It has been a big news day for the business world today. African Bank (Abil) announced that it was looking to sell Ellerines, which resulted in a marked and welcome spike in Abil’s share price. SABMiller was the next company to send a ripple through the world of SENS, announcing that it will be disposing of its $1bn interest in Tsogo Sun. To add to the hubbub of big-action moves, Anglo American informed its shareholders that it would be selling its 50% stake in Lafarge Tarmac for $1.5bn. Giving his most learned insights on all of the action is Sasha Naryshkine from Vestact, if you’re looking for research based analysis that comes with the laurels of success, this piece is where you’ll find it! – LF
ALEC HOGG: Fortunately, Sasha Naryshkine is one of those guys who does his homework in great depth. We have lots of news breaking on the JSE today. He’ll be able to give us some insights on all of that. You’ve been writing a newsletter for 12 years you were saying.
SASHA NARYSHKINE: In the twelfth year, yes.
ALEC HOGG: That’s incredible, Sasha. It takes a lot of discipline.
SASHA NARYSHKINE: It’s that way with anything in life…discipline – the harder you work at it. I’m trying to reach those 10,000 hours for Malcom Gladwell. I have to work it out.
ALEC HOGG: There a couple of big stories. Let’s start with ‘Abil selling Ellerines’. It bought Ellerines for R10.6bn many years ago, (about ten years ago). Abil’s total market cap is now R10.1bn, so what it paid for Ellerines, – which it’s now desperately trying to get rid of – was higher than the company’s total market cap, which tells you something.
SASHA NARYSHKINE: Yes. You must remember that in January 2008, they issued just over 300-million Abil shares at over R31.00 per share.
ALEC HOGG: Yes, I told you. You do your homework.
SASHA NARYSHKINE: I think it was R31.01 – R305m. There are currently 1.5-billion Abil shares in issue, but remember that for every 100 they issued an extra 84 last year, in the rights issue. There are a lot more Abil shares in issue now, so you would presume that a lot of those Ellerines holders maybe got tired quite early on, sold out, and exited.
ALEC HOGG: Did Eric at Ellerines sell out?
SASHA NARYSHKINE: I don’t know. You’d have to ask him that. Whether or not he followed his rights or was invested in the business at any scale since they were bought out all of six-and-a-half years ago, remains to be seen. The share price is up 20-odd percent so in a large part, maybe people are expecting them…
ALEC HOGG: Today, it’s up 20 percent. Obviously, over the period it’s down…
SASHA NARYSHKINE: Yes, it’s just over R8.00 per share, which is where they did the rights issue not so long ago. I suppose it’s good for those people who have been long-suffering shareholders and who’ve been scooping up at an institutional level. The questions to ask yourself is (a) who is going to buy it and (b) what sort of discount are you going to get, because you’d presume there’d be a significant discount. Maybe even ‘here, have it’.
ALEC HOGG: One Rand. Whitey Basson bought OK Bazaars. You also have to go back and say ‘hang on. There was a management team that destroyed enormous capital/enormous wealth on behalf of shareholders during this period, and yet, that management team is still in place and still gets the support of shareholders to take it forward. It is a conundrum, I suppose.
SASHA NARYSHKINE: Well, when they’ve repaired the hole in the ship…whether or not that management will still be there in place, I would doubt it. Once the ship is sailing on a better course, then I guess the institutional shareholders will muscle around themselves and say ‘now, let’s get a new strategy for this business’.
ALEC HOGG: A management team that has done well though is Tsogo Sun, and now SABMiller finally is able to shed itself of the last non-core asset.
SASHA NARYSHKINE: Yes, and I think Marcel van Aulock is not even 40 (I think he’s 39 or maybe he turned 40 this year) – safe pair of hands as far as HCI and SABMiller are concerned. More liquidity I guess, in Tsogo and good for all parties. The reason why I think so is because after the cancellation of 130-odd million of SABMiller’s shares, which the company (Tsogo) will buy back from them at a discount, HCI will have just shy of 47 percent overall. However, there’ll be a lot more new shareholders including management who are getting what looked like quite a sweetener, but if I was HCI, I’d want to lock that management team in at the lower prices and just say ‘guys, here’s an opportunity get involved – R200m for five or six individuals’. It sounds like a lot and they’re getting quite a nice loan from the business specifically, so it looks quite nice for all parties concerned. I think that exiting SABMiller…if you’re a Tsogo shareholder, you don’t really want someone who it represents after the sale, one-point-one percent of their market cap of SABMiller.
ALEC HOGG: It’s always been small in SAB’s life, but they’ve been looking to do the right deal and they’ve done the right deal now. It’s taken a long time.
