David Shapiro: Anglogold spinoff another thumbs down for SA economic policies

South Africa's favourite market commentator has seen enough from insider and outside boardrooms during his decades of advising on investments. Publicists need to get up very early in the morning to pull the wool over his eyes. So for the all the hoopla that accompanied BHPBilliton's "SpinCo" where SA-based assets were put into an independent listing, Shapiro interpreted it as a vote of no confidence in the direction the country's economic policies are taking. He draws a similar conclusion from this morning's announcement that Anglogold Ashanti is hiving its non-SA assets, two thirds of the business, into a separate company to be listed in London. – AH

ALEC HOGG: Let's get a more in-depth view of how the market's trading today. David Shapiro from Sasfin is with us in the studio. Where are the bodies buried, David?

DAVID SHAPIRO: Where are the bodies buried?

ALEC HOGG: In other words, all the little skeletons that you accounting types do with financial results – Sasfin.

DAVID SHAPIRO: It's a good result. I'm not involved in putting the accounts together.

ALEC HOGG: I read that as a disclaimer.

DAVID SHAPIRO: It is a disclaimer, but I was quite impressed with where the bank's going now. I think you have a new generation of management coming in, in young Michael Sassoon. He's Roland's son, but I think a very wise head on a very young man. I think he's probably going to take it to new levels. You know the bank's going into transactional banking, so he's developing both the wealth side as well as the traditional banking side. I think Roland's still very much, in charge, but as he gets older, he'll probably withdraw and allow Michael to take over.

ALEC HOGG: It's been an incredible run: 48 percent share price gained in the last year. It's still a relatively small company – just over R1.5bn market cap.

DAVID SHAPIRO: Yes, but they have a proud track record of continually giving good growth over an extended period and very good dividends as well. It's a neat, small cap.

ALEC HOGG: Within Sasfin, on a day like today, does everyone celebrate?

DAVID SHAPIRO: I don't think so.

ALEC HOGG: You don't get bonuses.

DAVID SHAPIRO: It's not one of those companies. The one thing that's always impressed me is that's a hardworking business. You know Friday lunches and long lunches or Friday cocktail parties, etcetera. It seems to be a very serious business, but a good business. Friendly, very family orientated, you can feel the family, you know everybody, and you're very close. I enjoy working there.

ALEC HOGG: Good dividends. Share price goes up 40 percent per year. Who would want more?

DAVID SHAPIRO: That's fine for me.

ALEC HOGG: Anglo Gold Ashanti: that's a big story, Dave. Are we reading too much into this?

DAVID SHAPIRO: No.

ALEC HOGG: Just unpack what's happening.

DAVID SHAPIRO: I think we should read more into it. People are departing South Africa. In other words, they're saying it's too difficult to run South African operations. There are increasing costs, labour issues, political interference in the way that we run business, and it's hurting our rating. Let's put it aside and now run an international company. Remember Anglo Gold Ashanti was a combination of South African and international. Now we are splitting it up again, and so I would take this pretty seriously. I would look into it – the reason behind it. Admittedly, the South African assets are not the same as they used to be. They're old. The gold mines are very, very old and we need a manager like a Sibanye manager (Neal Froneman) to run, but I think it's a growing trend now to divorce yourself from your South African assets.

ALEC HOGG: That's a very interesting point. If you need a Froneman to run the South African assets that are left behind, that's not going to happen. Venkat, who's a Chartered Accountant, is the CEO. He's brought in another Chartered Accountant from Sasol. Clearly, Christine's very sharp, but her knowledge of mining can't be that hot, so Christine Ramon's going to be there. You have accountants running an ageing South African gold mining business and yet, they're staying behind. They're staying on the South African ship and offshores are going to be managed by other people.

DAVID SHAPIRO: Maybe Venkat loves living here and enjoys his lifestyle here. I'm not sure. The announcement only came out this morning. We need to hear from management.

ALEC HOGG: But it's not good news.

DAVID SHAPIRO: I don't see it as good news. It might be from a value point of view: one plus one now equals two-and-a-half or something like that, but I'm concerned that more and more businesses are seeking growth outside and they're quite proud of it. If you look at Wilson Bayly Homes… I was watching your interview with Mike Wylie last week and Mike said '50 percent of our revenue now comes out of Australia' – almost proud of the fact that more and more business is actually being done outside of South Africa. Yes, the margins are lower there but the business is there.

