In this insightful interview, Kokkie Kooyman, a leading investment expert, offers a deep dive into the latest market trends and financial developments. From discussing FirstRand’s robust performance and strategic moves to evaluating the impact of global and local economic shifts, Kooyman provides valuable perspectives on key investment opportunities. He highlights how companies like Capitec and HighProp are navigating challenges and seizing growth prospects, while also examining the effects of shifting consumer confidence and political dynamics on the market. Kooyman’s analysis sheds light on the evolving landscape of banking and property investments, offering viewers a comprehensive understanding of where the smart money is headed.
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Edited transcript of the Interview
00:00:11:05 – 00:00:36:10
Alec Hogg:
Kokkie Kooyman is with Denker Capital and our go-to man on financial services, of which there’s been a lot of news lately, including today with the results coming out from the OUTsurance Group. Who would have thought? Started in 1998, this company is now generating 4 billion rand a year in profit and moving into Ireland as well as Australia, and of course, strong here in South Africa.
00:00:36:12 – 00:00:44:19
Alec Hogg:
But that’s only a very small part of our conversation today. Kokkie, lovely to be talking to you between meetings. Were you at the OUTsurance results?
00:00:44:22 – 00:00:58:03
Kokkie Kooyman:
I was at the FirstRand management meeting discussing the results. I just saw the OUTsurance results come through. They are good results, and it’s an exceptional company. We can talk a bit about that as well.
00:00:58:05 – 00:01:20:00
Alec Hogg:
Well, maybe we should start with an overall picture. When I look at FirstRand’s five-year share price, it hasn’t moved very much — 28% in five years. You’re probably not even beating inflation at that kind of level. Does that mean that it’s building up momentum, maybe for a bit of a surge?
00:01:20:02 – 00:01:40:15
Kokkie Kooyman:
Yes. Life as a CFO is so complicated, and you ask the right question swiftly. Bear in mind that 2019, before Covid started — and that’s more or less five years ago — was a very good year. The market was strong, and bank share prices were rising. They got a bit too expensive at that stage.
00:01:40:17 – 00:02:12:14
Kokkie Kooyman:
So we’ve seen a de-rating of all banks, with the exception of Capitec and Investec, which have had a different story. But generally, the big banks have deteriorated, partly due to the provisions needed for Covid. Then suddenly, when Russia invaded Ukraine, and with the rise in oil and fuel prices, their net asset value per share was impacted. Banks, which rely on stability, were under pressure. That’s why we’ve seen this sideways movement.
00:02:12:15 – 00:02:39:18
Kokkie Kooyman:
As we go through it now, both Absa and Standard Bank are still being mispriced. FirstRand, though, is not as mispriced anymore, but it does have the highest prospects in terms of a higher return on shareholder value. I think all the banks will perform well in a falling interest rate environment with growth coming. Their big challenge now is deciding what to select. Do you go for the really cheap ones, where the problems are small? Or do you go for the ones that are a bit more expensive but better positioned?
00:02:39:20 – 00:02:57:02
Alec Hogg:
Even if I go back to 2017 — so that’s seven years ago — FirstRand’s share price was about the same level as it is now. So, I hear what you say about it being overrated before Covid, but is this now the time, given it’s a much bigger company with a much bigger balance sheet? And you’ve just engaged with the management team today.
00:02:57:07 – 00:03:24:07
Alec Hogg:
I know I’m focusing on FirstRand because, with a market cap of 460 billion rand, it’s our biggest individual bank and financial services company. It seems cheap with a 5% dividend yield — better than what they pay on their savings accounts. So, isn’t it one that even conservative investors could look at?
00:03:24:09 – 00:03:47:06
Kokkie Kooyman:
Yes, but one thing to bear in mind when you look at the share price over the last few years is the dividend payments. Banks have been paying good dividends. On average, most banks have had a dividend yield of about 5% over the last seven years. Initially, it wasn’t that high, and during Covid, they held back, but post-Covid, dividend yields are now 6–7%. So, you’ve had a 5% dividend each year over seven years — that’s 35% in total, plus the re-rating.
00:03:47:08 – 00:04:04:09
Kokkie Kooyman:
You’re right, though. FirstRand is a great bank, very well positioned, and the issues related to the UK investigation into commission problems — not directly theirs, but within the industry — are behind them. So, FirstRand will grow shareholder value at about 20–25% per annum over the next few years.
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00:04:04:10 – 00:04:22:21
Kokkie Kooyman:
Even if it doesn’t re-rate, you’ll still do well with FirstRand. You get a double return: the dividend, plus the re-rating, and you’re investing in a quality bank. You’re unlikely to wake up one day and read negative news about FirstRand.
00:04:22:21 – 00:04:45:21
Alec Hogg:
They’ve got 50,000 employees and a new chief executive. What do you think of her?
00:04:45:21 – 00:05:02:21
Kokkie Kooyman:
She’s good. It’s a tough job. This morning, I saw Mary de Haas, who’s the CEO, and yes, she looks much younger now. The stress of being a CEO is something we tend to forget. Running a large organization with 50,000 people and multiple stakeholders puts immense pressure on you.
