Facing backlash is nothing new for the outspoken market analyst David Shapiro and again there is no holds barred when he questions the competence of management in a discussion with Alec Hogg in the latest Biznews Rational Radio webinar. Shapiro admits it’s been tough for SA Inc, but questions how much of an impact should really be ascribed to the Covid-19 lockdown on some share performances and how much of the blame actually falls on management. He stands in awe of the runaway performance of tech-driven companies like Zoom, Tesla, SA’s Prosus and Naspers and surprisingly the miners, which are not really reflective of what’s happening in the economy. – Stanley Karombo
Well, here we are with the Biznews Rational Radio lunchtime webinar on a Monday as always only, for the Biznews Premium subscribers or the Biznews Premium community. Dave Shapiro is with me, maybe we should start at the lockdown. Half the markets, if anything, reacted to it, now that we have some detail about what’s going to happen to the South African economy. We know how much damage, or we understand a lot of damage has been done in the eight weeks that we’ve had a lockdown. But with the improvement now, or opening up of the economy, have investors got more optimistic?
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Probably. I think we’ve got to wait for the evidence to come through. The JSE is made up of so many international stocks with huge influence. If you go through indices, very heavily leaning towards shares like Naspers, Prosus, British American Tobacco, also the mines – gold shares and other mining companies, platinum companies, which are not really reflective of what’s happening in the economy.
Once we go down below that, into the retailers and into the financial shares, you’ll find a different picture. You’ve got to look at the two different markets on that. And we’ve been hurt on financials. On the weekend, I was looking at Investec and I know that they unbundled into Ninety One but I’m not quite sure whether the charts that we look at actually reflect that. That’s a company where over the last five years, you would have lost in the region of about 15% per annum. If you look at Nedbank, you’re getting similar kinds of analysis coming through.
So if you go through SA Inc, it’s been a really difficult time. I know you’re going to talk about Tiger Brands a little later as well. There are a lot of questions that we have to ask: how much of this is the economy, how much of this is lockdown? When I say economy, how much of this is economics or the global economics? How much of it is lockdown, specifically to South Africa? And the third question, you’ve got to keep probing management, you know, how much could they have done? We’re going to see as we start to get the economy back, whether or not they are going to be able to turn things around and swing this market better.
Dave, I’ve got the Investec chart for South Africa, in other words Investec Ltd up on the screen now. And it really hasn’t done a heck of a lot for a long time. That, as you mentioned, there was the unbundling of what is now called Ninety One. But even so, if you were to double the Investec price, you are still looking at where it was five years ago? There has been a disappointing performer and yet a great company.
That is the point. Without being too critical, probably lost their identity. Things have changed so dramatically in the global economy you wonder where they are and how are they going to pull out of the situation. I always compare them with Liberty Life. Remember in the 60s and 70s at the height of Donald Gordon it was untouchable. No company could come close to Liberty. And yet things started to change in the economy. We opened up the economy from 1994 and they were never able to adapt. And in the same way, Investec has always been a bank that focused on the high end of the consumer, professionals. They were the professionals’ bank – if you were a dentist, a doctor, a lawyer, you would always go there. You would go to Investec, who would help finance your business. Somehow, they’ve lost that. Other banks have come into their territory. I still have an Investec card, and I can’t complain. I still think that the quality of service I get, no one can touch that or it’s very difficult. It could be circumstances, I’m not sure. Where I’m getting at, is that if I go to all the banks you’ve got similar kinds of trends: under a lot of pressure, multiples or P/E ratios are kind of unraveling, which that’s fine, which they should do in an economy that is battling to grow.
On the other hand, that’s why when we look at our markets, you have Prosus and Tencent going through the roof. They’re coming under a bit of pressure now because of the Hong Kong issues, which one can bring up a little later etc. Their performance has been staggering. It’s really, really being good, you know relative to other things and they’ve got a big sway on where the indices end up. And then you can’t ignore gold shares either, which just knocked the lights out.