ALEC HOGG: As an accountant, you'd appreciate what's happening here from the Reserve Bank's perspective. They are retaining these companies as South African domicile, so the tax is paid into South Africa, which, as we'll hear from Markus Jooste later in the program, is a very big plus for South Africa. In fact, he says the Rand's appreciation is probably due to his rights issue because he got R18bn coming into South Africa.

DAVID SHAPIRO: He did. It's all gone out now again. It's all gone. We're now at R10.96. Why? There are a number of reasons.

ALEC HOGG: Maybe he took some out.

DAVID SHAPIRO: A number of reasons: the Reserve Bank…our current account deficit is over six percent, which is a worrying sign admittedly, because of the strike. We're also getting the Pound under pressure and we're getting the Euro under pressure. The Dollar's very strong, attracting money as well and as the Dollar gets stronger, it's going to suck money out as well. We rely heavily on foreign inflows here to keep this economy going. We are not a saving nation and neither are we a growing nation, so I think Government has to sit back and say 'hold on a sec. Let's put all these signs together. Maybe what we're doing is not right. Maybe we're going in the wrong direction'. The signals are clear.

ALEC HOGG: What are the signals?

DAVID SHAPIRO: The signals are we're going to get better growth outside of South Africa. We have more opportunity. They're much more open to us developing or doing business outside than we are here. There are the constraints that we're fighting here. It's much easier to do business outside of South Africa.

ALEC HOGG: And they aren't 144^th out of 144 on the labour legislation or 144^th out of 144 on the education system.

DAVID SHAPIRO: We have to address it. We all enjoy living in South Africa. We do. I know Markus says – and in fact, Markus' head office isn't in Wynberg. It's down in Stellenbosch and he's possibly moving to Frankfurt.

ALEC HOGG: He's not moving. He says 'I'm staying in Stellenbosch'.

DAVID SHAPIRO: Of course, he would.

ALEC HOGG: That's part of the deal. 'I live here. I'll travel'.

DAVID SHAPIRO: In Switzerland, in Zurich. I think there are signs that we need to recognise.

ALEC HOGG: I think we should open a studio in Stellenbosch. I think we might have powerful South Africans coming into the studio all the time.

DAVID SHAPIRO: It's beautiful. It's absolutely stunning.

ALEC HOGG: Before we finish Dave, we did talk about Sasfin and MMI. We touched on Steinhoff. What did you think of the numbers yesterday, remembering that the shares are trading at a discount now to the very recent rights issue?

DAVID SHAPIRO: I was a bit scared. I was a bit worried about JD Group and KAP, but if you look at it in the grand scheme of things, they're very small. What I worry about… I hope that getting JD Group right doesn't take too much of Markus' time, in other words, that he focuses on Feramo and the bedding businesses in the U.K. I think he has some wonderful businesses there and you have to hand it to him for going in and doing the bold moves that he did. I like it. I like the business and I think he's a sharp man.

ALEC HOGG: I think you'll like it more after you watch our interview at about 12:45 today. It really, once again, impressed me. We know he's clever and we know that he's built… He raised R18bn and their market cap was R18bn just a little while ago.

DAVID SHAPIRO: R127bn.

ALEC HOGG: Extraordinary.

DAVID SHAPIRO: And it's a super long-term story.

ALEC HOGG: And he says 'we're not going after AKEA – they're number one – but we are number two, we're following their model, and we are vertically integrated'. Do you know how big their property portfolio is, Dave?

DAVID SHAPIRO: I saw it, but I can't remember.

ALEC HOGG: R45bn property portfolio. He says 'because we have our own stores'.

DAVID SHAPIRO: They need it.

ALEC HOGG: No, but think about that. You're going into a new geography, but you own your own stores. You own your own property, so when everybody else's rent goes up, yours doesn't. It's a good long-term story. We've said that for a long time. I'm sticking with it and so are you.

DAVID SHAPIRO: I like Markus. He's always good value for money as well.

ALEC HOGG: Do you like Steinhoff shares, though?

DAVID SHAPIRO: I think so. At these levels, yes, and also, you're going to get a Rand protection. With the Rand at 10.90, a lot more profit's going to come in than when he did the rights issue at 10.30-odd. I'm not sure about the foreigners who bought the shares, but from our point of view, I think that anybody looking to protect their income, revenue, and capital… I'm very positive on Markus, the manager.

ALEC HOGG: One of the great capital allocators. Man, we can produce them here: Steven Saad, Brian Joffe, and Markus Jooste. That was David Shapiro. He's with Sasfin.