Finweek 10 September by New Media B2B

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contents

from the editor

Opinion

JANA JACOBS

6 Sin taxes: the devil is in the detail 7 Can I trust government with my savings?

orking to a regular bi-weekly print deadline tends to turn life and the way you measure time into weekly increments. When one deadline passes, it’s back to planning the next, each time another week getting marked off, and the process starts again. As I write this, the finweek team enters its 24th week of working from home, having entered the lockdown in the middle of a print deadline and needing to figure out how to meet it entirely remotely. Luckily, given the nature of the print production process, during which, no matter how much you plan, something unexpected will inevitably occur, our very small team has become very adept at navigating crises. As a former colleague of ours always used to say: “It’s the finweek way.” So, we’ve adjusted to putting this publication together from different corners of Johannesburg and found a rhythm that has made remote deadlines far less stressful and difficult than we anticipated. We even manage to take load-shedding in our stride. Because at least there is a schedule. Just check ‘Eskom se Push’ to determine when you’ll be hit and work around it. Except if there’s rain, as there was on this year’s wonderfully bright Spring Day. Then all bets are off, because then the chances are that a poorly-maintained substation will splutter to a halt. As was the case in my suburb and surrounds. My perfectly planned evening of production was summarily cast into darkness. Normally, the unscheduled blackout would have been met with a variety of expletives shouted into the void, but not this time. Luckily, (for now) there’s alcohol at home to accompany the dismal indifference. The thing is, you can get as angry and as frustrated at the events that have brought our country to this point, but it won’t change the fact. The inability to keep the lights on is but one of the many things we just must get through. We’re nothing if not resilient, right? It’s the South African way. But now, just over 130 weeks after Cyril Ramaphosa was elected as president, it seems that he is finally taking charge to address one of the most serious threats to our country. The festering corruption that citizens have become beholden to and has locked SA down prior to the Covid-19-induced closure of our economy. Will his tough stance, seemed to be supported by the ANC’s NEC, be able to turn things around and deliver us from indifference? Maybe. Hopefully. But I won’t be counting the weeks. ■

In brief

8 News in numbers 10 Taking the guesswork out of farming 12 No pot of gold at the end of the dividend rainbow 13 Rethinking rhetoric around expropriation 14 Not everyone is sharing the pain 15 Covid-19 stats: How SA measures up

Marketplace

16 Fund in Focus: A fund for capital protection 17 House View: Massmart, PSG 18 Killer Trade: Pick n Pay, Shoprite 19 Invest DIY: Digging for nuggets of clarity 20 Investment: Spring blossoms to consider 30 Simon Says: ARB Holdings, banks, Dow Jones Index, Gold Fields, Italtile, Murray & Roberts, Phumelela Gaming & Leisure, shopping malls, Standard Bank 32 Invest DIY: Be careful what you wish for 33 Markets: Let’s talk about bubbles 34 Technical Study: Profits like magnet for prices

Fund Focus

21 Finding your way through the maze: Opportunities in global unit trusts

Cover

36 Alcoholic beverages: A triple whammy

On the money

42 Motoring: Is this really ‘the one’? 44 Management: Protecting data now fully law 45 Quiz and crossword 46 Piker

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opinion

By Johan Fourie

ECONOMY

Sin taxes: the devil is in the detail

Suggestions that higher sin taxes will create a less sinful society may be well-intentioned, but can easily lead to worse outcomes, not better. e all consume way too much sugar than is good for and income levels respond to a price increase. They then simulate us. I’ve tried hard to reduce my own sugar intake over what would happen with the introduction of a tax. the last two years, and, I thought, quite successfully, Their results show that the sugar tax would have had the intended until a friend recently pointed out the sugar content consequence: The Soft Drink Industry Levy of 2018 reduced the amount of Mrs Ball’s chutney and All Gold tomato sauce – staples in the Fourie of sugar consumers get from soft drinks by 21%. They also find that household. He won’t be invited for dinner again. although consumers switch to alternative sources of sugar – both drinks But the consequences of our overindulgence is no joke. Excess and snacks – these do not fully substitute the sugar lost from soft drinks. sugar consumption is linked to a range of diet-related diseases, such But because they use individual-level data, they can show that as diabetes, cancer and heart disease. In South Africa, these issues this overall effect also masks large variation between different are of particular concern. The 2016 South African Demographic age and income groups. They first show that age is correlated to a and Health Survey finds that 68% of women, 31% of men and 13% preference for soft drinks, but that this relationship is U-shaped: “On of children are overweight or obese. The National Income Dynamic average those aged 13-21 have stronger preferences than those aged Survey exposes the large gender gap for the poor: while 22-30, who in turn have stronger sugar preferences than older only 4% of men in the poorest income quintile is obese, individuals, but among older individuals sugar preferences 31% of women in the same quintile are. That is why are increasing in age.” obesity-related diseases are among the top causes The impact of the tax is quite different on these of death in the country; its prevalence only two groups. The good news is that kids seem to rivalled by HIV/Aids. respond best to the sugar tax; those aged 13-21 Most of these sugars come from what reduce their sugar consumption in response to we drink. The World Health Organization the tax by over 40% more than those above 40. recommends that a male adult should The bad news is that the tax is almost completely consume no more than 12 teaspoons of sugar ineffective at targeting the on-the-go sugar intake per day; a 330ml can of Coca-Cola contains of people with a consistently high level of dietary eight. Such soft drinks are a particularly large sugar in their overall diets. This is because, the contributor to dietary sugar among the young, the authors suggest, “they tend to have strong preferences poor, and those with high overall dietary sugar intake. for sugar and to be less price responsive”. Introducing The obvious question is what to do about it. In 2018, sugar taxes benefitted moderate users – who cut down their SA chose to tax sugar-sweetened beverages by introducing consumption – but had little effect on those most addicted to it. the Health Promotion Levy. The tax caused an average 11% increase These results suggest that an increase in sin taxes should be in the price of soft drinks. And it seems to have had an immediate introduced with caution. Humans do not all behave the same – and is impact: According to a Fitch Solutions report, sales of carbonated the reason why social science is such a difficult, but also wonderfully drinks fell 5% in 2018 to R6.8bn, down from R7.2bn. But the tax interesting area of study. Raising sugar taxes may benefit some, but did generate more than R3bn in revenue for National Treasury, could harm others who, because of strong preferences and addiction, suggesting that consumers continued buying soft drinks. This will see more of their budget spent on things that are bad for them. suggests that they are price inelastic, meaning that even if the price If this is true of sugar, it is even more so for the two classic sin taxes: increases, demand for it won’t decline proportionally. cigarettes and alcohol. The ban on the sale of cigarettes The fact that consumers are unlikely to shift to during the first three stages of lockdown was intended to The tax did generate more than other products has consequences: A 2017 Econex reduce consumption. Those that one might classify as social Consulting (now FTI Consulting) report noted that smokers might have been able to adjust their behaviour. But the poor will be most affected as cheaper soft drinks for the vast majority, I suspect, things were not that simple. typically contain more sugar. These consumers were forced to illegally purchase poorer in revenue for the Treasury, Two years after the implementation, the jury is out quality smokes at massively inflated prices. To do so, they suggesting that consumers on whether SA’s Health Promotion Levy has been a would have had to cut back on other expenses. continued buying soft drinks. success. But a new research paper forthcoming in Suggestions that higher sin taxes will create a less the American Economic Review may provide clarity sinful society may be well-intentioned, but can easily lead on how consumers behave. It uses Britain, which also implemented a to worse outcomes, not better. As so often in economics, the answer sugar tax in 2018, as case study. To identify whether a sugar tax was is: it depends. It depends on the elasticity of demand, which in turn indeed successful at reducing sugar consumption, the authors use a depends on preferences, whether there are good substitutes, and novel survey of more than 8m observations from 5 555 individuals other social and cultural factors that are often ignored. The devil is in between 2009 and 2014 that recorded all their purchases of snacks the detail. ■ and non-alcoholic drinks for consumption outside the home. This editorial@finweek.co.za Johan Fourie is professor in economics at Stellenbosch University. allows them to determine precisely how individuals of varying ages

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R3bn

finweek 10 September 2020

www.fin24.com/finweek

By Andile Ntingi

opinion

XXXXXXXXXXXXXX STATE BANK

Can I trust government with my savings?

A proposal for a state-owned bank is gaining traction. And it looks like pensioners will be forced to capitalise it. hen I heard that the ANC was calling for the infrastructure development. establishment of a deposit-taking state bank to According to Business for South Africa (B4SA), our country has an compete with established commercial lenders, I aggregated pool of R14.2tr invested funds, split between banks’ assets wondered to myself who in their right mind will worth R5.8tr and regulated savings of R8.4tr. entrust their hard-earned savings with this bank, given high levels of Pension funds form the bulk of the regulated savings; hence they have corruption and mismanagement of state-owned enterprises (SOEs) at attracted the attention of the ANC as a funding source. the hands of ANC cadres. Finance minister Tito Mboweni has been championing the The alleged involvement of the ANC in the looting and demise of VBS establishment of the state bank long before the ANC bought into the Bank has eroded public confidence in the ruling party, whose leaders concept. His enthusiasm about the bank has seen National Treasury are now facing a public backlash for raking in millions of rand spearheading efforts to get the project implemented. from corrupt government tenders for personal protective However, the project is overshadowed by the Covid-19 equipment in the fight against Covid-19. pandemic’s damage to the economy, which is expected to Besides the fact that I don’t trust the ANCshrink by 7.2% this year. While tax revenue is heading south, led government to operate a bank ethically and government debt is expected to race northwards. competently, I have two critical questions regarding In June, Mboweni projected that gross public sector this proposed banking venture. Who will run the bank debt will jump to R4tr (81.8% of GDP) by the end of and how will it be capitalised, given that government’s the current fiscal year, ending in March 2021, compared finances are in disarray following years of looting and with the R3.56tr (65.6% of GDP) he projected when he reckless mismanagement? delivered the main budget in February. The answer to the first question is that nobody knows at The spike in debt will be pushed up partly by the $7bn loan Tito Mboweni this stage who will run the state lender. However, you can bet the government received from the International Monetary Finance minister your last cent that it will be run by an ANC cadre, who may not Fund to fight Covid-19. The rapid accumulation of debt means have extensive banking industry experience. that out of every rand paid in tax, 21 cents will go towards paying I also don’t rule out the possibility of President Cyril Ramaphosa interest on existing debt. surprising us by appointing an experienced banker to run the lender During his ten-year stint as governor of the SA Reserve Bank from during its infancy to jerk up its credibility, but in the long run it will 1999 to 2009, Mboweni was an unshakable supporter of the Four Pillar eventually be captured by corrupt politicians, who will fleece it to policy that effectively encouraged the dominance of the banking industry a point where it will survive on by the Big Four lenders – FNB, Standard Bank, government bailouts. Nedbank, and Absa. The rationale for this policy It could suffer the same fate that was premised on an argument that having a few befell many SOEs – from power strong banks ensured industry stability. supplier Eskom, airline SA Airways, Critics lamented the policy. They countered arms manufacturer Denel, transport that it restricted competition and therefore and logistics parastatal Transnet and protected the profits of the Big Four. passenger rail group Prasa, to public This banking oligopoly was finally broadcaster SABC. challenged by microlender-turned-retail bank, The decline in tax revenue due Capitec, which emerged as a formidable to Covid-19 lockdown led to many competitor in the mid-2000s. parastatals having borrowed themselves to the hilt. Now the ruling party These days Mboweni’s views about the structure of the SA banking is looking for new sources of funding to recapitalise the SOEs. industry have changed completely. He first spoke publicly about The ANC’s 51-page party policy document on how to kickstart the the need for the government to create a state bank in 2018 after economy after the Covid-19 pandemic provides a clue as to what this new he failed to secure loans for his business ventures after he left the funding source will be. The document, published in July, indicates that the Reserve Bank in 2009. He is now a fervent champion of direct state ruling party has its sights set on the people’s retirement savings. intervention to address this market failure. This means that pension funds are likely to be funnelled to the stateThere is widespread support for a state bank, even from business owned bank to get it off the ground. chambers like NAFCOC, which wants to see the lender taking off. It Last year, the government amended the Banks Act to allow SOEs remains to be seen if it will realise given that pension savers may resist to apply for banking licences, paving the way for the state-owned bank having their savings used to capitalise a bank that may be looted by to be established. cadres, as we have seen with VBS Bank. ■ The ANC wants to follow up the legislative amendments to the editorial@finweek.co.za Banks Act with changes to Regulation 28 of the Pension Funds Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service. Act, a move that will compel pension funds to invest in SOEs and

