSEN: Yes – 100 percent. I think it is very expensive, but very well run and quite an exciting operation.

ALEC HOGG: Shoprite’s share price is down three percent. Can you get anything from that? We’re going to talk to Accelerate a little bit later and one of the deals that they did, post the year-end, was buy the Shoprite distribution centre at a 13 percent yield. I have to work that one out because maybe I read something incorrectly on the SENS. That seems very juicy for them, but not for Shoprite.

GARY BOOYSEN: I haven’t seen that. I think Shoprite’s probably coming off today, just in a little bit of sympathy with Woolies. Remember, the whole market is down after everyone took a very hawkish tone from last night. The only ones really bucking the trend here are the likes of Investec, guys with results out – where there’s some market moving news on it. Looking at Shoprite, I haven’t seen the sale of the DC but I know from chatting to our retail analysts, their DC’s are just incredible. We’re always comparing their DC’s to what Pick n Pay had to do to get their supply chain management up to scratch. INS was telling us ‘compared to Shoprite, Pick n Pay’s 20 years behind’. These things are just, basically, technological marvels and the systems they have in place their, are impressive.   It’s interesting to see why Shoprite’s where it is but I couldn’t really comment.

ALEC HOGG: Well, we’ll find out from Accelerate a little bit later. That point that Gary makes there about distribution centres and the technology that’s invested there…if you have a look at them around the world, it really is a high-tech operation. In the past, you’d have guys running around in warehouses. Now it’s all done through robotics and machines or running around warehouses. It depends on which retailer you want to buy, to see which one is more advanced. That was Gary Booysen, giving us some good insights, there. He’s Head of Trading a Vunani Private Clients.


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