Opportunity knocking for South Africa: Our bright future and the stocks that may benefit
Change is in the wind and Alec Hogg, South Africa's best known financial journalist, believes that the future looks bright for South Africa. In this speech, he explains why he believes that the country is at a turning point, and digs deep into how companies and investors can benefit. He looks at a number of individual SA stocks to unpack how businesses can thrive in the South African market, and looks ahead to how the upswing will boost their growth. Now based in London, the founder of Biznews brings a global perspective to the story of a South Africa poised for a turnaround, a country now rated by international investors as the most exciting destination on earth. Alec Hogg's presentation to the Standard Bank Roadshow at the Commodore Hotel in Cape Town, South Africa, February 2018. Extraordinary times that we're living in. To understand the future, we need to get a little bit of a context on the past, and I hope if you get that into head you'll know that this Fourth Industrial Revolution (4IR) really has changed everything so, that's the context. From a South African perspective, in March last year, Pravin Gordhan was fired in a cabinet reshuffle. I think it was a dozen in the last 10-years, and what he did before the cabinet reshuffle, you will recall that he was trying to make sure that the country did not lose its investment-grade rating. Unfortunately, that was impossible given the odds that he was against, but his message continuously was this - is resilient, and this country is resilient and my word, if you think of what we've been through - colonialism, apartheid, chaos in various areas that come from deep areas from a long time ago, missing each other, and not understanding each other - we've had to have that resilience to continue going. He also said, when he left, that we needed to join the dots? Do you remember that? Join the dots. Have those dots been joined? Today, we're seeing what was unprecedented, it would not have been thought about as possible a year ago. In fact, not even prior to November, but that's the resilience and that's the turn-around that this country is enjoying. Unfortunately, it's come after some very difficult times. That red graph there is SA's gross domestic product, SA's economy in USD, and as you can see, from just after when Jacob Zuma took over it's been going backwards, one way. Wrong decisions, wrong choices, wrong advisors, who knows, but this is the graph that I find the most concerning for South Africa, but again, we needed to get to rock-bottom to turnaround. This is debt to GDP, i.e., if you as a household, and you want to stimulate your economy activity you borrow money and you invest it wisely into something that is going to grow your own, personal cake. What South Africa was doing since 2009, was borrowing and the economy was also going down. So, what happened to the money? Well, we're discovering it slowly but surely, but when the former Head of Police gets arraigned in court on criminal charges of corruption, it happened again today - there are all kinds of things going on. We know that this is all coming out of the woodwork now but that's what happened there. We went from a debt to GDP ratio when Zuma came in, in 2009, which was almost worse than a 45-degree increase. So, the battle ahead is a difficult one. So, I arrive in Davos and one of the things I go to every year is the Edelman's Trust Survey. Those of you who are followers of BizNews will notice that we are going to be very aggressively moving into podcasts, for BizNews Premium that is so, from March, we'll be doing some very interesting work on podcasts and one of the podcasts that we'll be joining on is a guy called Tom Keene, at Bloomberg - one of the biggest podcasts in the world. Tom Keene of Bloomberg, who does the Bloomberg Surveillance podcast says, this is the most important graph for him. This is the most important research for him. He shapes his whole year on what comes out of the Edelman's Trust Survey. What is it? It's a research of 33 000 people around the world in 28 countries, and they pole the four major areas of stakeholders. How much trust do you have in NGOs? Usually, NGOs are top because NGOs are people who work without profit. How much trust do you have in companies, your employers? How much trust do you have in the media, and how much trust do you have in government? Now, I'm not going to show you the trust in the media because it is in a tailspin. In fact, 50% of people in the world do not consume media at all. 50% of people in these 28 countries just stay away from it. Media is just too much bad news and too much fake news, but this is the issue that I want to dwell on because at the bottom of the pile, 14% of the population of South Africa trusts its government, and that's a low rating. So, you get to Davos. You go in happily to your first big event and this is what greets you, but what was interesting was their trust in companies in South Africa is not bad. There it is, it's 71% so, 71% of us believe that what companies are telling us is actually true. This, admittedly, was done before Steinhoff, but most of us will listen to our corporates/employers, and that our employers - the information they give us, is the stuff that we understand. Now, that's also good for context. Okay, big story starts on the 18th December. South Africa had a binary moment, binary is zero or one, okay, it's worth something, and the ANC decided to vote for Cyril Ramaphosa as the new president of the party and thereafter, to be the president of the country. It was close but that doesn't matter. Democracy is first past the post wins. In this, it was a binary moment. What happened shortly after that was that the SA Rand (ZAR) went into a very strong bull run. In fact, if you look at this graph you'll see that the ZAR peaked-out or bottomed-out at around $14.50 in mid-November when there were whispers on the wind for the first time that perhaps the Zuma-dynasty was not going to continue. Perhaps we didn't have to follow Zimbabwe in 37-years of economic contraction. Perhaps things were going to change. Perhaps corruption was going to be addressed. Perhaps Ramaphosa would win so, you saw this improvement in the ZAR, and the big arrow shows you the day of the election and the Rand since then, has been moving in one direction. Now, that doesn't happen because we play around with our million Rands on shift. That means quite a few shifts or quite a few people on shifts, maybe a million people on shift to get this thing working. This is big money. South Africa remember, 0.5% of global GDP, if we were an American State we would be rated about 17th or 18th, just behind Maryland, and just above Indianapolis - the last I looked, it could have changed a little. We're small in a global context so, our currency, when the big guys say, hey, something is happening - that's the result, and they've pulled it down to $12 and that is the best level, as you can see, certainly on this graph, which goes back only until February but in quite a few years it's the best level. So, just after this, Goldman Sachs came out with a report. Now, every year Goldman Sachs does a report on emerging markets and it tells its clients where are the most attractive emerging markets are around the world. Goldman Sachs is the most influential house on Wall Street, and when Goldman Sachs talk people listen. The Trump cabinet, for better or worse, has got quite a few ex-members of Goldman Sachs in it, including Gary Khan, who is the guy who seems to be writing Trump's speeches nowadays. Trump certainly behaved himself, according to the speech, in Davos. Don't let him go off script but when he's on-script he said the right things in Davos. So, there you had Goldman Sachs putting out a report on the best emerging markets and a hot market for 2018 is South Africa. Hello, something is happening here so, off we go to Davos, to the WEF, there's our flag, proudly in the middle of them, right next to the UN flag, and the people who go there are the power mongers of the world. They're CEOs of companies. This year we had Donald Trump, the prime minister of India, Theresa May, etc. You have all the main leaders, and the South African delegation - about 2-weeks before the delegation left there was a change and the president of the country was replaced by the president of the ANC so, we didn't have Zuma but we had Ramaphosa. This is the second time it happened. The same thing happened last year but that was only two or three days before they were due to leave, Zuma pulled out and Ramaphosa came in. A bit too early for him to be given a platform. This year a very different story. So, here come all these power mongers to Davos. They've got the Goldman Sachs' Report, they've heard this guy, Ramaphosa. They've seen him talking or they've heard of him. They've heard good reports of him, but you still have a difficult situation according to the Edelman's Trust Survey and indeed, the CEO's Survey, which is another highlighter just as you start Davis, from PwC. They interview 1 400 CEOs around the world, they've done it for 21-years, and those CEOs give you their insights into where they will be investing their money. They're very bullish, at the moment, about everywhere else excepting Africa and certainly, when I asked Bob Moritz, the chairman about South Africa. He said, 'no, they'll take a wait and see approach.' A similar thing from the chief economist of the IMF (International Monetary Fund). Most of the world was upgraded in their upgrade, again, which was released in Davos. In South Africa the growth rate was taken down. I asked him and he said, 'too soon for us to call.' So, you've got the one side, we have the 18th December, the binary moment, but you're getting this message coming from Davos - too soon to call. Then this happens. They give South Africa the opportunity every year to meet with investors in a private forum. This was a picture taken by Greg Beadle, who is a Capetonian, who was brought into the pool of photographers at WEF, as he is that good. He flew from CT to take photographs for them. So, he was allowed in to take photographs but we weren't, as journalists. What we do know is that for the first time in many years this private gathering was way oversubscribed, and it wasn't just the South Africans who were there. Primarily, it was by foreign investors, and what we also know was that there was a spark that seemed to have been lit after this event and this is Elsie, who is a Tanzanian, who was introducing Cyril Ramaphosa. Back home in South Africa, Zapiro absolutely nailed it, he wasn't there this year but he goes quite often, but this is a beautiful cartoon. A picture that tells a story that more than a thousand words can do - green shoots, the Cyril-Spring. Suddenly, there was an interesting part about what was happening to South Africa, and there is probably for me the pivotal moment of the WEF this year, and for some years, and he set the scene. Every year Brand South Africa has a dinner and we are asked, as members of the South Africa delegation or as South Africans, to please bring a foreign guest because that's the idea, we're showing off the country, and you are being an ambassador. This year, I was approached by the head of a major London bank to ask, 'can I please be your guest?' Now, that hasn't happened before. In fact, people never even went to this thing. It was like half the tables were empty, with just a bunch of South Africans sitting there. In fact, it was nice. The one year I sat with Nhanhla Nene and had a good conversation, where do you get that opportunity? But it was because none of the foreigners came along to it and that's how things were going for us. This year it was a full house. In fact, they had to bring more tables on and again, being South Africans, in Switzerland, quite a lot of South Africans tried to get there for the dinner. Cyril Ramaphosa went to the podium and he started speaking from the podium for about 10 or 15 seconds. There were the SABC and E-TV cameras on him, presumably recording it, and he said, 'sorry guys.' It was a long table down the hall, as you can see this table along there, and he took his microphone and he started walking down the table, and he started conversing. For 35-minutes off-script, and he started telling the singled people there what he intends doing in South Africa. Three things, a very simple message, and the three things are policy certainty. He's going to fix this thing where people don't want to invest in the country because they don't know what's going to happen next week or the code is going to change rather, or what's the mining charter going to be, etc. Policy certainty is a priority. Corruption is the second priority. I spoke informally to the delegates, the members and cabinet ministers, they're very accessible there, about this and I said, 'we had the TRC.' We had some really bad people in this country and they just came and admitted their sins and they were forgiven. They didn't have to go to jail or anything. Surely, there's a case for something similar, and the response was completely the opposite. The said, no, this is something we have to set an example for our children. We either go one way or the other. Corruption cannot be tolerated. I understand there's a list of 150 people, who will be charged and we saw today, General Phahlane and his wife. It's an open and shut case. They've been charged now. The third thing is to fix the SOEs (state-owned enterprises). A simple message but a message that resonated strongly. Right towards the end of his speech, and as I said, he spoke for 35-minutes, he said, I've always wanted to be a moviemaker, but until now, I've never been able to do it. But now, I've made a movie and the movie I've made, says Ramaphosa, is about four lions, and how the four lions hunt and how, as they work together, they manage to be extremely successful hunters. Whereas, on their own, it was very different. He said that is a metaphor for our country. We have government, labour, business, and civil society. They've not been hunting together. My job is to make them hunt together as a group. The guy sitting next to me, this head of a big London bank, said, 'wow, this guy is a class act.' I have a friend who is based in the UK whose investments are in South Africa, and he said he could not raise money or interest into South African investments last year for love or money. He says, he doesn't know what to do now. He's run off his feet. When I spoke to Letsetja Kganyago the Governor of the Reserve Bank, in Davos it was quite interesting actually, because he, as were the other African delegation boycotting Donald Trump's speech because Donald Trump said some pretty nasty things about Africa, being an a.hole country, etc. so, they said, 'we're not going to listen to this. While they were standing out there we had this lovely conversation, and I said, 'how's it changed for you, this year to last year?' He said, 'well, let me put it this way, last year the meetings I had were very polite, and done out of the courtesy of the people that I know. This year they tracked me down, or hunted me down, they just wanted to see me.' Ramaphosa said, at this evening, that he was swapping notes and comparing notes with Emmerson Mnangagwa, the new president of Zimbabwe, who has also come with a completely different agenda. He said that Mnangagwa was complaining that he was seeing 20 people a day. How do you do so many meetings with these investors who want to come into Zimbabwe now? Cyril said, 'I didn't have the heart to tell him that I did that early in the afternoon already, and I still had more to do.' These are incredible realities that are happening for the global community looking at South Africa. Why does it matter? Because South Africa is a developing country and by its nature of a developing country it needs capital from outside. You can't develop if you've got no money. We've run out of money, we know that. In fact, Gareth asked Cyril Ramaphosa, 'what about the nuclear project?' He said, 'we've got too much power and no money.' Go figure - join the dots, but up until the 18th December, this country was going to spend R1tr on nuclear plants from Russia, for reasons that nobody seemed to be able to fathom. At the conclusion of this talk, they had the final engagement, which was a press conference from the Cabinet Ministers who spoke to and were asked various questions in the press hall, and I again asked each of them, 'could you tell me how things had been different this year to last year?' Rob Davies answered it in a roundabout way, but afterwards, he came and found me and said, 'let me put it to you this way - last year, the people I met with were grumbling and complaining. It was almost like they wanted their money out of South Africa. They couldn't but they had complaints so, at least they could complain to somebody and that was me.' He said, 'this year all the meetings I'm having is from companies who want to expand or invest in the country.' Extraordinary. Is it going to translate into economic growth? Well, almost certainly. The times we're in are difficult. The times we're in around the world are not known by anybody. Everyone is trying to fathom it out, are we canoe or tree people? Are we isolationists, like the people who voted Donald Trump into power are? Or are we globalists, who understand that trade is what brings prosperity to a country? There are lots of things that are being looked at and being thought through, but if you have a look at where South Africa goes now, and my sense of this, and I've spoken to quite a few businessmen, and they're all concerned. They love what they're hearing as you have to be, but on the other hand they've said, 'man, we've gone down so far, we've got so much to fix and rebuild,' but we had the same in 1994, would be my first response, and my second response was, it's almost like the thugs who have been trashing the place have now finally been kicked out and now we can start cleaning up. That's the reality if it. Of course, in that kind of a situation, you will be seeing the ship that lifts all boats and as the foreign interest comes back into South Africa how do you take advantage of it, as an investor? That's what we need to be talking about now. I'm going to take you through a few stocks. Please, do not go and buy them tomorrow. Please, just use this as a way of sparking your own imagination. Go and read the annual reports. Get to understand the companies. This is not a tip, these are not share tips. This is to give you some idea of great companies in this country, who will benefit from the scenario that I've just outlined for you. If you believe that scenario these are the kind of companies to look at. First of all, Discovery, because it's an extraordinary business, it's globally an extraordinary business. It uses behavioural economics as a business model. It's based on a very simple premise and that premise is that research shows us 60% of deaths and 80% of medical bills are due to four things, just four things. Excessive smoking, excessive drinking, poor diet, and low physical exercise - just those four things so, what they're saying, and what they've built the business model on is to say, if we can change that then we can reduce the incidents of the four things that it's caused, cardiovascular disease, diabetes, lung disease, and cancer. So, address the first four and your incidents on the last four are going to be lower. If you reduce 60% of the deaths, and you attach 80% of the medical bills. Whatever you make, you share. It's called the Shared Value Concept. It's really simple, as a concept, and this is what they're taking around the world very successfully in the UK. Hugely successful here in South Africa, where it was born, and they're using behavioural economics to get people to change their behaviour for their own good. How do they do that? Well, they give you an Apple Watch, as long as you go for a walk every day for a certain 10 000 steps or whatever, and you don't pay for the Apple Watch. What an incentive that is, you've got a measurement and so on. So, this is one of a kind. The one thing that people haven't kind of clicked on, I think, with Discovery is what it's doing in China. You know, when Elon Musk announced that he's going to be opening a plant in Shanghai the Tesla share price reactive very favourably. When we, as South Africans, have a look at the JSE and we see the champion share, Naspers, which is 20% of the market, what do we see? We actually see Tencent. Tencent, which is the operating system for 900-million Chinese people on their phones. There, they don't have a Samsung or an Apple operating system. They use the Tencent app or the WeChat app. People love Tencent, quite apart from the fact that Pony Ma is rated even a better entrepreneur as Jack Ma, who everybody knows from Alibaba, but that's what we see. What do we see with Discovery in China? Yes, well, they've got something there until you go and look into the numbers. Last year their company, Ping An Health, it's membership base went up 428% to 3.7-million people. They've only just started and they've got a base of 3.7-million people, and it's up 428% so, what is that telling you? That's telling you that these guys are starting to get serious in China. Around the world, they've got 10-million people on their books and already, 3.7 are from China. I know from the UK that they're making a good impact there. In Pound terms, their profits were up 10% last year in the UK, to a significant £40-odd million. They've got a business model, which is based on existing businesses, emerging businesses, and new businesses. It's a business model that you can understand if you understand where we're coming from and the context, to get back to that beautiful word. Discovery should be in your portfolio and I see it has come back a little bit in recent times, which for me, it's a good opportunity to be investing in it. This is a graph that Deneau pulled out for us, which shows Discovery's share price in USD terms, and you can see the surge in the volumes. What is that telling you? That tells you that when global investors are having a look at SA stocks this is one them that they like buying because they get it and understand it. When they hear Michael Porter talking about shared value. Michael Porter is rated the top thinker in the world and he then references Discovery, as the people that he sees doing it in the commercial sense, and so on and so forth. An extraordinary company this, and one of our own. Wilson Bailey is an amazing story. I pulled out some numbers on the way that the market capitalisation of this construction company has gone or the whole construction sector. Remember, the construction industry in 2013 was in big trouble. The Competition Commission took a fraction of their contracts and prove that a fraction of those contracts was colluded. This was during the 2010 World Cup or building the stadiums for the World Cup. You might say that there were extenuating circumstances. Whatever - they colluded, that's against the law, and they got huge fines, and they also got a bad reputation amongst the public. But they've worked very hard to fix that reputation and in fact, have been foremost in transformation. The thing about South Africa that you must not underestimate is that transformation is not only necessary but it is happening, and it's going to happen more and more aggressively. So, if you're investing into this market know that that's happening. Have a look at the companies who've grasped it and not the companies who are resisting it because the ones who are resisting it are just going to have more problems. This is an industry, and Wilson Bailey, which is the blue chip of the industry, has embraced transformation more aggressively. Perhaps you could say that they were forced to do it because of the Competition Commission Hearing but they've got something called the Voluntary Re-Build Program, and that is a program that they have signed with government where the control of the company will be in black hands in a certain time and that they will mentor small black-owned, (only owned by blacks), to generate 25% of their income within 7-years. So, 25% of Wilson Bailey's turnover will be generated by these mentored partners. It's a South Africa world first and it gives you an understanding of the way that the industry is getting its act together. This goes back to 2008, and it's not reflected in the share price. Remember, also, that you need confidence to build. You've got a mining sector, which is one of the four big sectors that Wilson Bailey and other construction companies rely on. The mining sector - their cap-ex last year was down 30%. I bumped into Roger Baxter at CT Airport today, he's the Head of the Chamber of Mines. He said they have just done a survey amongst their members. Their members are saying in the wake of 18th December that if there is a credible follow-through, remember, they went down 30% last year - they will be spending 87% more in capital investment in the next 5-years. So, they've already committed to that and that's what they want. Mining is hugely important to this country. Massively important, and not just from an employment perspective but from every other perspective as well. So, this is a beneficiary of it. They've got their act together as far as transformation is concerned. They're on the right path, and they [inaudible 0:28:37.6]. They're also a company that has invested heavily in retaining its staff. They have a turnover, and in the construction industry, the turnover is very high amongst staff. Theirs is between 3% and 5%, which is extremely low. They believe in institutional memory because in construction your margins are paper-thin so if you make one mistake and you lose money on the project it wipes out the rest of the profits you might make. In fact, in the last year it was reflected on the six, big mining companies - here are the numbers. One of them made a profit of R1bn. One made a profit of R500k. One lost R6bn. One lost R106m, and the other one made R600m. The one that made the most was Wilson Bailey. When you go back to what's happened to these companies over the last 15 years. Aveng is the one who lost R6bn. They had a market cap of R2bn in 2000, which was 10 times that of Wilson Bailey and Murray and Roberts had a market cap of R1bn, which was 5 times that of Wilson Bailey. Today, Wilson Bailey's market cap is 10, Murray and Roberts - 6, and Aveng is 1. So, this is a company that's really… It's the blue chip and if you're going to invest in the scenario that I've been painting for you, if you believe it, this has got to be one that you have to consider. As you can see some of the foreigners are seeing this as well. It's a long way in USD terms from where it was, going back 5-years, but there is a little bit of interest there already. The next one is Imperial. This is an interesting situation. We know about the collapse of Steinhoff. I was listening to a podcast with Nouriel Roubini today. Roubini was one of the few economists who called the great financial crisis and that's what Roubini does. He goes against the crowd and he was talking about Bitcoin as being one of the biggest frauds that's been perpetrated on us. Now, I know there are people are here, who are folding their arms and going, oh, shit, please don't tell me that because I'm punching my nets in Bitcoin, but it is a bubble. We can't say anything because when you call bubbles you lose both ways. When you call a bubble, people look at you and say, but you don't know what you're talking about because the guy around the corner has made a lot of money out of Bitcoin so, why shouldn't I pay $20k for one. Then when it crashes, they don't want to see you anymore because they don't believe that you can be humble about having been right. Bitcoin is an example of that. When there is unhappiness that happens some people just want to believe. You know the Hansie Cronje in India, what do the Indian police know? He wasn't a crook, was he? The whole of South Africa said, 'our Hansie?' 'Our Markus?' I've served on two boards with him, the Racing Association and Phumelela. He was a very fastidious board member. He always asked for the board pack. He wanted to know what's going on in the business. I don't know what happened there. I don't know what happened to him, but we know what happened to him now, publicly - that he did stuff that's going to land him in jail for a long time. When your own company reports you to the Hawks then you must know that there's something serious there. The point of the Steinhoff-story is the banks own Steinhoff, not the shareholders. Simple corporate governance is when you come to take the money back, at the top you get the banks or the creditors. If there's anything left then the shareholders get something. Be aware when you're punting those shares. Steinhoff Africa a different story, I'm talking about Steinhoff International, the big group. The banks that own it are not SA banks. It's Goldman Sachs, JP Morgan, Citigroup, and they've taken horrible hits on their balance sheets as a consequence of what happened there. They're not happy and they're not going to be showing any mercy. So, be aware. If you want to punt that stock, it's like what you're doing on Bitcoin. Imperial, however, when you have a look at it in the context and you say, who's going to benefit from the Steinhoff disaster? For every dark cloud, there's a bright cloud, and Imperial has to be one of the beneficiaries because they compete head-for-head. Imperial has got Europcar, Steinhoff has Hertz. Imperial has got its motor division, which is a huge part of the business. Steinhoff has Steinhoff Motor Holdings. Imperial has Logistics, and Steinhoff has Unitrans, etc., in the SA market I'm talking about those original Steinhoff businesses. What's going to happen to them? Are they being put on the block? It is five years so the point is to have a look at the end and you can see that the international guys are buying. It's quite expensive though so, just wait for the results on Imperial. There's been quite a lot of heat in it recently because people are seeing Imperial as an opportunity. Here's another graph and this one goes back to 2008, of MTN. As you can see, with their disaster in Nigeria - it hasn't recovered from that yet. Why am I putting MTN on it? Well, if you're a foreigner one of the companies of South Africa you'd know is MTN. Another thing you'd know is it has a 4% dividend yield. Another thing you'd know is that it's got free cash flow of R9bn a year. Those are the numbers that you'd look at as a foreign investor and the upside is huge. There's been a transformation of the management there. Rob Shuter was brought back from heading Vodafone Europe to run MTN. You have Phuthuma 'Freedom' Nhleko, what a cool middle name, Freedom. He's one of our great entrepreneurs. He's the guy who did all of this. He's still very involved as the chairman and Shuter has brought in quite a few top guys from elsewhere, Ralph Mupita, Steve van Coller, etc. They've really got a hotshot team, and they've got 350-million customers so, at some point in time, these guys are going to start realising their potential again. What is that potential? MTN has a revenue per employee of 7.5-million. Vodacom is at 10.7-million so, you're looking at just to get to Vodacom's level, you've got a 30% uplift there. They've been through hard times. This is a classic turnaround but certainly, if people have got more money in an economy then MTN is one that will benefit from it. There again, not much action from the international investors just yet, as you can see so, they're also probably waiting for the story. Here's another beneficiary of the Steinhoff disaster. Long4Life is a recently listed company. It was started by Brian Joffe. He's the man who started Bidvest from nothing, literally, on his own. He left [inaudible 0:36:22.3] and when Jeff Levenstein went in there and Joffe said, he couldn't work for this man, and off he went and he started Bidvest. Bidvest, as you know, is one of the giants in South Africa. He left Bidvest recently to start again, his second run at it. He's put R100m of his own money in at R4 a share, that's Joffe's entry point, but all the other investors' entry point is R5 a share. So, everybody who thinks Joffe is great went and paid R5 a share and that's where we are right now. What a pleasure. We don't usually get the opportunity to invest in great entrepreneurs alongside the wholesale market. They've done a few transactions already. I would say Joffe's deal-making ability and his understanding is certainly not being reflected in the Long4Life share price. Also, if anybody knows Steinhoff, Joffe knows Steinhoff. Who was the other competitor of Steinhoff? Bidvest. The same thing - Bidvest Car Hire, Bidvest Motor Group, they own McCarthy's and so on, and so forth. So, whatever assets come out of Steinhoff. I'm not talking Steinhoff Africa with those retail assets but I'm talking about the other Steinhoff assets. Whatever assets come out of that whole pot he's going to be, along with Imperial, close to the front of the queue, with an opportunity. Isn't that interesting? That's the USD price of the stock. They know Joffe. People know Joffe overseas. He's quoted at conferences of being one of the great conglomerate creators so, they know him and there's a bit of support coming in for that stock. I'm finishing off with two banks. Your go-to-banks in South Africa, or first of all, why banks? Because banks are great beneficiaries of economic upswings. When economic downswings come along banks lose money. When people go bankrupt and they can't pay the bank, what happens? It's the bank who takes the knock. Bank profits are very simple. There's a difference between what you lend money out, i.e., what they charge us for overdrafts, etc., and what they pay us for deposits - that amount, less bad debts. Bad debts are hugely important in a bank's life. If you have lots of bad debts then the bank profits fall down. We saw what happened to African Bank, they had too many bad debts. FirstRand will benefit from the uplift in the economy, in the scenario that I've sketched for you, and as you can see, it bounced up after Ramaphosa's election. That's on the 18th December, up goes FirstRand, why? Because the investors say, hang-on, something is going to happen in South Africa that will be positive. We're going to get people employed. We're going to turnaround the situation - a great country with great potential that hasn't been fulfilling it. So, up goes FirstRand. It's done quite well. Recently, with the sell of international markets, it has been impacted. Price to book of FirstRand is 3.4 times. That's not cheap but for a top-rated bank not bad. It compares, for instance, with Capitec at over 6 times price to book. It also compares with around 1-time price to book with some of the British banks but we know how much trouble they're in so, you don't really know if that's a true 1-times. Dividend yield is 4%. Earning a PE ratio of 14.5, which is very cheap for an international investor, especially if you've had a bounce in the Rand and the Rand is likely to stay strong. They have a return on assets of 2%, and a return on equity 23%. This is a bank that's firing on all cylinders. I've been in this game for 35-years. There's always been a match race between this one and Standard Bank. You can see there that foreigners are very interested in FirstRand. In Standard Bank though, you have this race over time and at one point in time Standard Bank is at the top of the pile, and then FirstRand is at top, or Barclays, as it first was with Chris Ball, and then First National Bank, as it was at that point - they're in front. They have alternated those positions. Even going back to the 80s with Bob Aldworth, where Barclays was in front. Then Standard Bank with Conrad Straus came past and so on. The difference between the two, at the moment, is significant. Price to book what that means, simply, is that your tangible assets - your share price is divided by your tangible assets so, it gives you an understanding of the rating of it. If it's 3.5 times at FirstRand, it's 2.5 at Standard Bank so, Standard Bank can go up 30% in share price to reach FirstRand's level. When you get return on assets Standard Bank is just over 1%, whereas FirstRand is 2%. A big opportunity there, and a return on equity - Standard Bank is 14%, and FirstRand 23%. So, you see what you're doing, and you're buying them on similar dividends, 4%, but you're buying Standard Bank at a lower rating, they have a PE of 12.8. Why do I particularly like Standard Bank coming back? Well, have a look at the map of Africa and have a look at where Standard Banks based, and have a look at what's happening in Africa. Liberia, George Weah - we sit here in this part of the world and we forget. We think he's a great footballer. Of course, he was a great footballer but he is also a president of a country that is now embracing what Emmerson Mnangagwa is embracing, and what Cyril Ramaphosa is embracing, by just making the right choices economically, which transforms countries and we've seen it consistently around the world. Make the wrong choices - Venezuela, your result. Make the right choices - your result is a Botswana or, please God, a new South Africa, or Liberia or Sierra Leone. If you want to go and find out about a country that made the right choices then go read a little bit about the history of Sierra Leone. Okay, to close off with, this was actually recommended by my friend, Rick Duncan from Standard Bank. He said, have a look at this mid-cap ETF. Those of you who like the lower-risk ETF. Have a look at the ETF from Ashburton, because if you're buying the JSE now, many of the top shares… Naspers is actually a Chinese stock. Richemont is a global sock as well. BAT a fraction in South Africa, and so on and so forth so you're buying the JSE but a big chunk of it is not South African, but you want to buy SA-Inc. This is the one to go with, the mid-cap. Companies like Truworths, Foschini, Spar, Netcare, Life Healthcare, Imperial (you know about that one), Exxaro, Clicks, Gold Fields Limited, Barlow World, AVI - they're South African focused companies. If you buy my thesis and SA-Inc is a beneficiary and you can see there's some smart money from overseas that's coming into this already so, I wonder where Bret got his information from. A final picture, and I just had to put that up. When Cyril had finished his press conference he left there, unlike Donald Trump, who had lots of people around him. Cyril left there with no bodyguards, sitting on a golf cart, and as the golf cart was speeding away I thought, wait, let's have a picture. He happily stopped, smiled, and said, 'he doesn't always use this transport.' But maybe it was a good point, and I think he's going to have lots of reasons to smile pretty soon because the thugs are on their way out. The party is really going to be sustainable in the future. We know this. We know our story and we know our history. We know the sacrifices and we know the potential, thank you. I cut into the question time, but we've got 10-minutes for questions, yes sir? Just in terms of Davos what were the other global themes that were pro-active? The other global themes at Davos were Blockchain, very big. We need not get too excited about Bitcoin, but what they've done is and there's quite a lot of gorilla marketing that goes on now. You see this at big events is that it is so expensive, and the Mining Indaba is a good example of it. Where companies come and buy space nearby and that's exactly what's happening in Davos now. The shopkeepers on the main road of Davos close up shop for that week because they can sell their shop for one week for a year's rental, and some of those that were coming in Ethereum was one, quite a lot of the cybercurrency guys were there so, cybercurrency - blockchain very big. Energy renewables, cyber security was massive concerns. We are babes in the wood, most of us are, sorry, we might have some cybersecurity specialists here but most of us are babes in the woods when it comes to what cybersecurity and the threat that it has for us. So, these are the things that are now starting to occupy peoples' minds. Artificial intelligence - it's all the stuff that sounds like science fiction but it's science fact. Alec, what about the new bank listings this year, the Bank Zero, Discovery Bank, and this US bank I think called TYME, do you know anything about those new listings? TYME is Commonwealth Bank of Australia, which incidentally was run by a SA lady called Gail Kelly, just a nice fact. They are going to be aiming at a particular sector of the market. Discovery Bank - the way Discovery works, and I really urge you, if you're interested in finding out about a really good SA company then go and read their annual report. They explain it very well. They've got their established businesses, which would be their health business, their life business - they generate and target CPI plus 5%. Their profits are growing at CPI inflation plus 5%. Then they have their emerging businesses, and that would be Discovery Insure, Discovery Invest, Vitality in the UK, they target profit of inflation plus 10%. Then they have another section called new business, into which they put 8% of their global profits last year. Two of the new businesses for the new year are going to be the new bank and an asset management company in the UK. So, they're looking to fund this for quite some time, which would make them a very strong competitor. We know that they have been a strong competitor on the Discovery card already but the reality of all of this, the scenario that I'm trying to paint for you, is that a rising tide will lift all ships and it's unlikely to be a situation where, as has been, when you have a contracting economy, when everybody is fighting like rats over the little pieces. The whole country that needs growth. We need the economic growth. We need foreign capital so we can grow and people can get employed. The most depressing thing that I got coming here, sorry, second most depressing. The most depressing thing was driving through Alex, and to see just down the road from Sandton how, because of a labour dispute, I subsequently found out. Those people of Alex are living in squalor because the rubbish in the streets is just everywhere and I made the point in one of my newsletters. Why don't the CEOs from Sandton just maybe go and help, and pick up some of this rubbish? The second most depressing is to see able-bodied young men, standing on the side of the road, looking for piece work. Those rows, when you come back, as I do every three or four months, have grown. There's no reason for it. These are not people who want anything other than just a decent day's work. That is the first priority. This country - there's lots of rebuilding to be done but a rising tide will lift all ships so, although Discovery is coming in, they're probably going to be focussing on a particular end of the market. They'll be good and very aggressive, and I think the other banks know that and that's why we heard a little bit earlier about with Shift. I understand that there's also a lot of cash sitting on the balance