🔒 The Editor’s Desk: SA’s MultiChoice winners & exotic game losers

Sometimes a winner looks like a loser and a winning bet looks like a losing proposition. In SA, MultiChoice has been out of favour as viewers switch to streaming, while exotic game has been seen as a modern gold mine for the savvy millionaire. But looks can be deceiving. In this episode, Alec Hogg lays out the contrarian case for investing in MultiChoice and explains why the folks who bet big on buffalo and other big game are looking very wobbly today. The story of how multi-million-rand animals have depreciated into thousand-rand boondoggles is a sobering reminder of the dangers of irrational investment exuberance – a tale as old as tulip-mania. Alec Hogg and I also discuss this week’s State of the Nation Address with a focus on the good news about data. – Felicity Duncan

Hello and welcome to this week’s episode of The Editor’s Desk here on Biznews Radio with me Felicity Duncan, and with Biznews editor-in-chief Alec Hogg.

Now Alec, this week we had the State of the Nation Address. Cyril Ramaphosa standing up and telling us the plans for the next five years, the plans for the next ten years and there was a lot, obviously, contained in the speech. There was a lot about Eskom and infrastructure and all the rest of it. But one of the things that I found personally very interesting was the announcement that they were going to open up some of the spectrum to try and lower data costs. So, as you know, South African data providers have long complained that the way that the spectrum has been divided up and the lack of additional spectrum has been a major factor in South Africa’s really unconscionably high data costs. So, to me this is a very practical and positive thing the government can do quite easily –just auction off some more of the spectrum and hopefully lower data costs, which could have a knock on effect throughout the economy.

Yeah, and for people like us in particular of course we’ll be cheering it all the way. But just by way of a little bit of background. Stella Ndabeni-Abrahams, the Communications Minister, is a bit of a rising star in the ANC. I know she’s had some bad press, but she’s certainly one of the president’s favourites. At the South African dinner in Davos in January, she was the master of ceremonies. Now that’s an unusual position or rather it’s unusual to have someone as young and as inexperienced – relatively, because she’d only just been appointed to the cabinet – to be taken to Davos as a part of the government delegation, then be to be given such a high-profile position. But you can see that she’s earmarked for big things and not surprisingly, she’s a listener, she’s a learner, and very smart.

Anyway, there’s no doubt that the president has put somebody he can fully trust to do something which is critically important. And I think this is where you’ve just got to see the benefits of having a Ramaphosa in the presidency, rather than his predecessor who really didn’t have a clue when it came to the Fourth Industrial Revolution, whereas Cyril actually absorbs and understands exactly what it means and what is required to make it happen. And more than anything else we need to make sure that we have internet, we have broadband, and we have it as cheap as possible in South Africa.

Historically, the government has controlled broadband quite tightly or spectrum rather quite tightly – but a lot of people won’t really understand this until you, you start unpacking how the information flow used to be managed in the past. Whereas, if you recall, it was only perhaps 10 years before the end of the apartheid government that you got competition coming into the broadcasting market through M-Net and 702 which was then using a back-route channel through the Bophuthatswana homeland. And there was also a Capital Radio. But up until then, the spectrum was all owned by the SABC, the national broadcaster, the propaganda machine. And that is a very difficult thing for a government to take its hands off. They love to be able to push out the narrative. The apartheid government had complete dominance over the news that was going out – excepting the newspapers – but all other news. They never allowed anybody else in. And that spectrum, if you look at the SABC and look at their radio stations and the massive amount of the spectrum that is taken up there, for instance, and the reluctance to digitize that area – it all goes hand-in-hand with what we now seeing with the liberalisation of it.

So, with the spectrum being freed up and with the data being made more plentiful, you’re also going to get a massive change when it comes to the digitisation of media and communications. So, these are big, big steps. And unless you look at them holistically, you don’t really get how seismic the shifts are from where we’ve come from. It’s very good news indeed and that is going to happen in the next month. She’s going to be announcing – Stella Ndabeni-Abrahams is going to be announcing the auctions and the bids and, well, let’s see more competition and let’s see data fall

Data must fall indeed. You know, I often talk to my mom about her data problem, because she spends so much money every month and she still has a capped amount of data and a limited amount of data. So, I’m very excited to hear that she might be getting a better deal and that South Africans may be getting a better deal.

Now, and I’m going to change gears a little here, and talk about some – there was a lot of news out, stock market related news out, this week. We saw the news out of Steinhoff, there’s a 1.2 billion euro loss and there’s some concerns about whether it can continue as a going concern, which is obviously very scary for shareholders. We saw continuing developments in the story of Tongaat Hulett, and you had a very interesting chat with Allan Gray’s Duncan Artus touching on a lot of these themes. Especially talking a bit about Naspers, Tongaat, and interestingly enough, MultiChoice.

The success stories and the absolute dogs. Well, in both Steinhoff and Tongaat’s instances, they’re now owned by the banks. You can you can cut and dice and slice it anyway you want to. But if the banks were to pull the facilities, there would be no more Tongaat and Steinhoff. And, so, the banks are now trying to really negotiate their way out of both of those businesses and lose as little as possible. When it comes to Naspers, which is one of the Allan Gray team’s favourites – has been for a while – and its recent spin off MultiChoice, I was fascinated to hear from Duncan, who’s a director at Allan Gray , that they have been jumping into MultiChoice boots and all, after it was unbundled from Naspers. And he explained it this way. He said that most of the investors in Naspers are not investing for the underlying assets and the cash generators like MultiChoice. They were investing for Tencent and it’s not surprising, because if you take Naspers’ shareholding in Tencent – it’s 31% – is worth 140% of the current Naspers share price. What that means is that if you want to buy Tencent, you can buy it through Naspers and get it at a massive discount, effectively. So, international investors have done it that way. South African investors, on the other hand, do know MultiChoice.

