The world is changing fast and to keep up you need local knowledge with global context.
When you live in Cape Town, it is easy to believe that GrandWest Casino and Entertainment World is a money-spinner. It is a popular venue for families from around the city for day outings as well as for gamblers who fancy their chances at the roulette table. A quick drive through neighbouring suburbs that bear signs of decay and financial trouble hint that that the locals are channelling much of their money into the slot machines in this massive entertainment complex. Sun International’s bosses have a firm belief that GrandWest will keep delivering profits, so they must have been rubbing their hands with glee when Grand Parade Investments announced it was offloading its interest in GrandWest and other casinos in favour of pursuing fast-food business opportunities. Sun International (JSE: SUI) and its rival Tsogo Sun (JSE: TSH) will benefit from Grand Parade’s disposals. Both will have a stake in GrandWest, which has no competitor. – JC
GUGULETHU MFUPHI: Just when I thought I’d give Alec some more work to do, it comes back to my shoulders. Nonetheless, to help give us an in-depth view of how the market is trading today, Izan de Bruin joins me at the desk today. He is the Chief Executive of Xenium Financial Managers. Izan, thank you for joining us today.
IZAN DE BRUIN: It’s nice to be here, thanks.
GUGULETHU MFUPHI: Likewise. Perhaps we can pick up on some of the company news published today. Astrapak – another packaging firm – but unfortunately, publishing dismal results today. Have you managed to have a look at those?
IZAN DE BRUIN: I haven’t had an in-depth look, but I can understand why the results are negative. It would of course be on the back of the consumer spending not being up there, especially for the last six months or so, and if the consumers aren’t doing well, the packaging company cannot be doing well. It’s just as simple as that.
GUGULETHU MFUPHI: You mentioned something so interesting there, because retail sales are also expected to be published later on today from South Africa’s perspective.
IZAN DE BRUIN: Yes.
GUGULETHU MFUPHI: With regard to consumer confidence being down, we know that consumers aren’t spending as much there. Are you expecting the numbers to shoot the lights out or not at all?
IZAN DE BRUIN: No, I don’t think so at all although I do think it’s time to start looking in that sphere. Going forward, things should start improving slowly. I’m not quite there yet, but for the longer-term investor it might be time to start nibbling into that sector, yes.
ALEC HOGG: Izan, before we move off Astrapak, we do know that Coronation’s taken a big punt on this one on a turnaround opportunity. Are you following them?
IZAN DE BRUIN: No, I’m not on this one. It’s not my thing.
ALEC HOGG: The final results are out today. We’re going to be talking to Robbie Venter in just a moment. If you look back at that stock as I did… Ten years ago, it was at the same share price. It’s had a big up and down move since then, but if you owned the shares ten years ago and held onto them until today, you actually would have shown no capital appreciation. Is there a reason, which jumps out at you for this disappointment?
IZAN DE BRUIN: No, there isn’t something that immediately comes to mind as a specific reason for that, but that is negative, of course. That’s the longest sideways we’ve ever seen. I’ve not invested in that share for some time. I think the last time was a couple of years ago that we touched on it slightly, because of that sort of thing. I suppose the restructuring is also partly, why they did that and I think the hope is that with the restructuring, which they did a couple of months ago, that going forward things could improve.
GUGULETHU MFUPHI: Another technology company – Datatec – slightly smaller though. Did you manage to follow that one, too? It also published its numbers today.
IZAN DE BRUIN: Yes, I’ve been following Datatec for a very long time. It was a favourite share back in the late nineties. I remember that specifically. Then, going into Y2K and what happened to the share, they were all the way up there at R76.00 or R78.00 if I remember correctly. The results are not too brilliant – slightly up on the turnover – but not great results either. I didn’t expect great results from them, no.
ALEC HOGG: Datatec is an interesting company, isn’t it? Most of its operations are outside of South Africa. At one stage, it was challenging Dimension Data as being the big tech company in South Africa, but it seems to have gone a little bit off the boil. You wonder why they remain listed here.
IZAN DE BRUIN: Yes, one would. This is why I look at their results, too. It’s sort of to be expected, because if you look at the comparable companies that trade in Europe and in the States, they’ve also not shown great results and for the same reason one can expect that they wouldn’t have great results. What I often do, especially on tech, is that I look at companies trading in Europe and America, and see what they’re doing. Their results would often give us an indication of what we could expect here.