Photo: Gallo/Getty Images

Finance minister Tito Mboweni has been championing the establishment of the state bank long before the ANC bought into the concept.

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finweek 10 September 2020

EDITORIAL & SALES Acting Editor Jana Jacobs Deputy Editor Jaco Visser Journalists and Contributors Simon Brown, Lucas de Lange, Johan Fourie, Moxima Gama, Glenneis Kriel, Schalk Louw, David McKay, Maarten Mittner, Andile Ntingi, Timothy Rangongo, Melusi Tshabalala, Amanda Visser, Glenda Williams Sub-Editor Katrien Smit Editorial Assistant Thato Marolen Layout Artists David Kyslinger, Beku Mbotoli Advertising Paul Goddard 082 650 9231/ paul@fivetwelve.co.za Clive Kotze 082 335 4957/clive@mediamatic.co.za 082 882 7375 Sales Executive Tanya Finch 082 961 9429/ tanya@fivetwelve.co.za Publisher Sandra Ladas sandra.ladas@newmedia.co.za General Manager Dev Naidoo Production Angela Silver angela.silver@newmedia.co.za

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finweek 10 September 2020

“PAYING CUSTOMERS WILL BE SADDLED WITH HOPELESSLY INSOLVENT MUNICIPALITIES THAT HAVE NO PROSPECT … OF PAYING THEIR OUTSTANDING DEBT TO ESKOM.” − Acting judge Anthony Millar ruled against Eskom’s electricity supply cuts to the Lekwa (Mpumalanga) and Ngwathe (Free State) local municipalities due to nonpayment, in the South Gauteng High Court. Moneyweb reported that the utility has in the last few months limited electricity supply to these two and many other municipalities in various provinces as a strategy – after losing several court battles about the disconnections. Millar said Eskom should try to resolve disputes with municipalities before taking action that brings about huge human suffering.

“ACCUSED NUMBER ONE.” − President Cyril Ramaphosa said the ANC needs to face the reality that its leaders stand accused of corruption and that the ruling party “does stand as accused number one”, in a letter to members. Ramaphosa said the party has been ineffective in dealing with corruption and in some cases allowed it to grow. Former president Jacob Zuma, whose corruption case with co-accused French arms company Thales continues this month, called the letter “fundamentally flawed” and a bid to please the country’s white minority.

“The main problem to the fiscus is not salaries; corruption, maladministration and financial mismanagement are the enemies of the fiscus.” – Reuben Maleka, assistant general manager for member affairs at the 240 000-member Public Servants’ Association, on concerns that the current wage dispute between labour unions and the government will bankrupt an already struggling national fiscus. The PSA and other unions are demanding government, which pays 12% of SA’s GDP to the public sector wage bill, according to OECD data, honour their multi-year wage agreement which will see government workers get raises of between 4.5% and 6.5%. (Also see story on p.14.) www.fin24.com/finweek

Photo: Gallo/Getty Images

in brief

>> Trend: Drones and AI for more productive harvest seasons p.10 >> Mining: Motsepe loath to dish out ARM and leg on dividends p.12 >> Froneman: Find different terminology for land issue p.13 >> Government: Can higher public sector wages be justified? p.14 >> Covid-19: SA ahead of the global curve in successful management of the pandemic p.15

DOUBLE TAKE

BY RICO

THE GOOD Hotel and casino group Sun International, which reopened 10 of its 11 casinos in South Africa at the start of July, said the recent easing of lockdown restrictions has resulted in improved trading activity. The group said it is confident about recovering from the pandemic. According to BDLive, group debt stood at R15.1bn at the end of the six months to end-June — an increase from R13.3bn in December, and well in excess of its R3.3bn market capitalisation. The company secured a string of concessions from lenders, while it had also raised R1.2bn through a rights offer in August. It announced that it had agreed to sell its majority stake in Latin American operation Sun Dreams to partner Nueva Inversiones Pacifico Sur for R2.7bn.

THE BAD

DISCOVERY PROFIT ERASED

Orders placed by the Gauteng health department for personal protective equipment (PPE) may have seen R500m in corrupt spending, according to Scorpio’s investigation into the department’s PPE purchases. Scorpio’s findings revealed that officials ordered products from suppliers whose mark-ups sometimes exceeded 200%. Officials ordered a range of items at a cost of R1.28bn, while these same items could have been bought for only R776.5m. Another finding was that more than R500m, or a quarter of Gauteng’s PPE spend, was paid to companies that were only registered as suppliers to the province after SA’s state of disaster was announced in mid-March.

Nathaniel Julies, a 16-year old boy who had Down syndrome, was shot dead by police in Eldorado Park, south of Johannesburg – resulting in civil unrest in the area. The violent clashes with police led President Cyril Ramaphosa to appeal for calm. In July, police minister Bheki Cele told Parliament that 49 cases of police brutality had been reported since lockdown started, while at least 10 civilians have been killed by security forces. Apart from denying the existence of police brutality, Cele has criticised antipolice brutality campaigns, saying they paint the police in a negative light, which would be dangerous for both law enforcement officers and law-abiding citizens. @finweek

finweek

0 cents

150%

Financial services company Discovery said its profit for the year ended 30 June could be completely erased due to provisions to take account of coronavirus and volatility in longterm interest rates. Headline earnings per share are expected to be between 90% and 100% lower (to between 78.9c and 0c compared with the reported 789c in its previous financial year). Discovery estimated the expected future cost of the Covid-19 pandemic effect to be approximately R3.3bn, based on its central (prudent best-estimate) scenario.

Northam Platinum reported that its full-year earnings rose by 150%, fuelled by higher metals prices, increased revenue and a weaker rand. Northam, which operates the Zondereinde, Booysendal and Elands mines, reported headline earnings per share of 676.3c for the full-year ended June, up 150% from 270.1c a year ago. Though the miner did not declare an annual dividend, it said it was open to “all options” for returning value to shareholders. It has in the past opted to buy preference shares in its Zambezi Platinum unit as an alternative to dividend payments.

DEFICIT WIDENING

R134.5bn

THE UGLY

ROSY EARNINGS FOR NORTHAM

South Africa recorded a budget deficit of R134.53bn in July compared with a shortfall of R99.1bn in the corresponding period a year ago, according to data from National Treasury. Deputy finance minister David Masondo told Parliament that the budget deficit is estimated to widen to 14.6% of GDP in the current financial year, which is a sharp contrast to the projection of 6.8% in February and 6.3% last year. Masondo also said Treasury can’t guarantee that SA’s national debt will stabilise by 2023/2024, but will strive to meet this target in as far as it depended on expenditure decisions within its control. Finance minister Tito Mboweni committed the government to stabilising spiralling debt at 87.4% of GDP in 2023/2024 when he tabled a special adjustments budget in response to the Covid-19 pandemic in June.

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LOAN GUARANTEE DISBURSEMENTS

R24.4bn

The Banking Association SA (Basa) said that it expects disbursements to struggling businesses under the R200bn Covid-19 loan guarantee scheme to reach R24.4bn by January 2021, reported Business Day. Even the best-case scenario, in which the industry lobby group expects loans to total R43bn, would not come close to the R67bn banks have estimated is what clients need. As at 15 August, SA banks have been able to provide a cumulative R46.22bn – in financial relief and loan guarantees – to SA businesses and individuals who are financially distressed due to the Covid-19 pandemic and national lockdown, according to Basa in a Covid-19 financial relief update. It said participating banks had received 40 292 applications – up by 615 over two weeks – for loans from the guarantee scheme, with the average size of the loans standing at R1.2m. finweek 10 September 2020

By Glenneis Kriel

trend

Taking the guesswork out of farming

Aerobotics combines aerial surveys with artificial intelligence to boost agricultural production efficiency.

ames Paterson and Benji Meltzer started Aerobotics in 2014 after identifying on-farm challenges that could be solved with aerial imagery and machine learning. The duo needed aerial and satellite imagery to identify crop threats, but there were no suitable drones available at the time that matched their needs. While many would have considered this an obvious setback, the two leveraged their academic backgrounds to build their own. Both had studied mechatronics engineering at the University of Cape Town. Paterson also completed a Masters in aeronautics and astronautics at MIT and Meltzer an MSc in neurotechnology at Imperial College London. In 2014, remote sensing was in its infancy globally and still a novel concept in South Africa, with only a few farmers in the Western Cape having access to a government satellite technology programme. “We realised that giving farmers access to software that would allow them to analyse data gathered via drone Benji Meltzer (left) and satellite imagery would bring significant efficiencies to and James Paterson the farm by helping with the monitoring of plant health and are the co-founders the early identification of problems, which can be caused by of Aerobotics. anything from waterlogging to drought, pest problems and disease,” says Paterson, who is also a fifth-generation citrus farmer from Clanwilliam. Aerobotics is now a Paterson and Meltzer decided to combine satellite and multi-continental, drone imagery with machine learning to get more powerful insights into production. Being solely reliant on satellite imagery is not ideal, as it has lower resolution and can only be taken when a satellite is over a farm at the right times, with a people business, cloudy day, for example, rendering the imagery useless. covering over 150 000 “In contrast, drones offer more than a hundred times the hectares across SA, the resolution and control over the timing of use, allowing farmers US and Australia. flexible sessions around their programmes and needs,” Paterson explains.

