πŸ”’ David Shapiro: Ninety One’s awful timing – asset management horse has bolted

In the latest episode of Rational Radio, SA’s favourite market commentator David Shapiro wonders whether the horse has bolted from the Investec Asset Management stable – questioning the poor timing of the renamed Ninety One’s split from its mother ship. He is also unconvinced that SA’s listed property stocks offer value, urging caution to bargain hunters, and explains why JSE-listed Ecsponent, whose share price has collapsed 80% in the past year, may well get away with reneging on R188m in preference share debt. – Alec Hogg

David Shapiro joins us as always to kick off Rational Radio today. There’s a whole lot of interesting stuff we’re going to be talking about. Ecsponent – we’ll touch on it in a moment – but the big news today for South African investors is that the split between Investec Asset Management Division called “Ninety One“, is going ahead. I suppose timing wise, they certainly could have come to the market a lot earlier. If you look at their competitor Coronation Fund Managers, it’s down by more than a half since 2015, so it isn’t exactly well-timed.

If you go back four or five years, Investec’s share price hasn’t really delivered. I think that they kind of lost their way once Stephen Koseff, Bernard Kantor as well as the whole old team left. The new wave of management exerting their own personalities, Hendrik du Toit – who’s now going to run Ninety-One – has for a long time wanted to go alone and it is believed that he’s been the force behind whatever profits that have been earned at Investec. If you looked at the pay cheque he was the person who got the biggest pay. Not that either Bernard nor Stephen are starving, they both earned a lot of money.

Stephen Koseff and Bernard Kantor are old friends of ours but I guess they did build an incredible business.

Yeah, don’t take anything away from them. The (19)90s and the early 2000s was their prime. After that banking changed, South Africa changed and it became a much more difficult environment in which to operate. Once they break up into two smaller companies – and this is my worry – they haven’t got the critical mass that you really need to take on some of the big names in banking. A lot of direction has changed in there as well, fintech is becoming a new buzzword, you no longer need to look across the desk to meet the chap who’s actually managing your financial affairs, everything is done by internet, it’s done on a smartphone. Things have changed rapidly.

When you look at Ninety One, the company that Hendrik du Toit is going to be running, if they’d listed five years ago, they would have got at least double the rate that they’re going to get today. Is it too late? Has that world changed so radically – with the move towards passive funds – that they might not be as successful into the future as one might hope?

I would say yes and I don’t mean it against its management, I just think that things have changed and this is probably a move that they should have done a long time ago. Markets have moved dramatically – or the way that people approach markets – over the last five years. There’s a lot more competition and the reason for this is largely attributable to fintech. You don’t need brick and mortar buildings, in other words people sitting across a desk to attract investment. We’ve seen that in so many parts of business. Every industry has been disrupted, including our industry. It doesn’t take anything away from Hendrik and his team or Investec, it’s just that the landscape has changed.

Moving on to the State of the Nation address – which I guess quite a few people were impressed by, others not so much – something that did come out was cannabis and the way that the government is embracing the cannabis story and who should come out with an announcement immediately afterwards? Brian van Rooyen, the former president of the South African Rugby Football Union, the man behind Labat, a stock that has underperformed for many years and he says, hang on a minute, this is where I’m positioning myself for the future. Is it worth a punt?

Probably, it’s going to be a growth area within South Africa. We’ve been growing cannabis – certainly in areas like Durban and other places in the country – for many years and I believe the quality here is pretty good. It is a big story and one’s got to focus – not only on the leisure side – on the medical side, which seems to be the area that everybody’s exploiting or exploring. If Brian’s gonna be there, good luck to him. It’s a big theme, don’t underestimate it. I like to look at themes – together with plant food – there are so many themes that are emerging and cannabis is certainly at the forefront.

The property sector. Talking to various people about this, the last I heard – and it’s just anecdotal – was that the vacancy rates are now going into double figures on some of these properties. I pulled out some of the share prices and Redefine has halved in the last year-on-year, GrowthPoint – the blue chip – is down from R30 to R20 over that period. In the old days you put your money into property, never worried about it, you would be getting your dividends and capital growth, but are these REITs – real estate investment trusts – still a place to be considering?

Yeah, I’ve always admired management. I think we’ve had very good management but you can’t ignore the economy and things are getting worse in the economy and getting worse for the property sector. By worse I mean the retail sector consumers are under pressure, businesses are under pressure, therefore – comes the renegotiation of a lease – you’re certainly going to negotiate for lower rental. So I think that trend is going to point downwards. I’m very careful of the sector – having done very well for clients and still returning good yields – but I think things are going to be a bit tighter. If you look at Resilient numbers on Friday, they’re acceptable for where they come from and that applies to GrowthPoint, Hyprop and all the bigger ones. These are the ones that seem to be surviving. Those who have invested offshore, gone into Eastern Europe or gone into Spain, don’t have to rush. If you’re getting 8% or 9% or you’re able to get some very good yields in bonds or even in cash, I’d just wait to see how this all pans out before rushing in. I’m with you in just being cautious.

I asked you when we kicked off – Ecsponent. We are going to be talking to Magnus Heystek who’s been warning about this company for some time, and later in the program today, Dave van Niekerk who’s been involved and he tells – not directly – they put out a sales announcement last week to say that they’re not gonna be paying, they’re defaulting on that.

You can default on a preference dividend but what it means is that you haven’t got money. You’re not technically bankrupt, but what happens is, as time goes you have to pay a rare preference dividend before you ever pay an equity dividend.

The first sign of trouble. That was David Shapiro. we’ll be catching up with him again.