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Counterpoint value fund manager Piet Viljoen joined BizNews founder for a discussion on the markets. His insight, once again, proved invaluable as he drew from both his rational perspective and wealth of knowledge. Of particular interest in the discussion were Foschini’s financial results, released today – and Sasol’s announcement on its hedging strategy. When it comes to hedging, Viljoen believes that one should ‘rather not do it or do it all of the time and just take the guesswork out of it.’ On a positive note, Viljoen – who currently has Covid-19 – says; ‘It’s not bad.’ – Nadya Swart
Piet Viljoen on contracting Covid:
Yeah, I had symptoms. I started getting sick on Monday, so I had a little bit of a cough. And then I went for a test and it came back positive. So I, like many other people, can now say I’ve had Covid, well I have Covid. But the good news is it’s not bad. I had one bad day and I’ve been getting better every day since then.
On what would happened to South Africa form an economic perspective if lockdown was reimposed:
I think it would be very bad for the economy. And I think lockdowns have been shown to have very little effect over time as to stopping the spread of the disease. It spreads and then it stops spreading. And we’ve seen the first, second, third wave and lockdowns have had no effect on that, neither here nor in any other country.
What lockdown does have – and which is never measured -is massive, unintended negative consequences to the economy and to the health of people in the economy because people get too scared to go to hospital for normal routine things even, which then leads to adverse health consequences down the line somewhere. So I would agitate very strongly against any sort of lockdown going forward.
On markets continuing as though Covid is behind us:
Yeah, the market is fully discounting reopening. And I think we’ve seen that in the markets or economies where vaccinations have taken off strongly and where, you know, almost herd immunity, if you can call it that, has been achieved through the vaccination process. People just go back to normal behaviour very, very quickly. I mean, at the end of the day, the human being is a social animal. It wants to socialise, wants to get out there and do things, experience things, and I think you’ll see that behaviour reverting back very, very quickly. And that’s exactly what’s happening in places like the USA, UK and now increasingly Europe as well as they’ve gotten their vaccination program on track.
On whether property stock are really undervalued now when you extrapolate human beings returning to normality:
I think so, but as with all of these things, there’s always ‘on the other hand’. You know, I think the pandemic has led to some behavioural changes. I think this work from home thing is going to take a long [time], it’s going to take a long time for people to go fully back to work, if ever. I think a lot of businesses have found that work from home works, and they can function very well with that. And I think a lot of people function – when you cut out the commute as an extra two hours a day – some people can actually work or relax or whatever. I think at least higher productivity that way – in certain instances, not all instances.
So that will be a headwind for office space, I think. I think online shopping has become more prevalent, more accepted, easier to use. Companies have become more efficient at selling online. So I think that will be a headwind for some of the retail facing properties. So, I think there are some headwinds. I think the days of ever-increasing rents are over. So, as long as one can factor those into it, then I think you will find that there still are – they might not be as cheap as they look – but there are still some bargains to be had in the property sector.
On Foschini’s financial results:
They do seem to be [under pressure]. On the headlines, it looks like a lot of pressure. But remember – this includes six months of lockdown; the first six months of the year was from 1 April last year to September, which is the worst of the brunt of lockdown. And then the second six months was a lot better, you know, as the economy opened up. But, yes, I think all the upper end retailers have been under pressure for years, not just over the pandemic period – but for years their operating margins have been declining.
If you look at Foschini, look at Woolworths; all the retailers operating margins have been declining for seven to 10 years as the high end of the market has become under pressure in South Africa. And also as more competition has come in; Zara, H&M – all these people have come in. So it’s a tough space, but I do think that some of the better operators can start coming out of this now. I think if one looks at who is best adapting to the online space, I think that’s probably the thing to look at. And I think The Foschini Group is one of those that have been able to do that quite well.
On Sasol and its hedging strategy announcement:
Sasol has been – pretty much – on the receiving end of getting it wrong historically when they decide to hedge. So for me, you either hedge all of the time or you hedge none of the time. Unfortunately, a company like Sasol has to hedge because of their high debt situation, because the bankers want certainty about the cash flow. So they have to put hedges in place. But they seem to be arbitrarily moving these things around as the oil price moves around.
I read that [Sasol’s hedging strategy announcement], I don’t understand what they’ve done there. It’s all very complicated. But the fact is that I don’t think over time, if you look at the returns on capital, that Sasol have covered themselves in glory with any of their hedging programs ever, because it’s all arbitrary stuff.
I think it’s very hard to perceive when prices are high and when prices are low. To forecast those things, to say today’s prices are high and in the future prices are going to be lower – that’s very hard. And I think most people tend to get carried away by high prices – they think high prices will just continue there and low prices – same thing. So, again, when you’re hedging – I think you either hedge all of the time or none of the time and you take all the guesswork out of it, because if you’re going to only hedge when you think prices are high, you’re going to get it wrong a lot of the time. So, rather not do it or do it all of the time and just take the guesswork out of it.
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