Yesterday South Africa’s GDP figures were released, which showed a contraction in the economy of 0.6%, not only has this had short-term impacts, driving down the Rand, it gives a preview of what South Africa can expect in its trading environment going forward, a contraction. Fears of a recession have been bandied about, and whether or not this is driven by a five month mining strike is irrelevant, the consequences of an anaemic consumer market will hit the retail sector hard as it dominoes through our economy. The trademarks of a very tough climate seem to be upon us already with news of retrenchments, streamlining and downsizing coming from little corners of the market. There is simply no space for fat, and businesses seriously need to focus on competing in lean, efficient ways. David Shapiro from Sasfin Securities discusses the markets with particular emphasis on the retail sector’s players, those who can cut it, and those who may come off worse for wear. He also looks at the impacts of the proposed legislations on the OTC market, as well as Herman Mashaba’s surprising move to join the DA and step down from the Free Market Foundation. – LF
ALEC HOGG:  Well, let’s get a more in-depth view of the market, and how it’s trading today. David Shapiro is with Sasfin Securities, otherwise known as Uncle David, as I’ve just heard a moment ago.
DAVID SHAPIRO:  I’m just laughing about that IFRS statement, because I’m talking on a panel at a conference about IFRS and when asked about it, I said we don’t look at accounts any more. When accounts come out, we just ignore it. Counting has become so complicated that from an analysis point of view, you have to look at the company yourself. We go straight to the segmental analysis to see how divisions are doing and then draw our own conclusions from the outlook statements, how companies are doing. For anybody to understand accounts today, you really have to have more than a C.A. I think you have to have some PhD or greater qualification.
ALEC HOGG: Isn’t it going back to what Warren Buffet says? If a guy walks through the door, you don’t have to know that he’s 312 lbs exactly. You can see he’s fat.
DAVID SHAPIRO:  That’s right.
ALEC HOGG:  So similarly, with investments, you don’t have to know exactly how the underlying numbers are. You can see if it’s a good one.
DAVID SHAPIRO:  Absolutely. You learn from history, reading about the company, and understanding the kind of business they’re in, whether they’re a good company or not. We go into some seriously complicated adjustments to try to get what is a true earnings number of the company. I don’t think it’s that complicated.
ALEC HOGG:  Results are out today, Dave. Kelly: a good turnaround. We know all about that. Adcorp are going to buy them out, so not really a whole lot to talk about there, but the retailers are interesting.
DAVID SHAPIRO:  I think Mr Price came out with an exceptional result and I think it’s an exceptional company. I think it’s eating other retail’s lunch – if that’s the right thing – because for that kind of growth in this environment… Their online offering is growing. I spoke to Nigel Payne just off… He told me that they supply 80 different countries, even as far as the Middle East of the Far East etcetera. I think they’re a good company. I think they’re quite pricey at this level, but still, besides Mr Price I think it’s very, very tough out there. At the top end of the market, you’re okay. At the bottom end, I think things are getting rough at the moment.
ALEC HOGG: Â Lewis?
DAVID SHAPIRO:  Same thing – very, very difficult, and another well-run company, but you can’t fight the economy. Just looking at yesterday’s economic growth, you know what we’re in for and if you have a whole industry… What one doesn’t understand is that even though the mines are on strike and miners are not being paid, it affects the whole community around there. It even goes down to the Eastern Cape, because that’s where they used to send the money. Most of the workers are migratory, so it affects the whole country and it will affect spending down the line.
GUGULETHU MFUPHI: You saw the GDP numbers as well as the Cabinet changes and you’ve also seen all the cycles through the years, grandpa.Â
DAVID SHAPIRO:  I’ve seen many cycles. There’ve been more down cycles than up cycles.
GUGULETHU MFUPHI: So are you saying that the current economic environment, which we’re in at the moment, is that tough?
