Boyiatjis on the markets – Peregrine, PSG, Ellies Group and the fumbling mining sector

In the spotlight today, is financial services group, Peregrine, best known for its relationship with the hedge fund community in South Africa, the company has just come out with a handsome trading update, expecting to see an increase in headline earnings. The general consensus, is that Peregrine is a strong player in the sector and certainly one to watch. Kimon Boyiatjis from Trident Capital unpacks the market movers for the day, and looks particularly at PSG, another solid company, that has been going from strength to strength with Jannie Mouton at its helm. Kimon not only offers wise insights into strong stocks, he also has some sobering words of caution for investors interested in the struggling mining sector, and thankfully some positive ones for troubled Ellies Group. – LF 

GUGULETHU MFUPHI: To give us a more in-depth view now of how the market is trading, I'm joined by Kimon Boyiatjis. He's a Director at Trident Capital. He joins us from our Cape Town studios. Kimon, it's good to have you with us, as always, on a Friday. Just to get your insights on Peregrine – out with a trading statement today – a small company I understand, as well. Is it one that does happen to appear on your radar?

KIMON BOYIATJIS: Yes, it does. I knew the original Founders of that company and it has evolved and morphed itself into a really good financial services group now. It went through some interesting times. I remember their listing if I'm not mistaken, at one state the share traded as high as R28.00 and then fell away. It's gone through a number of changes and leadership but at the end of the day, I think what they've done is they've managed to consolidate themselves into a really sound, stable niche player.

ALEC HOGG: You're right about that listing. If I recall Kimon, it was one of the most oversubscribed issues ever on the JSE. The price (memory) about R8.00 and came on the market as you said, at about R78.00. Those were the days, hey. Do you think we might be heading back there?

KIMON BOYIATJIS: What they've done is over the past 15 years, they've really built a good base and I can't see any reason why that company shouldn't prosper from here on out. I think what they've done is the right thing. They service specific sectors of the market. They were actually quite instrumental in assisting and trading for many of the hedge funds in South Africa, and they've set up their structures in such a way… We use them and I think what they've done is quite smart.

ALEC HOGG: Kimon, Gugu mentioned Ellies Holdings, and it's not long ago, that Wayne Samson, the Chief Executive, was in the studio. It was on a day when he couldn't tell us while he was on air that he'd just bought a pile more shares. He was concerned the share price was coming down. Gugu, if I remember, the price at that stage was about $6.00. It's now sitting at $4.00 and heading lower as you said – 52. In fact, it's at its lowest point now since 2011. What happens in a case like that? Do the executives of the company just not understand what's going on in the business that they're prepared to go and put their money behind a falling share price? Is it perhaps a case of maybe, he thought he could give confidence to the shareholders who had been selling?

KIMON BOYIATJIS: I know there are many people who watch what the directors do. I think it's a good thing to watch, but I don't take too much cognisance of what they do. I think sometimes, they're just too close to their own company. Largely, I suspect that in the case of Ellies, he's probably seeing value. I know what they done is diversify a little bit. One of the reasons why their share price may be a bit under pressure is because some parts of their market are being eroded. I think there's a little bit more competition than there once used to be. If we walk down the aisles of the electronics section in supermarkets, you'll see there are other products, other than Ellies. I think that might be part of it, but I do think they are a solid company. It's going through growing pains and really, that's what I ascribe the share price underperformance to – it's really growing pains.

GUGULETHU MFUPHI:  Kimon, another share we've been watching is that of PSG. Earlier this week, the company announced the bookbuild, giving us final details of that. When you look at their investment strategy, is it one that you're quite bullish on?

KIMON BOYIATJIS: Yes, I think they're another smart bunch of operators. Again, that's another company, which has evolved in the financial services sector. It started off as a broker and has grown. Interestingly enough, similar in some ways to Peregrine, but I think they're servicing a different sector of the market. I think they have bigger high net worth individual book, but they're very mainstream now. They're building a decent sized asset manager. I think their broking operations are quite clever in that the people who work there are rewarded quite well, so I think that company's going to continue doing well. I like it.

ALEC HOGG: There's another side to that coin, of course. Jannie Mouton, a brilliant entrepreneur: when he's raising money by selling shares, shouldn't it be a signal? On a sad note, did you know Stuart Rees, the Chief Executive of Safex, passed away last Saturday? You guys are a small community (the financial market). He's a big loss, isn't he?

KIMON BOYIATJIS: Absolutely. I was saddened to hear that. I think I was the third registered futures trader in South Africa and I recall having long conversations with Stuart. Prior to the actual formation of Safex, RMB used to do the clearing. I recall how many stockbrokers were so anti-futures. They said 'well, if we have these futures market, people will stop buying shares'. What ended up happening was the tail wagged the dog, and the evolution of the futures market in South Africa actually brought major amounts of volume and liquidity into the market. Stuart was an interesting guy. We had many chats on whether or not Safex would survive or not. May he rest in peace; he was a good man.

ALEC HOGG: Indeed. Something else that might be resting in peace in future is our platinum sector. We are once again seeing that the strike is continuing. I had some very interesting information yesterday. Many of us are wondering how this strike has continued for as long as it has. Twenty percent of the workers in the platinum industry have resigned to cash in their pensions, so that gives them the capital to continue for a period of time. They'll also have a safety net through the social funds in South Africa, which wasn't there before, and I wonder if the mine management or if the executives on the company side have actually been taking these things into account? After five months, you would have thought – from their perspective/the strike perspective, anyway – the strike would have long been over.

KIMON BOYIATJIS: As you're well aware, I'm not a big fan of single miners in the country and I think this trend's going to continue. I think the risks of investment into that sector are fraught with problems. Management generally – and I'm not having a go at anyone in particular – isn't great, but the environment in which they work, is difficult. We have the Labour Unions who don't necessarily always think of doing the right thing for their own workers. You just know. Every time there's a round of negotiations, they're going to be asking for the ridiculous, so I think that entire industry has to relook at itself. I've said it before. You want invest in mining operations. You're not going to invest in South Africa if you're an international investor, and as a local investor, I'm not even interested in looking at that sector right now. What is value? It's difficult to gauge it. I think it's a 'big avoid'.

Stay away from single miners in South Africa. If you just look at the performance between Billiton and Anglo, which are diversified miners, because Anglo's local weighting is heavier than any other international mining company is. They're underperforming their peers and it's simply for that reason. I think we're going to have a long and difficult road ahead, and I wouldn't like to be management in any of these mining companies.

ALEC HOGG: Or the platinum sector have actually miscalculated on this one because certainly, by now they would have thought the strikers would not have been able to sustain themselves. They certainly have – five months in. That was Kimon Boyiatjis, who's Director at Trident Capital