In order to succeed in the stock markets, you have to be able to assess how news will affect the various companies available for investment. Few are better at accurately analysing South African shares than David Shapiro, deputy chairman of Sasfin Securities.
David is, I reckon, at his best when he is dissecting the Johannesburg market with broadcaster Alec Hogg (editor and publisher of Biznews.com). That’s because he never sounds like he is being interviewed; usually I can’t help feeling that I am eavesdropping on two share experts who have forgotten about the world around them while they are discussing their investment ideas over a cup of coffee.
In today’s chat on CNBC Africa’s Power Lunch, David and Alec cover a lot of ground: from what Tito Mboweni, former SA Reserve Bank governor, might be like as South Africa’s next Minister of Finance to results released by Hulamin. We get the hint, too, that Adcock Ingram’s new chairman Brian Joffe has got the hump with David. – JC
Adcock Ingram, Hulamin, Aspen and more: Expert analysis from David Shapiro
To watch this interview on CNBC click here
ALEC HOGG: Let’s have a look at the way the market is performing now. David Shapiro is with me in the studio. Not much is moving there Dave, on the All Share Index. You can see 1/10 of a percent…waiting for Pravin this afternoon?
DAVID SHAPIRO: Funnily enough, we’re not influenced by Pravin. If we unpack that market, it’s really what happens overseas that influences us and the recent record run has been driven by our resources. We’ve seen a recovery in gold and platinum shares – certainly, the big miners – and overnight it seems to have calmed down. When I say overnight I think over the last couple of days, and I really think that’s as a result of China, so I think that’s been the major issue on our market. There are concerns about whether Chinese growth will continue but of course, we’re looking to see what Pravin says and we’re very concerned about the economy. Two-and-a-half percent growth next year is not what’s going to drive us and create jobs.
ALEC HOGG: Will you get two-and-a-half? It’s one-point-nine at the moment.
DAVID SHAPIRO: Yes, we can’t…its way below the rest of Africa. It’s even below America when you compare it, so I think there’s a lot of interest in the budget and how they’re positioning themselves – how the government is positioning themselves for growth – because we can’t continue without growth of over five percent. They have to bring that plan that they laid out, into play.
ALEC HOGG: It’s an election year.
DAVID SHAPIRO: It is an election year.
ALEC HOGG: There must be something populist in the budget.
DAVID SHAPIRO: Those are the worries and we’re outsiders, we’re business people, and we look to see where the country’s going to grow. Populist measures and crony capitalism…all those issues are things that I think emerging markets have to start pushing aside now and adopting the policies of growing nations.
ALEC HOGG: Yes – more discipline. Your friend Mr Joffe has become Chairman of Adcock Ingram, so the rumour was true. You wanted to get rid of the other guy, so he could take the job.
DAVID SHAPIRO: I think he has to be there, because they now have to start…
ALEC HOGG: He was cross with you, by the way.
DAVID SHAPIRO: Was he?
ALEC HOGG: When I interviewed him here, he said ‘David is definitely jetlagged’ when we spoke about…
DAVID SHAPIRO: I was jetlagged.
ALEC HOGG: Who’s taking over his Chair?
DAVID SHAPIRO: Yes, I think that’s a position that he has to occupy. They only have 34.5 percent, so that’s the only way they can control it. I think that they now have to formulate a plan. I’m not sure. They’ll come up with a plan, but they now have to get value out of this very heavy investment that they’ve made.
ALEC HOGG: Why would he want to be Chairman, though? In the context of Bidvest, four billion is not…and it’s with him and others…it’s not really that much.
DAVID SHAPIRO: It’s not much, but I think they see opportunity. I think they can grow the company quite dramatically and I think it’s a business that perhaps needs strong control at the head. Chairman…although you’re not the CEO and you’re not getting your hands dirty, you can still guide strategy.
ALEC HOGG: If you were a betting man, what odds would you be giving on Jonathan Louw seeing out the year – the CEO of Adcock?
DAVID SHAPIRO: I think he’ll be given a year. Who knows? Brian might just be able to get something out of him. I think he needs… I’ve always said that he’s the kind of CEO that needed guidance. I think he was much happier in a Tiger Brands environment, than being on his own. It’s hard to grow companies. It’s a special skill to grow small companies – in this case, it wasn’t that small – into big companies. That’s where people like Adrian Gore, Joffe, and Steven Saad come right: it’s a special skill that they have, and Joffe has it.
ALEC HOGG: He has, indeed. One of your old favourites – Hulamin – came out with results. They looked very special and then today, the share price tanked.
DAVID SHAPIRO: It’s one that I can’t get a grip on, because every time you think the turnaround strategy is working, they come up with more issues. They have a lot of competition that they’re going to face from China, the overseas markets, and locally as well. They always have the issue of the Rand because not only do they buy goods in – because they manufacturer aluminium here – but they also charge a foreign price as well, which is dominated by the rand.
ALEC HOGG: Rich Jacobs the CEO, was saying that the Chinese…when they sell into South Africa there are no duties. When Hulamin sells into China, there are duties, so he says they’re at a terrible disadvantage apart from the fact that Chinese companies get – pretty much – free loans/free capital to produce whatever they want to produce. In a way, it’s dumping into the South African market and in another way, Hulamin are kind of on the back foot.
