Gary Booysen’s stock comments – Telkom, Sibanye, Steinhoff, SacOil

Today’s market commentator, Gary Booysen of Vunani Private Clients, talks to us about – yes, of course, the oil price – but much more besides. Biznews has interviewed a few market commentators in this new year and it is evident that the jury is out on the direction of almost most things for 2015. Alec Hogg and Gary talk about a smorgasbord of topics from politics vs economics, Eskom, Astral, SacOil, Adam Smith and so much more. If nothing else, we are off to an interesting start to the year. – CP

 

ALEC HOGG:  Gary Booysen of Vunani Private Clients is with us in the studio for a look at the markets.  I just get a feeling Gary, listening to what Tumisho was telling us there, that investors haven’t quite clicked that this oil price decline is not because the global economy has had it.  It’s because there’s more supply coming into the market.  It’s almost like if the demand had fallen out of bed then you can understand all of this red, but the reality here is there’s more supply in the market and as a consequence of that, the oil price is falling, which actually, has to be good news for most companies on earth.

GARY BOOYSEN:  Definitely.  I agree.  Other than oil companies, everyone should be rejoicing in the fact that we have an oversupply of oil.  The world is actually becoming wealthier.  If you look at the oil price, it’s obviously heading towards below $50.00 per barrel on Brent.  If we look in 2008, it did trade below $40.00 per barrel but exactly, as you were saying; that was on demand concerns and not on supply concerns.  It’s a completely different picture this time around.  It’s OPEC’S price war with U.S. shale producers causing this and it has nothing to do with the global economy faltering.  There are all sorts of different statistics on how oil prices affect GDP growth, but in the U.S., it’s meant to add point-one percent GDP growth for every $10.00 that the oil falls.

ALEC HOGG:  You might have been on leave, but the third quarter GDP figures from America came out at a five percent annual rate.  I can’t remember when last South Africa grew at five percent but there’s the biggest economy on earth, already starting to feel an impact of this lower oil price and of course, it got much stronger in the next quarter.

GARY BOOYSEN:  Yes.  The U.S. economy has just been absolutely spectacular in the last two quarters.  I think that’s why we’ve seen a complete decoupling between the emerging markets and the developed markets really, led by the U.S. economy.  On the back of that, we see a whole shift in the financial landscape as the stronger Dollar is fed through.  The wrapping up of the QE program has obviously helped that as well but definitely, the U.S. is firing on all cylinders and that is good for the world.  That’s good for everyone because we’re an integrated global village these days and it will improve things for everyone.

ALEC HOGG:  I saw the Bidvest Head office at Melrose Arch has a sign up there saying ‘we refuse to participate in the recession’.  It seems like Gary Booysen refuses to participate in the negativity on stock markets for 2015.  What do you think?

GARY BOOYSEN:  It’s very difficult because you also have to differentiate between stock markets and economic growth.  They’re very different.  If you look at the South African situation, I could be very pessimistic on South Africa because we have the rearing of our energy crisis – the whole Eskom issues.  Last year, we had huge issues obviously, with the labour strikes, especially at the platinum mines.  On top of this, we have a very weak currency.  We have massive risks.  Our credit could potentially be cut to junk this year.  There are a lot of very negative things.  Unfortunately, this doesn’t translate into a very bad market because a lot of our companies are multinational companies that have huge revenue generating potential offshore.  The fact that we might be in for another year of very lacklustre economic growth in South Africa, definitely doesn’t mean that our market’s going to collapse or that we’re not going to see a very good year on the financial market.

ALEC HOGG:  One of the things I do during the holiday periods is brush up on the basics, so I’ve been reading about economist – reading Adam Smith’s Wealth of Nations, etcetera.  There’s always been this fight/battle between economists who think they know what’s right for the economy and politicians who are voted into power.  It almost seems that you need to get the economy into a really bad state before the politicians (who really just want to get voted back into power) will change to fall more in line with the economists.  Do you think we might be reaching that – all those bad news factors that you brought up earlier?

GARY BOOYSEN:  The realm of economics and politics is so closely linked.  You have economic theories of politics (the theory of the medium voter) and I think THAT if you look at it, in South Africa we’re definitely seeing a shift.  We’re seeing a much stronger opposition to the ANC.  I don’t want to talk politics but everyone has to remember that at the end of the day, we are a democracy.  If things do become very bad on the ground in South Africa, the democratic mechanism will work; there’ll be a shift in power and hopefully, whomever takes power from there will obviously improve things – economically speaking.