80-

Photos: Supplied

Early days

The start-up, which was self-funded with an investment of R50 000 from each partner, initially focused on drone services and sales, with Stellenbosch University being their first big client. The two considered the first 18 months quite tough, having to work hard and keep overheads low, while trying to solve the teething problems of serving customers in a new industry. But the business grew quickly, with the drone division being sold in 2018. Around this time, Aerobotics raised about $2m in a Series A round from Nedbank Venture Capital, US Ag-Tech Venture Capital Fund, AgFunder, US-based AngelList and SA-based 4Di Capital to fund the further development of its software and market expansions. Aerobotics has subsequently gone on to raise growth rounds from Platform Investment Partners and Naspers* Foundry. Their first software solution was aimed at the monitoring of tree health, which allows farmers to identify specific trees in an orchard that are under stress. In 2019, as an extension of their tree insight tools, Aerobotics 10

finweek 10 September 2020

Aerobotics uses drones to monitor citrus health and generate yield estimates.

launched a solution that counts fruit in citrus orchards, allowing farmers to get more efficient and accurate yield estimates. The solution not only allows farmers and exporters to improve their marketing planning, but banks and insurers are in the early stages of using the technology to understand and serve their farming clients better, according to Paterson.

Challenges

At launch, company awareness and understanding were the primary communication objectives. The team recognised the novelty of the solutions and knew that targeted information would be essential in building the brand. “We published one advertisement in a traditional farmer magazine, hosted farmer events and made use of a PR agency to raise awareness of the company. Now that people know who we are, the focus has shifted to the meeting of small groups of farmers to better understand their needs and refine our products,” Paterson says. The leap from developing new products to business management was quite tricky, given this was their first business. The market for agricultural technology has become more competitive since Aerobotics was launched. Paterson considers this a positive, as competition brings the opportunity for more synergies and awareness of the beneficial impact of digital technologies in the farming sector.

Successes

Aerobotics has won several innovation awards since it was launched, including the Macron Africa Most Innovative African Startup Award, being named one of Fast Company’s Top 50 Most Innovative Companies in the World, winning FNB’s Business Innovations Awards in 2019 and recently being selected to become Endeavor members. Aerobotics has also been on a firm growth trajectory, now being a multi-continental, 80-people business, covering over 150 000 hectares across SA, the US and Australia. They are busy with expansions into Europe. The team recognises the power of a global network, saying that breaking into foreign markets was made easier by working with fellow South Africans who connected them with the right people abroad. Farmers in these countries have proved to be generally receptive to the technology, as it presents them with a way to reduce exorbitant labour costs and other losses, save costs and improve overall farming efficiencies. Given population growth, climate change and the need for food production to double, they plan to provide the intelligent tools needed to feed the world. “At the moment most of our solutions are aimed at production management during the harvest seasons, which we would like to expand over the whole year by also incorporating solutions that would notify farmers of the phenological stages of the plant, and the best times to apply certain nutrients,” Paterson says. ■ editorial@finweek.co.za *finweek is a publication of Media24, a subsidiary of Naspers.

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in brief in the news By David McKay

MINING

No pot of gold at the end of the dividend rainbow

African Rainbow Minerals has opted for a conservative dividend, with the diversified miner saying it’s looking at new projects that will require its cash resources. here was a ripple of disquiet among analysts when Patrice Motsepe, executive chairman of African Rainbow Minerals (ARM), defended his company’s dividend final pay-out of R7/share (total dividend of R12/ share for the 2020 financial year) in favour of keeping capital aside for growth; mainly projects. RMB Morgan Stanley deemed the pay-out “modest”, especially as ARM has R3bn in cash. But Motsepe said ARM was looking afresh at new copper investments, and other project investment talks were buzzing along. Motsepe also alluded to the potential in Harmony Gold, the firm’s 13.8% investment, saying that the company had an important copper and gold prospect in the politically-fraught and farflung Pacific nation of Papua New Guinea (PNG). The fact is, though, ARM doesn’t have the best track record when it comes to projects. It recently closed its Lubembe copper investment in Zambia and for all its huff and puff, there’s little in the way of demonstrable growth. Mike Schmidt, CEO of ARM, said there was significant Merensky and UG2 expansion – types of platinum group metal (PGM) mineralisation, of which the latter is rich in high-flying rhodium – that the group was considering undertaking. But elsewhere in the portfolio, the company is exposed to thermal coal and manganese alloys and ore, the latter an up-and-down kind

of commodity. Better to pay out the cash more amply, analysts said. Better to unbundle the Harmony stake while gold is high-flying, one analyst suggested. No siree, said Motsepe: ARM forerunner ARMGold and Harmony Gold tied the knot in 2003 and share a common branding – the ARM letters represented symbolically in the Harmony Gold logo, he said. So, what is ARM keeping money aside for? The copper investment might be as an equity partner in Orion Minerals’ R4.5bn Prieska copper-zinc project in the Northern Cape. And then there are the PGMs: “We do have the orebodies,” said Schmidt of the firm’s Two Rivers and Modikwa mines that could be further developed “... at low capital and that would be cost-efficient”. True, but the big fear is the unknown in respect of Harmony Gold. Its Wafi-Golpu project, held in joint venture with Australian firm Newcrest Mining, is a giant of a venture. Potentially producing 320 000 ounces a year of gold and some 150 000t of copper annually at peak, the project requires an estimated attributable $1.41bn (R23.5bn) in capital to develop – based on a 2018 feasibility study and so in need of an update. Were ARM to follow its rights in that project, it would absorb all its present cash, so it’s a risky venture for a diversified group. ■ editorial@finweek.co.za

Patrice Motsepe Executive chairman of African Rainbow Minerals

Motsepe said ARM was looking afresh at new copper investments, and other project investment talks were buzzing along.

Photo: Gallo/Getty Images

Searching for that R230m receivable There’s some serious head-scratching underway in ARM’s finance division. The company is in the final throes of an internal forensic investigation into why a receivable item of a not negligible R230m can’t be accounted for. Apparently, the matter has been on the company’s books for seven years. A change-over in auditor has resulted in a qualification on the firm’s balance sheet that, if not solved internally over the next two to three weeks, will require an external forensic investigation. ARM told analysts it would be “very surprised” if the matter amounted to fraud, but that can’t

finweek 10 September 2020

currently be discounted. Most likely, it relates to the interdependent and somewhat complicated web of loans between it and Glencore, its jointventure partner in the coal division. The worst likely outcome is that ARM has made an overstatement of its receivables, said ARM CFO Abigail Mukhuba. But it’s a tad confounding the matter has only really seen the light of day now, considering the anomaly has been part of the company since 2013. On the issue of disclosure, one analyst also said he was surprised ARM had not announced

Name xxxxxxxxxxxxx xxxxxxxxxxxxxx

its short-lived buy-back programme, which was undertaken in March. “That’s normally the procedure,” he said. “A company will announce a buy-back.” As it happened, ARM abandoned the buy-back after only five days, buying a mere R57m worth of shares before the Covid-19 lockdown struck, making the wisdom of calling the share price somewhat questionable. It was a good call. Shares in ARM raced to a five-year high between March and now, giving support to Motsepe’s hope the firm would re-enter the JSE’s Top 40 Index. ■

www.fin24.com/finweek

in brief in the news By David McKay

MINING XXXXXXXXXXXXX

Rethinking rhetoric around expropriation

Photos: Gallo/Getty Images | northam.co.za

Sibanye-Stillwater CEO, Neal Froneman, believes the narrative around South Africa’s thorny land issue needs to be reframed in order to provide more clarity, particularly for offshore investors. hares in Sibanye-Stillwater have been charting a course north for most of the year, the Covid-19 equity shock in March notwithstanding. However, it could do better, according to the firm’s CEO, Neal Froneman. He told finweek in an interview following the firm’s results presentation in August that his company lagged rivals such as AngloGold Ashanti as well as – surprisingly – Impala Platinum and Anglo American Platinum. You would think investors rate SibanyeStillwater’s platinum shares as highly as other comparable South African counters; but no, argues Froneman. Indebtedness and, until recently, a vacancy of shareholder pay-out, have been factors in relative underperformance. Yet Froneman insists the firm’s SA exposure is part of the risk mix, as it were, even as the firm tackled debt. The recent resumption of an interim dividend will help unlock the discount, said Froneman – but risk associated with SA government corruption and regulatory uncertainty are interminable, insoluble problems for the mining industry’s Mr Fixit, as Froneman is sometimes referred to. “Investors do not want to put money into SA and it’s because they hear about expropriations and they don’t care whether it’s land or it’s an asset,” he said. Land is back on the national agenda after President Cyril Ramaphosa committed to finalising rules of expropriation. At the same time, in the Johannesburg and Cape Town metros, illegal land grabs have been on the rise, especially during the Covid-19 pandemic, underlining the broad thematic role land ownership plays in SA society. Froneman says the matter isn’t being dealt with in a way that’s sensitive to offshore investors, however. “When you use the word ‘expropriation’ and then you add ‘without compensation’, they [investors] don’t want to put their money into an entity like the JSE, even if it’s well-run,” he said. Answering analyst questions, Froneman was also outspoken about the recent condition placed on the sale of assets by AngloGold Ashanti to Harmony Gold. Imposed by the government, the condition forced AngloGold to agree to retaining its Johannesburg central headquarters as well as its primary JSE listing, even though there are a number of rival @finweek

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Toronto-listed gold companies considering a UK listing in order to fill a vacuum for a large or midcap gold mining firm. Froneman said he wasn’t planning on moving Sibanye-Stillwater’s primary listing from the JSE, not yet. “It’s something that we aspire to sometime in the future. “I don’t believe in doing that before you have a portfolio of assets where the majority are in the appropriate jurisdiction – and that depends where you’re listed. But until you have a majority of your portfolio outside of SA, it would make no sense for us.” Sibanye-Stillwater’s assets are in the West Rand gold mining district and the platinum mines of Rustenburg in the North West province, though it also owns Stillwater Mining in the US. It also has a 50.1% stake in DRDGOLD, which has gold retreatment assets on the East Rand. DRD’s CEO, Niël Pretorius, says that unlike Froneman, geopolitical risk isn’t a major deterrent to his investors, but he does think it will influence the company in making new investments. “It’s about doing the responsible thing. Would it be responsible to invest R2.5bn to R3bn (as DRDGOLD plans to do from next year for three years) when you have expropriation without compensation?” he asked. Not all mining CEOs think this way, though. Paul Dunne, CEO of Northam Platinum, told finweek in August his company was “fundamentally South African”, although investor certainty was the ongoing narrative among investors in SA. “It remains problematic,” he said of policy uncertainty. Draft tax legislation and questions about the job security of Ramaphosa – recently soothed following a meeting of the ANC’s national executive committee – remain investment hazards. “We have to look at legislation and link it to job creation,” said Patrice Motsepe, executive chairman of African Rainbow Minerals. Said Froneman: “When you talk about expropriation, you’re making it less palatable for investors – don’t do that. If you need to deal with (the) land issue, find different terminologies. Stop talking about white monopoly capital and all these things.” ■ editorial@finweek.co.za

Neal Froneman CEO of SibanyeStillwater

“Investors don’t want to put money into SA [...] they hear about expropriations and they don’t care whether it’s land or it’s an asset.”