DAVID SHAPIRO: They are and I feel sorry for him because I think he’s doing a very good job. However, everything is against him; from costs, labour issues, and being a manufacturer that should never have been in South Africa…. The only reason we had an aluminium smelter here was because of the cheap electricity, which has gone, so now he has supply issues coming in a year’s time. Do we back it or not? I don’t know. The analyst Mark Ingham, who appears here very often and has been a great favourite, still sees another 50 percent in the share price close to nine hundred. I think that’s his target price. We’ve come from three hundred but remember, we came from R40.00 as well, all the way to three hundred. We’re back to six or seven hundred. I wish them well.
ALEC HOGG: They’re doing what they can. They’re doing the best they can but certainly, if you are betting on that share because the Chinese are going to have their aluminium exported to South Africa – duties imposed – then you’re betting the wrong horse because there’s no way – as part of BRICS – that South Africa’s going to alienate its best friend in that group.
DAVID SHAPIRO: It gives you an idea of how Chinese manufacturers operate and how difficult it is to penetrate those markets.
ALEC HOGG: What about Aspen staying in the kingdom of KZN? That’s had a good day today. It’s up again very strongly.
DAVID SHAPIRO: I love that company. He’s one of my big heroes – him and Koos Bekker – even though Koos is now going onto more strategy. If you look at their recent history…and I have to say recent history, because they’ve taken companies and really made them into global giants. Watch Aspen. I think, within a few years…it’s still much smaller than the huge Novartis, Sanofi, and those kinds of companies. Like Koos Bekker, Steven Saad is attracting a lot of overseas interest: people watching and seeing how he’s grown that company.
ALEC HOGG: Well, he has these big bets, doesn’t he? The deal that he did in Australia, which was a huge deal for them at the time, has really come home.
DAVID SHAPIRO: I think that at the time he did the deal there was so much scepticism, because it was an operation, that wasn’t making any money in Australia and many analysts… I think the share price even flattened for quite a long time until we saw those profits come out, but he’s a superb operator.
ALEC HOGG: The reason I’m a little surprised to see Aspen go up is because it was on the same day that Joffe was announced as Chairman of a competitor. Adcock hasn’t really competed against Aspen for some time, but perhaps with Joffe in the seat, they could.
DAVID SHAPIRO: Brian will use his model I’m sure.
ALEC HOGG: He will use Steven Saad’s model.
DAVID SHAPIRO: He will use Steven Saad’s model. He will try to find a GlaxoSmithKline over there, where he can actually pick up manufacturing and maybe use/develop those drugs to sell into an emerging market. I’m sure that a lot of his policy will be around that as well.
ALEC HOGG: The Rand is nice and strong going into the budget this afternoon. Obviously, it could go either way, but it’s a heartening development given how important it’s going to be today.
DAVID SHAPIRO: If we looked at where the Rand was, because we tend to forget…as we opened the year we were at 10.35 – 11.20 or 11.30 – back to 11.70 or something like that.
ALEC HOGG: 10.70.
DAVID SHAPIRO: 10.70 sorry. I think we can actually pick up to the 10.50 area – somewhere around that – and I think it’s a natural reaction. Alec, traders go short and when they see weakness in a market they take full advantage, and I think a lot of the weakness we saw wasn’t sentiment-driven. It was trader-driven, and I think we’re seeing a reversal of that. What’s the true value of the Rand? It’s probably 10.50 or 10 – 10.50 is a much more…
ALEC HOGG: Are you picking up on the thought that this could be Pravin Gordhan’s last budget?
DAVID SHAPIRO: Yes – definitely, I think you’re picking it up from a lot of talk outside the market as well and Tito of course, has been cited as taking over. I’m not sure. I like Pravin and I was hoping that he’d stay another couple of years – the same as I like Trevor Manuel. I have nothing against Tito either, but I think Tito has a fairly big ego and I hope he understands the position he’s in.
ALEC HOGG: Pravin is 64 now, David.
DAVID SHAPIRO: That’s young.
ALEC HOGG: Very young in your terms.
DAVID SHAPIRO: I don’t think there’s pressure on that.
ALEC HOGG: It’s not an age thing. It’s perhaps a different opportunity in government.
DAVID SHAPIRO: Maybe he’s tired. Maybe he’s battled against some very difficult forces there that eventually wear you down. I think it must be pretty difficult being in Cabinet at the moment, especially if he’s a worldly man and I suppose he wants to impose… As he said – as he wanted to do now – let’s cut out the expenditure. You don’t need that fancy car. You don’t need the credit card. I think it’s the battle against that, which might eventually wear him down.
ALEC HOGG: Let’s hope that if and when Tito Mboweni takes command there, his ego will be strong enough for him to be able to tell…
DAVID SHAPIRO: Tito’s fine. He’s good.
ALEC HOGG: Well, he’s conservative. He certainly learned a lot about conservatism as a Central Bank Governor, so markets will like him if he comes in as Finance Minister.
DAVID SHAPIRO: Maybe we became sensitive when he was Central Bank Governor. If you every criticised him, boy, you felt the wrath.
ALEC HOGG: But isn’t that good? In a developing country where everyone wants to spend lots of money, and Tito, if you criticise him or you say ‘no, Mr Finance Minister I’d like a little bit extra’ and he said ‘what’.
DAVID SHAPIRO: I enjoy him, I enjoy his company, he’s been a lot of fun, but I’m not sure you want to cross him.
