Meintjies: Update shows Cutifani is getting Anglo back on track

Because of the structure of the business, Stephen Meintjies, head of research at Imara SP Reid, focuses on stocks loved by private investors. Despite its patchy recent record, Anglo American remains a favourite among South Africa's small shareholders. In our interview on CNBC Africa Power Lunch today Meintjies unpacked the trading update from the mining group and praised the way in which CEO Mark Cutifani is fulfilling lofty expectations. Apart from offering insights into Standard Bank, Rebosis and MTN, the market veteran also shared three stocks he has been recommending to clients – that part comes at the very end of the interview. – AH   

ALEC HOGG: Welcome back to Power Lunch. Well, let's get a more in-depth view of how the market's trading today. We're joined by Stephen Meintjes from Imara SP Reid. It's an interesting story, that Rebosis. It would have been nice to get involved earlier on, but I see in the last year, shares haven't performed that well – down about 14 percent – but who knows about the future.

STEPHEN MEINTJES: Well, it look as though it's recovering quite nicely. These results are going to enable the share to reverse the somewhat bearish trend it's been in lately. There's quite a lot of overhead resistance etcetera, but the story you've just heard is a very compelling one and what he didn't say is he has a fine array of very strong shareholders.

ALEC HOGG: Do you know Hemingway's – the East London mall?

STEPHEN MEINTJES: I haven't been to East London for a long time.

ALEC HOGG: When you drive past there, it's totally dominant. I was suggesting to him that it's as Johannesburg might have been when Sandton City was the only major shopping centre. It's a massive catchment area. They've been very clever in the way they've operated.

STEPHEN MEINTJES: I shouldn't think that there'd be any opposition for a while, given the size of East London.

ALEC HOGG: Indeed. Given that you talk a lot to the private investors, would you be putting income-seeking investors into a stock like Rebosis, given that they're generating nine percent yield?

STEPHEN MEINTJES: Absolutely. I think there's a good case for that and there is a growth case as well. The consolidation…the geographical spread is good. He's not going to be hit by the supply we see starting up all around us here in the middle of Sandton, so it's a good case. I think that the management, in three years has proven itself to be cool-headed and following a good strategy.

ALEC HOGG: All right, let's look at a company that has been expanding rapidly and now seems to be contracting…well, not contracting, but certainly off the high growth path, and that's MTN. The quarterly results are out today.

STEPHEN MEINTJES: Yes, well that's really a tale of South Africa and 21 other countries. They still have quite a way to go before they reach saturation, so that growth story is still intact. What you're really talking about is the South African situation…very competitive…and I think what is intriguing though, is the latest move to cut costs to 79 cents per minute. They're the cheapest in the market. They've lost quite a number of subscribers and obviously, they seek to pick them up. That's quite an aggressive move and I think they're looking at pulling them back in. The question is, isn't this going to knock their ARPU down quite a bit? Well yes, but we're a nation of talkers and when talk becomes cheaper, we talk more. I think their strategy is to encourage people to talk more at this very attractive rate.

ALEC HOGG: But isn't it interesting? I have a 083 number, but I'm with Cell C, because when they slashed the prices for everybody (compared with MTN and Vodacom), MTN just couldn't compete with what Cell C was offering.

STEPHEN MEINTJES: Yes.

ALEC HOGG: But with MTN now coming into that same market, it would be interesting to see how many of the Cell C, who were MTN people, go back again. I guess that part of the MTN story also has to be the way the data revenues are growing. Price-conscious people might have moved away and MTN's saying 'hang on. If we bring them back, perhaps they can help us to increase our data revenues even further'.

STEPHEN MEINTJES: Well, the price-conscious ones are really the prepaids and they don't have…

ALEC HOGG: And me…I'm on contract. Aren't you price-conscious?

STEPHEN MEINTJES: Yes, but I was saying that the more mobile ones are the prepaids and they will be attracted back by this rate, but that might not necessarily be into data just yet.

ALEC HOGG: It is interesting to see how data's going. It's a fascinating strategy that they've now…firstly, almost ignoring Cell C and now saying 'no, we're going to take them head-on'.

