South Africa’s favourite market commentator, Sasfin Securities deputy chairman David Shapiro, was at his best in this week’s episode of Rational Radio. He is forthright in his appreciation for the role that Naspers has played in bolstering SA retirement portfolios (his own included) and delighted to see the strong debut of its offshoot Prosus on Amsterdam’s Euronext market. But not that enamoured with the collapsing share prices of Sasol, Aspen and Old Mutual – all of whose misery appears to have been self-induced. – Alec Hogg
David Shapiro joins us now. Well David we just had a really good chat with Kokkie Kooiman giving us some pretty nice tips of stocks to buy in Europe. He reckons the Swedish banks that are yielding 6 nearly 7 percent dividend yields. He then went on to some UK banks and insurance companies which he says are at 20 to 30 year lows in rating terms. It’s almost like when you look at the JSE it’s hard to spot a winner in a difficult economy. Maybe we should be educating ourselves about what’s going on over there.
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I’ve been doing that for a long time, but the thing is that Kokkie’s an expert on banks. This is the area that he’s pursued and he has a wonderful name in that he understands banks. We’ve tended to avoid European banks simply because of the trouble that they got into 10 years ago and haven’t really come out. We’ve seen the problems at Deutsche Bank, UBS and Societe Generale issues. At a time where interest rates there are negative, it’s very hard for you to encourage anybody to borrow. Kokkie goes in and spots out banks, as you say, in Scandinavia. We’ve done very well strangely in Allianz which is not exactly a bank but is a financial services business based in Europe. There’s some very good businesses there and very good IT businesses. The luxury side has surprised us on the upside. When you look at those businesses and what the outlook is, simply because they supply the global economy, you can find a lot of attractive entry points for that. So don’t ignore Europe. You know people talk it down but there’s still some very good businesses there and maybe I must speak to Kokkie about Scandinavian banks.
Well listen to the podcast, it will give you all of that. Dave it’s a big day talking about Europe talking about South Africa for Naspers Prosus. I hope you took your own advice and enjoying the ride on Prosus?
Yes and they far higher than we thought they were. What I find appealing is that it’s getting international coverage and people are taking notice now of this IT company that’s coming to Amsterdam. I think this move they made is going to prove to be a positive move. Working out the numbers at this stage is very difficult because there’s so many moving parts, with how many shares are going to be issued and what the discount to the underlying is. I think over time watch this one. It’s one of the few shares that you can actually participate in the tech boom and especially being in Europe.
The brokers on the JSE will be quite happy to see massive volumes in both of those stocks today, more than 50% of the trades they’ll be making a little bit of commission on them no doubt?
Yes there will be. The trading aspects of the market today are beyond me. I don’t understand the derivatives. I don’t understand high frequency trading. If this is what drives markets today I can just look at the underlying business and say “Do I like it or don’t I?” and based on that, buy it. Those kind of movements that we see on a day to day basis in trading and it’s just beyond me.
I spoke to Basil Sgourdos, the group financial director of Naspers earlier this morning and he said that taking everything into account the discount to the underlying assets has narrowed from 45% before this Amsterdam listing idea was announced, to under 35%. He said unlocking $20bn in value. These guys, they deserve their salaries.
We’ve tried to work it out, but they’ve issued shares and we don’t know at the end what the allocation of shares is going to be between Prosus and Naspers because they’ve given locals an option to either go with Prosus or stay with Naspers. We’ll only know that by Monday. So the exact calculations are difficult but don’t worry about being exact. The process is still trading at a little bit of a discount to the underlying, which are Mail.ru, Tencent, so on. So there is a little bit of a discount. But in terms of the Naspers discount. It could be less than 35%. I think 35% is being very generous. I think it’s come down quite a lot. By next week we’ll have a much greater feel.
You test that $20bn and the amount of value for us. But wouldn’t Sasol give anything for that right now. It just seems to go from bad to worse.