Paul Dunne CEO of Northam Platinum

finweek 10 September 2020

in brief in the news By Jaco Visser

GOVERNMENT

Not everyone is sharing the pain

As many South Africans emerge from lockdown without jobs, or with smaller salaries, some public servants are insisting on increased wages. Can their cause be justified? he National Education, Health and Allied Workers’ its previous fiscal year through 31 December. That’s Union (Nehawu) called for a national strike on an average pay of R681 659 per employee per year 3 September (the day after this issue of finweek (R56 804 per month). Absa paid its 38 472 staff went to print) by its 240 000 members. They’re members R26.2bn last year for an average of R682 626 demanding that government withdraw its pay freeze per employee per year (R56 885 per month). Nedbank on government employees and supply enough personal paid R17.3bn to 29 403 employees for an average perprotective equipment (PPE) to members on the frontline person pay of R589 124 a year (R49 093 per month). of the pandemic. Capitec averages R298 766 per person a year (in total “(W)orkers are extremely angry at the poor pace of R4.35bn paid to 14 590 staff members). transformation and government’s inability to improve Thus, government employees’ pay, in relation to their the lives of public servants, including freezing their efficiency, compares well with the private sector. Another wage increase by reneging to the implementation of measure to employ is dividing the total revenue of an Resolution 1 of 2018 while watching the elite benefitting institution by its number of employees to see what the from the proceeds of corruption through PPE tenders turnover per staff member is. and supply of other Covid-19 essentials,” Nehawu The government (excluding borrowing) is declared when they announced the planned strike. estimated to receive R1.09tr this year, according to The Public Servants’ Association (PSA) and its supplementary budget review. That translates to its 240 000 members justify the increases as R915 833 worth of turnover per employee. Again taking government employees were at the forefront of the banks as an example, Capitec’s ratio is R1.14m of fighting the coronavirus pandemic. operating income per employee, Standard Bank’s is “It would be unfair to expect a pay cut from the yoked R2.48m per employee, Absa’s is R1.88m and Nedbank’s public servants who have carried the country through the is R1.7m. That gives the banks roughly, on average, an Covid-19 (pandemic) and ensured the fight against the operating income of R1.8m per employee. Relating this pandemic remains solid and victorious back to the public sector wage bill, it means Government employees to the end,” Reuben Maleka, assistant that almost half of all government jobs take up around general manager for members’ affairs at are unnecessary, were these employees to the PSA, tells finweek. have the same productivity as staff in the Many public servants, including banking sector. doctors and others, even lost their lives Maleka, however, points out the problem and their families are left destitute, he regarding an average-pay measurement of South Africa’s GDP, says. “Then how can one expect public (and not the one relating to productivity in according to the OECD. servants to sacrifice their lives, much less the public sector). salaries?” “(The) public sector refers to all three Government employees take up around 12% of South spheres of government, including state-owned entities Africa’s GDP, according to the OECD. Then this demand (and) therefore the focus should be on the equalisation for further pay increases, when 3m of their fellow South of salaries across all spheres of government,” he says. Africans have lost their jobs as a result of the coronavirus Similarly, directors general of government departments pandemic. Against this backdrop, it can become difficult and municipal managers receive high salaries compared to commiserate with their demands. with other employees under their management, How well-paid are government employees when according to him. “That should be addressed (rather) compared with, say, financial services workers? A very than giving the impression that public servants are the blunt measure to determine this, is to take an institution’s highly-paid employees without giving the correct context total payroll and divide it by the number of people in its that (CEOs of) SOEs and (municipal) salaries are above employ. the public service pay range,” Maleka says. The government’s salary bill is estimated at R638.9bn However, in settling the wage dispute between the for 1.2m employees this year, equating to an average of government and the unions regarding public sector R532 417 per employee per year (R44 368 a month with pay increases, Maleka certainly has a point: “The no 13th or 14th cheques). main problem to the fiscus is not salaries; corruption, Now compare this to some of our banks’ average maladministration and financial mismanagement are the payrolls. Standard Bank, the largest bank on the enemies of the fiscus.” ■ continent, paid R34.5bn to 50 691 employees in editorial@finweek.co.za

Photo: YouTube

12%

finweek 10 September 2020

Reuben Maleka Assistant general manager for members’ affairs at the Public Servants’ Association

“The focus should be on the equalisation of salaries across all spheres of government.”

www.fin24.com/finweek

COVID-19 STATS: HOW SA MEASURES UP SOUTH AFRICA

WORLDWIDE

CORONAVIRUS CASES 628 259 DEATHS 14 263 RECOVERED 549 993 RECOVERY RATE

CORONAVIRUS CASES 25 904 605 DEATHS 861 271 RECOVERED 18 196 508 RECOVERY RATE

87.5%

70.2%

ACTIVE CASES

By removing deaths and recoveries from total cases, we get “currently infected cases” or “active cases” (cases still awaiting an outcome). ACTIVE CASES (NUMBER OF INFECTED PEOPLE)

ACTIVE CASES (NUMBER OF INFECTED PEOPLE)

Million

Thousand

200

1 September Currently infected 6 845 282

4 2

Total coronavirus currently infected

150

1 September Currently infected 64 003

100 50 0

Ja n2 Fe 2 b0 1 Fe b1 1 Fe b2 Ma 1 r0 2 Ma r1 Ma 2 r2 2 Ap r0 1 Ap r1 Ap 1 r2 Ma 1 y0 1 Ma y1 Ma 1 y2 Ma 1 y3 Ju 1 n1 0 Ju n2 Ju 0 n3 0 Ju l 10 Ju l3 Au 0 g0 9 Au g1 9

Fe b1 Fe 5 b2 Ma 4 r0 Ma 4 r1 Ma 3 r2 Ma 2 r3 1 Ap r0 9 Ap r 18 Ap r2 Ma 7 y0 Ma 6 y1 Ma 5 y2 Ju 4 n0 Ju 2 n1 1 Ju n2 0 Ju n2 Ju 9 l0 8 Ju l 17 Ju l2 Au 6 g0 Au 4 g Au 13 g2 2

Currently infected

DAILY NEW CASES (CASES PER DAY)

DAILY NEW CASES (CASES PER DAY) 1 September Daily cases 260 004

300 000 200 000 100 000

15 000 Number of novel coronavirus daily cases

Number of novel coronavirus daily cases

400 000

DAILY DEATHS (DEATHS PER DAY)

5 000 2 500 0

SOURCE: www.worldometers.com

@finweek

finweek

finweekmagazine

800 600 400 200

1 September Daily deaths 114

0 Fe b1 Fe 5 b2 Ma 5 r0 6 Ma r1 Ma 6 r2 6 Ap r0 5 Ap r 15 Ap r2 Ma 5 y0 5 Ma y1 5 Ma y2 5 Ju n0 4 Ju n1 4 Ju n2 4 Ju l0 4 Ju l 14 Ju l 24 Au g0 3 Au g1 Au 3 g2 3

1 September Daily deaths 5 899

Number of novel coronavirus daily deaths

10 000

Ja n2 2 Fe b0 2 Fe b1 3 Fe b2 4 Ma r0 6 Ma r 17 Ma r2 8 Ap r0 8 Ap r 19 Ap r3 0 Ma y1 Ma 1 y2 2 Ju n0 2 Ju n1 3 Ju n2 4 Ju l0 5 Ju l 16 Ju l2 7 Au g0 7 Au g1 8

Number of novel coronavirus daily deaths

DAILY DEATHS (DEATHS PER DAY)

7 500

1 September Daily cases 1 218

5 000

Fe b1 Fe 5 b2 Ma 5 r0 6 Ma r 16 Ma r2 6 Ap r0 5 Ap r 15 Ap r2 5 Ma y0 5 Ma y1 5 Ma y2 5 Ju n0 4 Ju n1 4 Ju n2 4 Ju l0 4 Ju l 14 Ju l 24 Au g0 3 Au g1 3 Au g2 3

Ja n2 Fe 2 b0 2 Fe b1 3 Fe b2 4 Ma r0 6 Ma r 17 Ma r2 8 Ap r0 8 Ap r 19 Ap r3 0 Ma y1 1 Ma y2 2 Ju n0 2 Ju n1 3 Ju n2 4 Ju l0 5 Ju l 16 Ju l2 7 Au g0 7 Au g1 8

10 000

SOURCE: www.worldometers.com

finweek 10 September 2020

market place

>> >> >> >> >>

House View: PSG, Massmart p.17 Killer Trade: Shoprite, Pick n Pay p.18 Invest DIY: Company results show the impact of the pandemic p.19 Investment: Some alternatives to consider p.20 Simon Says: ARB Holdings, banks, Dow Jones Index, Gold Fields, Italtile, Murray & Roberts, Phumelela Gaming & Leisure, shopping malls, Standard Bank p.30 >> Invest DIY: Managing risk = managing expectations p.32 >> Markets: Is the ‘S&P 5’ heading for a fall? p.33 >> Technical Study: The massacre behind the ALSI’s bull trend p.34

FUND IN FOCUS: CADIZ MONEY MARKET FUND

By Timothy Rangongo

A fund for capital protection Investing primarily in South African money-market instruments.

Fund manager insights:

FUND INFORMATION:

Benchmark: Fund manager:

STeFi Composite Sidney McKinnon

Fund classification:

South African – Interest-bearing – Money Market

Total investment charge:

0.3%

Fund size:

R698m

Minimum lump sum/ subsequent investment: Contact details:

R20 000/R1 000 080 002 2349/investorservices@cadiz.co.za

TOP 10 HOLDINGS AS AT 31 JULY 2020:

Investec Step-up deposit

10%

Nedbank Step-up deposit

8.1%

Nedbank Step-up deposit

7.9%

Sanral PN

6.8%

Nedbank Step-up deposit

5.7%

China Construction Bank Call

5.6%

Nedbank Step-up deposit

4.3%

Nedbank Step-up deposit

3.8%

Nedbank Step-up deposit

3.7%

Bayport Securitisation

2.9%

TOTAL

58.8%

PERFORMANCE (ANNUALISED AFTER FEES)

As at 31 July 2020: ■ Cadiz Money Market Fund

■ Benchmark

10 8 6

7.64%

7.01%

7.29%

6.66%

Why finweek would consider adding it:

2 0

The Cadiz Money Market Fund primarily invests in a range of South African money-market instruments. These assets include bankers’ acceptances, debentures, negotiable certificates of deposit, treasury bills and call accounts. At present, fixed-term deposits and call accounts by banks represent the largest holdings, taking up over 50% of the fund’s asset allocation, followed by corporates and parastatals. Government securities have a lower asset allocation due to the scope to invest in government money-market securities being limited, according to the fund manager, Sidney McKinnon. Money-market yields declined alongside a spate of aggressive rate cuts as the SA Reserve Bank acted swiftly to combat the economic fallout from the global Covid-19 pandemic. McKinnon says the low interest rate environment has proved challenging for all money-market fund managers, with redemptions increasing as investors seek to survive the effects of Covid-19, and adds that issuance across the board has diminished significantly. About 60% of the fund’s holdings are short-dated and mature in between one and three months. McKinnon remarks that after the rate cuts experienced this year, most opportunities have presented themselves in the shorter end of the yield curve. “When making an investment decision, we consider the area of the moneymarket yield curve that is offering the best yields on a risk-adjusted basis.” Regarding the step-up deposits or step-rate notes in the fund’s holdings, he says that these allow the fund to lock in a predetermined rate, which is reset and then rolled on a quarterly basis. “These instruments allow us to be invested in shorter-term instruments with the benefit of participating in higher yields than would normally be available to those maturing in three months’ time.” Despite the low interest rate environment, most money-market funds can still offer a real return as the cost of investing is relatively low, says McKinnon. “Investing part of your portfolio in a money-market fund provides an anchor point from which further diversification into other asset classes can be made to reduce the overall risk of your investment portfolio.” The fund has maintained a record of being highly competitive relative to its peers, despite ongoing volatility. In terms of its one-year annualised performance, it has outperformed its benchmark by 0.41 percentage points in June and by 0.35 percentage points in July.