sheets of SA companies, [inaudible 0:49:47.3] situation. Do you think that money will also start to [inaudible 0:49:56.1] economy? It's actually something that we underestimate. When businesses don't see a benefit from investing they don't invest. They put that money on the balance sheet. There's a good example in the USA now, where they've made a law to allow Apple and other companies, but particularly Apple because it's $350bn sitting outside the country, to bring it back and to create factories. But while the tax was so high they were never going to bring it back to the USA. They were going to leave it where it was and not spend it. Similarly, in South Africa, there was no confidence in the future. What I have seen, what I felt, what I've discussed with SA businesses, is that they're waiting to open that tap because they can see that the foreigners are, for the first time in probably a decade, looking at South Africa with a lot of interest. If you're an incumbent and you haven't been upgrading your plant and equipment, and facilities and you've been sitting on cash because you've been worried about it. Or worse, there was a good piece in the Financial Mail today, I think it was, which analysed the SA companies that rushed for the door and went offshore and made a bit of a disaster of it. That's even worse Steinhoff being the obvious example, but those companies - there was a R1tr was the last, R1tr cash on balance sheets that can be unlocked. All you need is those four lions to be working together. That's Ramaphosa, and he knows what his challenge is and business has shown that it is very willing, able, and excited about getting involved in a future that it believes in. And not one that we've just come out of. Alec, within a global context, do you think maybe we're going to still see the equity prices have become strong, we saw that last week Monday the [inaudible 0:51:58.1]. The IP ratio on the JSE followed and [inaudible 0:52:03.1] equity prices are still [inaudible 0:52:05.7]. We have a big advantage in South Africa because we've always lived with two markets in one. We've always lived with the resources and the rest. What we don't get that it isn't the market anymore. It's exponential businesses and the rest. So, if you go to America Tesla is worth the same as General Motors, because Tesla is an exponential company and they're both $60bn market-caps. So, what happened last week was interesting because again, you've got to get past the headlines. For the last year, the volatility has been almost non-existent. There's been great tranquillity in markets and if you went short on volatility you have made an average of 12% a month. So, as long as you were writing the right options, and you were investing in the right things. In other words, voting for tranquillity in the markets and not for great volatility. You were making 12% a month. Like what used to happen with Lloyds Insurance in the old days. They would come to you if you were an esteemed individual who had a lot of cash in the bank and they would say, just sign here so, if anything goes wrong you've got to pitch in. But actually, for the last 20-years, nothing has gone wrong. All that happened is we've been sending you cheques, and that's what happened in the US markets. So, you had very little volatility, and people got sucked into this. Suddenly, there's transformation. As a consequence of that, the knock-on effect of volatility. It's why 95% of the investments that they've made have gone, they're sitting with 4% or 5% left because that's what happens when you get it wrong on derivatives. And that has had a knock-on effect with people having to sell shares and bringing down the stock, etc. There's no fundamental reason why. Look at Amazon - has Amazon fallen? Those of you who were in our global portfolio when we started it, would have bought Amazon for $300. Now, it's nearly $1 500, and that's only 3-years. So, the exponential companies on the one side, and others - the 4IR, the Second Renaissance - others. Country-wise, embracing what's happening here or not embracing it. But as I've said, we as South Africans have an advantage because we've seen resources and the rest so, we've always understood that you cannot say, JSE is up because is it the resource sector or the non-resource sector? They can move in opposite directions. No, the beginning to understand this very crazy period that investors are living through is by appreciating what exponentiality is because we, as human beings, don't get exponentiality. We are linear beings. We don't say, something that's worth 10 today, should be worth 100 in 2-years' time. It doesn't make sense to us. Ten daggers are things that come past once in a blue moon, but if we can get our heads around it. If you can get your head around Naspers - a company that Naspers bought for $34m, 50%, which is now the eighth biggest company in the world. How extraordinary. Yes, sure they got shit lucky but so did we as South Africans. As South Africans - your pension funds are having a big run. If you could take one event that has created more wealth for South Africans than any other was when Koos Bekker went and bought 50% of Tencent, and who would have known at the time. He had it in his head and he understood what exponentiality potentially was. Read those books. Go to Singularity University. Read a guy called Peter Diamandis. What does Elon Musk say? Read the annual reports of Jeff Bezos - he's been writing them since 1997. What does he say? He says, put consumers in the centre. Keep investing in consumers. Keep making them happy, and keep doing better work for them. If you contrast that with many other companies. Shell - I was at a Shell conference on Tuesday talking to 650 people who owned garages, retail stations, and saying to them, your company in Royal Dutch Shell has seen the future. They are converting from the internal combustion engine to electric outlets. Tesla sold 250 000 cars already. It's not science fiction anymore. It's real science fact. The fastest car on the road in the world is the Tesla Roadster. Remember, electric cars were never supposed to be that good. This is a whole new world, and we need to get our head around it.