Piet Viljoen: Bemused by Anchor Capital, attracted by Clover

Sometimes RECM's Piet Viljoen can't help himself. A deep value investor who only bids for a share when it is trading for cents in the Rand, he was a little bemused at the share price movement of today's new listing Anchor Capital. Viljoen says even at the pre-listing price of 200c, he judged the business to be over-priced. The premium at which the stock now trades is inconceivable to his investment approach. In this CNBC Africa Power Lunch interview Viljoen also offers his thoughts on Clover's disappointing numbers and the latest set of results from the Big Four banks. – AH

ALEC HOGG: Let's get a more in-depth view of how things are trading today and some insights from the inimitable Founder and Chairman of RECM, Piet Viljoen. He's in Cape Town. Well Piet, Anchor Capital started a lot later than you did, they're a very similar business to you, they're much smaller than you are, and they listed on the market today and got an amazing reception. Is that tempting you?

PIET VILJOEN: Alec, hi. No, it's not. I happen to be a shareholder in the fund management business, which is a little bit bigger than Anchor Capital and our internal valuations are probably slightly south, for our own business, of what the market's valuing them on so no, I wouldn't be tempted.

ALEC HOGG: I mean 'tempted to go to the market yourself' and not tempted to buy the shares.

PIET VILJOEN: No, for a fund management company to be listed on the stock exchange, brings enormous pressures to bear in terms of the whole conflict between what's good for the business and what's good for the client. It's those types of conflicts that you try to avoid at all costs.

ALEC HOGG: So the fact that Coronation has managed to scream ahead in the way that it has, has no doubt had an influence on the valuation today of Anchor Capital. However, to see the shares issued at R2.00 to start off with and trading at nearly R4.00 this morning, was a surprise. What do you put it down to?

PIET VILJOEN: I don't know. One must bear in mind that for every successful listed fund management company, there are probably five to ten unsuccessful listed fund management companies. In South Africa, there are quite a few of those so I don't know if Coronation is the right example to use. One can also look at something like Cadiz, which is also a fund management business, which has been less successful but I think the Anchor shares are quite tightly held. I think the market is quite well controlled by the issuers of the shares and I think it's in their own interests to create a pop on this thing. We tend to avoid these types of things like the plague.

GUGULETHU MFUPHI: So if you're not looking at fund managers, are you looking at education circles such as AdvTech who recently announced an acquisition this morning?

PIET VILJOEN: I'm sorry. The line is quite bad. Just repeat that question, please.

GUGULETHU MFUPHI: Piet, have you paid attention to AdvTech at all? They recently announced one of their acquisitions this morning.

PIET VILJOEN: Yes, what's happening there, is actually quite interesting. Obviously, with the success that Curro has had in terms of its valuation in the share market and its corporate activities, and with AdvTech lagging behind and not taking part in that consolidation up to recently, I think that the board and management of AdvTech have been placed under tremendous pressure to do something to try to catch up with Curro, so to speak, so they've made this acquisition. I haven't studied the numbers, but on the face of it, it looks fairly expensive but it's something they probably feel obliged to do – to also create a bit of news flow and momentum in the share price. Again, it's this type of corporate action, which is worrying. If I were a shareholder in AdvTech, I'd be a bit worried.

ALEC HOGG: It's almost a though the AdvTech guy should have said 'we are running this business for the long-term' but clearly, they've made changes to their managers. They've brought in a corporate financier as the new CEO.

PIET VILJOEN: There are always exceptions, but it's not always a fantastic thing for a dealmaker or a corporate financier to run a business.

ALEC HOGG: Piet, what do you make of today's results from Clover? They've had a good run up to now, but it does look like they're coming a little off the rails.

PIET VILJOEN: Yes, they came out this morning, but to be honest Alec, I haven't had time to study them in any depth, so anything I say about them is very superficial and should be taken as that. However, it does seem as though their second half has been quite tough. The first half was quite good and generally speaking, most consumer-facing businesses today – to a lesser or greater extent – are facing some headwinds. I think Clover's no exception to that.

GUGULETHU MFUPHI: Does that mean that as a value investor, you pay close attention to the current economic climate and the depressed consumer environment? Maybe that makes you stay away from certain sectors.

PIET VILJOEN: No. Generally, what happens in the current environment – if it lasts for long enough – is that the market tends to extrapolate into the future and that's what creates opportunities. If a negative environment were around for a long enough time, the market would start discounting that as a permanent condition into the future. That's when the investment opportunities are created. Generally, the extent of our economic analysis is basically this: we know when times are good, they tend to get bad and when times get bad or are bad for a while, then tend to become good. We're just…not always sure of the exact timing, but we know that's the sequence of events. When things are bad in an environment, over time that creates an opportunity because the market becomes very negative, as it has done in the resource sector over the past two to three years.

The consumer sector has only recently started getting a bit tough. Up until about six months ago, the market – both the actual, physical market out there in the real world and the stock exchange market for consumer shares – was quite buoyant. That's the only change over the past six months and we probably want to see this negative environment in place for a bit longer so that it starts being discounted into the value of these companies. That will hopefully create the investment opportunity into what our fantastic business is, but up until recently, it's just been priced too richly for us.

ALEC HOGG: Before we let you go, we are going to be talking to Johann Grosskopf from PwC whose put all of the banking numbers together. If you were to take FirstRand out, it hasn't been the greatest six-month period. Is this just a normal trough in the cycle or do you think that banks are now starting to have it a lot tougher?

PIET VILJOEN: No, I think it's a normal cycle in the banks. People aren't really keen on buying money. Credit growth is anaemic and over time, credit growth drives the revenue-generating possibilities of the bank. If they can't generate huge revenue growth then profitability struggles, so yes, I think it's a normal cycle in the banks. In addition, one has to bear in mind that up to recently, banks have been priced fairly optimistically and that's maybe starting to change a bit at the margin, but I would say it's just a normal credit cycle that's happening/playing out as it has always done.

ALEC HOGG: That was Piet Viljoen from Regarding Capital Management. We will be talking to Johan Grosskopf from PwC a little bit later. If it is a normal cycle, it's not actually that bad of a performance.