Sasha Naryshkine: The new SARB Governor, PPC, Quantum and Ellies
Vestact director Sasha Naryshkine is an optimist. Especially when it comes to South Africa. Whenever there's a raft of bad news hitting the country, he's the man to tap for a ray of light. But in this interview on CNBC Africa's Power Lunch he didn't need to look far to uncover some good news – like most others in the financial markets, he gave the new SA Reserve Bank Governor Lesetja Kganyago a double thumbs up. Also covered in this discussion, things are starting to look a little less rosy for former PPC chief executive Ketso Gordhan's efforts to return to his post; the new poultry listing Quantum; and the continuing travails at Ellies. – AH
ALEC HOGG: Thanks. Well, let's talk to Sasha now about the highlights of the JSE this morning. There was a new listing.
SASHA NARYSHKINE: There was and I saw the Chief Executive try to blow the vuvuzela. That's really unique.
ALEC HOGG: The kudu horn, you mean.
SASHA NARYSHKINE: Is it the kudu? I'm sorry. The 'kudu-zela' or whatever it is, and the ululating in the background was fabulous.
ALEC HOGG: Quantum – it is a spinoff from the Pioneer Company – Pioneer Foods.
SASHA NARYSHKINE: That's correct.
ALEC HOGG: Is it likely to help either company?
SASHA NARYSHKINE: Well, I guess it's probably better for Pioneer. I mean, it's been a loss-making subsidiary. It's been married to the parent company for over 50 years I was astonished to hear. Why now? We're very fond of chicken meat in South Africa. We eat over one-billion birds per year, if I remember right from an Astral presentation. If we think about it, that's over 20 per person in South Africa, so it's obviously, very important. In the context of whether or not you want to own it as a business…it sometimes feels like owning an airline business. When it's good, it's very good but when it's bad, it's terrible.
ALEC HOGG: Sovereign did real well though, in numbers that came up last week.
SASHA NARYSHKINE: And Astral, so maybe it's better timing than 18-odd months ago.
ALEC HOGG: But Pioneer is still… They have smart guys there, with the Jannie Mouton influence as well. They wouldn't be spinning it off if they thought there was cash to be pumping out of it in the near future.
SASHA NARYSHKINE: Exactly.
ALEC HOGG: Take your chances. The new SARB Governor Lesetja Kganyago: he's been around a long time. We've spoken to him a lot. People like me interviewed him many times. He's a very competent man.
SASHA NARYSHKINE: And you said it's his birthday tomorrow. He turns 49 tomorrow.
ALEC HOGG: Him and Desmond Tutu.
SASHA NARYSHKINE: Well, I think it's fabulous because he comes out of an era of South Africans and if this is the calibre of the next round of public servants in South Africa, I think it's a fabulous advertisement for what you can achieve. He's very well connected – and dare I say it – better qualified for the job than the past two governors were.
ALEC HOGG: He certainly has been groomed for this. He was taken over from Treasury three years ago, and the way that Gill Marcus hugged him and the way he was embraced by the President – we saw it all, live on television. I suppose it's not that often that one gets economic news in the breaking sense, but it does appear as though everybody involved is very happy as Christine was saying earlier, as well.
SASHA NARYSHKINE: One hundred percent. I think it's a net positive for South Africa.
ALEC HOGG: Earlier this morning, our colleagues Dave Williams and Thumisho Grater were talking to Judge Mervyn King. He was saying that he doesn't think that the structures of corporate governance would allow Ketso Gordhan to go back in as a CEO of PPC. That's an interesting curveball, which maybe not all of us have considered.
SASHA NARYSHKINE: I guess it would be in his best interest to punt the very guidelines that he set out, but I think it's interesting. We were talking off-camera and we were saying that ultimately, it's the people who vote for the Board and you get what you vote for, so if you have (in a sense) a Board, as you've said time and time again, that are wonderful managers but not necessarily entrepreneurial in type that's a shareholder issue. It has to be addressed each and every time that the shareholders are asked to vote on the Board members. It will be interesting to see what happens and transpires the next time around because maybe all those shareholders – including the PIC – are now going to be saying to themselves 'okay, what next for our shareholding'. Obviously, the PPC share prices reacted negatively, not only to Gordhan leaving but also, seemingly stuck now in a position where he won't be able to get his job back.
ALEC HOGG: Yes. It's quite a curveball to throw in there because you would have thought he had the support of the shareholders. They want a good capital allocator, but the capital allocator is now being, I suppose, jettisoned by the Board. Short of changing the whole Board, he's not going to get back in.
SASHA NARYSHKINE: No, I don't think so and again, that boils down to 'what do the shareholders want' and maybe this is a great time for them to be able to go back and perhaps even engage with each other as to 'what now, from this point on'.
ALEC HOGG: Yes. The shareholders need to take those responsibilities obviously, a lot more closely as do the shareholders of Ellies. There's an interesting story. You saw the announcement this morning.
SASHA NARYSHKINE: Well, the business is actually named after the biggest shareholder. I think Ellie Salkow owns over 30 percent, so now they need to recapitalise the business and the rights issue.
ALEC HOGG: What went wrong there? We had Wayne Samson, the CEO in the studio a year ago…
SASHA NARYSHKINE: June, last year.
ALEC HOGG: He walked out and said he's bought some more shares, and there they were, on SENS.
SASHA NARYSHKINE: Like R6.60 or so and they find themselves at R1.50 and the prospect of a rights issue, and jettisoning some of their own businesses. Which ones? You can't be sure, at this point. It seems like a case of 'reliant on the growth of another business' or some certain guidelines decided by ICASA, so we were all expecting new competitors to market in the satellite TV business. They had ramped up in anticipation of that and unfortunately, due to regulatory hurdles not being cleared, suddenly you're stuck with all this inventory, debt associated with ramping up that business, and it's going even worse in a way.
ALEC HOGG: It's the second time they've done it, though. If you recall, they did the same thing with generators, which might be a good business to invest in right now, given Eskom's problems and warnings. However, at the time they invested in generators, there weren't the feared brownouts or load shedding.
SASHA NARYSHKINE: Unfortunately, the earnings have been very volatile, associated with some business that at the time – remember, Eskom re-changing of everybody to the lesser, energy intensive… There could be a second round effect there for Ellies. That could be positive, but who's going to pay for it? Certainly, not Eskom, at this point.
ALEC HOGG: It looks like they're good entrepreneurs but maybe they take too many chances. If you're a 'widows and orphans' fund or if you're a long-term investor, the first rule is 'don't lose money'. These guys have shown that they're quite adept at losing money.
SASHA NARYSHKINE: I guess hindsight is always perfect sight. It could have gone a lot better for them, having taken a calculated risk.
ALEC HOGG: The point is that with stock like this, the way they're operating it… They're very entrepreneurial, which is not a bad thing (always), but just know that you don't always get it right.
SASHA NARYSHKINE: You don't, and I think there's another reminder as well, for the people who collect the revenues from these businesses, that the business cycle can turn ugly for you.
ALEC HOGG: It's not easy. It's no 'push button' game – the business environment -, whether you happen to be selling generators or taking a punt on it, whether you happen to be doing what they did lately – supporting the guys at etv with their Open TV challenge against DSTV. Well, that doesn't seem to have gotten off the ground and it's certainly hurting where shareholders don't want it to hurt. That was Sasha Naryshkine, who is a Director at Vestact.
After the break, we're going to discuss that 12.7 percent price hike that has been granted to Eskom – more that we have to pay for electricity. Is it fair? Don't go away.