ALEC HOGG: That is such an interesting situation. South Africa, because of exchange control, has these unusual listings: Glencore Xstrata being one of those. Well, they came to list on the Johannesburg Stock Exchange because they know that local investors aren’t allowed to invest everywhere in the world with all of their capital. As a result, it’s an appealing investment for some. I suppose Datatec would also fall in that category.
IZAN DE BRUIN: Yes, they do to some extent. With Glencore…with their operations here, it was almost the right thing to do with the CEO having his roots back in South Africa. I think that was all part of it. For the mining operation… One would also suspect that they’d want to do a bit more growth going forward into Africa. You have to go and it’s good to go through South Africa, especially with the current operations, so I fully understand that one.
ALEC HOGG: Yes, but you do know that Ivan Glasenberg said the reason why he listed Glencore Xstrata on the Johannesburg Stock Exchange was that he came here, spoke to institutional investors, and they said ‘hang on’. They would love to invest more into his company. He therefore saw the opportunity and that’s the reason for it so, in that case, exchange control worked in the country’s favour.
IZAN DE BRUIN: Yes, you’re quite right. I’m glad they did and I think it does give a further opportunity for investors, especially institutional investors who have a nice great share. They have a large market cap, so it’s great that some things are also coming back as some are going offshore.
GUGULETHU MFUPHI: Izan, I want us to look at Grand Parade, perhaps. For the third day in a row today, following that announcement regarding the deal with Tsogo Sun, is this something you’re looking at as one for your portfolio?
IZAN DE BRUIN: I’m very conservative, but I obviously deal with very different types of investments and clients. With some clients, this is exactly the right thing to go for. I find it an interesting move that they’ve made and I can see some of the reasoning behind it. The Grand Parade…I go to Cape Town often and I drive past, but I hardly ever go in there. I think the positioning there isn’t right and I think that’s possibly part of it. Apart from that, they’re looking to expand strongly into Africa and we’ll see many more Burger Kings. I understand the rationale and it gives us a nice thing to trade on, of course.
GUGULETHU MFUPHI: Looking at the other companies involved in this deal… Sun International yesterday Alec, managed to punt today, so it may be one to look at. Just regarding the feel of the workers on the ground at Sun City where Alec visited recently, there’s a lot of optimism there. Do you believe in investing in human capital more than just for returns?
IZAN DE BRUIN: From the optimism side…yes, of course. It’s critical that your staff and the people in your company are happy, that they want to be part of the company, and grow a company. That is absolutely critical, so in that respect – yes. It’s also probably better for the Grand Parade operation to be part of a larger operation than they are now, because their economies and scale of growth etcetera, moving forward could also be quite positive. That’s what I’m expecting.
ALEC HOGG: Izan, you might not think it’s well positioned – the GrandWest casino – but let me tell you that Sun International thinks it’s fantastic. It is the biggest. It is the most profitable casino in their group. I’m not sure about Tsogo Sun’s Monte, but certainly, in Sun International’s case it’s the most profitable business. The story that came through yesterday was… We’ve known for a while. We’ve been very concerned that Sun International would have a competitor in the Cape Metropole, to which there is a license available. Now, with this deal yesterday – I suppose you could call it a bit of collusion if you’re being unfair – there isn’t going to be a second casino to compete with GrandWest. That’s the reason why, in addition to what Gugu was saying about the staff (they just look so excited and upbeat), I thought it was one to look at again, at Sun International.
IZAN DE BRUIN: I agree with what you say. I suppose that when I go down to Cape Town, I go there to go to the coast and go to the places where the water is. I suppose that’s the difference there, so I’m not knocking it from that point of view. If they can keep that up as the monopoly, so to speak, in the Western Cape area…To go up to Langebaan is a bit far to go and do a bit of gambling.
ALEC HOGG: Well, thanks very much, Izan. It’s good talking with you and I suppose many people come to Cape Town to go diving for sharks and other people to go and play golf. I come here to work and I’ll be talking…in fact, I have a nice presentation this evening. I don’t get to the GrandWest casino, either. In fact, I can’t remember when last I was went to a casino, but it isn’t me they’re appealing to and not to you either. From an investor’s perspective, maybe Sun International is the one to look at. That was Izan de Bruin. He is the Chief Executive of Xenium Financial.
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.