Piet Viljoen on Ascendis, Transaction Capital and his own portfolio

Piet Viljoen, fund manager of the Counterpoint Value Fund, joined the BizNews Power Hour as co-host. Viljoen, who has both Ascendis and Transaction Capital in his portfolio, weighed in on the recent developments with both companies. Known to many as one of the last purists out there in respect of value investing, Viljoen applied his keen understanding to a host of topics, including Naspers and Prosus as well as which clues an investor should look out for to see whether or not management is overreaching. – Nadya Swart

Piet Viljoen on the view that Ascendis CEO Mark Sardi made it possible for shareholders to get something out when they might have got nothing:

Getting nothing out was a realistic probability for shareholders, so I think Mark and his team have done a fantastic job. The debt workout is never easy. Those negotiations must have been tough. I can’t even say I would have wanted to be a fly on the wall, because I think they are too tough for that even. The debt guys – the upside they get is the money they put in, there’s no further upside. So they’ll try and eke out every last cent. So, those are really, really tough negotiations, and I think where shareholders ended up today is a good outcome. 

On his ‘bundle of twigs analogy’:

You buy a bundle of these companies that – from an equity shareholders point of view – could break and snap and be worthless. But if you buy enough of them and put them together and bundle them together, you actually come up with something quite strong. And so far it’s working out very well – Ascendis being one of them. And there’s a couple of others out there in the market as well.

On picking up – as an investor – when management is overreaching:

There’s always a couple of clues. The first one is offshore acquisitions; most South African companies that make offshore acquisitions just waste the money. They have this compelling urge to go offshore and buy stuff that nobody else wants at a very high price. And it just happens time and time again. So, when somebody goes offshore and makes an acquisition – that’s your first clue. The second clue is when you make a lot of acquisitions in a short space of time; when you have this deal frenzy happening – I think that’s another clue.

And the third one is when you’re financing a lot of these deals with debt. It happened with Steinhoff (forget about the fraud); the strategy that Steinhoff followed of massive acquisitions funded with debt – it creates problems after a while. Lots of companies have done that and those are the clues that you look for. And then you just stay away and you wait for the dust to settle. And sometimes it takes a long time. With Ascendis, the dust has been settling now for a long time before we decided to get involved. So, you know, things take time and one has to be patient. 

On Transaction Capital increasing its stake in WeBuyCars to 75%:

I think it’s a great acquisition for both parties and that’s always a hallmark of a good acquisition – that both parties win. So, I think WeBuyCars got a fantastic partner. As David [Hurwitz] points out, F&I [Finance & Insurance] is a key part of that business, and if they can grow that fast – that will add a lot of value. 

On Transaction Capital:

It is in my portfolio. On the face of it, it looks like a value stock. It’s got high PE ratio. But, you know, PE ratios are what they are. I think the value in Transaction Capital sits with the platform that they have built and the growth prospects for the businesses – the different platforms they have – I think all three of them have fantastic growth prospects. And I don’t think one is paying too much for them even at these prices. 

On the movement in the US markets:

I do think one should not place too much emphasis on daily moves in the market, because that is a random walk. But I think behind what’s happening – specifically today – is the fact that the inflation number for the US was released. It came out higher than expected. So, I think the market is now starting to think about what high inflation might mean for valuations of different parts of the market.

And I think what has been happening for a few months now is that long duration growth assets have been under relative pressure, at least the tech stocks and others, and shorter duration value-type investments have – in absolute terms – done fantastically well, because their cash flows are generally right here, up front, right now and they are not influenced as much by long-term interest rates. So I think there’s a movement or a switch happening from growth to value, and I think that it has only just started. I’m of the opinion that it has a long way to go still. 

On his portfolio:

The portfolio has always been weighted towards value stocks. I mean, I am a value investor, but it does contain stocks like Transaction Capital, which we spoke about earlier – which is by no means a value situation. Although I do think it’s trading at less than the present value as future cash flows, which means it’s cheap. I do think the ability to invest across the spectrum is quite a powerful one.

People generally get boxed into this or that and they find it very hard to move. And I think that is one of the reasons why I think this move from growth to value will endure for quite a while, because I think there is a large body of investors out there which have been investing for more than a decade now in one direction. That it’s going to take time to swing them to the other direction, because you sort of get stuck in a way – which has been very successful – but you get stuck in that way and it takes time to swing. So, I think this is the start of a long-term switch out of growth and into value.

On Naspers being down and Prosus being up:

I’d probably make three comments about that. First of all, I don’t understand the story. I have no idea what they’re trying to do, and I think the market’s still trying to figure it out, which shows in the price movements – Naspers down and Prosus up. I think that the market is trying to figure out ways to arbitrage this, to play the game – because that’s what Naspers is doing or Prosus is doing. They’re playing a game and the market’s trying to figure out a way to play the game.

The second thing I would say is that I don’t know what management is doing, but they’re spending a lot of time on these corporate structures where I think that time could probably be better spent elsewhere. And the third thing I would say is that Prosus was brought into creation in, I think, September of 2019 – that’s two years ago, almost two years ago. Since then – and that was their big attempt to start narrowing the discount – since then, the discount has just widened and it continues to widen. So the market is giving everything they do the thumbs down, and I’m not sure that they realise this yet. But those are the comments I would make. 

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