SA’s in form fund manager talks MTN, Competition Commission and Exxaro – Piet Viljoen

One of South Africa’s in form fund managers and Thursday’s BizNews Power Hour regular co-host, Piet Viljoen is the man to talk too in the midst of reporting season on the JSE. MTN’s results, which is one of the largest holdings in the Counterpoint Value Fund, was well received by the market with the share hovering around the R120 level almost 4% up on the day. Another talking point was Cashbuild’s proposed acquisition of Pepkor-owned The Building Company falling through as the Competition Commission blocked the transaction on anti competitive grounds. Lastly, with South Africa’s premier coal producer Exxaro having released it’s bumper results earlier this morning, Piet explains the reasons for the stark contrast in valuation between ESG-related renewable energy businesses and its non-renewable peers, despite the ESG theme being somewhat overdone. – Justin Rowe-Roberts

Piet Viljoen on MTN’s half-year results:

I think MTN is the top holding in the fund, the biggest holding the fund at the moment. I haven’t had the chance to go through the results in any detail, but on the face it looks positive. And I think the most positive thing is that they’re able to repatriate dollars out of Nigeria. And I think that’s always been the question mark around MTN. It’s got a lot of debt at the centre. How does it repay that debt? Well, they’re getting the dollars out, the profits by getting it out of Nigeria. And with that, they can pay down that debt. And I think that takes probably the biggest worry the market has around the share away. So I think it’s a very positive result in that.

On the Competition Commission blocking Cashbuild’s acquisition of The Building Company (Buco):

You could argue that Buco, together with Cashbuild would dominate certain parts of the market. I probably would have preferred them to suggest certain sales of certain assets and allow the rest of the business to consolidate. Consolidation is probably good for the industry, it’s good for Cashbuild shareholders, but it’s probably not an unsurprising announcement by the Competition Commission. Let’s see what happens going forward. I mean, it’s a part of the market which is quite buoyant at the moment. I don’t think Cashbuild’s share price has built in anything for the acquisition. In fact, I think the market was quite doubtful about the ability of Cashbuild’s managements to integrate that size of acquisition. So it should actually come as a bit of a relief.

On the regularity environment for corporate South Africa:

To do business in South Africa today is from a regulatory point of view, burdensome. Whether you listed or unlisted, there are a host of regulations which you have to adhere to. So, listing is just another set of regulations on top of an already onerous set of regulations. So I’m not sure listing pursue is a good or a bad thing. It depends on what you want to achieve through your listing. But regulations in this country are quite onerous.

On the ESG craze:

I think it’s very much overdone. A lot of the battery makers, electric vehicle makers, Tesla being the poster child for those sort of things are trading at huge valuations, whereas a company like Volkswagen or BMW who produce as many, if not more electric vehicles are trading at a fraction of that sort of valuation. So I think it’s all wrong. And then you have this whole thing about clean energy and companies who produce clean energy are trading at massive multiples and companies who produce coal are trading at multiples of two or three. The problem with clean energy is you have to have base load energy. You have to have some form of continuous energy production, either by nuclear or coal or gas or whatever, to supplement your clean energy because the wind doesn’t always blow. The sun doesn’t always shine. So you still need that.

On Thungela’s results tomorrow:

Because of the unbundling process, I think there will be some noise in the numbers. I don’t think it’ll be quite clear yet what their earnings power is, but we think that it’ll start becoming clear in the next set of results, in other words, the results to December. But it is very cheap. It’s trading at very low multiples. We estimate a PE of around 2. And that’s just too cheap. People will still be using coal in three or four and five and six years time, Thungela will still be around in three or four or five or six years time. To put a PE multiple of 2 on it borders on the ridiculous.

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