DAVID SHAPIRO:  I think it’s very, very tough. You look at what Mr Joffe’s going to do with Adcock. He’s not going to just let it go and start blaming everybody. They’re going to work on it. That’s the type of attitude we have to adopt here, for example, greater productivity and get rid of waste. We actually have to work here. There’s no big plan. We can’t just say the NDP’s going to sort it out – not at all. You actually have to start working harder. We need to have a completely different strategy to turn this country around, and it’s serious. We don’t look at it as being as serious as it is, because we look at the stock exchange. The stock exchange is not a reflection of the South African economy. It’s a reflection of our companies going outside the country to make money.
ALEC HOGG:  And benefitting from quantitative easing…lots of money sloshing around etcetera. Dave, there are two issues that I’d love to get your insights into.  Firstly, Herman Mashaba…
DAVID SHAPIRO:  He was here. I met him here two weeks ago, when you first broadcast – a great man, a phenomenally good businessman, and a deep thinker. I also don’t understand why he had to go away from the Free Market Foundation because that’s a wonderful think-tank and I agree fully with the way the Free Market thinks.  Whether he’s going to take a more political role that might compromise the Free Market – in other words, associate Free Market with DA – may be the reason.
ALEC HOGG:  It’s a coup for the DA, no doubt.
DAVID SHAPIRO:  Phenomenal, a top-rated businessman, and someone whom I think we can listen to. I love his messages. He’s outspoken and I think he’s the kind of person that the DA needs.
ALEC HOGG:  The OTC market…
DAVID SHAPIRO:  If it’s a single market, I think you can operate an OTC. I have no objection to it as long as it’s one company. However, when you start acting as a stock exchange…in other words, you start getting many shares, then you become a stock exchange and you must have a license. If it’s one company…if it’s CNBC and they have an exchange in their shares, then there’s no issue.
ALEC HOGG:  Take Sasol Inzalo. The have many shareholders. Take MTN Zakhele who we’ve spoken to – after much stuttering, they finally started. They have over one-hundred-thousand shareholders who now – theoretically – won’t be able to trade their shares any more.
DAVID SHAPIRO:  They have to allow it because that’s run by MTN and Sasol, so it’s a single unit. They’re not acting as a stock exchange. They’re just facilitating the trade in those particular shares. As long as they’re fair, as long as they put up who wants to buy and who wants to sell, I have no objection to it. However, if there was a central organisation who started to trade in all those different shares, then you become a stock exchange.
GUGULETHU MFUPHI: The FSB probe thing…they’re referring to it as ‘attacking a flea with a sledgehammer’.
ALEC HOGG:  Pretty much, but it is interesting. It’s almost like forcing the OTC players to become stock exchanges and giving the JSE perhaps, some competition. I know of one that is starting already – hopefully, we’ll get him on the show tomorrow – applying for a stock exchange license.
DAVID SHAPIRO:  That’s fine, because then it will be regulated. You have to have the right systems, the right guarantees; you have to be able to handle the kind trades and the right systems. I have no problem with that. If there’s an organisation that’s going to put all the different empowerment deals together, then you are a stock exchange and you need a license. That’s the Stock Exchange Act – not the Johannesburg Stock Exchange Act/rules and regulations. That’s the Stock Exchange Act and you need your own rules and regulations.
ALEC HOGG: Â Then you start to see lots of costs added.
DAVID SHAPIRO: Â Massive costs.
ALEC HOGG:  That’s the problem.
DAVID SHAPIRO:  It’s massive.
ALEC HOGG:  So if you can’t afford to do it… We’re talking about people who won’t even trade R150.00/R200.00 at a time. On the JSE, that’s very difficult to do.
DAVID SHAPIRO:  I’m going to make a guess here, but I think that every time we touch the button and trade with the JSE, I reckon the costs can be anywhere from R150.00 to R250.00. My own guess is that it’s closer to R200.00 to do a trade, so those are the types of stock exchange…
ALEC HOGG:  There are many practical issues. David, as always, thank you very much. I’m sorry about Gugu abusing you by calling you oupa.
GUGULETHU MFUPHI: It’s more the other way around, wasn’t it, David?