1 year

finweek 10 September 2020

Since inception in March 2006

Due to its low risk profile, the money-market fund is a suitable vehicle to invest cash in times of volatility and market uncertainty. It is also suitable for investors wishing to park their savings for a short period of time as an alternative to a bank deposit. ■ editorial@finweek.co.za www.fin24.com/finweek

house houseview view PSG XXXXXXXXXXXXXXXX

BUY

SELL

marketplace

HOLD

By Simon Brown

The discount sticks PSG has unbundled its stake in Capitec* to unlock value, but also to make for a slimmer group in which the other businesses they own have an influence on the profits. Before the unbundling, the Capitec stake was at times worth more than all of PSG, leaving a negative valuation for the rest of the group. The company published a sum-of-the-parts (SOTP) valuation, which showed a value of R76.39 the day after unbundling the Capitec shares. Yet, PSG traded over 40% lower than its SOTP. Holding companies generally have a discount to their SOTP, but a range of 15% to 20% is more realistic, meaning that PSG should have a share price of around R60. Aside from the discount, the group owns some good businesses – both listed and unlisted. Stadio, the owner of private higher education outlets, published impressive results. PSG Konsult, on the other hand, should benefit from the surge in stock market activity and it also has several smaller, but potentially great, unlisted assets that could be taken to the bourse in due time. ■

Last trade ideas Before the unbundling, the Capitec stake was at times worth more than all of

PSG.

BUY

Distell 27 August issue

BUY

Shoprite 13 August issue

BUY

Pan African Resources 30 July issue

BUY

Purple Group 16 July issue

*The writer owns shares in Capitec.

BUY

MASSMART

SELL

HOLD

By Moxima Gama

A change of investors’ hearts

Photos: Gallo/Getty Images

When Massmart warned that its earnings may drop by as much as 50% in the first five months of its 2019 fiscal year, the retailer’s majority shareholder, Walmart, sent one of its own, Mitchell Slape, as CEO to help stem the decline. Massmart has 423 stores trading under the Game, Builders Warehouse, Jumbo, Cambridge Food, Makro and Dion Wired brands across 13 subSaharan countries. Slape embarked on a turnaround plan aimed at cutting costs and boosting profit and margins. Massmart’s sales in the 19 weeks to May 2020 fell 11.9%, hit by a five-week lockdown that prevented the company from selling most of its general merchandise, home improvement and liquor products. Though the company must cut 1 800 jobs from its struggling Game stores – which have been dragging the group’s profits for some months – Massmart will not be closing any of its stores. The group lost R4.6bn in sales during the initial nine-week lockdown period. How to trade it: Massmart shareholders seem to be having a change of heart as firm support remained at 2 080c/share, which has triggered upside to the resistance trendline of its long-term bear trend. However, a positive breakout, and a good buying opportunity, would only be confirmed above 3 825c/share. Such a move could trigger further gains to 5 005c/share. Another good buying opportunity would be presented above 6 100c/share, with potential upside towards 7 665c/share. Otherwise, refrain from going long if resistance is encountered at 3 825c/share and support at 2 080c/share is breached. ■ editorial@finweek.co.za @finweek

finweek

finweekmagazine

Last trade ideas BUY

Sasol Ltd 27 August issue

BUY

MTN 13 August issue

BUY

South32 30 July issue

BUY

Woolworths 16 July issue

Though the company must cut 1 800 jobs from its struggling Game stores, Massmart will not be closing any of its stores.

finweek 10 September 2020

marketplace killer trade By Moxima Gama

XXXXXXXXXXXXXXXX SHOPRITE

Sentiment turning hoprite, Africa’s largest grocer, remained composed when the Covid-19 fears triggered a global sell-off in March. Instead it retained firm support at 9 500c/share. Shoprite said at the end of August that its second-half sales rose 9.4% in the last three months of the fiscal year through the end of June. The strict lockdown period boosted Shoprite’s sales, as its Checkers Sixty60 digital application expanded to 87 stores. Liquor sales, however, dropped 29.5%. Outlook: Despite its previous challenges of currency devaluation, Shoprite’s centralised supply chain provides the grocer with an operational edge, and its trading brands are very well-positioned

SHOPRITE

52-week range: R95.01 - R145.50 Price/earnings ratio: 16.84% 1-year total return: 6.28% Market capitalisation: R69.95bn Earnings per share: R6.73 Dividend yield: 2.8% Average volume over 30 days: 1 879 233 SOURCE: IRESS

SOURCE: MetaStock Pro (Reuters)

to compete in different target markets across income groups – giving the grocer an even greater competitive edge. On the charts: Support retained at 9 500c/share has triggered upside through the resistance trendline of Shoprite’s twoyear downtrend. Breaching the 12 975c/share resistance level would confirm a positive

breakout – thus ending the bear trend and potentially attracting further buying in the near to short term. Go long: A good buying opportunity would be presented above 12 975c/share and further gains to 16 755c/share could then follow. Shoprite’s previous bull trend would be resumed either above 16 755c/share or

19 180c/share – thus triggering another buying opportunity with potential upside to next resistance at 21 180c/share. Go short: A reversal below 9 500c/share would mark a false break out of its bear trend and would extend the downward impetus towards support at 7 270c/share. In which case refrain from going long. ■

PICK N PAY

18-year bull has ended

ick n Pay, South Africa’s secondlargest grocer by market cap, warned investors in early August that its 26-week headline earnings per share (HEPS) through 30 August will be down by more than 50% (excluding hyperinflationary accounting in Zimbabwe). Outlook: Pick n Pay CEO Richard Brasher reassured shareholders that the impact on the company’s first-half earnings are solely contributable to the pandemic. However, market sentiment has driven the share price through a key support level. On the charts: Pick n Pay’s share price has breached the support trendline of its 18-year bull trend and has confirmed a 18

finweek 10 September 2020

PICK N PAY

52-week range: R40.95 - R72.99 Price/earnings ratio: 14.99 1-year total return: -21.74% Market capitalisation: R21.28bn Earnings per share: R2.88 Dividend yield: 0.79% Average volume over 30 days: 4 380 876 SOURCE: IRESS SOURCE: MetaStock Pro (Reuters)

negative breakout below 4 850c/ share. Failure to recover above 5 285c/share could extend the downward momentum. Go short: In my last recommendation on Pick n Pay in October 2019, I suggested a short below 6 085c/share, as a negative breakout of a triangle – formed within the bull trend – would be confirmed through that level, with that target being

at 4 850c/share. Now that Pick n Pay has confirmed a negative breakout of its primary bull trend, another sell signal has been triggered below 4 850c/share. Support at 3 505c/share may well be tested – and breaching that level could prompt further selling towards 2 500c/share. Go long: Pick n Pay would have to trade above 5 285c/share and towards 6 085c/share to

resume its previous bull trend and recoup its losses towards 8 425c/share. A new bull phase to all-time highs would only commence above that level. ■ editorial@finweek.co.za Moxima Gama has been rated as one of the top five technical analysts in South Africa. She has been a technical analyst for 12 years, working for BJM, Noah Financial Innovation and for Standard Bank as part of the research team in the Treasury division of CIB.

www.fin24.com/finweek

marketplace invest DIY By Simon Brown

PORTFOLIO MANAGEMENT

Digging for nuggets of clarity

Photo: Shutterstock

As companies start to release their half- and full-year results, the impact of the coronavirus pandemic becomes clear. Take some time to do your homework before you buy any stocks.

e’re back into earnings season on the JSE, with June mid-year and year-end results starting to be published. As such, we’re seeing the real impact of the hard government-imposed lockdown, which started in late March, on companies. This gives investors a first true indication of how businesses performed during lockdown, and perhaps a glimpse into how they’ll recover. But first, there are two important points. Year-end results will only have one quarter of lockdown included, while mid-year will cover a period that stretched over half the lockdown time. It is also very important that while we’re now in level-2 lockdown as a country, things remain risky and we could move back into stricter lockdowns – as we’ve seen happen in many other countries the world over who came out of hard lockdown ahead of South Africa. Another warning is that the management of some companies will use the excuse of the lockdown to hide what is, frankly, poor management. For example, they’ll be writing down assets that needed to be written down regardless of the lockdown, blaming the pandemic for it. Now sure, the lockdown made it worse, but in many cases the problems existed well before the lockdown and the pandemic merely accelerated the consequences of prior bad decisions. As an example, Truworths has had to write down yet more of its UK Office operations, with another £131m being written down. This against the £256m it paid for the business. Sure, the pandemic has hurt Office, and Truworths did not explicitly blame the pandemic, but this business has been struggling since it was acquired in 2015. What I am especially looking for is the breakdown between operations before the March lockdown compared with the three months under lockdown. Even better is if there is also then an @finweek

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update on how business has fared since then to end-June. Mr Price did exactly that in its trading update, separating it into sales for the periods April, May to 20 June, and then 21 June to 15 August. The reason for the 20 June cut-off is that this had already been reported on Sens, so it really helps investors compare apples with apples. Increased costs incurred due to the pandemic are also on my watchlist. This is in the form of personal protective equipment for staff, safety measures for customers and potential disruptions to supply chains. These are temporary issues, but they will remain in place to varying degrees for the duration of the pandemic and will have an impact on profits – although this will differ across industries. But we can expect these extra costs to decrease as the pandemic finally recedes. Another area I’ll be focusing on is companies’ ability to reduce their cost base, where possible. A company such as a hotel group will struggle to reduce its high fixed costs, but many other companies really can manage their costs lower, especially as revenue falls. This will most notably be reflected in operating margins. They’ll be under pressure, but what to look for is how much the operating margins fall compared with revenue – and relative to a company’s peers. If two companies in the same sector both see revenue decline by, for example, 40% but one company’s operating margin falls by 50%, whereas the competitor’s slump by 75%, the former is definitely able to manage costs better. The stark reality is that even after eight months of the pandemic, we are still in the dark about much, and the risks remain very real until we get a global rollout of a vaccine. But most companies will survive and digging deeper into their financials will help us understand which are the better investment options – even if we wait a while longer before actually investing. ■ editorial@finweek.co.za

