Vestact’s Sasha Naryshkine shares his views on deals involving JSE-listed companies, starting with Steinhoff (JSE: SHF) which plans a stock market listing for its European business this year. Europe is recovering, so the move looks well-timed. Sasha also discusses telecommunications companies, which are being squeezed. The focus is Nashua Mobile – subsidiary of listed ICT company Reunert (JSE:RLO). Reunert is offloading its MTN and Vodacom subscribers, saying it is unlikely they would generate an acceptable return for the company. Cell C subscribers appear to be next on the list. Chinese interest in copper shifting from Africa to South America is also in the spotlight in this interview on the CNBC Power Lunch with Alec Hogg and Gugulethu Mfuphi. – JC
ALEC HOGG: A Bomb blast that went off in Abuja, Nigeria at a bus station near Nyanya Bridge allegedly killed 35 people, according to the latest Reuters report. In other news, Steinhoff plans a stock market listing for its European unit this year. We have a little correction. For some reason, we had a gremlin on the board, there. Steinhoff has not gone to one-hundred-and-twenty-three thousand Rand. It’s still at R51.65 – down about half-a-percent today. Let’s get a more in-depth look at how the market is trading. We join with Sasha Naryshkine from Vestact. I guess if you were a Steinhoff shareholder and you saw that on the board…hello.
SASHA NARYSHKINE: Sell it at that price quickly.
ALEC HOGG: Let’s just start with Nigeria. We’re going to be covering this in more detail later on. It’s a long way from Johannesburg and it’s a long way from Sandton, but part of our continent and it’s a very sobering thought that something like this could happen just at the time when Nigeria seemed to be coming right.
SASHA NARYSHKINE: In the capital, they’ve had many ructions in the northern part of the territories, and I think the fact that it’s closer to home for many, from a camera angle perspective… You were saying government was attempting to shut down various segments of social media because of the horrific images that were being portrayed. I guess this would give the terrorist groups even more publicity, and not less – it’s maximum effect. It’s sad to think that in 2014, ordinary citizens still have to worry about such things.
ALEC HOGG: It gets worse. I think the whole world is realising that one man with a crazy mind, a little bit of knowledge, and access to the Internet can do horrific things.
SASHA NARYSHKINE: Absolutely.
ALEC HOGG: Anyway, we’ll be talking about that with our team in Abuja in a little while, and we’ll be bringing some guests as well, to focus on that. Perhaps on the big news on the South African market…’Steinhoff spinning off its European operations’.
SASHA NARYSHKINE: It’s not unexpected. Many people had thought… Steinhoff had engineered themselves back home to be a holder of two specific businesses – obviously, JD, which they own 86 percent of – and in separate news this morning, announcing the rights issue at R25.00 per share, of which they’ll completely underwrite that (so, 44 JD’s for every 100). Of course, CAP, where they stuck other assets into, and they control those two business. Then, making a real go at a time when nobody wanted European assets, so the timing of that purchase was brilliant and you could see a big uplift for shareholders, but Steinhoff’s share price told you that because it’s almost doubled inside of a year. The expectations were there. European recovery…maybe now’s a good time to be able to list that business separately and unlock more value for Steinhoff shareholders.
GUGULETHU MFUPHI: Nashua Mobile – a very nice subsidiary – selling off its books back to the originators.
SASHA NARYSHKINE: Yes, it’s interesting because obviously, they’ve been squeezed and you can see that in the overall group’s revenue. Over the last five or six years, revenue has been flat and profits have been flat, so they’ve been squeezed more and more. In fact, those agreements, as far as I understand it from the annual report for Vodacom, ended December 2012 and for MTN, it ended in December 2013, so they’ve been in limbo here, deciding what to do. The RPs have gone from five years ago – over R500.00 per user to about R315.00 per user, just to see what’s happened over a period of five years. That’s a direct result of call rates being reduced, which is another one of your stories, so it all ties in quite nicely. Obviously, MTN and Vodacom can sweat those, which are good customers – still with an RP of R30.00 upwards – those are very good customers. They can sweat them better and Reunert’s taking a chance to exit.
ALEC HOGG: It’s the old story. In business, you don’t want somebody to have your customer or have access to your customer, so for MTN and Vodacom, this is a better deal. What does it mean for Autopage, though? Surely, if Reunert’s Nashua Mobile is gone, how long can it be before Autopage does a similar deal?
