Director’s Cut: Piet Viljoen - Why Mr Price’s R10bn Germany gamble could blow up

Value investor Piet Viljoen breaks down Mr Price’s German gamble, Spar’s costly EU exit, Famous Brands’ offshore stumble, and why HCI’s buybacks make far more sense than chasing “expensive fairy tales” abroad. From Eskom’s industrial rescue talks to Transnet’s slow turnaround and the ANC’s political bluster, Viljoen gives Alec Hogg a brutally honest roadmap for where South Africans should – and shouldn’t – put their money.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.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..Watch here.Listen here.BizNews Reporter.Value investor Piet Viljoen is known for plain speaking and for calling things as he sees them. His view on Mr Price’s surprise decision to spend ten billion rand on a German retailer is no different. In fact, his take is blunt. The odds of this deal creating value for shareholders are, in his words, “very slim”. And that is before even looking at the price tag.Speaking to Alec Hogg on BizNews, Viljoen placed the move squarely inside a long and painful history of South African companies trying their luck abroad and coming home with a bloody nose. Spar’s five billion rand write off in Europe is only the latest example. Woolworths burnt its fingers in Australia. Famous Brands lost two billion rand in the United Kingdom. Truworths struggled offshore. Steinhoff collapsed under the weight of aggressive global expansion. The list is familiar, and long.Asked if he could think of a genuine success story, Viljoen paused before suggesting that maybe Pepkor’s Brazilian and Polish operations might qualify. Beyond that, almost nothing. “The hit rate is extremely low,” he said. “And retail is not something that crosses borders very easily.” piet-alecFor Viljoen, the deeper issue is not patriotism or a lack of ambition. It is simply the brutal reality that retail is shaped by local habits, regulation, culture and competition. What works in Durban or Johannesburg does not automatically translate to Stuttgart or Cologne. And when South African management teams take their finely tuned skill sets into unfamiliar territory, they lose the advantage they spent decades building at home.Mr Price’s problem, he says, is not only strategic. It is also financial. At first glance the acquisition looks very expensive. He is not convinced that the earnings base behind the valuation has been properly explained. When shareholders wiped eight billion rand off Mr Price’s market value within hours of the announcement, Viljoen said that was the market’s way of pricing the acquisition at exactly zero. Either the company walks away, he argued, or it must communicate far better than it has up to now.The broader theme of the conversation is capital allocation. And here Viljoen is unambiguous. South African investors do not need local companies to diversify for them. They should back South African management teams that focus on their home markets and then use their own offshore allowances to buy world class companies at fair valuations abroad. Lewis, for him, is the example. A simple business executed consistently has tripled its share price in five years while paying strong dividends and buying back meaningful amounts of stock. Meanwhile, Mr Price and Truworths have gone sideways for more than a decade.This is why he is enthusiastic about HCI’s aggressive share buybacks. The company is buying its own stock at less than half of its net asset value. The maths is simple. If HCI spends roughly 700 million rand buying its shares, Viljoen estimates it creates roughly double that amount in value for shareholders because each remaining share now owns a larger slice of the company’s underlying earnings. The logic is clear. Cheap shares plus disciplined capital allocators equals strong long term returns.By contrast, expensive offshore adventures create complexity and destroy value. That is why he praises HCI CEO Johnny Copelyn as one of the best capital allocators in the country. Over twenty years the company has compounded its book value at more than twenty percent a year. Buybacks at these levels simply amplify that track record.The discussion turned to South Africa’s broader economic environment. The IMF’s report was blunt about the country’s long standing structural problems, but Viljoen believes the fundamentals are improving beneath the noise. Bond yields have fallen sharply. The grey listing has been addressed. The cost of capital has declined. Growth prospects look marginally better. And for the first time in years, state owned entities are allowing private partnerships. The entry of a private operator into the Durban port is, for him, a meaningful sign that policy reality is shifting even if the political rhetoric has not.He also welcomed signs from Eskom as it negotiates directly with energy intensive industries like Glencore, Samancor and Merafe to protect jobs and reduce electricity costs. If this becomes a long term template, he believes it could be a turning point for South African heavy industry.As always, Viljoen is cautious but not pessimistic. South African companies have shown they can thrive despite political uncertainty, not because of it. The biggest risks to investors, he says, come not from Pretoria’s speeches but from poor capital allocation. Offshore expansions that look bold on paper often unravel in practice. Meanwhile, undervalued local opportunities quietly compound returns for patient investors.In the end, the message is simple. Back businesses that stick to what they know. Avoid expensive foreign adventures until the evidence proves otherwise. And never underestimate the value created when great management teams buy back their own shares at the right price.

Director’s Cut: Piet Viljoen - Why Mr Price’s R10bn Germany gamble could blow up

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