South Africa’s favourite market commentator was in a feisty mood during this week’s episode of Rational Radio where he laid into Brait, Tiger Brands and executive pay in general. Never one to shirk from controversial subjects, David Shapiro celebrated 48 years on the market (and 15 years with Sasfin) by delivering a vintage performance. And still found time to offer his view on the investment appeal of Biznews Share portfolio stalwarts Amazon, Apple and Netflix after their release of strong quarterly results. – Alec Hogg
Someone else who’s been tweeting a great deal recently is our very own David Shapiro. And as always, we kick off the show by finding out from Mr. Shapiro what’s happening – 15 years at SASFIN?
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In essence, I’m celebrating 48 years on the JSE.
It’s been quite a lucrative 15 years. I started in the aftermath of the internet bubble, went through the global crisis in 2008, struggled up for 10 years as we re-flated the economy and I still think there’s a lot ahead. I’ve never lost my enthusiasm for markets.
You’ve never lost your enthusiasm for life. That’s one of the reasons I love talking to you. What’s the point of living if you aren’t happy about it and if you can’t look on the bright side, even when there’s so much muck around.
The thing about markets that people don’t appreciate, is that every day is a new challenge. It’s like pulling out a chessboard every day. You’ve got to negotiate your way through it and a huge amount of my enthusiasm comes from people like Buffet, who give you the kind of philosophy with which to approach and understand markets. He always told us to just read, read, read – that’s the best way to tackle markets – understand what’s happening around you. And when you’re tired of reading, read some more.
David I hope you read the Brait editorial today in Business Day. It’s not common that one comments on editorials like this, but that was a goodie.
I did and I was thinking about that on Friday when we heard news from Brait that they were going to pay R200m to the advisors who had destroyed so much value. It’s something that’s very hard to get through – without naming names – but I’m surprised at the number of companies who are reckless with shareholders funds and yet are never held accountable for it and continue to draw salaries or big packages, despite the fact that they have destroyed huge value. Brait is one, we saw some time ago with Tiger Brands who have gone through a series of issues, Steinhoff, Blue Label, Tongaat – a whole lot of companies like that – where huge amounts, running into the billions have been destroyed and yet no one’s ever fallen on their sword or been held accountable.
We’ll talk about Tiger Brands in just a moment, but just on this issue – in that editorial for those people who haven’t read it – it contrasted what is happening at Tongaat with the board of directors there who are drilling deep to find out which executives did not behave correctly and Brait behaving really poorly, Dave explain how that can happen or at least what their rationale might be.
I don’t know where they get their rational, that there’s no conscience that they might have entered into some kind of agreement which guaranteed their salaries or guaranteed them some percentage. It’s insane that a company whose share price has gone from R174 down to R8, have destroyed enormous amounts of value for shareholders and yet they continue to draw income from limited amounts that are in the firm. Their decisions – in my view – were absolutely reckless. Without much thought, gung-ho and still no recourse. So how do you explain that? It’s not that Brait lost the money over 15, 20, 25 years – because in some industries like mining where they’ve exploited all what was left – but this is just recklessness. This was just going into companies, which they should never have gone into and that they overpaid for and never delivered.
Don’t you think that it also had something to do with them being overpaid for their Steinoff holding by Markus Jooste? They took the money offshore as quickly as possible, found the first thing – New look – which seemed at the time to be a good idea but turned out to be a shocking one, but the consequences of that is – what I think the editorial was trying to show – these people continue to draw big money. Whereas a Tongaat, which has also had a disaster, the chairman – Louis von Zeuner – actually cut his salary by half, which is the kind of message that one should be sending.
Absolutely and Louis came in much later. He’s there to turn the company around. So he’s come in saying we can’t afford that kind of salary. I’m here to turn the company around, this is what we are going to do – which is the right attitude. It’s a company that’s been around a long time, it’s got good assets – even though they haven’t performed well – and there’s a good chance that they can turn it around. He’s going to give the company a chance by cutting back on unnecessary expenditure.
So moving onto Tiger Brands. There’s a bit of controversy there. At last Lawrence McDougall has departed, he’s the guy who was in charge when listeriosis came out where 200 people died. The reality is he was in charge and should’ve fallen on his sword – in my opinion – when that whole thing broke because they did not support or work with the authorities.
Yeah, I think you’re right. First of all he came with a good reputation and what happened is the crisis broke but it was handled so badly, shockingly. Initially they denied any culpability, yet when you looked into it they were surely to blame for whatever reason. He should’ve resigned at that stage – even though he was new to the company – and I think the way that he handled it made the company lose credibility and people lost faith in the business. So I think – from their point of view – it was just a matter of time, once his contract was up, they would not renew it.
Now they’ve replaced him with Noel Doyle. I loved the TV interview with Khotso Mokhele the chair of Tiger Brands, he explained that Noel Doyle 20 years ago was one of many executives who got nailed by the Competition Commission inquiry. Khotso said Noel Doyle’s the right person to be running the business. We looked internally and externally, we found the right person. But the question I guess has to remain, if he was tainted 20 years ago, should that still stick on his record?
We don’t know. I think it’s strange that he did come back. I think that he could have been in a secondary role – as CFO or somewhere in the background – that might have been acceptable, but he now takes over the CEO role. That is perhaps questionable. If he was a board director he could have perhaps explained – I wasn’t there I just happened to be on the board – Nick Dennis did the right thing, he fell on his sword and felt that the right thing to do was to resign. We never know whether he had knowledge of it or not. I don’t know Nick well, I can’t really comment, but he would never go back. He might run other businesses but I think that’s also a questionable choice. You have to look at the background. You had the bread price fixing, they then went into Nigeria, wiped out billions in 1 or 2 years, come back here, listeriosis, this is the third big scandal that they’ve had in a very short time.
You almost think you should bring in someone fresh. It’s not a good idea to have no succession planning…. anyway, good luck to Noel Doyle, Let’s hope that he proves all his critics wrong. It looks to me like they might have the right person, but I don’t think the public are going to agreeing with it. Just closing off. We’ve had a number of quarterly results coming out of the United States. Amazon shot the lights out, we love it because it’s 21% of our portfolio, Apple did very well – we also love that – and a big part of our portfolio, Netflix also improved on results. You got to ask how far can these stocks go?
They can continue to go. Don’t underestimate their power and don’t underestimate the changes that you’re seeing in the global economy which are pointing that way. The continuous huge demand for data and for industries around that, have a look at Microsoft, Amazon, where they made their money. A huge amount comes from the cloud and that’s data storage. So I don’t think this is over. I think that you stick with your incumbents. In other words stay with the winners, rather sell the losers. Those would be some of the old fashioned companies that we know, the smoking companies, the drinking companies. Companies like that who are finding competition very tough because of the way people consume today or because of the way marketing is done. I would stay with them, I’m not selling mine.
