One of our favourite market watchers, Sasha Naryshkine, Director at Vestact joined Alec Hogg and Gugulethu Mfuphi on CNBC Africa’s Power Lunch to have an in-depth discussion about the goings-on in local and global markets. Insights are added to the relationship that has been forged between Shoprite and Famous Brands that will see Shoprite opening 6 Debonairs Pizza outlets in Angola. Hogg and Naryshkine also explore the drastic fall in Gijima’s share price, as well the downward-trending oil price and its impact on the shares that we should be watching. – LF
ALEC HOGG: Sasha Naryshkine is with us in the studio. Itâs nice to have that kind of a billing, isnât it – ‘our favourite market watcher’?
SASHA NARYSHKINE: What? You guys are giving me a punt?
ALEC HOGG: But thatâs…
SASHA NARYSHKINE: There was my housemaster and rugby coach at school. He said, before he was picking the teams, on the Thursday afternoon, he said, âI have no favourites. I hate you all equally,â when picking the team of course.
ALEC HOGG: Shoprite doesnât hate Famous Brands.
SASHA NARYSHKINE: No, they donât and it kind of makes sense, so what they say is they want to take Hungry Lion, which of course is their chicken business, and find a partner who will be able to offer something similar, in terms of emerging markets. Remember that Zambia is next door, so in Zambia, thereâs more of an overlap with the two, so maybe they are just going to trial this. They had said they trialed this, I think in Eldorado Park.
ALEC HOGG:Â Eldos, yes.
SASHA NARYSHKINE: Yes, and it had worked quite successfully, and it kind of makes sense, for both parties, to have foot traffic through, in the same place.
ALEC HOGG: Hungry Lion, I remember our former colleague, Sunshine Motlhabane. He was a Hungry Lion supporter. Whenever Whitey Basson came into the studio, Sunshine asked him about changes to the menus of the Hungry Lion menu, etcetera. He was a big fan.
GUGULETHU MFUPHI: Yes, clearly thatâs working but just on the consumer, going forward, in the African Continent. We always talk about the oil price and the volatility that weâve seen there, maybe are impacting on oil producing nations like Angola.
SASHA NARYSHKINE: Yes, as Alec alluded to the other day, the Angolan GDP, per capita, is nearing or is higher than ours is, is that right?
ALEC HOGG: Yes, per capita GDP.
SASHA NARYSHKINE: But as we said, maybe thereâll be a 30 percent slide in that next year but they certainly have an enormous amount of resources. Having fought a 30-odd year civil war, you couldnât get more beaten up, 15-odd years ago, so the base is still pretty low, but they have all this wealth with which to work with. Itâs not a very easy country to do business in. My brother-in-law spent, I think, three-odd years there, so Iâve spoken to him extensively about life in Angola. It looks like, probably if you look at all the surrounding areas, a good gateway into the DRC, Zambia, of course, language is a bit of an issue, being a Portuguese-speaking nation, but as far as I can understand it, more of those nations are starting to adopt English, as they are in Europe as the language of business.
GUGULETHU MFUPHI: Looking at it, so from a global perspective, the ECB, expected to have their meeting, is that too much of an element that we should be focusing on.
SASHA NARYSHKINE: Well, the Euro is at a two-year low to the Dollar and the Yen is at a seven-year low to the Dollar, so it is in part Dollar strength. The Yen is off; I think the Dollar strengthened something like 46 or 47 percent to the Yen, in the last two years. The Yen has had an awful time of it but its part to blame on Arbor-Nomics, so I think they stuck both those big parts, of the global economy, are stuck in an environment where theyâre experiencing lower growth and theyâre trying to get away. The ECBâs big worry now, with low energy prices, is obviously deflation, so that could be seen as worse than inflation, because inflation you can control, whereas with deflation is you canât and it spirals more and more out of control.
I think, in the end, despite the resistance from the Germans, the ECB will come with measures that are more shock and awe, than maybe the Germans would want or like because theyâve got the backing of almost everybody else.
ALEC HOGG: Sasha, on a more specific basis, and particularly in the context of what was going on at PPC. Weâve seen Gijima AST, really just plumbing the depths, new depths; it has now gone into single figures. I donât know if youâve picked that one up.
SASHA NARYSHKINE: Is it below ten-cents?
ALEC HOGG: Its nine-cents today. Thatâs a stock that was, well in the hay day, in the…
SASHA NARYSHKINE: Are we talking hay-day 14 years ago?
ALEC HOGG: North of five Rand.
SASHA NARYSHKINE: Yes.
ALEC HOGG: And it seems to have slid all the way down. They had that 75-cents rights issue, or 70-cents rights issue, R75.m that Robert Gumede put into it. Itâs not a happy story. Is there anything that we can learn from this?
SASHA NARYSHKINE: Well, the Lions rugby team would have been a better investment, not so, you know, but jokeâs aside though.
ALEC HOGG: He did invest there, didnât he?
SASHA NARYSHKINE: Yes, exactly and then pulled out. I donât know. I guess what you can learn from that is donât have one specific customer that you are completely reliant on. Even more so, if theyâre Government, know that the business is maybe not as sticky as in the private sector. That sounds strange because you would think that Government business would be stickier but when they pulled a contract of such size and scale, basically the business itself, went into terminal decline.
ALEC HOGG: Indeed. To be at nine-cents, after youâve had a rights issue, just over a year ago, at maybe ten times that value. Itâs incredible.
