BizNews Briefing – Featuring Peter Armitage, Steven Hurwitz and Peter Major
This morning's BizNews Briefing features insights from top financial minds Peter Armitage, Steven Hurwitz, and Peter Major. Key topics include comments on Naspers CEO Fabricio Bloisi, contrasting opinions from Fed officials on rate cuts, Disney's new leadership strategy, and growing confidence in South African markets amidst economic improvements like declining interest rates, increased foreign bond investments, and reduced load shedding.
Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.
Listen here:
*Edited transcript of the Briefing
Alec Hogg (00:06.542):
Hello, good morning and welcome. I'm Alec Hogg. It's the 22nd of October, Tuesday all day. We've got three well-informed guests today: Peter Armitage from Anchor, Steven Hurwitz from 361, and Peter Major from Modern Corporate Services.
Alec Hogg (00:40.526):
Let's start with the news. The Kansas City Fed head, Jeffrey Schmid, favors a slower pace of rate cuts, while Mary Daly from the San Francisco Fed sees no reason to stop reducing rates. Shipping giant AP Muller Maersk raised its guidance due to supply chain disruptions. Disney announced that former Morgan Stanley CEO James Gorman will become board chairman next year, while SAP's cloud revenue grew by 25%.
Alec Hogg (02:56.268):
SAP is linked to South Africa's Gupta scandal. Peter, let's talk interest rates. You've been working on the banking sector. Are banking shares still offering value?
Peter Armitage (03:20.542):
The banking sector is up 30% from its lows. Confidence is improving as interest rates drop, the government is stable, and we haven't had load shedding for 200 days. A lot of positive factors are aligning, but we're cautious. U.S. markets are up, but valuations are high, close to the most expensive in 20 years.
Alec Hogg (05:20.654):
With high U.S. valuations, is foreign money flowing into South Africa?
Peter Armitage (05:40.372):
Yes, into bonds—about 40 billion rand. Bonds are simpler than equities. We haven't seen foreign investors entering the stock market en masse yet; they're waiting to see sustainable growth in the economy.
Alec Hogg (07:46.37):
Is there any movement on Naspers? The new CEO made a 100-day announcement.
Peter Armitage (08:10.714):
The CEO wants to create $100 billion of value, but Naspers' non-Tencent businesses have disappointed. They're now focusing on profitability. But it's going to take more than 100 days to convince the market.
Alec Hogg (10:05.774):
On Tencent and Disney?
Peter Armitage (10:30.692):
Tencent is cash-rich and profitable, but Naspers hasn't kept up. Disney, meanwhile, appointed James Gorman as chairman, but its share price has dropped from $200 to $100. The market is waiting to see if their online strategy can sustain growth.
Alec Hogg (15:50.974):
Lastly, the BRICS summit in Russia. India and China are resuming patrols on their disputed border. A meeting between Xi and Modi could shift geopolitical dynamics, especially two weeks before the U.S. elections.
Alec Hogg (17:40.526):
Of course, at this BRICS Summit, we're also watching the ongoing relationship and friendship between Beijing and Moscow. That relationship has brought a lot of attention, not only to China's relationship with Washington and the United States but also with Europe. China has become the major market for Russian oil and a supplier of many consumer goods. As the U.S. has often said, China is believed to be the major supplier of dual-use technologies to Russia, which can be used for both civilian and military purposes.The U.S. hasn't been shy in sanctioning Chinese companies accused of aiding the Russian war effort.
Alec Hogg (17:40.526):
Welcome Steven Howitz from 361. This is a good segway into our conversation about NASPERS and the 100-day statement from the new chief executive. Peter Armitage earlier compared it to a politician's move. Stephen, have you seen such feedback to shareholders before?
Steven Howitz (18:56.964):
To be honest, no. It's rare for a CEO to provide such feedback to shareholders. One of NASPERS' historical issues was its lack of friendly engagement with stakeholders. Fabricio Bloisi, the new CEO, is working to address that. He's an entrepreneur with fresh energy, but he's leaning into AI, which reminds me of the dot-com era, where adding ".com" to a company name spiked share prices.
Alec Hogg (19:38.508):
Are you impressed by this AI push? Is the AI story a genuine value-adding element?
Steven Howitz (19:55.126):
AI is often hard for people to grasp in terms of its real-world impact, but NASPERS has provided concrete examples of AI improving fraud detection in some of its investments like OLX and food delivery platforms. While it's not game-changing, AI deployments make these businesses more efficient and profitable. However, after the announcement, Process' share price fell 1% in South Africa and 0.9% in euros. Not the reaction NASPERS would have hoped for.
Alec Hogg (21:22.958):
That's interesting, given that the majority of NASPERS and Process' value is tied to Tencent. Tencent accounts for $120 billion of the nearly $150 billion in NAV. Fabricio's plans are positive, but the stock prices will still be heavily driven by Tencent's performance.
