Sasha Naryshkine: Telkom, Anglogold, Massmart and Investec-backed entrepreneurs
Sasha Naryshkine often drops a gem during our regular Monday Power Lunch discussions on CNBC Africa. Today it was how one should never trust a company whose results always seem to produce "one off" issues. A bit like Warren Buffett's warning to be cautious about a business that booms its Ebitda. Or my pet hate, typified in today's results from Anglogold Ashanti, where companies boast about financial results beating "guidance" – a self-serving statement if ever there was one. In today's market watcher interview Sasha offered his expert opinions on Telkom, Anglogold, Massmart and Investec's golden touch with entrepreneurs. – AH
ALEC HOGG: Sasha, what do you make of this Telkom retrenchment story (R234m after tax paid to 302 employees) ? Gugu was mentioning it a little bit earlier. Just a quick calculation: they're creating 300 millionaires if you want to look on the bright side because it's an average of almost R1m per person who's going to be retrenched. But this is a drop in the ocean compared with what Telkom will need to do if they want to get seriously efficient.
SASHA NARYSHKINE: And I think that it was Benjamin Graham in 'The Intelligent Investor', who said 'beware of the company with more than one once-off'. What he's trying to say is if you have a business that has multiple 'once-offs' on a recurring basis, you have to beware at some level. They've had many write-offs in terms of some of the businesses they've bought and some of the ventures they went into over the years. From my point of view, that 40 percent shareholder – which is essentially us (taxpayers) – where there's too much interference about the future direction of the business… In the meantime, Vodacom, MTN, and others in the background are playing a more meaningful role in consumers and businesses' lives.
GUGULETHU MFUPHI: We have seen Telkom's share price had quite a solid run and I recall when Alec was keen on it. Might this be where that bullish run might come to an end?
SASHA NARYSHKINE: I've never been keen on Telkom, simply because they were getting a smaller and smaller customer base relative to… In their core 'old' business, minutes are falling and there are fewer and fewer customers. In order to be able to compete and in their next product offering, the prices there…there's going to be margin pressure, even for the big mobile providers. You don't have to be a genius to walk around South Africa and see where the next big push from a data perspective is. Everyone has a handset that's becoming increasingly 'less dumb', if they want to call it that and everyone is using more and more data. Who's providing that to them? It's the big mobile networks.
GUGULETHU MFUPHI: AngloGold Ashanti also out with an update today. You will recall their issues that they've experienced. What is interesting is you were telling me their share price performance is not too impressive.
SASHA NARYSHKINE: Well, when I said to you 'look at their share price' end of November 2011, you were like 'what – R380?' That's where it was. It's back at R100 and that's showing a seven percent recovery.
ALEC HOGG: Up seven percent today. (closed the day 11% higher)
SASHA NARYSHKINE: Interestingly Alec, I had a look on Friday and in terms of the ranking tables by market cap, they were outside of the Top 40. They were in 43rd place and this is the biggest South African gold producer by market cap. The irony is therefore that inside of the Top 40 – and remembering that the JSE do shuffle this from time to time, with the next one coming up in December – Johannesburg, the city founded on gold probably, won't have a pure, out-and-out gold company in the Top 40. Someone said to me 'that's a fabulous thing because that means we've evolved from just being a mining city', so I suppose there's a good and a bad side to that.
GUGULETHU MFUPHI: Just on that, you're definitely not a gold bull so clearly, one for people to steer clear of…or take advantage of the dips?
SASHA NARYSHKINE: Well, I don't know. Some of these share prices in Dollar terms (in other words, their ADR's) are trading near all-time lows. Some of those ADR's have been listed since 1998, so I'm talking Harmony, Goldfields and AngloGold Ashanti. It's been an awful investment, notwithstanding the fact that gold itself in Rand terms (if you're taking the Rand price of gold with the benefit of hindsight) that ETF's been listed for nearly ten years now. That would obviously have been the much better investment.
ALEC HOGG: Well, it's a reflection, isn't it, on how poorly the capital has been allocated in that sector. Apart from knowing that we should be buying Krugerrands or the New Gold ETF. Sasha, what about Massmart going the route of the Competition Commission on the shopping centres' leases? We know they've been going through the courts – or trying to go through the courts – to attack these very strange leases that landlords have put together with retail companies. If they get this right…if the Competition Commission finally does crack this open, that could have a knock-on effect, surely.
SASHA NARYSHKINE: Well, most big shopping centres that you go to, have two core-anchored tenants who will obviously pay less per m2, simply because of the businesses that operate there. The holding companies have bigger/larger balance sheets. They're not going to skip on their rentals and they're doing to drive foot traffic through the shopping centres. I can see the upside in wanting to have those people as your core tenants. Whether or not you could argue that maybe the Game or Cambridge Foods brand has a better consumer positioning than a Pick n Pay or a Checkers… I think that ultimately, is for the owner of the property to decide but if there is anti-competitive behaviour then it's best it's brought out into the open. Ultimately, I think the consumer will decide where they want to shop. If you enter into a three-year lease with a Cambridge or a Game selling groceries and it doesn't work out for you, what recourse do you then have? Obviously, you don't want to kick out your anchored tenant because you want to be able to get a return. You've sunk an enormous amount of money. You want to be able to get a return over 5/10/15 years.
GUGULETHU MFUPHI: Well, as Alec also shared with us, there are unforeseen consequences with such agreements as well, because then the little guy needs to pay more to subsidise the big players.
ALEC HOGG: The little guys are nailed everywhere.
SASHA NARYSHKINE: I think they do.
ALEC HOGG: It doesn't matter where you look in the economy, the little guys…and we say we're trying to grow entrepreneurs.
SASHA NARYSHKINE: Having said that, remember that Brian Joffe started Bidvest in 1996, driving his own Chevy around town – driving packages to the Post Office.
ALEC HOGG: The reality is that Elon Musk, who's a South African, could not do it here. He had to do it in America. Steve Jobs could not have done it here. That's the problem. You have these huge empires against you… They squash you pretty easily if you're a little guy in this country, whereas in America, you have things like Anti-Trust.
SASHA NARYSHKINE: But a Stephen Saad or a Brian Joffe would have to have started from somewhere.
ALEC HOGG: Yes. Joffe started 30 years ago with the support of Investec. Steven started 20 years ago with the support of Investec. You have to go to Investec. That's the point. It doesn't matter how big they are. If you have Investec behind you…
SASHA NARYSHKINE: They're going to back you.