ALEC HOGG:  We have a very interesting election coming up in Zambia and it will be intriguing to see how the Zambian population votes.  The Presidential election is coming up on the 20th where the ruling President has implemented very harsh laws on the mining companies and the opposition says ‘if I get in, I’ll change them and you’ll get your jobs back’.  I guess those are the things that…  Gary, just before we go onto the big winners and losers of the past year, SacOil came out with an announcement today.  I see the share price was 31 cents.  This was Greg Blank, the famous punter’s favourite stock at one point in time.  It was many, many times higher than this.  Have they missed the boat?

GARY BOOYSEN:  I was looking at that news announcement today.  SacOil have really made this announcement, almost at the worst time possible.  The oil price is at a record low.  I don’t what the future for an exploration company is when we have such a supply glut at the moment.  As you said, it’s very much a punter’s stock, something that sits on a lot of little punty – private client portfolios – and it will be very interesting to see how this operation progresses.

ALEC HOGG:  In the Sinai Peninsula in Egypt, my goodness.  Find an easier place to go and do work.

GARY BOOYSEN:  Talk about difficult business in South Africa.

ALEC HOGG:  Big winners of last year: of the biggest stocks, Telkom – 150 percent up.  Many people are saying it’s had its run.

GARY BOOYSEN:  One of our analysts was punting Telkom hard when it was down at R11.00/R12.00.  I wish I’d listened to him back then because Telkom had an absolutely spectacular year.  I think the business has turned around.  I think a little optimism is coming in to our fixed line operator and being rewarded for some fairly good news around the company over the year.

ALEC HOGG:  The dream team…but would you be backing the dream team after such a rebound?

GARY BOOYSEN:  As I’ve said, you have to look at the valuation of the company as well.  After a run like that, I’d like to see a little bit more concrete evidence of profits returning before I buy into it for this year.

ALEC HOGG:  It seems to be a management play there, and also a management play with Neal Froneman at Sibanye – 83 percent gain in a market that wasn’t really helpful to gold companies.

GARY BOOYSEN:  Absolutely spectacular.  I think Neal Froneman’s done an absolutely amazing job at Sibanye.  When they unbundled from Gold Fields, everyone thought that’s the rubbish that’s left in South Africa.  They’ve just taken South Deep and Gold Fields has all the good assets.  I remember the CEO of Gold Fields saying ‘they left a little bit of juice in the orange that they could perhaps squeeze out’, but I think Neal Froneman’s done an excellent job there and the market’s rewarding him so it’s a very impressive result for that company.

ALEC HOGG:  Again, one that you would stick with or are you looking to maybe tackle it?

GARY BOOYSEN:  Gold mines have never been a favourite counter for us.  The commodity prices are under a lot of pressure.  As part of a diversified portfolio, you can have something like a Sibanye in there especially when you get days like yesterday when you almost go ‘limit down’ on the markets and then it’s only the cold gold producers that are, sort of, stabilising your portfolio.  As a punter however, if I had to buy one share for next year again, it probably wouldn’t be a gold mine, especially after it’s had a run like that.

ALEC HOGG:  What would it be?

GARY BOOYSEN:  It’s always a difficult question.  If I had to buy one share for next year, I’m probably going to go with Steinhoff, ahead of their listing.  I think their listing’s going to be between May and July.  They’re going to list in Frankfurt.  I think there’s going to be a lot of interest around the company.  Most sales analysts have forecasts in excess of R80.00 per share.  You have to pick it up below R60.00.  I think that’s going to be a decent move and if you get some momentum in that company as well, we think that the furniture retail in the Euro Zone, especially with Mario Draghi hinting strongly that there’s going to be stimulus there…I think it has a very bright future.  We still think that in the next five to seven years, it’s going to be nipping at IKEA’s heels and probably surpass it.

ALEC HOGG:  Well, they’re looking to do that.  You can be sure that Marcus Jooste’s merger with his good friend Christo Wiese hasn’t been done without that as an intention.  Just to close off on the winners of the year, Zena and Astral…that’s almost a sectoral play.

GARY BOOYSEN:  If you look at Astral, all the poultry producers have had a stellar run and that’s mainly a function of the fallen commodity prices because it hasn’t just been the metal prices.  It’s also been the maize prices, which is one of their biggest input costs.  Then you add to that that we’ve all those EU tariffs come in.  We then had Bird Flu declared and nothing was…  Netherlands, Germany, and the U.K….so just in the last two months of 2014, these companies were sitting suddenly, from going two years ago, in one of the worst environments, to an absolutely beautiful easy place.

ALEC HOGG:  Who knows what 2015 will hold, but Gary Booysen has told us he likes Steinhoff.  I don’t think he’s going to be far off on that one.  It’s a good company, special situation, listing offshore as its primary listing in Frankfurt.  It’s likely that there’s going to be some new investors coming in there and if they want your shares…well, make them pay for it.  That was Gary Booysen of Vunani Private Clients.

 

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