David Shapiro on Tongaat, was it hit by perfect bad news storm, or malfeasance

Market commentator David Shapiro has seen his share of scandals in a half century career where he daily takes the pulse of investment markets. He explores the mystery around Tongaat Hulett, the R25bn business whose shares have plunged to a level where it is suddenly worth just a tenth of that, pre-scandal value. We discussed the Tongaat saga on Rational Radio, drawing some conclusions that, for the moment at least, fly directly into the face of the popular narrative. – Alec Hogg.I had an interesting chat at the top of the show with Bruce Williamson on Tongaat Hulett and he was saying that it shouldn't have really surprised us what was going on there because Tongaat really hit very tough times. It was the perfect storm. He unpacked everything and Peter Staude, the chief executive, is a guy with integrity and honour and I know it's horrible to hear the kind of talk that's going on around him which to me seems very ill informed..___STEADY_PAYWALL___.I remember you had many conversations with him and he always came across as a person who seemed to be in control and very solid. There was never any reason to suspect that he was doing anything that was not by the book. That was a surprise. We know that there were tough times. I think in the sugar industry, a very difficult industry because the price can fluctuate. There are so many difficulties on the agricultural side, or that side of the commodity market. And then things got tough in South Africa. I think we understood that the company was under pressure but to be honest I've been looking at the accounts and there's nothing to suspect that there was any manipulation of numbers. And that's the worry. Why would they have done that? I don't think they manipulated profits in any way, but maybe valuations for bankers – or something like that in order to keep their bankers happy. But it's still a mystery to me. It's a major mystery to me what they could have done and what will come out. Whether Peter was responsible or not, or whether those accusations are supported… It's a very difficult situation..Well they've written off R4.5bn which for a company before the the meltdown was worth R25bn. If you have a look at the assets that they have – it's property in South Africa. They've been exposed in Mozambique where there's all kinds of nonsense going on with corruption. The Ex-finance minister in jail etc… and Zim where they've got nearly 200 million dollars sitting there that they can't get out. It doesn't take a lot to work out that 200 million dollars is already worth more than a couple of billion rands. .But I guess we're at the time of sensationalism in the media but the accusations on the published figures are overstated. I can understand that a lot depends on directors valuation. I always thought, how do you value sugarcane fields? What value do you put on it and what would the reason be? That's what puzzles me. And we know the numbers. We know the earnings numbers and we've looked at the cash flow numbers but I think that the market might have already done its own calculations and written off those kind of numbers. So I think once results come out, there might be a bounce in the share. But I'm speculating..I'm trying to go through the numbers and say okay what could they have done and why would they have done it? In Jooste's case there where a lot of fictitious sales going through and came back as debt. In other words, they put through sales numbers and then manipulated the numbers and the flows that came in – where it was seen as being payments which were nothing more than debt. But I can't see that in this case..You mentioned Sasol. It had a real knock. Was that in the closing auction where the share price took a took a bit of a drop today. What was that about..I don't know. You know there's still a lot of issues around Lake Charles. It's a surprise to me because other markets still tend to value them on the price of oil which actually bounced about 3 percent because of those issues in the Middle East. And also we had a much weaker rand which is closer to 14.90. So it's a little surprising that the market should be so severe on them. There wasn't any particular noise around Sasol so I guess that people are still concerned about how the project looks. But you know once more I think that the market has already done the damage, it's already put through the depreciation of those assets, in other words the impairment. So the market price already impairs the Lake Charles project down to a level where once they start generating cash you're going to get very good returns on the share price, not on the assets that are in the balance sheet but on the share price. I think it's looking attractive once they start to actually push out product from from Lake Charles. I don't want jump the gun. I don't want to be the first pioneer to go in there.. But as long as you can dodge the arrows as the first pioneer you are the one who actually gets the best benefit..You're right. But I mean like you know, I watch it very carefully and and if you look at the balance sheet it's virtually in at zero. You know if you look at the assets, so it could be an opportunity. But you know wait for the dust to settle or just wait for the waters to settle then maybe it could be attractive. But I've been surprised, like you, I'm very surprised that in a time where a lot of the other mining stocks and chemical stocks. in other words resource stocks, are doing well in our market that we are where we are. We spoke last week about the gold shares they continue to run, they're on their own going somewhere. I don't know where but like Elon Musk's SpaceX..Well certainly not Elon Musk's Tesla shares, they taking down. You know if you have a look at Sibanye for instance, the way that that thing's been running not long ago it was sitting at R7, just over R7 and it's now at R15.50 and that is since July and they've got big issues to face with the absorption of Lonmin, the labour issues there, AMCU is not exactly the sweetheart union..And they've got debt. They've got big debt..So you gave us a few ideas last week of where you'd find value in the market. I know you always think afterwards and you reflect on that. Is there anything that you didn't mention excepting for gold shares which we should have bought two weeks ago but anything we should be looking at now..You know I did mention Altron electron and I had to say last Monday Mteto Nyati came here. Now we know Altron and you now it from the Bill Venter days. But they've cleaned up the company, today it's an IT company and I think very well placed in the services side. And I like management and having got rid of Aberdeur, having got rid of PowerTech and Autopage as well. I think they are very well placed in this kind of economy. And the one thing we must remember companies can not afford to let IT lapse. In other words they have to keep investing in it. They can't afford to ignore developments in IT and to keep that side of their expenses going, so they are a pretty decent bet. I'm a bit worried, I saw the mining numbers out today and what is shocking me about our market and I'm not clever enough to compute economic growth but you know after the first quarter now with mining down most economists are actually downgrading their whole outlook for the South African economy to even worse than we saw last year and that's a worrying sign. They are seeing signs maybe in the consumption side that leads them to this belief. So I think if you're going to look at our market you've got to kind of avoid anything that has a deep exposure to South Africa..So David next week you're going to be having little exposure to South Africa because you're off to the US..I am, I always love going there in a sense that you talk to people and you get a different perspective of life. I also like to get a feel for what they think. I'm a bit worried you know, even though I'm looking at the US markets and they're doing okay today they're very close to all time highs and it worries me because the big driver there is more talk, or voices calling for the Fed to reduce interest rates and Wilbur Ross, Secretary of Commerce, President Trump coming out and really attacking the Fed calling them, you know, they don't know what they are doing. I find it offensive. I've always had a lot of support for the Fed. So for me that's not a driver of markets. That shouldn't be a driver of markets that you're calling for lower interest rates because that means that momentum is slowing, so I really want to try and find out when I am in the US what the momentum's like and what the economy is like and how people feel on the ground, and I am in New York which is not really a reflection of the broader US. But you still hear voices there and you get a feel..May you hear many voices and may not be the wrong type David, we'll talk to you just as you get off the plane next week. David Shapiro who brings us up to date with things that are happening on the side of investment markets and keeping us all well aware.

David Shapiro on Tongaat, was it hit by perfect bad news storm, or malfeasance

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