Oil shock could kill rate cut; Trevor Manuel eats humble pie; Prosus opinion divided; Trump tax disclosure

By Jackie Cameron

  • The oil price shock may have put paid to an interest rate cut in South Africa. The assault on Saudi Arabian oil facilities is already taking its toll on South Africa’s rand, and may put paid to any hopes of an interest-rate cut on Thursday, reports Bloomberg. The spike in crude oil prices, together with the rand’s slide since the attack on Saturday, has prompted traders to lower odds on a rate reduction to about even. Even though inflation has been anchored within the central bank’s target range for more than two years and economic growth is stagnant, the risks of rising fuel costs and a volatile rand will probably sway the Monetary Policy Committee to hold fire, according to Société Générale SA. South Africa imports about 40% of its crude oil from Saudi Arabia, making it the most-exposed emerging markets to disruptions in oil supplies form the kingdom, the bank said in a separate note. Gasoline accounts for about 5% of South Africa’s inflation basket directly, and also affects the costs of other items including transport, food and consumer goods.
  • The chairman of South African insurer Old Mutual, Trevor Manuel, on Tuesday apologised for comments he made last week in reference to the judge presiding over its court battle with fired chief executive Peter Moyo, reports Reuters. “Old Mutual has been locked in a bitter and damaging dispute with Moyo since it suspended him in May in relation to a conflict of interest. “It fired him a few weeks later, but he was reinstated by the courts in an embarrassing outcome for the insurer, which sacked him for a second time last month,” says the news wire. After months of public fighting that have knocked Old Mutual’s reputation, Manuel said during a press conference last week that “difficulty” arises when a board could be overturned “by a single individual who happens to wear a robe”. His words, continues Reuters, drew criticism from Moyo’s legal team and some media, and the company said in a statement on Tuesday that Manuel had withdrawn his comment. “It was never my intention to show disrespect to the learned judge or his judgment,” Manuel is reported as saying. “I accept that my language was wholly inappropriate to express my disagreement with the decision and sincerely regret the manner in which I did so.” “The battle with Moyo has shaken some shareholders’ confidence in one of South Africa’s oldest companies just as it tries to return to its roots as an African financial services group after breaking up an international conglomerate structure,” says Reuters.
  • Naspers has been a stock market darling in Johannesburg, but Prosus NV, which listed in Amsterdam just last week, looks a little unloved. Prosus, says Bloomberg, is splitting opinion among the first investment banks to cover the stock. While Jefferies rates the Naspers tech-investments unit underperform, Bank of America Merrill Lynch recommends that investors buy the stock. Jefferies began coverage of Prosus, which owns a 31% stake in Chinese tech giant Tencent, with a price target of €61, implying a downside of around 16% from current levels. Analyst Ken Rumph wrote in a note that there is “frustration” that while Naspers and Prosus have been good for investors, there has been no return of any gains. While unattractive operations were spun off and the Dutch listing accessed more passive capital, the e-commerce disclosure remains “thin” for a public company, Rumph also said. He expects Prosus’s net asset value to be largely driven by Tencent. “After current index flows, we expect Prosus to trade back toward a wider discount as active investors realise they have an ambitious patient capital investor, not a value-maximising wind-up on their hands,” he wrote in a note. Bank of America Merrill Lynch analyst Cesar Tiron is more optimistic, with his €97 price objective implying potential upside of 33%. Prosus offers exposure to “best-in-class” emerging-market internet assets, he wrote in a note. Cape Town-based Naspers carved out Prosus for a separate listing to attract a more global investor base and realise more value, while weakening the group’s dominance over the Johannesburg stock exchange.
  • In good news for South African taxpayers, a state entity has turned a profit. The South Africa’s airports operator posted its eighth consecutive annual profit, setting it apart from other key state-owned companies in the country that need government bailouts to keep running, reports Bloomberg. “We are a state-owned company that pays dividends, so what maybe can happen is for other companies to come and learn from us,” Acting Chief Executive Officer Bongiwe Mbomvu said in an interview in Johannesburg. The company has made improvements to how decisions are made and who is held responsible for them, she said. “What you see today, the health of the balance sheet, is exactly because of that,” Mbomvu said. “We haven’t asked for any bailouts.” That contrasts with the situation at many of South Africa’s other state-owned firms, with management at power utility Eskom, South African Airways, arms maker Denel and the state broadcaster regularly seeking financial support to stay operational. South Africa’s government owns about 75% of ACSA, with the Public Investment Corporation, the state pensions manager, holding 20%. ACSA, which operates South Africa’s nine largest airports, reduced its interest-bearing debt by R2.3bn ($156m) to R6.6bn, even as rising costs and operational challenges reduced its profit. Net income declined to R227m for the year to end-March from R552m. “We have now produced a profit in all but one of the 26 years since the company was formed,” Mbomvu said.
  • Donald Trump faces a new battle over the release of his tax returns after New York prosecutors issued a subpoena for them, reports The Guardian. Trump is the first US president in nearly 40 years not to release his tax information, despite having promised to do so during his 2016 election campaign, says the news website. President Trump has resisted pressure from Democrats and watchdogs demanding greater transparency, it notes. “But on Monday, the office of the Manhattan district attorney, Cyrus Vance, investigating hush money payments to the pornographic actor Stormy Daniels during the 2016 presidential election, subpoenaed eight years of Trump’s personal and corporate tax returns, according to media reports.” Mazars USA, which prepares Trump’s tax returns, said in a statement that it would “fully comply with its legal obligations”, says The Guardian.