David Shapiro: Mourning Clegg, JSE’s fallen angels and finding value

South Africa's favourite market commentator David Shapiro broke away a little from his usual contribution to reminisce about an interview he conducted with the late musical icon Johnny Clegg who passed away yesterday. In this episode of Rational Radio, Shapiro also shares his thoughts about Impala and Aspen, two of the JSE's fallen angels, and points us towards JSE stocks he believes offer value for investors. – Alec Hogg.Hi David. I hope all is going well in the Shapiro household, all mourning Johnny Clegg today, the whole of South Africa..___STEADY_PAYWALL___.It's very sad. I really am. I had the pleasure of interviewing him a few years ago and I think it was just when he had been diagnosed. He wasn't feeling well. You could see it in his body. He wasn't his normal self. He was very soulful and it was a wonderful interview. What I loved about him was as a kid, he learned to play the guitar and he warmed to South African music. The story that I remember most, was the one where the cleaners in the building where he was staying, taught him how to play the steel guitar – the African guitar which is a very tinny thing and he loved the finger work. He loved the sound. He used to get this chap to come and teach him – even take him off duty. He'd teach young Johnny how to play and how to strum the chords and whatever else a musician does. I love the stories of how he developed his style and how he developed and grew into who he was. What a genuine gentleman and such a sweet humble man. Always a pleasure to be with. He used to walk around shopping centres without any airs and graces. Lovely man. So sad to see him go..Indeed I think we've all got our Johnny Clegg stories. One of our business partners – Barry Van Zyl, was Johnny's drummer for 20 years and tells wonderful stories about Johnny. The very last concert that they had was in Hammersmith in London. He always had enormously full houses internationally. Johnny Clegg was a huge brand outside the country..He was hugely popular in Europe, particularly in France. They loved him – he was an international figure. He was particularly proud of his son and the music that he was producing, so it ran in the family. An international person. Sad from South Africa's point of view..Markets today, down a little. I see the all share index down about three quarters of a percent. David, is it just soggyness or can you give us a reason for this?.We take our guidance from overseas. Trump playing his normal self with more threats against China if they don't come to the party. It just rattled markets, as well as some of the results that we're getting from the banks. I'm talking the US banks. In an environment of zero interest rates or no margin for them, you wouldn't expect anything to happen. In our market, I'm trying to gather why we were under pressure. There were a couple of stories that have taken us down – of course, more losers than winners today, but a couple of stories that weighed down on the markets. One that is particularly interesting is Impala . I don't know the full story but they've got quite a lot of debt and there's a complicated announcement. They want to retire that debt or convert that debt. It was due to be converted into equity, in other words you could convert your debt into shares down the line in 2022 and they want to bring it forward to take debt off their balance sheet and create more shares, but they cannot create a lot more shares. Impala's down about five or six percent and thats had a little bit of an impact on sentiment. Amplats as well. The platinum prices are holding up and the Rands weakened a bit, so it's unusual to see the weakness that we are seeing in platinum shares. The other miners are holding up and a little bit of pressure on banks and also on the retailers. That's because retail sales are still pointing towards trouble or pressure in the economy. And I suppose also doubts ahead of an interest rate decision tomorrow. I think there's also a little bit of uncertainty there. I wish I knew what was happening..That interest rate decision tomorrow, likely to be a cut?.The markets are saying they should. I think inflation is not runaway here. We're not seeing inflationary pressure in retail sales. Inflation in that area is way below the broader rate of 4.5% so I don't think that's an issue. The rand has also improved quite significantly and so there's no pressure coming from weakness in the rand. There is margin to reduce rates. I don't believe in a 25 points cut, if they're going to do it, make it half a percent so it has an immediate impact on consumers, so they can go out and spend more and give the market a kick. What worries me is if they take on more debt to go out and spend. If it means that they reduce interest rates that's fine, but if they go out and borrow, then it's a worry..We've seen Aspen – the onetime darling of the JSE, falling by nearly 4% again today. It's now below R100 a share. It is a stock that has been on the slide for quite some time now. What are you seeing there? If you go back to as recently as this time last year, the shares were one and a half times higher than they are today. Is this bargain basement time?.I don't know. First of all they've got heavy debt and you've got to see whether they're making an impact with the new deals that they entered into, which is supposed to be their saviour. It's supposed to give them the growth. Those are still dragging them down. That's in the thrombosis and in the anaesthetic area. I think those are two very large deals that are taking a little longer to bed down. The longer they take, the more the debt starts to bite. We haven't seen or heard of any major change yet, so we've got to wait for the results to see whether progress is being made. Remember they sold the infant business, which was sold in order to alleviate debt. I'm a bit worried that the share price hasn't responded more aggressively, which tends to show that word around the market is rather negative, is rather cautious. We have to play this results by results. Would I buy at the moment? Probably not..What would you be buying right now? I see Telkom had another good day – up one and a half percent..It's not easy to find stocks in an environment where growth is under a lot of pressure. Every time I look at the market with a view to buying, I tend to hold back. Can I say one thing? From my point of view, we've probably seen the worst in the market. That doesn't mean it's going to turn around fast or speedily. If you've got patience you might want to start entering the market, but there's no suggestion from any of the business leaders and managers, that things are turning around. We've got a lot of solid businesses. I'm not going to discount that, there's some very solid managers in this country. The miners seem to do alright – although those are not South African. BHP Billiton came out with some very good numbers. The other thing you're going to see are some very good numbers from the iron ore producers. This would include Anglo who owns Kumba. We're seeing prices there which are five year highs. But in the banks and in the retailers and the other consumer companies, the best you can expect is moderate growth. In other words very low single digit growth. Against that, some of the prices are quite expensive and that's the kind of market we're in. Got to be very cautious and careful. And watch. Watch for opportunities..Be cautious, careful and do your homework as I suppose you should be doing, on BHP Billiton to close off with, as you said the results were out today. The shares didn't move much. They were a little bit higher, half a percent better. Why do you think that was Dave?.I think the outlook is positive. I think this was a production update for the fourth quarter, so this is full year. We haven't seen the financial numbers but with the iron ore price well above $100 and iron ore production in line with guidance – in other words they met the production numbers, you're going to get some very strong numbers out of BHP and I think that's just given the share a little bit of a little bit of an underpin..David Shapiro is the deputy chairman of SASFIN securities and as always, is here to give us his insights into what's going on on the markets.

David Shapiro: Mourning Clegg, JSE’s fallen angels and finding value

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