Steven Howitz (21:50.654):
Absolutely. What caused NASPERS' discount to widen in recent years was poor capital allocation. If Fabricio can fix that, we may see the discount narrow over time. But in the short term, it's Tencent that will move the needle. I'm optimistic about Fabricio's plans, having met him after his appointment. However, the macroeconomic challenges in China and geopolitical issues—particularly if Trump returns to power—could weigh on Tencent and NASPERS.
Alec Hogg (23:23.126):
Trump's re-election wouldn't be bullish for NASPERS. But when it comes to NASPERS' numbers, they are showing impressive growth. Profits before interest and tax are three times higher for the first half of this year than last year.
Steven Howitz (23:50.718):
It's easy to triple profits when you start from a low base. Last year's profits were under $30 million, and they're targeting around $100 million this year. We'll see even bigger growth in the second half. For the first time, the rest of NASPERS' portfolio is generating free cash flow, not just relying on Tencent dividends.
Alec Hogg (24:35.842):
One of those investments is Takealot in South Africa. Despite being loss-making and Amazon's entry, NASPERS continues to support it. Do you think Takealot can compete?
Steven Howitz (25:15.368):
Takealot is dominant in South Africa, and while Amazon's entry has been underwhelming so far, it's never wise to underestimate them. The real concern for Takealot isn't Amazon but platforms like Temu, which can compete aggressively on price.
Alec Hogg (25:30.168):
It's a bit like BRICS, where projections show its economy could surpass the G7 by 2030. But different observers have different focuses. Would you be buying NASPERS shares now?
Steven Howitz (26:15.874):
We like the long-term fundamentals of NASPERS and Process and continue to hold them. However, for someone looking to buy in, I'd recommend waiting for more clarity on the U.S. election. Trump's election could offer a better entry point.
Alec Hogg (27:26.85):
Lastly, MTN is a company that you've invested in before. What's your take on the ongoing legal battle with Turkcell and MTN's broader issues in Nigeria?
Steven Howitz (27:52.336):
We monitor MTN, and the legal battle with Turkcell could drag on for years. The biggest concern now is Nigeria, where currency devaluation has hit MTN hard, as it was a major profit driver. However, Dangote's new refinery could stabilize the Nigerian economy, but for now, MTN isn't a preferred stock for us.
A good fund manager buys things at a discount for a margin of safety. Most acquisitions aren't successful, so paying a premium for Anglo-American seems risky. Despite fluctuations, Anglo's shares are up 20% in pound terms this year. It might be a weak to moderate buy, with potential to beat the All Share Index over 3-5 years. Resources in general look cheap, and Anglo has a broad asset base and solid management. Billiton is cheaper but might overpay for assets, with most profits coming from iron ore, which is at a five-year low.
Alec Hogg (41:15):
We welcome Peter Major to the show. Iron ore prices are low due to China's excess steel production, and resources are out of favor globally. Investors are shifting to tech, but that might be overdone. The resource sector is undervalued, except for gold, and might present good value now. BRICS countries like China might take more interest in South African resources if the West continues to neglect them.
Peter Major (42:00):
Strategically, resources are important, but they're distributed globally, so no country holds a monopoly. China can still access resources despite sanctions. On BRICS, the world is shifting, and traditional scenario planning is outdated. Corporations shouldn't focus too much on future business models because the landscape is too dynamic.
Alec Hogg (45:54):
Sasol is cheap but faces challenges, both from local government and global environmental shifts. Its gas technology was once world-leading, but staying fully in South Africa is corporate suicide. Poor management and ESG challenges have hurt its performance. It needs to diversify internationally to survive.
Peter Major (47:00):
Sasol has great history but is struggling, much like Iscor did. The future doesn't look promising unless energy prices rise, which is unlikely given current supplies of coal, oil, and gas.
Alec Hogg (48:23):
We promised to discuss gold. South African gold mines, although diminished, are benefiting from high prices, helping remaining companies like Harmony Gold. However, Peter warns that the gold rally may be overdone.
Peter Major (49:00):
Gold has been good for South Africa, but mining policies here have been destructive. It's hard to reopen a mine, and easy to close one. The ANC's policies seem counterproductive to the sector. While gold has performed well, it's reflecting the global trend of money printing. With the U.S. election looming, further printing may support gold, but now is a good time to take profits.
Alec Hogg (53:04):
What would you diversify into if you're moving out of gold?
Peter Major (53:20):
I'd look at mining houses like Billiton and Anglo, as they have solid assets and management. Billiton needs more diversification, but they're good long-term investments. Gold and platinum may be overvalued, so I'd prefer investments in broader mining assets.
Alec Hogg (55:07.224)
The way the world looks now, yeah, I'd want most of my assets in the mining houses or in the oil field. Peter Major, Director of Mining at Modern Corporate Solutions and I'm Alec Hogg.
It's been a real pleasure having that masterclass from Peter on what's going on in resources, commodities and investing generally. Well, this has been your BizNews Briefing and we'll be back again same time, same place tomorrow. Until then, cheerio.
Read also: