On Rational Radio Live tonight, after lambasting some of the fallen favourites, market veteran David Shapiro shared some of his own investment ideas. The man who professes to read all the daily financial data from reporting companies, came up with some interesting names that are worth investigating. Naturally. – Alec Hogg
David Shapiro is with us on the line. A pretty confusing world that we’re living in today just before the cabinet is announced the Rand goes to nearly R14.90, then improves 30 cents, only to go back again.
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The markets today are exactly like you’ve described. Very confused, I think uncertain. I’m struggling with the Rand, I would have thought that with the cabinet having been announced we would at least have seen a pull back to the low 14’s but I don’t think there’s anything to be concerned about, now it’s a matter of delivery. But you know on the other hand Alec in the global market, there’s just so much that we have to digest and even with markets going up today they’re going up very slightly without much conviction.
Maybe investors are coming to terms with the ongoing trade war that you know the more you think about, the more worried you start to get. And I don’t know if you’ve got time. But even we don’t realise the implications. I was talking to a currency trader this morning and what he was saying to me is, you know he handles a lot of imports, and what I’m trying to explain is where the ramifications of all of this go. So he handles imports from China for a certain organisation. But what happens is they channel the payments through America, which is normal. He says the Americans are now delaying the payments. They want to know the ship, where the goods are all going, is it an electric equipment and so on.
Those are the kind of things or obstacles you have. And that’s the extent of what a trade war actually brings, it brings the whole global economy to a standstill so I don’t know whether we have fully digested what’s going to transpire from this and how this will all play out. And I’m a bull, I like it when markets go up and everything that goes with it but I think we’re all struggling to understand what the bottom line is.
David I see just getting to the specifics on the market, Naspers up 4% yesterday and another one and a half percent today. Clearly somebody likes what was in and all that documentation about the listing in Amsterdam.
Well it’s going to happen and I think you know the fact that it’s going to happen, I think we’re looking ahead. If Bob van Dijk does take over this business, I have no doubt that he’s not going to sit around and just count Naspers and some of the other smaller investors.
Also read:Â Naspers CEO: Amsterdam listing date set, impact on SA shareholders
I think that he’s going to try and use the base to grow it and perhaps that’s where the enthusiasm is now starting to come that this is going to be more than just a Tencent company even though Tencent still has a huge weighting or influence where this business is. But I think it’s starting to create its own excitement. How this plays out into the JSE is also going to be difficult because you’re going to dilute Naspers on the JSE and that’s also going to have some other implications in terms of what will replace the percentages in the indices.
But it’s good. You know you’re right, it’s a good move.
And often when one wants to see about the way foreign investors think about a big decision, a big announcement you look at the banks and today the banks are very strong for a second day in a row.
I think that’s where the value lies. You can rely on banks and I think that at a time where you’re looking for yield and that’s where I think the search is and at these levels banks are not going to let you down. And they might not be able to grow the top line all that much but they certainly will look after the bottom line. In other words they’re not going to get there and be reckless, they’re not going to let costs run away. And the other thing is that I think competition that we’re seeing coming in from some of your old mates, a lot of people are starting new banks, and I think that in itself is also starting to bring attention to the whole sector and forcing some of the bigger banks to streamline their operations and keep in touch with what’s happening in the broader picture here.
It’s nice to see it all and Nedcor and Absa up nearly 4 percent, FirstRand three and a half, Standard Bank three percent. Those are good moves on a day when the market as a whole was up about one percent but when you look ahead Dave, how are you finding the ones to bet on in this market, it’s so difficult it seems as a stock picker right now.
Very hard. You know one at one of my disciplines is I try to go through the results every day, you can’t go through pages and pages of numbers and explanation and narrative, but you can if you quickly go through them, you learn with experience what to look at and you pick up and the sad thing is that every day we’re starting to see a retraction or a retrogression in earnings, a reduced earnings you know today it was Life Healthcare, and I like to go through the full results, not the massaged results that are given for PR but actually looking at the numbers that become the official numbers, you look at Life Healthcare and you see the massive write offs and impairments, you know Nampak has always been a favourite company of the country a packaging giant continues to have problems, this time the problems were in Angola, a negative result. Yesterday Pepkor was a negative result. Same thing with the Famous Brands, negative results. So I think against that we’ve got to try and establish when the bottom comes. And I think that will only come when we start to see growth turning around.
Alec to explain it I think we’re struggling with top line growth at the moment. You know the economy growing at 1 percent or lower than that, is now starting to hurt. The companies have done as much efficiency drives as they could, cut as much cost out of their balance sheets as they can, or income statements, that they are struggling now with the top line and that makes it difficult. You know Alec you’ve been around a long time and I know the companies you love and one of that was always was great to bring on was Omnia because they were such a competitive company and such a lovely business. Today they’re struggling to survive with having to negotiate with their bankers and today they announced R2bn rights issue, which will be to alleviate debt. And that’s a R3bn company, or just over. So it’s a hugely dilutive rights issue which took the shares down about 12 percent today. So that’s how we battling to fund businesses.
Omnia is a particularly interesting one because this has been telegraphed, they’ve explained they’re in trouble. They’ve explained they need to talk to the bankers and restructure things, and when the announcement officially comes out, which they’ve told you about, it takes another smack.
Well no one expected a rights issue. And also what it points to is what strain they’re under because we always assume that in the second half they would pick up, they do supply the agricultural sector and that tends to be very cyclical because of the planting season and they might have had a bad season on that but you expect it to come back as farmers do. This one’s caught us by surprise. You know this has really caught the market by surprise.
Well that 12 percent today adding to further gloom, for the last six months they’re down by half. So if you’ve been taking bets on the wrong horses in the stock market, so on Omnia or Massmart for instance, or help us if you’ve got Tongaat in your portfolio, it is going to be looking pretty sick now. What are some of the good horses to look at.
On the local market it’s not that easy to find the winners. I think something like Bidcorp has come out very strong, mainly because I think they’re outside. You know I’m still a big believer in Naspers.
I tell you what companies have come and they’re not necessarily the big one’s funnily enough. You’ve got to look carefully at Telkom, look very carefully because you need to go through the results in greater detail than I’m talking about now but they are improving their mobile side quite dramatically. Yes the fixed line is coming down. The other one was Altron, they’re picking up the contracts that EOH have dropped and good management, if you look at the chart there you’re going to see something very strong. Transaction Capital is another company which we have to look at carefully. You know you must do your research and you must go into these, don’t just take it from the published results, those are three that have stood out pretty nicely.
You know iron ore is holding them. It’s not showing any signs falling, it still seems to be giving you massive cash returns. Let’s see what else there is. It’s too early for the retailers. We’ve still got to go through a little bit more pain but I think Foschini is the one that stood out, they’ve modernised the whole way that they do business and I think that is one result you can pick out.
Just to close off with Dave. There was an announcement today from Phumelela. You know my friends in the horse racing industry and that share price has been under enormous pressure. It’s also fallen by half virtually in the last three months. They’re going to take on the Public Protector who wants to do all kinds of heinous things to the company, I wanted to speak to the chief executive to John Stuart, he’s in London preparing for the Investec Derby. So I guess he’s in the right place. Bernard Kantor is going to have fun and he’ll be with the queen again. But what do you make of this because there’s a lot of objections to the Public Protector everywhere else it seems. Why is everyone suddenly believing that Phumelela is the one in trouble.
I can’t answer that because I don’t know much about it but what concerns me is why have they have fallen that much particularly when they were shifting towards sports betting. To me that’s one of the biggest attractions, massive amount of interest in that area. So I’m really surprised that you know they’re under the kind of pressure that they are but I’m going to have to defer to you on this one. I’m glad you still have your favourites.
Of course I have David Shapiro and you are one of them as well, thank you for letting me talk with you as always and we’ll be picking up again next week. Just some homework for you for next week. If the oil exploration bonanza is for real. And I’m one of those who believes it is, I see Shell are now going to start drilling as well, next door to Total. Who are going to be the winners.