STEPHEN MEINTJES: Yes.

ALEC HOGG: Anglo American, the old grandfather of South African shares, if you like, came out with some information today. Did you have a chance to look?

STEPHEN MEINTJES: Yes, it may be a grandfather – and for the first time, they have a miner in charge – although the numbers might have been expected, he's at least done what he said would do. The production on the ground is going up and it's not easy. Those couple of mines have been problematical, so that was a good one. The coal looks good. Obviously, platinum as you said earlier is a problem. Well, we're waiting to see what happens there. Overall, the numbers were pretty good. He's doing the things on the ground that he said he would do.

ALEC HOGG: When Cutifani – you're talking about Mark Cutifani, the Chief Executive there.

STEPHEN MEINTJES: Yes.

ALEC HOGG: When he came in, there was a lot of hope. There was a lot of thought that he's going to turn things around.

STEPHEN MEINTJES: Yes.

ALEC HOGG: The jury is still out on that now. Those who were bullish before are perhaps not quite as enthusiastic. Where do you stand on it? Do you think he's going to make it happen?

STEPHEN MEINTJES: Yes, I think so, and I think these results support that case. What he said is beginning to happen.

ALEC HOGG: Standard Bank reported quarterly results today – most unusual – but that is because they have associates in ICBC, which has to report quarterly. Did anything in there surprise you?

STEPHEN MEINTJES: Nothing. They actually – the analysts – they can't figure anything out from this lot. If you actually look at the apparent increase in earnings, it's just slightly less than the average quarterly earnings for the last year, but that's not really telling us anything. There was a big amount for what appeared to be currencies, due to some of the African operations having to make adjustments for that, but that's a balance sheet item so that shouldn't really affect headline earnings, so there's really nothing much that one can read into it.

ALEC HOGG: But Standard Bank generally…it used to be the prime bank and it seems to have been usurped by First Rand.

STEPHEN MEINTJES: Well yes, they certainly seem to have had the innovation thing, but now Standard Bank has the African footprint and it's jettisoning in London, so it's freeing up a lot of capital now. I think this is the big story with Standard Bank. The African footprint is – what – 24/25 percent of earnings, so it's a big story. The others…Barclay's Africa – maybe 16 percent. The others are way behind, so this is the story. Having said that, I think all the banks have had quite a nice run over the last few weeks and I think they're due for a bit of a pause.

ALEC HOGG: It is also interesting with new management there, new Chief Executives (two of them), unleashing energy in the same way as you would recall when Nedbank made the run at Standard Bank. Would it have been 15 years ago? At that time, a new Chief Executive came in, in Jacko Maree who reenergised the troops. Do you think it's possible the same thing will happen with Ben Kruger and Sim Tshabalala?

STEPHEN MEINTJES: Well yes, they do seem to be operating very well together. They're longstanding colleagues. They both agreed to the dual appointments, so I think that side of it is true. They are spending a massive amount on IT, which presumably will help them play a little bit of catch-up on innovations with regard to some of the competitors. I think it's quite a good story.

ALEC HOGG: And one that you'd be, if you weren't an investor…well, you said you wouldn't be rushing out to buy the shares now, given the rise recently, but you'd be holding.

STEPHEN MEINTJES: I certainly think one can hold – yes.

ALEC HOGG: Looking generally at the market, you guys also don't necessarily have to stick with the top 40. Are there any stocks outside the top 40? I bring up a stock like Trans Hex that RECM is so excited about. I'm thinking of those that, in your group, you'd like to get more of your teeth into.

STEPHEN MEINTJES: Well okay, Trans Hex does look ridiculously cheap. The question is…is it ever going to extricate cash from Angola? Having said that yes, the operations in South Africa do have some potential. I think some of the smaller mining stocks in the coal sector…there's potential there, given Eskom's massive needs, companies like Keaton and Wescoal are looking quite interesting…maybe even Petmen.

ALEC HOGG: Well, there's three to go and do a little bit of homework on. Thanks, Steve Meintjes. He's from Imara SP Reid, where he is the Head of Research.