Indholdsfortegnelse for 3/18/2021 i Finweek - English

South Africa’s GDP figures were published just as I started writing this week’s letter. On the face of it, they don’t look bad, with the economy expanding by 6.3% quarter-on-quarter annualised (a figure used to extrapolate the movement between quarters to the full year) during the final three months of last year. That compares with a 67.3% expansion in the third quarter of 2020, after the devastating contraction of 51.7% in the second three month period of last year, when the economy was locked down. For the whole of 2020, the economy contracted by 7% compared with a meagre 0.2% expansion in 2019. In real terms (or based on 2010 prices), GDP stood at R2.93tr last year. In 2016, the GDP, according to this measure of Stats SA, was R3.07tr.…

“I can’t survive without results.” — Newly appointed director-general of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, told CNN’s Richard Quest on her first day in office on 1 March 2021 the bottom line is that she becomes unhappy if she cannot achieve anything and that she cannot survive without results. This economist and former finance minister of Nigeria made history as the first woman and first African to hold the office. Former WTO leader, Pascal Lamy, said Okonjo-lweala brings stature, experience, a network and a temperament of trying to get things done to the table. Key to her success will be her ability to operate in the centre of a “US-EU-China triangle,” he said. “That indicates just how complicated this was or is.” – Christo Wiese, Steinhoff’s former chairman,…

Former BHP CEO Marius Kloppers gained notoriety for once dissuading employees in the Australian firm’s head office from eating at their desks. The aroma of last night’s warmed-up Coq au Vin, for instance, was not conducive to the business, Kloppers – a committed vegetarian – was trying to create. Today, employees think quite differently about congregating anywhere – never mind the corporate canteen – owing to Covid-19. The disease has also changed attitudes towards work-from-home, most likely broadening its adoption. Business travel and virtual meetings, especially as a way of including different, previously unheard voices, are other potential changes. The disease has also inspired other technological advances in the workplace, such as the social distancing and contact tracing software developed by Anglo American. It is hoping the technology will live…

Reunert is a South African-based company that specialises in industrial goods and services. It manages several businesses focused on electrical engineering, information and communication technologies, as well as applied electronics. Reunert owns well-known brands, such as Nashua, CBI-electric and Reutech. The group’s history dates back to 1988. Today, its operations are mainly located in SA, with minor operations in Lesotho, Zimbabwe, Australia, Sweden and the US. Share price history Reunert’s share price ranged between 8 850c/share and 5 100c/share for ten years between 2008 and 2018. The share price became more volatile within its range when the company was embroiled in a restraint of trade wrangle with John Holdsworth in 2014, the ex-CEO and major shareholder of ECN Telecommunications and his business AppChat. Holdsworth was the founder and CEO of…

SEA HARVEST A great little catch Sea Harvest is a great little company in an industry that I really like. Fish is an important source of protein and protected by fishing rights. The challenge for participants lies in the distribution and the actual cost of the catch, which is largely driven by the diesel price. Felix Ratheb, CEO of Sea Harvest, commented to me that their big challenge was moving goods – normally destined for the hospitality industry – into retail, something they managed to do well. The company’s Australian unit also had a knockout year, after some struggles in the previous years. On a price-to-earnings ratio (p/e) of about 11 times, and a dividend yield of almost 3%, it offers great value, especially when Sea Harvest’s aquaculture business will…

covid-19 has changed many things about the world and how we live in it. It has been interesting to observe how people’s behaviour has changed and how this is impacting not only the way we live, but also on asset prices and investment cases. Recently, vast numbers of people in the US have moved away from major north-eastern cities to Florida. Probably less for the warm weather and more for a lack of state income tax. Either way, during the pandemic, an estimated 950 people daily have permanently relocated to the south. This is not an isolated migration tendency though, since across the US, thousands of people have left their tiny apartments behind, in search of more space. This has increased competition for houses across the country, with many selling…

most of South Africa’s asset management firms are either privately held or sit within broad larger entities, such as financial institutions. Within those broader groups, the performance of the tied asset managers is largely inconsequential in terms of group share performance. However, there are a few truly independent listed asset management firms that are worth a look for retail investors. The lack of independent listed options is not surprising when one considers their business models – generally light on capital expenditure, with the only real cost being employees. There is almost never a reason to tap the markets for capital, though Sygnia’s acquisition of DBX demonstrates its utility in certain cases. Some of the listed independent asset managers were unbundled from larger financial institutions and have remained listed for various…

