Piet Viljoen says ‘no’ to Black Label but ‘yes’ to AB InBev

Counterpoint Value Fund manager Piet Viljoen shares his investment insight on a busy week of corporate activity for JSE-listed companies. The mining sector has been especially vibrant, with Sibanye-Stillwater, Impala Platinum and African Rainbow Minerals all announcing sizeable deals. Private and listed property investment in South Africa is discussed, with Viljoen outlining that the glory days for REITs have come and gone. Aveng and AB InBev are looked at from an investment angle to wrap up the conversation. — Justin Rowe-Roberts, Investment correspondent

Piet Viljoen on the flurry of M&A activity in the mining sector: 

Look, one always gets worried about commodity producers when they start doing M&A. Although I do think if one looks at the range of transactions that have been announced over the past week or so, by and large, they seem sensible. Sibanye has for quite a while spoken about its strategy to get involved with green metals because it is definitely a trend that is going to be playing out over the next 20 to 40 years; the green economy and infrastructure around the greening of the economy. So, to get on board with that trend is not crazy. The prices they’re paying for the assets are not crazy. I think it is the beginning of the top of the cycle, but it’s not stopping the cycle yet. Nobody’s paying crazy prices for stupid assets. The deals all make sense from a strategic point of view and the prices are not over the top, so I don’t think these transactions signify a top in the cycle at this point. 

On AB InBev as an investment proposition: 

The first question, yes – the second question – no; I prefer wine. In terms of the first question: yes, it is one of the top 10 holdings in the Counterpoint Value Fund. I think it is a business that is highly leveraged and it sells a product people want. As it pays off the debt over the next 10 years, the value of equity has a chance of showing exponential returns and I believe this is step one in that process, where the earnings came out much better than the market expected and they are going to reduce the debt in the business.

Even if the enterprise value stays the same, the value of equity will go up. I actually think the enterprise value could also go up. You could see exponential returns from equity in this business over the next 10 or 20 years. That is one of the strategies that at least makes sense to me; to buy the equity of highly leveraged businesses if you expect inflation to be higher over the long term and real interest rates could remain negative. I think these guys can pay off the debt quite easily and thereby increase the value of equity in the business. 

On whether listed or private property investment is a good idea: 

Generally, no, I don’t think so. There are a couple of factors at play. First of all, I think REITs are not great structures in terms of owning assets because they have to pay out such a high proportion of their income and there is often very little left for the maintenance and upkeep of the properties. So, you’ll find the value of the properties that the REITs own declines over time. The REITs were nice when people wanted income and paid a premium for income but I think those days are over. So, the structure is problematic. The more fundamental points are that because of the high prices, which certain property traded up until about three or four years ago, the sector became massively over traded. 

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