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The stark reality is that even after eight months of the pandemic, we are still in the dark about much, and the risks remain very real until we get a global rollout of a vaccine.

finweek 10 September 2020

marketplace investment By Schalk Louw

INVESTMENT THEMES

Spring blossoms to consider

As the economic winter that grips the globe settles, Schalk Louw argues for three alternative investment trends. he saying goes that time flies when you’re having fun. I extreme levels. When we place the MSCI All Country World Value always thought that this was true, until 2020 came along. Index (VI) relative to the ACWI, you will see that since the end of We have just entered the last month of the third quarter 1995, the VI has only underperformed the ACWI by 1.5 standard and the time to start thinking about 2021 is steadily deviations on two prior occasions – at the end of 1999, and then approaching. Considering this, I would like to adjust this saying by again in 2011 following the Great Recession of 2008 and 2009. changing it to, “Time flies when you’re having fun, unless Following the 1999 occurrence, the VI grew by 6% for the you’re locked down, because then it flies even faster.” following five years in an environment where the ACWI Even after the recent rally in gold mines With everything that’s happened in 2020, I thought declined by 9%. And it happened again in 2011 when the worldwide, the it appropriate to discuss three topics that investors could VI grew by 45%, while the ACWI grew by only 29%. In other consider with 2021 in mind. words, in both cases the VI outperformed the ACWI by Let’s recap 2020 so far. The MSCI All Country World 15 percentage points or more (in dollar terms). Now, “this Index (ACWI) was off to a good start in 2020, and by time may be different”, but since the end of March 2020, Valentine’s Day the index was trading positive by 3% (in the VI is yet again experiencing a 1.5 standard deviation largest mines in the US-dollar terms) for 2020. underperformance. world now only trade at a Then Covid-19 broke out, the world went into one-year expected P/E of 16 times. lockdown, and so did the growth on the index. By Can gold still shine? 23 March 2020, the index not only gave back its 3% Aside from tech shares, gold isn’t far behind when it comes to growth, but also lost nearly a third of its value compared outstanding performances in 2020. But unlike tech shares, with 31 December 2019. By June, the world slowly these mines are not trading at inflated valuations. It boils started to move out of lockdown. The ACWI moved down to the fact that gold mines are busy coining money into positive year-to-date territory at the beginning at the current higher gold price. Warren Buffett also got of August 2020. And then, by 18 August 2020, some surprising looks recently when he announced the ACWI traded positively by 3% again for the that Berkshire Hathaway had acquired a stake in a year-to-date. gold mine (Barrick Gold). Even after the recent rally Not everything is quite that positive. Out in gold mines worldwide, the 30 largest mines in of the 46 available exchange-traded funds the world now only trade at a one-year expected (ETFs), only 10 are trading in positive territory P/E of 16 times. Analysts worldwide share Buffett’s for 2020. In fact, by 21 August, all countries sentiment, with Thomson Reuters consensus that weren’t yet trading in positive year-to-date expecting a 12-month target growth of more than growth territory for 2020, had an average growth 40% in these 30 mines’ share prices. rate of -16% in dollar terms so far this year. So why, then, don’t all portfolios look like the ACWI? One possible Bank and financial stocks can’t both drop to zero answer can be found in the US. We know that the S&P 500 For the three-year period between September 2012 and was one of the best investments you could have made in the last September 2015, the MSCI ACWI Select Gold Miners IMI Index five years, but this year was exceptional. declined by just short of 70% in dollar terms. Many good reasons By late July 2020, the S&P 500 had already grown by more were provided as to why this situation would only get worse, than 2% (in dollar terms) for the 2020 calendar year. Over the same and eventually lead to these mines’ bankruptcy. Either China’s period (according to FactSet and Goldman Sachs Global Investment demand would have dried up forever, or the dollar would have Research), the five largest companies in the index – Amazon, Apple, strengthened forever. We also heard before that by 2020, gold Facebook, Alphabet (Google) and Microsoft – showed an average of mines would no longer exist and now I’m hearing more and more 35% growth. The reality is that the remaining 495 companies listed that banks and most financial and insurance companies won’t on the S&P 500, not unlike the rest of the world, are still trading in exist by 2025. negative territory (-5%). This has caused the S&P Global 1 200 Financial Index to With the Nasdaq Composite Index, as at 21 August 2020, decline by more than three times below the average ten-year trading at the highest historical price-to-earnings ratio (P/E) since relative price standard deviation. This is something that hasn’t July 2002, I think the international technological sector is currently happened in the last 20 years. overheated, and I would like to focus investors’ attention on three I would like to conclude by making it clear that these three other sectors that they could consider as alternative investment investment ideas could be considered as alternative options, and options. that they will undoubtedly work best in combination with a welldiversified portfolio. ■ There’s a lot of value hiding in value editorial@finweek.co.za Value shares’ underperformance is now profoundly moving into Schalk Louw is a portfolio manager at PSG Wealth.

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finweek 10 September 2020

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FUND FOCUS

YOUR QUARTERLY REVIEW OF SA FUNDS SEPTEMBER 2020

FINDING YOUR WAY THROUGH THE MAZE OPPORTUNITIES IN GLOBAL UNIT TRUSTS

fundfocus introduction By Leon Kok

OVERVIEW

The joys and benefits of offshore investing

The quality of management and destinations of investments remain key for fund performance. n our interactions with fund portfolio managers and analysts this past quarter, the preferred leaning in fund categories was strongly towards offshore portfolios. It came as no surprise. Yes, South Africa has huge societal, political and economic distresses. But on the flipside, mutual funds throughout the world continue to grow explosively, and not least encompassing impressive global-orientated funds. SA, meanwhile, constitutes less than 1% of global market capitalisation. The number of recognised mutual funds worldwide increased from 83 000 in 2009 to 123 000 last year, with their biggest domiciles being the US, UK, Germany and Australia. Well over 50% of households in the US are currently invested in them, double the figure of 30 years ago. The big attractions of these vehicles, of course, are portfolio diversification and professional management at low cost, transactional efficiency, transparency (they generally invest in marketable instruments), tax incentives and regulatory factors. The many thousands of investible shares in the global universe allow access to growth opportunities, industries, and geographies not available in the local market. Growth of global mutual funds is particularly fired at present by the increasing globalisation of finance and the expanding presence of many multinationals in a large number of countries, and not least the strong performances of equity and bond markets. In this edition, Coronation’s Christo Lineveldt highlights the case for investing in worldwide flexible funds such as the Coronation Optimum Growth Fund. In short, they have full flexibility to allocate across all listed asset classes in pursuit of outperforming a benchmark, he says. “It’s therefore no surprise that these mandates have become more popular among local investors over the past few years.”

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Why boring can be better

Still on the offshore stage, Allan Gray-Orbis’ John Christy argues in favour of ‘contrarian investing’ or ‘swimming against the tide’. This, for instance, means hunting for opportunities in areas other investors overlook. It also leads to investing in companies long before they become popular. Great investments come in many different shapes and sizes, and they may not always seem obvious, he points out. For instance, while great excitement may prevail about a few of the ‘Bubble 500’ stocks in the US, it’s extremely unlikely that all 500 will meet general expectations. “As contrarians, we much prefer investing in businesses that are boring, overlooked, or even hated. Not only are their fundamentals usually underappreciated, but there is far less room for disappointment, since there is so 22

finweek 10 September 2020

much less enthusiasm reflected in the price and you don’t need to pay a heady premium for them.” The problem indeed with many of these deemed stars, Christy points out, is that prices too often run ahead of the fundamentals and they go on to falter. “And for those who fail to live up to the Amazonian expectations, the punishment for investors can be swift and severe.” Incidentally, the Allan Gray-Orbis Global Equity Fund generated an annualised 8.1% in US dollars during the past decade and 7.5% in the 12 months to July. The former figure translates to 17.6% in rand terms.

Maintaining quality management

The strength of any fund is the quality of its people, Duane Cable, head of SA Quality at Ninety One, reminds us. “The local asset management industry has experienced a growing number of emigration and retirements recently and clients are understandably concerned about who will manage their hard-earned savings in future,” he says. “In my opinion, the war for talent will likely accelerate in the years ahead and thus the ability to attract and retain talented investment professionals will be a real competitive advantage.” Cable notes that Ninety One is in a fortunate position, being a globallyintegrated business, which provides its staff with worldwide career development opportunities without the need to emigrate where that emigration is based purely on a lack of local career development opportunities. This, of course, would apply to several other leading SA asset managers as well. Also in the general line-up are interviews with Ian Heslop, principal fund manager of the Old Mutual Global Equity Fund, SA’s best offshore performer; and Bruce Ackerman, fund manager of the relatively new Sasfin BCI Global Equity Fund. Further, PSG Asset Management’s Lyle Sankar writes about how fixed-income investors are rewarded with attractive real returns. He maintains that his investment house’s fixedinvestment income team has proven itself to be skilled at looking for opportunities beyond the market noise and the prevailing narrative. “Rigorous debate and independent research remain central to our approach of buying when others are fearful, and selling into optimism,” he explains. “This approach has paid off handsomely in the PSG Income Fund, generating long-term top quartile performance.” Our wish is that this edition will aid you in identifying some of the best fund options available, which otherwise might have made your search far wider. ■

CONTENTS 23 Q&A

A buoyant offshore option

24 PSG

Opportunities to be found

25 Sasfin

Tracking a formidable market operator

26 Ninety One

The war for investment talent – a game changer in SA

27 Allan Gray

Have you looked at the Heady Hundred?

28 Coronation

Finding the middle ground as a conservative offshore investor

29 Last Word Priced for an optimistic outcome...

Leon Kok is an independent writer on public policy and investment markets.

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fundfocus Q&A By Leon Kok

GLOBAL EQUITY

A buoyant offshore option

Disciplined investment approach backs solid fund returns. n this edition of Fund Focus there is a strong bias towards offshore investing and, indeed, there are many good reasons to seek exposure there. It helps people reduce their exposure to a single currency or market, and provides diversification in terms of sovereign risk, ensuring that you are not exposed to political risk in just one country. South Africa comprises less than 1% of the world’s investible assets and it makes sense to gain exposure to at least some of the other 99%. One of the best local performers has been the Old Mutual Global Equity Fund, which generated an annualised 21.2% in the ten years to June 2020, 13.5% in five years, and 21.1% in one year. It’s managed out of London by Ian Heslop, Amadeo Alentorn and their team. We spoke to Heslop about the fund’s various cardinal features.

What has given your fund the edge to have consistently been the best performer among SA’s global equity unit trusts during the past five and ten years? Our team has developed a proprietary modelling system, which we have refined over many years. The system uses five factors (dynamic valuation, market valuations, sustainable growth, analyst sentiment and company management) to calculate an expected return for each stock in the relevant universe. The model is highly dynamic and how heavily each factor is weighted is determined quantitatively, based on historical performance, prevailing investor sentiment and the current macroeconomic environment. This has allowed us to build a diversified, uncorrelated and adaptive portfolio by analysing stock return forecasts and selecting those equities with the highest expected return profile at any given time.