Anchor Capital’s delisting demonstrates neatly the problems with listing an asset manager. At the time of making an offer to shareholders last year, management commented on the poor valuations JSE investors tended to place on small-cap companies. Vunani Limited, thinly traded on the JSE, can attest to the same difficulty. After Anchor’s share price rose appreciably after listing in 2014, partly driven by the success of its flagship equity fund, it then watched its valuation steadily slump from 2016 to 2020 when the delisting move was floated. “Asset managers need to think long and hard about the scenario in which they may want to raise capital via the exchange. Anchor was an exception because they listed, went through a nice period of performance and growth and then major shareholders bought…

1. No poverty. Economic growth must be inclusive to provide sustainable jobs and promote equality. 2. Zero hunger. The food and agriculture sector offers key solutions for development and is central to hunger and poverty eradication. 3. Good health and well-being. Ensuring healthy lives and promoting the well-being for all at all ages are essential to sustainable development. 4. Quality education. Obtaining a quality education is the foundation to improving people’s lives and sustainable development. 5. Gender equality. This is not only a fundamental human right, but a necessary foundation for a peaceful, prosperous and sustainable world. 6. Clean water and sanitation. Clean, accessible water for all is an essential part of the world we want to live in. 7. Affordable and clean energy. Energy is central to nearly every…

the last eight months at AngloGold Ashanti have been curious. First came the resignation of its CEO, Kelvin Dushnisky, barely two years into the job. Then, about four months later, the firm’s chairman, Sipho Pityana, quit. Former Absa CEO, Maria Ramos, appointed to AngloGold’s board in 2019, took over its running, but no permanent replacement was found on the executive side of the business for Dushnisky, whose departure had been pockmarked by speculation of tension between the board and South Africa’s state-owned Public Investment Corporation (PIC). Dushnisky had repaid a $800 000 bonus for joining AngloGold after it was recognised that he had earned a bonus of $926 160 on leaving Barrick Gold, his former employer. AngloGold denied that Dushnisky’s departure and the bonus confusion were connected, saying the matter…

Um’swenko This issue’s isiZulu word is um’swenko. Um’swenko means “fancy clothes” – Sunday best. The root word is the English “swanky”. As South Africans, we spend a lot of money on um’swenko. We feel good when we look good, because life is pretty tough. We trick ourselves into believing everything is fine, by changing into various outfits of um’swenko. Over the past few weeks, the country’s most carefree man (former president Jacob Gedleyihlekisa Zuma, also known as uBaba) welcomed Julius Malema, minister of police Bheki Cele and hip-hop superstar Cassper Nyovest into his home. The visits happened on different occasions but the man of the hour wore the same outfit for all three visits. Check online if you don’t believe me or if this is news to you. He wore…

If Covid-19 has done one thing, it is to lead a digital revolution. South African fintech firms have prospered. In early February, Mama Money, an app that facilitates international money transfers, announced growth in the volume of transactions of more than 500% in 2020. “The pandemic has pushed brick and mortar institutions,” says founder Mathieu Coquillon, “to explore new channels and markets that were not a priority before, especially when it comes to providing financial services for underserved communities.” Where this could not happen, fintech startups like Mama Money have filled the gap. “The biggest impact that we are excited about is how fintech will change the lives of marginalised and underserved communities to allow for upward mobility. Cost and access remain a massive barrier and we are actively working…

In the 1990s, former CEO of Amplats Barry Davison, announced a strategy to take production to 3.2m ounces per year. At the time, it was an enormously bold plan involving billions of rands in investment, but it ultimately proved to be overly optimistic. Demand did not roll out as he and his then team planned – especially in the application of platinum in fuel cells – and led to a period of overproduction that resulted in a disastrous decline in the platinum price, assisted by the world economic and financial crises of 2008. From about 2014, mines were shut, jobs were lost. Fast forward to current Amplats CEO, Natascha Viljoen, who said in February at the group’s annual results presentation and strategy update that the company could increase production by…

Renergen* is a helium and liquid natural gas (LNG) miner listed locally and in Australia, but operating in the Free State. They will get their first phase of production running late in 2021, with the much larger phase two coming in a couple of years. The latter will likely require a rights issue to fund. Helium is very much in demand for industries, such as rocketry, fiber optics, arc welding and medical equipment. The global helium industry has been stagnating in terms of new production and the US has flip-flopped on it being a strategic reserve or not. But demand remains robust. LNG is offered as a green alternative to diesel, but will be a harder sell to industry as retooling is required. I also like that the story will…

