South Africa’s favourite market commentator David Shapiro takes a closer look at the impact of the electric car revolution and lets us in on what he is thinking about investable opportunities right now – and why he is soon going to sneak away to read the full Naspers annual report. – Alec Hogg
David Shapiro is with us on the line now – talking about markets, investments and so on. I want to kick off with a rather different note. I got an email today from Wood Mackenzie. They’ve done an analysis on how electric cars are going to impact the demand for metals – cobalt, lithium and nickel. According to their perspective are going to hit supply crunches in the mid 2020’s. It reminds me of an annual general meeting a few years ago with Glencore when your old friend Ivan Glasenberg said that this was how they were repositioning themselves for electric cars and of course the share price of Glencore rose very sharply thereafter. Are we understanding the story well enough yet.
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I don’t think so. With great respect to Ivan, he’s got a far better foresight than I have and obviously he has to position himself well ahead of demand, but I think that this is a reality. It’s going to happen. The reason it’s going to happen is that people want it to happen. They want electric cars, they want cars that are no longer going to mess up the atmosphere, or create global warming. It’s for this reason that Tesla is so popular. We know what’s happening in big cities but we’ve not established who the winners are going to be. My gut feel is that there’s going to be money made – maybe on cobalt, maybe on lithium but also in the motor manufacturers themselves. There is huge competition there, whether Tesla is going to be a winner or not, I don’t know. My bet would be on someone like BMW or someone else. Buffet’s got “Build your dream” BYD. A very big player in those markets, but the point being – whether we invest in it now is not the point, you’ve got to keep an eye on the developments and start making your plans. You don’t necessarily have to invest now you don’t have to be a pioneer, but you can’t ignore electric cars as a strategy.
That’s one that we can go and do a little more homework on. I also had a fascinating chat yesterday on our personal finance live show with Dan Brocklebank from Orbis and he says his favourite stock is a company called NetEase – which I must admit I never even heard of. A Chinese tech company. So again we’ve got something else to go and look at.
The best idea that I picked up over the weekend and it’s absolutely fascinated to me, is Formula E – and I might have got the story wrong so I’m advising everybody to read the article in Barrons on 5G. But what’s fascinating is that we might be moving toward live games. In other words, instead of playing it on a TV screen, you can actually power a driver of a Formula E car if you like him. You can actually do that over the Internet over 5G. You’ve got to read the article that was in Barrons. It might work in sporting events, but certainly in the e-car side of it. You starting to see different forms of sports evolving – all of those which involve a quick transmission of data which you get in 5G and of course the Internet.
I think it all started in South Africa didn’t it with a guy called Piet Van Zyl who ran onto the field in Bloemfontein and tackled the ref.
You’ve got to look at these things, I love them. I love Beyond Meat, which is a vegan plant based Burger. All these different kinds of themes that evolve. Don’t invest in them yet, but don’t lose touch with what is happening.
We spoke to Fasie Malherbe a little earlier. He’s a South African entrepreneur who’s made gazillions in a company that they they started with R22,000 in 2006 and sold it – they didn’t disclose, but at a handsome multiple of $24m, and one of his big issues, and the next big thing, is vegan food or veggie food.
There’s a question here from Mike Wolhuter in Pietermaritzburg and he says, do fuel cell cars also use cobalt?
I would imagine. I’m an accountant – not a metallurgist but I thought fuel cells were platinum. It was a big story a few years ago where platinum would be used but we haven’t heard much around that. It still seems that cobalt and lithium are the two winners.
I wouldn’t write platinum of there. I remember talking with Chris Griffith from Anglo Platinum about 18 months ago where he said that the fuel cells are really working and then I kept my eye open. Toyota are big in it and I think Hyundai have made that bet rather than the electric car bet. It’s all interesting but Dave outside of electric cars and how the miners of cobalt, nickel and lithium are going to make lots of money, what else is attracting your attention in the market?
There’s a story that I can’t get a grip on. And if you look at our market today it’s slightly weaker and it’s been worrying me a bit. Iron ore producers coming under a bit of pressure, Vale the Brazilian producer back in production now, after the tragedy of earlier this year the slime dam bursting. So they back which means that more supply could come onto the market. The mystery is and this is the difficulty. Does this mean the end of the kind of run that we’ve had in the iron ore price, remember at the beginning of year the iron ore was at $70, its ran up to about $120. And I think the answer lies in Chinese steel production. But I’m watching that very, very carefully because if more production does come on you, could find iron ore prices falling below $100, 90, 80, which will have a big negative impact on company’s like Assore, and of course BHP Billiton and Anglo. So that’s a story I think that one has to watch carefully. You get different opinion, mixed opinion so it’s very difficult to draw conclusions. There bulls and bears on both of them. But that’s one which is behind the weakness that we’re seeing in our market today. And it’s typical of commodity markets always difficult to read the short term movements in commodity prices.
I know you like to read annual reports, Naspers’s came out on Friday. Have you had a chance to go through that.
No I haven’t. And to be honest Alec, I have to get a better grip on it. You know I’ve been one of those people who’ve just said oh it’s Tencent and I love Tencent and that. But things are changing in the business and I think now in order to play it, mean invest in it in the future. I think we have to get a better understanding of the businesses that they are developing down the line. So, when it comes and it’ll probably come with the old postman, they’ll drop it in our postbox and I’ll have a look at it. I always like going through that in actual form. I don’t like reading it on the Internet. It’s one thing that’s better to read the actual report, than on the Internet.
I’m not going to take you on, on that one. It is a personal choice but just to close off, I had a look at the Naspers group of companies, you’ve got e-commerce, e-commerce, e-commerce and there’s a media business in South Africa that was down 36% in revenues last year, losing money. It sticks out like a sore thumb. At some point in time. Do you think they might sell it.
Well they should. From my point of view that’s why they’re listing. I think there’s a lot of reason why they’re going to Amsterdam, it’s going to be the source of growth and eventually you’re going to have what’s left in South Africa, not really contributing and just taking up management time. And I wouldn’t be surprised, there are some nice businesses but they don’t make money. I always think of them in the old form of Huisgenoot, Die Burger, forget about Fin24 and so. But I’m with you on that one. I see no point. I know they’ve appointed a new CEO to run it but it’s a very difficult business to run. So somewhere down the line that will just be unbundled.
The good news about Naspers is that it is investing heavily in its foundry here in South Africa. So hopefully it’s not the end of the road, if they do sell off those those old media titles. David Shapiro, as always bringing us up to date on market insights.