So what happened in the case with Naspers, when it unbundled MultiChoice, you’ve got all these international investors who were suddenly left with a pay-TV investment and they sold it for whatever. You know, dump it on the market, it means nothing compared with their Naspers shareholding. And that’s where Allan Gray picked up a lot of shares. Duncan says they are now the second biggest shareholder and they bought them around R90 to R100 a share as the international guys were dumping. And the stock price is now R130 a share. So, good luck to them.

I asked him whether he would be, if he hadn’t bought in earlier, if they would be buying. He said, well, he still sees value otherwise they would obviously sell the shares. But, he said, it’s getting to the point at MultiChoice where the debate is a real one. Where you have to consider if Netflix and other competitors are going to be eating part of MultiChoice’s lunch or not, or whether MultiChoice can continue to expand in parts of Africa, where now it has more subscribers than in South Africa.

So, it’s just a lovely example of opportunities that do exist when you are better informed than those who either are ignorant or don’t care so much. And in that case, Allan Gray did its homework, was well informed on MultiChoice, and has made a 30% return in double quick time.

Ja, very interesting and certainly, as you say, MultiChoice is an unusual pick and a very good and rational case for choosing it. It just really makes you think about looking at the stock market with fresh eyes.

Now, something that looked like a good pick a while ago, but has turned out to be almost as much of a dog, or as much of a dog I guess, as Tongaat is exotic game. This is a market where, you know, the wealthy will come and maybe hunt your exotic game and maybe there’s a lot of money in that. But this market has completely collapsed. Do you want to tell us a bit about that?

Well, one of the best interviews we’ve had in a while was with Bernard Swanepoel on the subject on Rational Radio on Thursday night. And the reason for this – I’ve known Bernard, we’re pals and we’ve been friends for a long time. And their family has a place up in Limpopo where his brother has been breeding exotic game. And Bernard has been calling the top of this market, of this bubble, for literally years and years now, he’s been saying it is impossible, you cannot justify paying R20, R40, R60 million rand for a buffalo, because the value of their buffalo is only in A) meat – which obviously is not a whole lot – or B) what someone is prepared to pay to shoot it. And that’s the reality of it, is that this exotic game is being bred, not for eating, but for hunters and the hunters also have a limit to what they prepared to pay. He explained that, for a buffalo with extremely large horns, a hunter was prepared to pay, this year, a million rands to go and hunt it. But in general terms, it’s more like R20,000 to hunt a buffalo. And people were paying these huge prices for them on the greater fool theory. And don’t we just know that, in investment markets, it started off with the tulip mania in Holland three or four hundred years ago. And it continues, every now and then, you have a greater fool theory and this is what happened in South Africa with exotic game.

So, you’d find, for instance, an impala that was born black, rather than its normal colour, would, in some people’s minds, be worth a multiple of what a normal impala is, because to shoot an impala, you’re essentially paying what you pay for the meat, which is probably 30 kg – R1,000. That’s what it would cost, usually, to shoot an impala.

However, in this case, because it was a black impala, somebody would be valuing it at R100,000, because they feel that some hunter somewhere will come and shoot this exotic black impala. It’s all just insanity and it was shown to be that with a market where they used to have these auctions… Actually, I saw Magnus Heystek earlier in the week – he said one of his ex-clients was in this game of auctioning off exotic game and Magnus and his wife went along to one of these auctions. He said you cannot believe what it was like. When he drove towards the place where the auction was being held – there was a small airfield, he said there must have been 40 aeroplanes that had flown in for the auction. And then, as he got a little bit further, there were hundreds of cars – exotic or top–end 4x4s and so on – that were in the parking lot. And when he got in there, it was like a circus atmosphere with Absa and Nedbank having their tents. And what would happen, is that these guys would go in and bid on the exotic game and when they saw they didn’t have enough, they’d run back to the Absa or the Nedbank tent to get additional finance.

So, these people would be spending millions and millions of rands, which they probably didn’t have funding – well, obviously they didn’t have, because they got the funding from the banks – and what was worth R1 million is now worth R5,000. It’s a 95% collapse, pretty much across the board, in exotic game.

Some people are saying that, or Bernard Swanepoel relates that some are saying, yes, but you know at the top the R20 to R30 million buffaloes are owned by very wealthy people and so they don’t really mind if the value is not R20 million anymore. Yes, but the truth is buffaloes die. It’s not like buying a piece of art that’s there for the rest of your life. A buffalo has got a very limited time span, as has every other animal, so it’s only really worth what somebody is prepared to pay for it. And now, the only people who are prepared to pay for it, after the collapse in the market, are hunters and that’s a very different market to the one that the greater fool theory has as reflected. So I guess, once again, it’s just a reflection that human beings get carried away, Mr. Market gets completely excessive and eventually everything does come down to earth. But a lot of people being hurt in the process sadly .