Founded in 1986, Super Group supplies transport logistics and supply chain management services throughout South Africa and has a strong footprint in the rest of the continent. It also operates in Australia, New Zealand, Germany and the UK. The company’s principal operating activities include, supply chain management, dealerships and fleet management activities. Super Group has been listed on the JSE since 1996. Share price history Super Group’s share price pulled back into a bear trend after struggling to defy resistance at 4 610c/share in February 2018. Surprisingly, even after the group decided to invest R2.1bn in several acquisitions to ensure future growth and to reduce its dependency on the volatile SA economy and emerging market turmoil, the share price continued to fall. The company aimed for its geographical diversity to…

the recent commotion in share markets, owing to the revival of US treasury bonds, seems to be an important focal point for markets in the near future. Stronger economic data could possibly let these treasury bonds increase even further The returns (or rates) of treasury bonds are tracked by investors for many reasons. The returns are paid by the US government as interest on borrowing new money through the sale of these bonds. US treasury bonds are loans to this country’s government. The tenure of bonds can fluctuate from weeks to as long as 30 years. As these bonds are backed by the US government, they are regarded as a safer investment than shares. Bond prices and their returns move in opposite directions – declining prices increase the yields, while…

the end of the Covid-19 pandemic is not yet in sight, and people are already speculating about the next big risk to the investment world. One such risk must be the concern around inflation that may get out of hand globally due to an increase in money supply as a result of multiple stimulus packages. Rather than discussing the potential impact if US inflation risks get out of hand, like they did in the 1970s, I want to consider if there is a potential correlation between US inflation and precious metal earnings and the potential impact for South Africa. When we look at one of the most renowned precious metal indices, the S&P GSCI Precious Metals Index, and we place its annual performance relative to US inflation growth (CPI), there…

Unbundled as Old Mutual’s international division in 2018 and rebranded to align with a subsidiary, Quilter is, not strictly, an asset manager. Rather, like the entities known as Linked Investment Service Providers (LISPs) in SA, Quilter provides investment platforms and multimanager solutions for financial advisors in the UK. “Quilter’s business model has moved away from picking stocks and the business sold its last single-strategy asset management component two years ago,” says Protea Capital Management CEO Jean Pierre Verster. “So far, the business model seems a good one, given regulatory changes in the UK. Avior Capital Markets specialty finance analyst David Talpert explains that Quilter is listed on the JSE despite having no SA operations and that the company provides an interesting alternative to the traditional asset management space. “The company…

The lack of a single set of standards to measure impact investing, including ESG outcomes, have plagued the investment industry during the infancy of this investment theme. Nowadays, asset managers are moving closer when it comes to measuring the impact of their investments. “Local fund managers have started adopting standardised frameworks to measure, manage and report on the impact of their investments,” says Angelique Kalam, manager for sustainable investment practices, and Rirhandzu Sithole, an impact investment analyst, at Futuregrowth Asset Management. “To ensure transparency and comparability, fund managers have adopted international standards, the most popular being the sustainable development goals and the Global Impact Investing Network (GIIN).” They say the adoption of international standards has prompted local fund managers to define “what success looks like” and how it will be…

There are no longer any doubts that South Africa’s labour market is suffering from a chronic shortage of critical skills, killing any prospects that our country could develop into a fast-growing, middle-income economy. SA is also home to probably the world’s most militant and strike-prone labour that always keep investors and capitalists on tenterhooks. Only the toughest capitalists stick it out and those that cannot take it anymore, exit the SA market to look for better investment returns elsewhere, where labour is placid and demands less pay. The scarcity of critical skills and our strike-prone labour are often listed by investors and financial pundits as some of the biggest contributors to SA’s anaemic economic growth. The government has not found a policy cure for our low-growth problem since the collapse…

Connectivity solutions provider, SES, will launch a satellite-enabled communications system by the end of this year, called O3b mPower which promises to significantly boost connectivity in remote areas in Africa and the mobile industries. Daniel Schapiro, sales director of SES Networks in Africa, says the company launched its first O3b medium orbit (MEO) satellite communication-based solution in 2013, with the name reflecting the company’s wish to bring connectivity to the 3bn people who did not have access to it at the time. “O3b mPower will take this a step further, by allowing users to enjoy the highest level of communication achievable anywhere in the world. With its extensive reach, between 50 degrees north and 50 degrees south, it promises to cover up to 96% of the global population and extend…