You know what happens, one’s got to criticise management. The fact that the results are being delayed a second time. Yes they are protecting themselves and they’re saying that it’s not going to affect any of the guidelines that they’re given on profits and also the cost of the Lake Charles project will remain between $12.6bn and $12.9bn from their point of view. But still the fact that they are in such a mess administratively as well, I think has shattered their confidence. At these levels you’ll find that it’s a reasonable price. But I think the credibility of this business has just been shattered.
Well let’s just see the results first. Now it seems to me it’s the second postponement which is almost unprecedented. We have heard of companies postponing their results for some issues but to do it twice and and then to postpone it by six weeks the second time round.
It shows you that they are not, nor have been, on top of this project. I’m talking from the day that they decided to go ahead with it. It’s been out of control and it’s just like a Medupi type situation where you don’t know what you’re doing and you don’t know what you’re spending. In the end it’s going to cause big write downs on the actual amounts that they spend, which will never recover. Yes, they spent $12bn or whatever it is but the returns it’s going to give will only suggest that the economic value is probably, add another half or three quarters of that.
The ghost of David Constable lives on, halved in the last year. Wow. Dave what about those ghosts. What about Aspen, is that ghost coming back to life.
Here soon. I think the results will be out. They seem to be stabilising now but again we have to look at the numbers and find out how they are doing. When you’ve got this kind of debt on top of you it makes it very difficult to run. What worries me is you see governments wanting to crack down on pricing. If you look at the US Senate at the moment there’s three different policies: there’s the Trump policy, the Senate policy and Nancy Pelosi or the House’s policies. All of them point in one direction. We want drug prices down. We want the cost of health care down. That’s the global message that’s being sent down. Global companies and margins are under pressure. When you’ve got big debts against that kind of environment it’s very hard to operate. It’s going to take a long time for them to fulfill the kind of promises that they gave us when they did the deals. No offense to management at all. You know it’s been very difficult for them but they are going to have to work their way through this very slowly against that. You know you tend to avoid the share or tend to hold back from from buying it.
Well I guess the guys at Sasol are saying yea right. So we’ve had a rough time, we down half in the last year. But this one is down from R300 to under R100, so Sasol can say they are not the worst.
It’s been a shocking year for that. I mean you know that the number of companies that have given up massive value this year, it’s unprecedented and I say that because in a market which has been fairly steady, the number of companies that we know that have lost ground is just staggering.
Just stick with Naspers. What would retirement funds have looked like without Naspers. Someone should do that calculation.
Just to give you the idea. Aspen’s down the last twelve months 68%, Omnia 67%, EOH 62%.
So we’ve got to close with another one of those, Old Mutual. A year ago were sitting at R30 a share. Now its R20, so it’s not quite as bad. Again Old Mutual can say we’re not as bad as Sasol and they can say we’re not as bad as Aspen but it’s pretty ugly now.
When you used to go down to Cape Town. This was Old Mutual in Summer. They were they the kings of Cape Town. You know everybody worked for Old Mutual or Sanlam and they were almost the aristocracy of that era. That’s 170 odd years and to see what’s happened to it now. It’s so sad. We’ve always held these companies up in such high esteem. It hurts me, maybe because I’ve got some roots planted in this country and been on the market for 47 years to see how they’ve just dragged their name out into the dirt is just shocking.
What’s the latest on that day on the Moyo versus Manuel.
Maybe both sides are to blame, but you can’t take the name down. You’ve got to look at the legacy of this business and just rebuild it or just keep it going. But I find management on both sides have behaved very badly and it’s self-interest rather than the interests of all the people who work for Mutual. But I just find it a very tragic situation. Strangely Sanlam have held their own. They must be watching this and asking what are Mutual doing? It’s self imploding. This is great for us, but you don’t want to gain at their expense. We want strong institutions in the country.
Indeed schadenfreude is never a nice trait. That’s David Shapiro and he is the deputy chairman of Sasfin securities.
