Fixed capital investment and growth in renewables form part of SA’s cure – ClucasGray’s Andrew Vintcent

Andrew Vintcent speaks to Alec Hogg of BizNews on an array of topics concerning South Africa’s businesses, stocks, bond yields and the general economic market going forward. Vintcent discusses the Equity Prescient Fund’s recent success, which he attributes to the favorable market conditions and the fund’s ability to achieve alpha. He also comments on the performance of South African equities, acknowledging the dominance of large companies and the challenges of outperforming over discrete periods. Vintcent believes that fixed capital investment and growth in renewables are key to addressing some of South Africa’s issues, and highlights a mature company that has been able to reinvest in renewables. He suggests that many SA Inc companies are undervalued and have the potential to deliver real earnings growth, with starting and dividend yields being high. Vintcent believes that if the overall economic backdrop remains stable, these companies have the potential for a rerating, which he views as long overdue.

Find timestamps for the interview below:

  • Andrew Vintcent on where ClucasGray operates from – 00:10
  • On the rise of the Equity Prescient Fund – 00:45
  • On South African equities performing well – 01:30
  • On some of the cure for the issues SA faces – 03:15
  • On the dominance of traditional businesses – 05:15
  • On the complicated global macro environment – 05:50
  • On the bond market and bond yields in the future – 07:20
  • On how much the JSE would have to rise for SA Inc companies to get their fair value – 09:20
  • On investing in South Africa – 11:55
  • On how going off the grid might affect the investability of SA – 14:20
  • On whether the community is well-served by holding onto to the stocks, ACI, Reunert, Nedbank, in the BizNews Share Portfolio – 18:45

Some extracts from the interview:

Andrew Vintcent on the rise of the Equity Prescient Fund

It’s been a combination of a few things. I think the markets have been quite kind too. We’ve seen some asset managers call beta. Thankfully, we strive to get alpha in funds, but it also helps when the market goes up. So if we can go up slightly more than a market and the market is rising, that does help grow the asset base. 

On South African equities performing well

Yeah, some have. There’s a bit of more added pressure now that you’ve told me that. But some certainly have. It’s been a very interesting few months. If we go back – we’ve been well placed with a number of our big holdings, one of which we spoke about last time. We’ve been quite well served by some of those that are performing extremely well. But it’s such a strange market in South Africa given how dominant so many big companies are. I was reflecting on the way here in two particular months over the last four or five months, I think it was October and January, where we had almost record month performances, yet we lagged the index by so much. And that’s just the nature of this quirky industry that we are in. We try to outperform over long periods of time, we would back ourselves to outperform. And certainly the track record has demonstrated that over a sustained period. But over these discrete periods, it can be very difficult. I mean, you would have covered extensively the likes of Naspers or Richemont or the big money companies really performing well. So it’s been wonderful to see some of these undervalued companies, see some of the value unlocked, we still think there is some way to go. It’s just interesting how it compares against the overall index with these big heavyweights. 

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On some of the cure for the issues SA faces

Of all the issues the country’s grappling with, loadshedding at the time was one of the most pressing issues, and it’s got more dramatic, it’s gotten materially worse in the last six or eight weeks. Yet some of the cure for the issues that the country has been grappling with is fixed capital investment and a growth in renewables. And this particular company [Reunert] has been around, one of the oldest listed companies in the JSE. It’s been relatively steady and it’s got a number of very mature businesses. And what they’ve been able to do is take the cash flows from those mature businesses and to reinvest in what they call early lifecycle businesses, one of which they’re focused on is renewables. So it’s really quite interesting how the cycle has moved towards the industries that they’ve been aligning themselves with. And we engage with them between sets of results, not too often but we happen to have engaged with them relatively recently and the demand they’re seeing for their renewable offerings, be it through the cabling business or the solar panels, through the battery storage businesses, it’s been quite remarkable, as you would expect, given the panic that everyone’s going through right now to try and find solutions for your domestic renewable requirements, or if you’re a business, for your corporate requirements. There’s a whole lot of results out this morning, every single company is alluding to what they’re doing to get off the grid. And so the ecosystem of renewables is just so well placed and they are what we can determine as one of the purest ways to be able to play that. 

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On how much the JSE would have to rise for SA Inc companies to get their fair value

In broad brush strokes, they would need to rise from today’s levels. We would think an excess of 20%. I don’t want to get inflammatory, but certainly there’s some attractive, very attractive positions or valuations. I think the government’s taking a step back. It is dependent upon us generating some growth as an economy. All bets are off if the lights are off. I think that’s a reasonable conclusion to draw. But it’s not our central view. I’ve gone through a whole lot of economists updates that came out in the last couple of weeks – pre SONA, pre-budget. They’ll be updated again post the budget. And despite the impact of loadshedding, it’s not an economy that’s going to slip into material recession. So if you’ve got a reasonable nominal growth at an economic level, good companies, of which many are listed in the JSE, they’ve demonstrated themselves over many cycles for decades. In many cases, the ability to perform well in difficult economies. And we think that they’ll be able to deliver real earnings growth, which is anywhere between, as I said, 8 to 12% compound for the next three years in many cases. And that in itself gives you some sense of what the kind of returns you would expect from these businesses over time. That, starting yields are higher, dividend yields are high, and the prospects of what we think should be a rerating is long overdue. To be fair, I’ve been banging this drum for too long now because we’re stuck in this very cheap, very high bond yields environments, very low PE environment for many companies for a sustained period of time. But if the overall backdrop is okay and we muddle through and the economist’s forecasts and GDP are correct, then I think it’s clear that it’s exciting.