To what extent have technology stocks contributed to that performance? We have been constructive on tech stocks in general but have avoided the “glamour” names. We have benefitted to a small degree from the sector positioning, but the performance of the fund has not been about holding, or indeed not holding, a small number of tech stocks.

Photo: Supplied

Quantitative investing is largely part of it. How has this contributed?

By adopting a disciplined investment process, we have been able to build highly-diverse portfolios, flexing to changes in the market environment and avoiding a rigid investment style. While the quantitative model is vital, the oversight of the finweekmagazine

We believe in constructing portfolios capable of mitigating the short-term cyclicality of style returns, such as value or momentum investing. We hold many stocks in the portfolio and believe it is vital that every holding’s investment thesis is updated daily. By being responsive to changes, we can align the portfolio to the market environment and deploy those styles that we believe have the highest likelihood of outperformance.

What is your geographical fund composition and explain how it has played a part in your performance?

Fund manager of the Old Mutual Global Equity Fund

We believe that markets are not wholly efficient, and due to investors’ behavioural biases, stock prices often diverge from their fundamental value. By using a disciplined and objective methodology, we aim to take the emotion out of investing.

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Any comments on fiscal thrusts, market volatility, risk aversion, momentum investing, value investing and alike?

The allocation to stocks in individual countries is more a by-product of the country’s constituent size in the underpinning benchmark. This allows us to construct our portfolio based on individual company characteristics, rather than taking views on the future macroeconomic environment of individual countries. Often the effect of country-specific headlines in a specific market can open near-term mispricing opportunities for active managers. Our approach is to evaluate the implicit effect of such information on the risk environment and on market sentiment towards a given region. This, in turn, informs the type of company characteristics we will seek to Ian Heslop deploy at a point in time.

What is peculiar to your team’s management style?

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investment team is also incredibly important; not just in portfolio construction, but also in the ongoing development of our system – ensuring it continues to work as markets evolve.

Market environment indicators for, say, the next three to five years?

As we have seen recently, it can be risky to put too much store on long-term forecasts. We look to understand the prevailing environment and use this to set portfolios. Now, with elevated volatility, we are concerned about the risk of holding large amounts of momentum stocks in the portfolio. Given how some of these stocks have behaved, it could be argued that fundamentals have been forgotten and these areas of the market (think about some areas of tech) could be overvalued. That said, the unprecedented monetary support provided by central banks, which has led to a level of asset inflation over the last few years, shows little sign of being unwound.

The outlook for China and its impact on global stocks?

While forecasting macroeconomic events is not a role in our investment process (as it is notoriously difficult to get right), the impact of the growth of China on global economies and stock markets is undeniable. The current stand-off with the US on trade is concerning, but is unlikely to alter the long-term dynamic of China’s rise and its maturation from an export to a consumer story. China has become significant to global growth over the last ten years and this dynamic is likely to continue over the next decade. ■ finweek 10 September 2020

fundfocus PSG By Lyle Sankar

INTEREST RATES

Opportunities to be found

Fixed-income investors can still be rewarded with attractive real returns. he recent spate of interest rate cuts may leave fixed-income investors concerned about future returns. However, historically, income funds have continued to deliver inflation-beating and returns higher than cash – even after rate cuts. We are optimistic about the outlook for fixed income over the medium term, but the opportunities are not evenly distributed. Now, more than ever, investors should be selective. Typically, income funds perform close to cash in rising interest rate cycles, and significantly outperform cash in a falling interest rate environment. This outperformance was evident in the previous rate-cutting cycles of the early 2000s, after the Global Financial Crisis (GFC) and currently, following the cumulative three percentage points cut in rates.

A reminder of fixed-income basics

7% 6%

5% 4%

3% 2%

-1%

1% -2%

Jun ’19

Jun ‘20

Jun ’18

Jun ’17

STeFI benchmark

Jun ’16

Jun ’15

Jun ’14

Jun ’12

Income funds’ outperformance of cash

Jun ’13

Jun ’11

Jun ’10

Jun ’09

Jun ’07

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Jun ’08

11% 10%

Jun ’06

In the wake of the GFC, cash rates (repo rate) were cut by a significant five percentage points over a one-year period, from 12% to 7% in 2009. Income funds outperformed cash by a significant four percentage points as rates were cut, as longer-dated bonds can continue to outperform short-dated assets for some time. The period of outperformance lasted approximately 61 months (five years) to December 2013. During the 2008 rate-cutting cycle, inflation averaged around 8% a year, implying that initially investors outperformed cash but struggled to beat inflation. Inflation eventually bottomed at 2.1% in 2010, a level we are already seeing in the current environment – importantly implying that investors are already earning attractive real returns. After the sharp cut in interest rates in 2008/09, we saw bond yields fall to extremely low levels (the 10-year bond dropped to a yield of nearly 6%) and credit spreads compressed sharply, driving strong performance of fixed-income assets. Although we are aware of the riskier fiscal backdrop, we believe that investors should not ignore the similarities in the cycles. We believe the attractive real yields of 4% to 7% (above a normalised, conservativelyestimated headline inflation rate of 4.5%) available in nominal and inflation-linked sovereign bonds can deliver similar outperformance to that seen in previous rate-cutting cycles.

12%

Jun ’04

Current opportunity mirrors that of the post-GFC environment

13%

Jun ’05

Fixed-income returns comprise yield (income) and capital returns (driven by changes in yield). In rising interest rate environments, the yield component tends to deliver most of the returns, with floating rate instruments delivering attractive and rising income yields. When yields fall (prices rise), on the other hand, the capital component of fixed-income investments becomes a more significant contributor to total returns and can be attractive for investors. The sensitivity to changes in interest rates is referred to as the investment’s duration. The higher the duration of the asset, the more exposure the investor has to this capital contribution and potential upside. We believe that, partly because of the negative sentiment surrounding SA and partly because of where we are in the rate cycle, current yields, inflation rates and market conditions favour good return prospects.

INCOME FUND RETURNS (STEFI) VS. CASH (REPO RATE)

Cash (repo rate)

SOURCES: Bloomberg, JSE Market Data, PSG Asset Management. STeFI is typically the benchmark of income funds, while the repo rate provides a proxy for cash returns.

Fixed-income investors should focus on the risk/return trade-off

While attractive yields remain available to discerning investors, the opportunities are not equally distributed. Credit and money-market type instruments are yielding close to, if not below inflation, and are likely to disappoint investors. We are cognisant that the fiscal environment has deteriorated significantly over the past ten years, as evidenced by SA’s rising debt burden. However, inflation is a key driver of bond yields. With inflation currently at 2.1%, and an accommodative monetary policy stance, we believe the real yields on offer in our sovereign bond market offer significant compensation for the visible fiscal risks. In addition, from a valuation perspective, the premium offered to invest in SA bonds is globally attractive. It is, however, worth acknowledging that volatility is likely to remain a feature of the more attractive SA bonds as risk appetite and sentiment fluctuate.

Our portfolio construction is supported by our trusted process

We take a through-the-cycle view of interest rates, focusing on securing real yields that we believe compensate for risks. Our fixed-income team has proven themselves to be skilled at looking for opportunities beyond the market noise and the prevailing narratives. Rigorous debate and independent research remain central to our approach of buying when others are fearful and selling into optimism. The team has been extremely selective in the fixed-income market for a considerable time, avoiding credit pitfalls and patiently applying client capital. This approach has paid off handsomely for the investors in the PSG Income Fund, with the approach generating consistent long-term top quartile performance (source: Morningstar, as at 30 July 2020). ■ Lyle Sankar is a fund manager at PSG Asset Management.

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fundfocus Sasfin By Leon Kok

OUTLOOK

Tracking a formidable market operator

Photo: Supplied

Bruce Ackerman has a wealth of experience in global asset management and is one of the industry’s most successful. He manages the Sasfin Global Equity Fund and sees strong economic recovery next year. ittle is generally known about the Sasfin few international equities managers with BCI Global Equity Feeder Fund, but Ackerman’s track record over 50 years. The one of its greatest attributes is that its portfolio now is solely managed by him with underlying offshore fund is managed by the assistance of two in-house analysts, Bruce Ackerman, one of the global asset Mitchell having departed earlier this year. management industry’s most experienced and It has a low portfolio turnover despite successful operatives. being actively, albeit conservatively, managed. Son of Ackermans stores patriarch Gus It is concentrated with less than 30 stocks Ackerman and brother of Pick n Pay and doesn’t typically have significant founder Raymond, Bruce was cash given its objectives. born in Cape Town in 1944, The Luxembourg fund’s graduated with economics current portfolio value is over and MBA degrees at UCT R500m. From a risk perspective, in the late-1960s, and then Ackerman points out, the portfolio headed to the UK where he tends to have relatively high managed some of the country’s shorter-term volatility because biggest and most successful of its exposure to international funds. This included 24 years equity markets and currencies; but with Lloyds Bank’s institutional the potential long-term returns are Bruce Ackerman investment arm in London as a fund Manager of the Sasfin expected to be rewarding, especially for Global Equity Fund manager, also fulfilling the roles of rand-based investors. its chief investment officer and joint The geographical exposure at managing director from the early 1980s until his present, he says, is the US at 53%, Europe return to SA in 1994. 28%, and Asia ex Japan 12%, with largely During this time Ackerman was also US dollar cash at 7%. “We also look at it executive director of five listed European and from the point of economic exposure, and Asian country funds. He then joined Foord though over half the portfolio is in the US, it Asset Management in 1994 and co-managed doesn’t mean that our exposure there is over the highly-acclaimed Foord International half economically – many of the stocks are Trust from 1997 to 2011. multinationals.” In 2014 Sasfin set up a model portfolio A sectoral breakdown currently as guidance for its portfolio managers whose shows tech stocks at 32% (these include clients sought overseas leads and exposure, Amazon and the like), consumer stocks and Ackerman was invited to advise on it 32%, healthcare 16%, financials 12%, and together with its investment research head, industrials 8%. The five largest holdings Bradley Mitchell. are Amazon, Alphabet, Visa, Microsoft and Sasfin drew confidence from its significant Roche, with the next largest being Home outperformance of the world equities index Depot, Alibaba, AIA, Philips and LVMH. and so launched its global equity fund in The fund’s stock selection is heavily June 2017 and then its local feeder fund in influenced by its thematic approach, seeking October that year. It’s particularly suitable for to benefit from long-term trends such as those with longer-term investment horizons population ageing, clean energy, urbanisation in who wish to gain non-SA equity exposure. emerging economies, shopping digitalisation, Domiciled in well-regulated Luxembourg, industrial automation and cybersecurity, as the fund’s underlying portfolio invests in well as how the pandemic will affect consumer high-quality global equities. In rand terms behaviour and workplace location. it has generated 33.3% since inception, “We focus on quality global companies,” returned 24.5% last year, and 16.1% this year says Ackerman. “Some investment funds are to July. Its performance benchmark is the growth-oriented irrespective of valuation, but MSCI All Country World Index. the Sasfin fund is not that. A company might Reasons to invest in it are that there are be best of breed in its sector but its value @finweek