SASHA NARYSHKINE: I suppose the same must apply because the core rates where all the cream was… It’s almost like being given the fat-free milk, which is even watered down now. What do you do? Data built this incredible network. I don’t know if you’ve had a chance to access LTE speeds lately, but they’re magnificent.
ALEC HOGG: Are they working on your iPhone5?
SASHA NARYSHKINE: They do.
ALEC HOGG: So you have it switched on now. I was told to switch mine off. I wasn’t getting calls any more.
SASHA NARYSHKINE: What…on your LTE? No, my LTE works just perfectly on the MTN network, I must say. It’s probably very good for all parties considered, and maybe it’s Reunert going back to their roots, which ironically, was in power generation.
ALEC HOGG: Panasonic.
SASHA NARYSHKINE: Yes.
ALEC HOGG: That’s where Nashua made its name, if you remember, in office automation.
SASHA NARYSHKINE: Well, they actually bought this business. They were co-owners and Nedbank was somehow involved. They valued the business back in 2001, for R600m.
ALEC HOGG: So they’ve done well.
SASHA NARYSHKINE: Yes, you would say they’ve done pretty well.
ALEC HOGG: Orson Welles…that’s who I’m thinking of, ‘saving you time, saving you money, putting you first’. There we go – a good memory. Glencore – that’s a huge deal and the share price has reacted well: one-and-a-half percent higher on the sale of its Peruvian copper asset to the Chinese.
SASHA NARYSHKINE: Chinese interests. Yes, it rather tells you which way the Chinese are looking for the source, specifically, to be able to sell to their own customers, so that’s net positive for them. Somebody told me a while back, however, that there was no chance Glencore Xstrata would buy one of the platinum producers here locally, in the midst of all of this, because they were more interested in owning commodities that didn’t have a spot price associated with it.
ALEC HOGG: Yes, but it’s because they have a dog in South Africa named Elands Platinum. That’s why they’re not going to buy anymore.
SASHA NARYSHKINE: Do you hear what I’m saying, though? If there’s no spot price associated and specifically, a trading business can control the price a little bit better, they’ll be more inclined to go for that asset. It certainly juices up their war chest and makes them interested for another acquisition, maybe in a market where they believe they can control it a little bit better.
GUGULETHU MFUPHI: There’s a move, slightly similar to that, with BHP where they’re trying to simplify their…
SASHA NARYSHKINE: Divest. Yes, I would think so. The rumours have been swirling that there are going to be bad assets, which are going to be spun off BHP Billiton. Mick Davis’ new company…he indicated that he would be interested in some of those assets, specifically in Australia. I don’t know. I guess this is all consolidation in the mining sector after a good five or six years of go-go times, when commodity prices went berserk. Iron ore price went from ten to one-hundred-and-ninety in just a few years, and went off like a contractor’s sport price. I don’t know where to next for iron ore prices. Some people are putting a floor somewhere around 90 to 100. We’ll have to see.
GUGULETHU MFUPHI: With the increased Chinese demand, shouldn’t that price go up?
SASHA NARYSHKINE: It all depends where you view Chinese supply. Remember, the Chinese have low-grade quality iron ore and plenty of access to it, so it depends what you see the Chinese infrastructural development plans rolling out, and whether or not they need the high-grade steel or they can deal with the lower quality.
ALEC HOGG: This is not a good idea. It’s not a good deal for Africa, because if the Chinese now have this massive copper deposit in Peru, they’re not really going to want Zambian copper anymore or copper from other parts of the world. There are geopolitical implications in many of these things. Remember, in the commodities side, we’ve been trying to keep the Chinese out from owning the source. If this happens, it will change the game.
SASHA NARYSHKINE: Maybe. Remember though, copper is going to become an increasingly tighter market in years to come. As with most commodities – other than agricultural commodities – the best stuff has already been mined. You might well say that Chile are the leaders globally, but many of the more ‘virgin-type’ copper deposits are still across our continent. It ultimately depends on the demand side, which I think should be increasingly strong, and the supply side is getting a little bit tight. We might even go into deficit next year and the year after.
ALEC HOGG: Well, the short term doesn’t look too bad, does it?
SASHA NARYSHKINE: No.
ALEC HOGG: At least, for now.