SASHA NARYSHKINE: Youâve lost 85 percent of your value, right there.
ALEC HOGG: But you would have thought that the executives, internally would have had an understanding that Home Affairs, was it the…?
ALEC HOGG: Yes, thatâs right, with that contract leaving but it is, itâs a warning as well. Donât be too expectant…
SASHA NARYSHKINE: But itâs also a reminder that business itself is not easy. I think many, in a Government context, thinks âoh, well, business is easy and it is easy to make super profits and keep it all for yourself and the workers get poorly paidâ. Itâs another reminder and if you go and have a look at the number of businesses, sure, some are starting to list now more frequently. Maybe weâre at the start of the next listings boom but quite a few of those that listed in 2007/2008, specifically construction companies, have actually gone out of business. Itâs increasingly difficult out there, as you saw with Sanlam trading updates, the ten month trading update yesterday, which looked, I guess, patchy.
ALEC HOGG: Sasha, when we listed Moneyweb in 1999, there were a dozen internet listings. Within five years there was one left. Itâs an extraordinarily risky business, particularly in new areas, and in particularly technology and particularly for listed companies. If people think, âwell, itâs a listed company it should be fineâ, it doesnât always work that way.
On some of the heavyweights though, weâve seen quite a lot of trade today for Alexander Forbes, their results coming out earlier this week. Is this like a delayed reaction, people think business and their numbers?
SASHA NARYSHKINE: Yes, they normally are. I mean, look at Sun International. That was a perfect example of a delayed reaction. People taking their time, and particularly with the medium sized companies. With the bigger companies, people would know whatâs closer to consensus and have had their models run and know exactly where they are. Whereas with more JSE orientated businesses, maybe it takes a little bit of time to seep through.
ALEC HOGG: Which should we be looking out for, in the next couple of weeks, up to Christmas?
SASHA NARYSHKINE: I think the consumer. Weâre going to see, thereâs an over-recovery of what, like 80-odd Cents on the petrol price. I know you had a conversation with Cees Bruggemans earlier, in which he said itâs going to add two-and-a-half percent to South African GDP. I think a lot of those stocks have moved already but have a look for early in January, what the impact of the lower energy prices was for the consumer, over this Christmas period. Not everybody is in agreement, are they, Alec?
ALEC HOGG: Yes, Annabel Bishop from Investec, when she was here the other day, was a little more cautious.
GUGULETHU MFUPHI: Very cautious. Especially with us moving, forward to the Budget Speech next year and potential increases in tax, hopefully.
ALEC HOGG: Yes, I think there was also…it happened so quickly, with the oil price falling the way that it has. The economists havenât quite absorbed what itâs going to mean, or the impact that it is going to do, to their numbers. You almost think, âwell, if itâs gone down that quickly, itâs going to bounce back upâ.
There was more information today, coming out, which said that OPEC is going to go at the frackers, and thereâs a war going on there. They want to get the frackers out of business, and that means youâre going to have to go sub $60.00 before. Thereâs another 300.000 barrels a day that the Iraqis now want to bring onto the market because they say, âWhatâs the point in restricting our supply, if nobody else is going to be restricting their supply, so letâs just flood the market again.â
There are lots of interesting things happening, to the whole energy equation that are bearish for the oil price, in the short term, and thatâs good for the economy. As Cees picked up ages ago, but he used to be at Shell, he used to be the Economist at Shell, so clearly heâs got a better insight than most economists, to the energy equation.
SASHA NARYSHKINE: There are some countries that are in dire trouble because the countries that, ironically, want everyone else to withdraw from the market need it the most. They need the higher prices the most. Like countries like Venezuela who, over the last two days, have slashed their budget by 20 percent, so these are the dire implications. In a country that can ill-afford it. The Russians, I think Vladimir Putin is speaking as we are here, making some scary commentary about Crimea, and who knows how he will act on a geo-political. Iâm not suggesting that heâll be more aggressive in Ukraine to rise, or to make the oil price rise but there have been those suggestions. It does have negative implications, geo-politically, when it slides so quickly and people have already made their forecasts for the next three/four/five years.
ALEC HOGG: The conspiracy theory is that the West is hammering Russia, by dropping oil prices. Thatâs the conspiracy theory.
SASHA NARYSHKINE: Well theyâre not. All theyâre doing is trying to gain energy independence, so ultimately, cheaper drilling, methodology, the rigs are cheaper, and the methods themselves have become a whole lot cheaper. I mean, people are starting to suggest that maybe the frackers can operate properly, below sub 60, and thereâs political will, in North America, for them to be able to do that, so youâll probably see. It is maybe people like the railways, who operate that, theyâll maybe see a little bit less traffic. Maybe Warren Buffett has got another opportunity coming up.
ALEC HOGG: But the reality is itâs not good. This is really bad for Russia, the decline in the oil price.
SASHA NARYSHKINE: It is very bad for Russia, very bad for Venezuela. A lot of the Middle East but, probably, I think it was the economist or FT that said it was the biggest transfer of wealth that they had seen in such a short period, in humankind. Basically shifting 100âs of billions of Dollars into the hands of consumers.
GUGULETHU MFUPHI: Makes me buy an extra pair of shoes these holidays.
ALEC HOGG: Yes, well itâs Christmas time. It couldnât have come at a better time, could it?
GUGULETHU MFUPHI: Thank you so much to Sasha Naryshkine; heâs a Director at Vestact, for joining us today.