I’ve got on the screen now the Naspers share price and also going back five years. So, if you could’ve taken a bet on Investec five years ago and Naspers five years ago – the one you’d basically still have your money, the other one you’d have trebled your investment. And that kind of tells everything, doesn’t it?
There’s a much broader message. You know, this is the digital economy that’s growing. All that lockdown has done, has hastened the emergence of this digital economy which was already happening. What you’re going to find and if you go to all markets, you can go to the US, you’re going to find similar kinds of trends. I actually tweeted a chart yesterday, but I took the heading from something that I’d read in The Financial Times which was the disruptors versus the disrupted. And the disruptors are all these tech companies that are benefiting significantly from where the global economy is pointing versus the disrupted, those companies that are under pressure because of the lockdown and also because of the way that tastes are changing globally. That is what you do when you’re stuck at home and there’s no soccer to watch.
It’s quite an incredible graph though. Then there’s Zoom. Did you buy Zoom?
No. I didn’t know it existed. I never knew Zoom existed until six weeks ago. How could I have? Tesla is unique. How can we explain that.
But in video there is a semiconductor maker that is so well placed not only for the gaming industry but for streaming and also well placed in the Cloud. As Cloud expands – IÂ picked up some numbers this weekend – which are quite incredible. We’ve tended to ignore Indonesia and areas like this, but the amount of e-commerce that’s growing demand for Cloud, we started to see very significant numbers. If you go down, you’ll see very similar type of companies until we get to the bottom, you know the reds.Â
And that’s exact opposites. Well, the Dow, which is a chemical company, JP Morgan Bank… Fargo, hasn’t that been a great disappointment for Warren Buffett? Has he started selling, Dave? Is he getting out of Wells Fargo?
Very little. I think he got out of some JP Morgan and he got out of his Goldman Sachs holding. I don’t think he got out of his Wells.
I’ve got the South African ones as well, which I used as winners and losers because I don’t know whether we’ve got the disruptors. These are the South African ones. These are in rands and I give a warning – look at those as well – it’s quite diverse, the kind of gainers versus the losers. But Prosus, R142 – I like to do it like this, put R100 in, today or since the 1st of January it’s worth R142. 81 and Naspers as well, some very significant gains.
Now you can see the difference in the markets where it’s these international stocks that have really held up. And I put gold shares into the rand hedge category, that you can see the different performance. Sadly down there, is City Lodge. It’s wonderful business. It’s just been hurt by the lockdown on travel. Sasol, we know the story. The banks there, look at Nedbank… 60% odd down since the 1st of January. And naturally the property companies as well.
David, it’s actually a lovely segway into Piet Viljoen. David was singing your praises earlier [Piet]. How did you describe it, David? There isn’t a better person to learn from about value investing than Piet Viljoen in South Africa. He says you’re a purist. Are you still a purist [Piet]? But if you worked for this company [Tiger Bands], David Shapiro it would be lovely for you to come in here, you knew Rudy Frankel didn’t you, David? He was the master of this ship for many years and did terribly well.
I still know the family very well. Tiger Brands was always – Piet says it’s a brand company – and they stood behind their brand. There was a lot of commodities, still to this day. What do they make? They make bread, maize meals and various other commodities like that. There’s a lot of trading behind that. Their success came from understanding the markets in which they traded. That was the old time Rudy Frankel, and the successors, they’ve gone completely off guard. But the question that I wanted to ask Piet – and we’re going to lead towards it and I don’t want to get away from Tiger Brands – is how do you warn investors about management? You know those managers who are more interested in actually acquisitions than actually standing behind the brand. You can pick up those traits all along the line. And I come under a lot of criticism because sometimes I’m a little forthright or outspoken and that, and communities come back at me. But I’m saying the evidence is there. In Tiger’s, Dangote, what did they write off – over 2 billion or more? Listeriosis, now we have more issues and yet management stays. No one ever gets rid of management.
