Sasol share price 35 years after listing: 28.5% annual return

As you'll hear from this interview, Vestact director Sasha Naryshkine does his homework. Sasol, he says, was listed in 1979 at 100c a share. Had you been fortunate enough to buy the stock 35 years ago and simply put them away in a drawer, their annual compound growth rate of 28.5% handily surpasses even that of the world's best investor, Warren Buffett (20%). Put differently, R10 000 invested at Sasol's listing would worth R6.4m today, without taking into account the dividend stream. Apart from his assessment of Sasol's results Sasha also looks at the figures today from AVI and tomorrow's numbers from Steinhoff. – AH

ALEC HOGG: Sasha Naryskine, Director at Vestact is with us in the studio for some insights. Well Sasha, the Sasol results will make a lot of people happy – lots of shareholders.

SASHA NARYSHKINE: Lots of shareholders….it was listed in 1979 at R1 per share, I think it immediately popped to R2.  I spoke to people who were around then. I'm too young to have been around then. It would have been an absolutely fabulous if you'd gotten in at that time when the state was divesting. Remember, this was company, principally founded in order (as you said) to offset having to import oil because geographically, we are very far away from those locations.

ALEC HOGG: Apartheid South Africa, as well. It was the Nazi's process – Fischer-Tropsch.

SASHA NARYSHKINE: In fact, it was founded because they had these coal deposits internally in German, and they themselves had lack of access to oil products, so the Synfuels business is still the most profitable of all those business, notwithstanding the fact that they have bits and pieces here and there. Although you said they spent roughly 40-billion in CapEx, they indicated in the results that in 2015 and 2016 combined, it's going to be about R115bn.

ALEC HOGG: They're going to start cranking up that Louisiana operation.

SASHA NARYSHKINE: Correct. That's the future of the business. If you rewind six/seven years…everyone was getting really excited about the coal-to-liquids possibilities in India and China. Those were scrapped, possibly because of Copenhagen 2009, where as far as I understand it, South Africa actually drafted part of that treaty, so maybe there's a result of legislation by ourselves having a direct impact on a South African company.

ALEC HOGG: The share price has been an absolute winner. In the last 18 months, it's come from around R380.00 per share, and trading today at R650.00 per share so by now, the BEE participants would surely be in the money.

SASHA NARYSHKINE: Positively in the money – in a 'long way' in the money. We've known each other for longer than a decade. I think they were somewhere around…between R50.00 and R60.00 the first time we shook hands, so it's been a fabulous performer. In part, the weakening currency in this period had juiced up the share price, which just goes to show you how geared they are to a much weaker Rand. If, in the next 12 months we're in a period where you're not expecting value growth on Synfuels – and the Brent price has actually been pretty sideways (in fact, down) – and the currency's going to be flat, they're probably only going to match it like-for-like. What they do say however, is that gearing is going to rise because they're probably going to be a little bit more forthcoming with the dividend, even though it was a record because traditionally, they're a very good dividend payer, plus also the aforementioned Capex.

ALEC HOGG: It's interesting, just to dwell on there a little bit longer. Rob Davies' comments last week I guess, would be the one big risk that you have to see in Sasol. If he tries to force them to charge less for the petrol in South Africa for whatever reason he has in his mind… Firstly, it's going to create uncertainty for any kind of investment and particularly for Sasol, who are lining up another big investment in this country. Secondly, we've done it once before here. We've changed the rules at BHP Billiton and we've seen the consequences of that.

SASHA NARYSHKINE: Look, you have to charge market-related prices. Ironically you could argue that if Government's economic policy was more certain and more conducive to job growth, you would have a much stronger currency and in fact, the fuel price would be cheaper as a result of better economic policies. Putting in price controls doesn't work. You've seen in Venezuela that President Maduro wants to institute some sort of fingerprinting so that people can stop hoarding. Ironically, they have the cheapest petrol almost, anywhere in the world.

ALEC HOGG: Extraordinary. The social engineers think they can get it right even though the market…

SASHA NARYSHKINE: Ironically, the market would have gotten it right/better before them.

ALEC HOGG: And it always has, through history. Okay, well that's Sasol. Outside of Sasol, our JSE seems to be pretty solid at the moment.

SASHA NARYSHKINE: But there were some results from AVI. I think revenue topped 10-billion for the first time and strangely, inside of there you now have the 'tea and biscuits' business, if I can call them that.

ALEC HOGG: Five Roses tea.

SASHA NARYSHKINE: Beautiful businesses.

ALEC HOGG: Can you beat it?