00:05:59:23 – 00:06:07:18
Kokkie Kooyman:
And I think it comes down to having a very, very good team and what we call a good reserve bench as well.
00:06:07:20 – 00:06:39:03
Alec Hogg:
Mary Vilakazi, the half of a power couple in Jo’burg, with her husband being the dean of Wits. So, you’ve got a heck of a CEO there. And Mary, you’ve told us all about FirstRand. We understand the future, but it wasn’t long ago that OUTsurance was created by FirstRand and has now been spun off. Today, it released its financial results, which, on the face of it, seem very strong.
00:06:39:05 – 00:07:01:24
Alec Hogg:
I’m sure you haven’t had a chance to go through them in much detail, being busy as you are, but is this a company — as an insurance business — worth investing in, given that they’ve moved aggressively into Australia and are now even moving into Ireland? It looks like OUTsurance is another one of those FirstRand success stories, much like Discovery.
00:07:02:01 – 00:07:22:14
Kokkie Kooyman:
Discovery is interesting. As an investment team, we often have this big debate. Warren Buffett is well-known for saying that getting a few things right is crucial. Two of them are very important: you’ve got to buy quality companies and manage your funds well.
00:07:22:14 – 00:07:40:06
Kokkie Kooyman:
You want to invest when the share price is close to what we call intrinsic value. That’s a different debate, but if you can buy at a good valuation and do that consistently, you’ll do well over the years. Every now and then, you get a company like OUTsurance.
00:07:40:06 – 00:08:05:10
Kokkie Kooyman:
Capitec is another good example. You’ve got others like Nubank in Brazil, which recently launched in India. OUTsurance has an exceptional management team — they are innovative, and they’ve come up with a fresh business model using fresh technology, which helps them take market share.
00:08:05:10 – 00:08:32:23
Kokkie Kooyman:
Capitec was slightly different. At that stage, they didn’t have fresh technology, but they were aggressive in attacking the competition. With OUTsurance, what you have now is a company that’s expensive relative to, say, Momentum or Old Mutual. You have to ask: do I trust this management team to continue growing market share? And in this case, I would — we own OUTsurance in our funds.
00:08:32:23 – 00:09:01:10
Kokkie Kooyman:
They’ve demonstrated their ability to innovate faster than the competition. Their entire advertising campaign has been well-managed. It’s hard for competitors to fight against a company like OUTsurance because they have strong margins on the products they sell. It’s a brave move, like Capitec, and they make it seamless for consumers to do business with them. OUTsurance is performing very well.
00:09:01:10 – 00:09:27:18
Kokkie Kooyman:
Australia was a bit of a challenge initially, and still is sometimes. But Ireland is an exciting new market for them. When entering a new market, it can be tricky, but they chose Ireland because it’s very fragmented. You either want to go into a market dominated by a few big players you can attack, or into a fragmented one where no one is strong enough to push back.
00:09:27:18 – 00:10:06:01
Kokkie Kooyman:
OUTsurance is one of those companies you can put in your portfolio and, every few years, look back and say, “That was a good decision.”
00:10:06:03 – 00:10:22:12
Alec Hogg:
And very strong results coming through to support Kokkie’s view on that. You mentioned Capitec a few times. Their results are coming out in a couple of weeks. Are they once again going to surprise on the upside?
00:10:22:14 – 00:10:55:03
Kokkie Kooyman:
It’s going to be difficult because they’ve already done a pre-release where expectations were raised. Then, they updated it, saying things are going even better than anticipated. Capitec has been careful about consumer credit, tightening criteria where needed. They seem to be performing especially well on the insurance side, and several new initiatives they’ve started are proving successful.
00:10:55:05 – 00:11:24:01
Kokkie Kooyman
It’s a small business, but they continue to take more market share, and they expect that to continue. The problem with Capitec, if you look at it on a global banking scale, is that there are only about three banks more expensive. One is Nubank, as I mentioned, and it’s relatively new. I think there’s also one in Kazakhstan, known for being innovative because of its operating system.
00:11:24:03 – 00:11:51:03
Kokkie Kooyman
So, you look at Capitec and say, “Can it continue?” We’ve done the work and looked back over time. Even when it was expensive, after three years, you would still do well because of the high return on capital. Their return on capital is about 25%, compared to an average of around 15% for the industry. A 10% differential really adds to shareholder value.
00:11:51:03 – 00:12:29:17
Kokkie Kooyman
For instance, you’ve got something like ABN Amro in Holland, where a 25% return on shareholder value is excellent. If you keep reinvesting that into your business, like Capitec does, you will continue to grow. They’ve increased their stake in Euronet, something they held for a long time with a small holding in Eastern Europe. Now, they’ve stepped in and bought almost everything, leaving just a 2.5% stake, which benefits them. In three, five, or ten years, this could be another growth area, as they replicate this elsewhere. Capitec has good things going for it, and although it seems expensive, quality companies often do.