SASHA NARYSHKINE: I think so. Yes, it’s taken a while.
ALEC HOGG: Tsogo’s share price is down today – three percent.
SASHA NARYSHKINE: Well, you would expect that because there’s a discount applied to that. Remember, Tsogo themselves are going to buy back 130 of the 435-million of SABMiller’s shares and then cancel that obviously, at the lower price. You do get a win in some senses, but then there’s a bookbuild. I think the conclusion thereof is next week Friday, which will obviously be at a discount of the prevailing price.
ALEC HOGG: It’s quite complex but at the end of the day, Marcel Golding and Johnny Copeland have the prize they were after. They have the casinos. They have Tsogo Sun as pretty much the controlling shareholder, which they have been for a while, but they’re really strongly in the saddle now. SABMiller is out. It’s last non-BA interest is gone (or non-drink interest) because it does have soft drinks as well, and I suppose that shareholders will reassess after the little share price decline today and maybe see better into the future. Anglo American and Tarmac…
SASHA NARYSHKINE: Yes. What’s the quantum of that? Obviously, Holcim and Lefarge are busy trying to merge in the background there and the European Competitions authorities are asking them to shed assets of about €5bn. The size and scale for those parties isn’t as big but I think again, this is another company, which is shedding non-core assets. It’s a little bit more important. I think it’s roughly four percent of Anglo American’s market cap in the U.K., so a little bit more important to them. Maybe they’ll use that to pay down existing debt, but I think it’s another sign that Mark Cutifani is really serious about selling assets that don’t have a place inside of their stable. Two weeks today, we’ll see Amplats’ results – I think on the 21st of July. It will be really interesting to see what sort of restructuring there is, remembering that over the weekend (in the weekend papers) the ANC said it would be unfortunate if Anglo American were to sell some of the Amplats mines. I’m not quite sure what any of that means, but it’s not profitable. You can’t carry on mining it in perpetuity.
ALEC HOGG: There’s so much happening behind the scenes that we’re not privy to, but clearly, no sensible human being wants to throw money into a bottomless pit and Anglo American are not insensitive to that either.
SASHA NARYSHKINE: They’ themselves are not exactly in a prime position either. If they had a better balance sheet, they could sweat it over another three or four years. Mark Cutifani is serious about cost controls at Anglo and if this means having to sell assets and do JV’s… Another asset that they bought at the top of the market, of course, was the iron ore asset from Marco Battista from MMX in Brazil. That hasn’t exactly turned out well. In fact, that was one of the most expensive iron ore projects on the planet at one stage.
ALEC HOGG: Christine Ramon, ex-Times Media, off she goes to Sasol, and now she’s going to Anglo Gold Ashanti as the Financial Director – quite a stellar career.
SASHA NARYSHKINE: Yes, but I don’t know. It kind of feels like a downgrade to me, with all due respect to Anglo Gold Ashanti. Sasol’s a much bigger scale business with bigger global aspirations now. Maybe there was another CEO job lined up that didn’t quite transpire. We can only speculate here. I’d much rather be at a smaller business – running it – than being… It just seems like a sideways shuffle, and maybe even a little bit down.
ALEC HOGG: That’s interesting. Sasha, the markets generally…we have lots of people worrying that we’re getting into a very toppy area. Last week, David Shapiro said the bull market’s only just started. What side of the fence are you on?
SASHA NARYSHKINE: He’s double my age, so I’d go with experience every time. No, he’s not quite double my age.
ALEC HOGG: Less than double your age, you should say. He looks better, though.
SASHA NARYSHKINE: I’m optimistic by nature and thinking that over the last five years, financial institutions have been under more pressure than the prior five years, but the people who were shedding jobs in that time were obviously industrial businesses and manufacturing businesses, who shed jobs heavily. Construction… This is at a global level. What’s happened is that the wheels kind of turned and all the people who were speaking about capital markets, are those who are currently under pressure. Maybe it’s a translation of their own personal circumstances to equity markets. I think we even discussed this on Friday. They’re saying that businesses are in far better shape over the last half-decade now, than at probably any point in the last 20 years. You need the downturn in the cycle to make companies a lot more profitable and the hiring has certainly started (at least, in the U.S.), so that will be the driver.
China’s kind of stable, but I think the move from construction all the way through to kind of a consumption: that’s another story that’s going to play out over the next decade and I think that is quite exciting. That’s good for all global multinationals, so anyone who has a presence in developing markets – and we’re certainly one of those – will continue to do well. South African companies who trade with the rest of the continent…you’re going to see more of that.
ALEC HOGG: An interesting take from Sasha Naryshkine, who is a Director at Vestact supporting David Shapiro who is, at least, double his age.