SASHA NARYSHKINE: You're not going to get excited about this business, but I don't think it's ever going to disappoint you. In fact, they're a brands business, so they're not necessarily focused on manufacturing and selling of foodstuffs, although that is what they do. Remember, they've bought Apparel at Geiger and Spitz (the shoes), which worked really well. However, in a consumer environment where it's a little bit more muted, ironically, their best performing businesses have pulled back a little bit and aren't as profitable, but their food strategy and food branding businesses have done much better.

ALEC HOGG: It's not done much to the share price, though. In two years, it's bounced between 50 and 60. It's around 64 at the moment though, so I guess it's one of those that you put into your portfolio and just let time… If you want to buy good brands, they won't disappoint you.

SASHA NARYSHKINE: They have solid brands and I think there's sub-Saharan growth, so with all the retailers growing into sub-Saharan Africa, they'll naturally take those products with them.

ALEC HOGG: Take Five Roses with them. Doesn't it say something about Adcock Ingram, which is one I've been moaning over to make a significant bet of my portfolio (in other words, it would be the second share I own).

SASHA NARYSHKINE: You have to start somewhere, Alec.

ALEC HOGG: You have to start somewhere. The other one is Village, which has not disappointed thus far. The more I look at Adcock Ingram with those fabulous brands… Joffe is a master capital allocator – and you can buy for 25 percent less than he paid – it has to be one to seriously consider if you're a long-term holder.

SASHA NARYSHKINE: Look, I think we've been lucky. We've owned Aspen since R30.00. We're really lucky in choosing a business that was looking to explore beyond our borders and Brian Joffe actually made that comparison. He said 'how come you have these guys'. A lot obviously has to do with the management team at Aspen, who've been nothing short of spectacular in terms of their deal making.

ALEC HOGG: You don't find a Stephen Saad behind every bush.

SASHA NARYSHKINE: No. There are very few of those. He's probably the smartest dealmaker in KZN, right.

ALEC HOGG: Probably. You can't bring too much competition.

SASHA NARYSHKINE: I think the reason why Brian Joffe downplayed it (or this is our view anyhow) is that they're possibly looking to buy more at a lower price. When everyone's down on it and they say 'oh, we've made a mistake', maybe they can take a more significant stake, have a controlling stake, and then have control at the business and push their approach.

ALEC HOGG: It's two percent of his portfolio. Why would he fiddle around? I saw the Business Day headline suggesting as much, but it's not Joffe's style. He doesn't need to knock down the pricing for a thing that…

SASHA NARYSHKINE: Into something a little bit more significant… The more important part in Bidvest is what they're going to do about that international food services business, whether they're going to seek a London listing in order to be able to raise capital at a cheaper cost, obviously and then be able to pursue transactions like the one in Chile, and recent ones in the U.K. and Italy.

ALEC HOGG: What about the Bidvest competitor in the local market in lots of areas? Steinhoff: we have their results coming up tomorrow. The market did not like the trading update. The share price has been under a lot of pressure. I'm going to see Marcus Jooste tomorrow afternoon with a camera. It won't be on this show, but it will be later in the day. What are you looking for, from Steinhoff?

SASHA NARYSHKINE: Look, they're extraordinary financial engineers and I mean that in a very positive sense. They're able to pull off coups in the middle of the night without anyone even noticing. We suddenly turn around six to eight months later and say 'what happened here? How did they manage to engineer' and obviously, the cap disposal was key in terms of their listing in Germany. That will be a key part of 'where to, next' for the rerating of the stock. What I mean by that is German investors will look at Steinhoff and say 'okay, we understand you're a European business, but hold on a second. Here's a pretty exciting developing market business. We can pay a 13 or 15 multiple' and traditionally, Steinhoff has always traded at a nine or a ten, so you could get uplift in the share price – what a new sub-sector of investors are willing to pay for it, on exactly the same earnings.

ALEC HOGG: R125bn company and if you consider that when Markus Jooste started with Bruno Steinhoff – I remember that one listed in 1998 – it had a thing called Gomma Gomma.

SASHA NARYSHKINE: Everyone remembers that.

ALEC HOGG: A tiny, little business and yet today… Well, the share price is up a little bit this morning – up by two percent – so I suppose somebody is taking a more positive view on the stock looking ahead, but it's come off a long way from R60.00 to R50.00 in the last….

SASHA NARYSHKINE: But they did a rights issue in that time, too.

ALEC HOGG: Remember, the rights issue was 52.

SASHA NARYSHKINE: Yes, so you're underwater.

ALEC HOGG: So as with Joffe at Adcock, you can actually buy into Steinhoff today at cheaper than lots of smart people were prepared to pay for fresh stock just a week or so ago.

SASHA NARYSHKINE: Exactly.

ALEC HOGG: Sasha Naryshkine is a Director at Vestact.