00:12:44:20 – 00:13:12:06
Alec Hogg
It’s such an interesting point you make about Capitec even moving into Eastern Europe. Another big company that released results today is Hyprop, a property company. It says it’s investing, although it has a lot of work to do to stabilize itself, especially with high interest rates hurting the company. But it’s investing in what it calls its preferred jurisdictions: the Western Cape in South Africa and Eastern Europe.
00:13:12:11 – 00:13:17:01
Alec Hogg
What is it about Eastern Europe that South Africans love so much?
00:13:17:03 – 00:13:43:14
Kokkie Kooyman
Yeah, it’s interesting. I wouldn’t say it’s another world, but Eastern Europe offers advantages. One of the main attractions is the lower tax rates, which makes it appealing. When a South African company invests outside of its borders, it has to navigate many new complexities, often competing against well-established local players. You need to be sure you can grow market share and outcompete.
00:13:43:14 – 00:14:19:12
Kokkie Kooyman
Eastern European countries realized that to reduce unemployment and drive growth, they needed to attract foreign capital and expertise, which they did, helping their economies. They continue doing so with favorable tax rates, although the landscape has changed with higher banking taxes. It’s still a higher growth environment, with countries like the Czech Republic growing at 3-3.5%, compared to slower growth in places like Germany or France.
00:14:19:12 – 00:14:45:04
Kokkie Kooyman
So, Eastern Europe remains an attractive market for growth.
00:14:45:06 – 00:15:05:20
Alec Hogg
Well, that’s a bullish point for Hyprop. What about it as an investment proposition, given that it could benefit from a reduction in interest rates? Is this something you see with all property companies?
00:15:05:22 – 00:15:40:02
Kokkie Kooyman
Yes, it’s an interesting point. While I don’t focus much on property companies—since I’m more involved with banks, insurers, and exchanges—they definitely benefit from lower interest rates. Also, I’ve noticed some property companies mentioning in their results that vacancy levels are dropping, which directly improves their bottom line.
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00:15:40:02 – 00:16:02:06
Kokkie Kooyman
When vacancy levels start falling, growth is always good for property companies as well. Especially because property companies post-Covid have come up from such a low base. There were so many units where people were working from home, and there was higher unemployment. But all these trends are starting to reverse.
00:16:02:08 – 00:16:26:07
Kokkie Kooyman
Almost every large company I’ve read about is starting to dictate to employees that working from home is ending. They’re saying, “You’ve got to come back to the office; we want you here.” And obviously, that’s good for property occupancies. Also, from the point of view of just imagining a large organization like JP Morgan, with 5,000 people working at its head office in New York.
00:16:26:10 – 00:16:49:04
Kokkie Kooyman
Now, it’s 21,000 coming in, instead of 5,000 or 7,000. All the coffee shops in the surrounding area, all the pizza places—they all start doing better. You get this shift away from small businesses in the suburbs. But property companies, especially your biggest centers, generally do well, and they are doing rather well in the current environment.
00:16:49:06 – 00:17:22:05
Alec Hogg
Hyprop is 40% higher this year and up about 3% on the results today. Two of the points that its management made in the results were that they’re taking a lot of positivity from the government of national unity and the electricity situation. We’ve now had more than 170 days of load shedding. Kokkie, today we also had the release of the RMB Consumer Confidence Index, which went from -10 to -5.
00:17:22:05 – 00:17:45:08
Alec Hogg
So, it’s still below the long-term average of zero. But the academics tell us that it’s at the best level for the third quarter of the year and the best level since the first half of 2019. So, kind of a five-year high. Do you think this is justified?
00:17:45:10 – 00:18:12:24
Kokkie Kooyman
Absolutely. I’m not surprised that it’s still in the negatives because there’s uncertainty about the government. Even last week was rocky again, and some people still feel unsure. If we can get the politicians to accept that creating growth enhances their chances of winning the next election, it will go forward, especially for the main parties in the government. It’s the right thing to do—you want to create growth.
00:18:12:24 – 00:18:34:13
Kokkie Kooyman
If that growth comes through and the right policies are followed, business confidence will definitely rise again. On the electricity front, my thoughts haven’t changed. The economy wasn’t running at full speed. As it picks up, it’ll be interesting to see if we start hitting capacity constraints, especially on the mining side, if it’s fully productive again. But also, with the net solar installations, it’s basically as if one Medupi power station has been installed.
00:18:34:15 – 00:19:08:04
Kokkie Kooyman
So, it’ll be interesting. The bottom line is, I think by next year, or even by the end of this year, if we keep going this way and the government doesn’t make mistakes, confidence levels will rise. We’ll get more foreign investors. They are already gearing up to start having meetings with our banks. Just this morning, I heard there wasn’t much interest in meetings with South African management, but now it’s starting to happen again. So, you’ll start seeing foreign investors coming back, though they aren’t really investing in South Africa yet.
00:19:08:04 – 00:19:26:10
Kokkie Kooyman
As it comes back, the market could still do very well.
00:19:29:11 – 00:19:35:21
Alec Hogg
A good point on which to end. That was our conversation with Kokkie Kooyman from Denker Capital. I’m Alec Hogg from BizNews.com.
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