African Rainbow Minerals (ARM) is a SA mining company with a wide range of mines, including platinum, iron ore, coal, copper and gold. ARM’s Goedgevonden coal mine near Witbank is a flagship of their joint venture with Xstrata and produces 6.7m tonnes of coal per year. ARM owns 20% of Harmony Gold, with three mining operations in SA. ARM’s interim results through 31 December, released on 3 March, shows a 134% rise in interim headline earnings to a record R5.04bn at end-December 2020 – compared with R2.17bn, due to higher commodity prices. The company doubled its pay-out to shareholders, declaring an interim dividend of R10 per share compared with R5 for the comparable period a year ago. ARM dodged the Covid-19 carnage, but its headline earnings plunged in the coal…

titto Mboweni, minister of finance, has delivered a decent budget. As always, the proof is ultimately in the delivery, especially as some assumptions (especially around future GDP growth) seem optimistic. The good news is that the minister raised the tax brackets for personal income tax by 5% (keeping us a little ahead of inflation) and announced a one percentage point reduction in the income tax rate for companies from 1 April next year. In other words, for returns being submitted after April 2023. But I want to focus on how the budget impacts our investments. The first is the annual limit on taxfree contributions, which remained unchanged, with an annual limit of R36 000 and a lifetime cap at R500 000. The latter is not a concern for now, because…

an old phenomenon is spooking global markets again. After almost four decades of low inflation, the benchmark ten-year US treasury bond has spiked to 1.6% from a low of 0.6% in 2020, amid concerns that an economic recovery after the pandemic in the US, together with higher consumer spending and oil prices, could see consumer inflation rise measurably. Inflation has been ticking up in the developed world but is still low by historical standards. Higher bond yields in a previously safe-haven market means an adaptation to higher prices in the economy. Higher inflation is a negative for the normally staid bond market. Investors want to be compensated for the losses experienced as rising inflation results in real losses. Normally a sell-off in the bond market benefits equity as it envisages…

the month of March has a traditional twang to it in the investment community; it is the time when Warren Buffett publishes his letter to the shareholders of Berkshire Hathaway (one can find the letter on berkshirehathaway.com). For me, it is always a great read that, more often than not, makes me a smarter investor after having read it. This year he again starts the letter with a criticism of the general accepted accounting principles (GAAP) that is used in the US. GAAP shows Berkshire with earnings of $42.5bn for 2020. Yet, as Buffett points out, this figure is wrong, as the actual (operating) earnings figure is $21.9bn. The difference is added capital gains from stocks they have sold and $26.7bn of capital gains from stocks they still hold (there…

Listed asset managers must take the rough with the smooth: inflows and outflows can be capricious; shareholders can be tetchy about bonuses paid to executives and the rigours of meeting listing conditions may or may not be worth the higher profile in the market a listing may bring. BoA’s analysts Lam and Middleton, in a report titled, European Asset Management Year Ahead 2021: Finding the Next Leg of Growth, expect the key trends in asset management to be structural growth in private assets and passively managed products as low interest rates persist, cyclical rotation into value and emerging market funds and greater capital deployment by asset managers as earnings improve − including through dividend pay-outs and share buybacks. Under these conditions, which listed asset managers stand the best chance of…

the market for assets with a focus on positive environmental, social and governance (ESG) outcomes are small for retail investors in South Africa. Amid the global institutional-led surge in these so-called ESG investment instruments, issues remain, such as establishing a single unified code of measurement and the rollout of retail-tailored products domestically. SA pension funds are increasingly including ESG outcomes in their investment mandates. Treating the planet and climate kindly, uplifting people sustainably from poverty and addressing ethical business practices are, among others, part of these outcomes. Those who want to tilt their own portfolio to address ESG outcomes through a broker is, however, faced by an extremely difficult task. The range of products or assets are limited in SA. “[There is] still a pretty small selection for retail investors,”…

be it a classic snoek braai, cape salmon, galjoen (South Africa’s national fish), rock lobster, calamari to go with the mains, a simple hake or tuna steak – fish is inarguably among SA’s favourite proteins, not forgetting pilchards, seemingly the finance minister’s favourite. The nation’s commercial fishing industry is tasked with meeting not only the local market demand for fish and fishery products, but that of the rest of the world too, especially as the human population continues to grow. SA’s listed fishing industry, comprising a handful of companies, had a lot more than sea tides and the pandemic to contend with in the previous year. Lockdown measures impacted fishing and processing ability, reducing factory cost recoveries, however, stringent cost control and lower fuel prices helped offset this to varying…