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at any point in time is critical in garnering outperformance. Earnings in the longer term dictate how well a stock performs, assuming that it was fairly valued when purchased.” Looking forward, Ackerman maintains that markets seem quite elevated now, boosted by unusually low bond yields caused by aggressive central bank monetary accommodation. US equity valuations seem particularly elevated compared with other countries’ markets, but this can be justified by their high technology weighting. There is an apparent disconnect between equity markets and pandemic-affected economies. Equity markets appear to be looking past the Covid-19 pandemic and the market assumption is that everything will return to normal within a year – that is if a successful vaccine is developed and used. Earnings visibility is currently quite good for companies not oversensitive to the elements outside their control, like the oil price or being dependent on travel and leisure activities, for example. Ackerman believes that there will be a strong economic recovery next year, but he doesn’t foresee economies returning to where they were a year ago. “There are too many labour-intensive areas that will not recover fully and much of the level of current huge fiscal stimuli will soon expire. My overall view, therefore, is that corporate earnings will recover and can provide a justification for highly-valued markets, especially in the US, notwithstanding the presidential election and pervasive geopolitical uncertainties.” Had you been advised to follow the investment leads of Jack Bogle, Warren Buffett, Benjamin Graham or John Templeton in the navigation of your global investments, you probably wouldn’t flinch. There is arguably a case here to follow this homegrown boy, Bruce Ackerman. Like them, he has made significant amounts of money by sticking to a solid investment approach. If you look at his strategies as well, they aren’t very difficult or complex. They stick to basic principles and look for value at reasonable prices in relation to anticipated corporate earnings growth. And if he believes there is value, he invests and produces strong performance. ■ finweek 10 September 2020

fundfocus Ninety One By Duane Cable

MANAGEMENT

The war for investment talent – a game changer in SA

The ability to attract and retain talented investment professionals will be a real competitive advantage. he local asset management industry has experienced a growing number of emigrations and retirements recently and clients are understandably concerned about who will be managing their hardearned savings in future. In my opinion, the war for talent will likely accelerate in the years ahead and thus the ability to attract and retain talented investment professionals will be a real competitive advantage. Ninety One is in a fortunate position, being a globallyintegrated business, which provides its staff with global career development opportunities without the need to emigrate where that emigration is based purely on a lack of local career development opportunities. Clyde Rossouw, who co-heads our Quality capability, is resident in Cape Town, yet manages a market-leading global equity fund, the Ninety One Global Franchise Fund. Similarly, Charlie Dutton successfully manages Asian equities from Cape Town, having spent much of his life to date in London and Singapore. Their uncommon perspectives and experience are prized by colleagues. A vastly enriched work environment is the result, including for those just starting in their careers, who would otherwise have to wait years for such exposure. Most importantly, the overall quality of investment debate and decision-making is improved, which ultimately benefits clients.

Photo: Shutterstock

People – our biggest asset

“The real competitive advantage in any business is one word only, which is people,” according to Kamil Toume, writer and thought leader. At Ninety One, we recognise that our people are our biggest asset. As a leader, it is my responsibility to ensure that every member of my team is exposed to the development and mentorship opportunities that will not only lead to their personal growth as investors, but also result in better outcomes for clients. I am encouraged by the depth and breadth of talent within the organisation and the successes of our internal development programmes, including those that see team members travel to global centres of finance for experience they would otherwise not be afforded. I spent nine months immersed in our team in London challenging my home bias, as I was evaluating South African shares against their global counterparts in real time and making decisions with a fresh set of eyes. Having returned home, my experience has proved invaluable as I continue to analyse both local and offshore-listed stocks. I am also encouraged by the increase in résumés 26

finweek 10 September 2020

hitting my inbox from talented investors looking to join our business, attracted by the globally-integrated model at Ninety One. I am confident that we will continue to build a bench of talent for the future. This also means embracing diversity and inclusion; our aim is to ensure that people of different backgrounds, cultures, beliefs and perspectives feel welcome at Ninety One.

“The real competitive advantage in any business is one word only, which is people.”

Cultivating a global mindset is key

SA is small in the context of the global investment universe, representing less than 1% of respective global equity, property and bond indices. Today, more than 50% of earnings from businesses listed on the JSE are generated from outside SA. In the volatile world in which we find ourselves, it has become increasingly apparent that one needs to have a global perspective to navigate the choppy waters of investment markets. The reality is that global trends have a material influence on domestic markets, and one needs to have a more balanced perspective when evaluating the attractiveness of investment opportunities – both locally and abroad. It is no surprise that in an industry which has largely outsourced its global capabilities, investors who are only focusing on the SA market are feeling increasingly frustrated by the lack of local investment opportunities and inability to compete on a global scale. Fortunately, this does not include those who choose to work at and invest with Ninety One. Being part of Ninety One has not only provided me with the opportunity to grow as an investor, given my involvement in the global business, but it has also helped me deliver better outcomes for my SA clients. It has been my experience that an increasingly global mindset has allowed me to guard against any home biases and focus on the best investment opportunities, irrespective of their location. For both the Ninety One Cautious Managed and Ninety One Opportunity strategies the best driver of growth in the portfolios remains high-quality global businesses with limited sensitivity to the global economic cycle.

We understand change

As a business, I believe we are in a strong position to be able to provide long-term solutions and stability to our clients, despite the increased levels of uncertainty we face as a country. The opportunity to continue to invest in talent does not only excite me but should provide clients with a sense of comfort when it comes to our biggest competitive edge – our people. ■ Duane Cable is the head of SA Quality at Ninety One.

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fundfocus Allan Gray By John Christy

VALUATIONS

Have you looked at the Heady Hundred?

As a contrarian investor, Allan Gray’s offshore partner, Orbis, prefers to invest in businesses that are overlooked or hated, rather than in ‘exciting’ businesses whose prices are racing ahead of fundamentals. John Christy from Orbis discusses. magine you are at a cocktail party in May 2012. The conversation turns to the stock market, and your friend mentions that she bought Facebook at its initial public offering (IPO) that month. You tell everyone that you just invested in a trucking business. While your friend instantly becomes the life of the party, you spend the rest of the evening staring into your drink. Your friend made a good call — Facebook’s share price has risen almost sevenfold since the IPO. But your investment in XPO Logistics was also pretty exciting. Its share price performance was even with Facebook’s as recently as this January, and both companies delivered similarly strong revenue per share growth through the end of 2019. Since then, the pandemic has been considerably more painful for XPO’s shares than Facebook’s, so you “only” made about 400% overall. But both stocks trounced the S&P 500’s 200% return.

THE HEADY HUNDRED VS. THE FANGAMs: HIGHER PRICES, SLOWER GROWTH, AND LOWER PROFITS Weighted median valuation and fundamental characteristics

Total market cap

Price/ revenue

FANGAMs

$6.9tr

6.6

20%

29%

The Heady Hundred

$3.1tr

10.1

10%

20%

SOURCE: Capital IQ, Orbis. The FANGAMs are Facebook, Amazon, Netflix, Google (Alphabet), Apple and Microsoft. The Heady Hundred are FTSE World Index constituents with higher price-to-revenue valuations, slower revenue growth, and lower profit margins than the weighted medians of FANGAMs. 1Using Capital IQ consensus estimates for 2021 earnings. 2 Compound annualised revenue growth over the past ten years. 3Average operating profit margin over the past ten years.

Great investments come in different forms

The lesson here is that great investments come in many different shapes and sizes — and they may not always seem clear. The obvious winners in today’s environment have been the so-called FANGAM stocks — Facebook, Amazon, Netflix, Google (Alphabet), Apple, and Microsoft. One can debate their valuations, but whatever your view of these giants, there is strong evidence of truly speculative froth elsewhere. Recent research by global asset management firm Verdad showed that there are 500 stocks in the US — the “Bubble 500” — that are both more expensive than the FANGAM shares and have worse fundamentals. The vast majority of the Bubble 500 are found in areas such as software, fintech, biotech, and healthcare equipment — the virtual happy hour stocks of the Astonishingly, this group of present day. A few may turn out to be future giants, stocks carries a market value but it’s extremely unlikely that all 500 will work out of more than anywhere near that well. Taking a global view, we ran a similar analysis on the FTSE World Index. We looked for stocks with the worst of both worlds: higher valuations than the FANGAM To put that in perspective, stocks, but with weaker margins and slower revenue the Heady Hundred are worth growth. We found almost 100 such companies — call nearly as much as the entire them the “Heady Hundred”. Unsurprisingly, software, Japanese stock market. biotech, and healthcare equipment stocks are wellrepresented, as is the US. As shown in the table, these companies are about 50% more expensive than the FANGAMs on a price-torevenue basis and about 30% richer on price-to-earnings

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$3tr.

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Price/ Revenue Profit earnings1 growth2 margin3

multiples, yet have delivered only half the revenue growth and with lower profitability. Astonishingly, this group of stocks carries a market value of more than $3tr. To put that in perspective, the Heady Hundred are worth nearly as much as the entire Japanese stock market. Of course, some of these may turn out to be great investments. Prices can often race well ahead of fundamentals for rapidly growing businesses. Amazon has never once looked attractive on traditional valuation metrics, but that hasn’t stopped its shareholders from earning spectacular returns over its 23 years as a public company. The problem is that prices also race well ahead of fundamentals for all the other “exciting” businesses that go on to falter. For those who fail to live up to their Amazonian expectations, the punishment can be swift and severe.

Why boring can be better

As contrarians, we much prefer the idea of investing in businesses that are boring, overlooked, or even hated. Not only are their fundamentals usually underappreciated, but there is far less room for disappointment, since there is so much less enthusiasm reflected in the price. Besides XPO, other examples in the Orbis Funds include US health insurers, emerging market banks and conglomerates, Japanese drugstores, and even a manufacturer of farm equipment. These “boring” businesses have delivered revenue growth in excess of 10% per year — and some can even hold their own with the FANGAMs. Most importantly, you don’t need to pay a heady premium for it. ■ John Christy is a member of the Investment Counsellor Group at Orbis.

finweek 10 September 2020

fundfocus Coronation By Christo Lineveldt

STRATEGY

Finding the middle ground as a conservative offshore investor

With worldwide interest rates at decades lows, it is becoming ever more difficult to find a well-balanced, risk-conscious fund for conservative investors.

Record-high stocks and record-low yields

On the one side of the coin, return expectations on global income assets, such as cash and bonds, are uncomfortably low – a result of record-low interest rates implemented mostly by developed market central banks in reaction to the Covid-19 crisis. These record-low interest rates are making investments in these asset classes unappealing, with the US 10-year Treasury offering a perfect case study. At the time of writing, the 10-year yields were hovering around historical lows of 0.63%. A yield increase of as little as seven basis points (something that could conceivably happen in a matter of minutes) would result in the bond generating a total return for investors of zero percent over the next 12 months. On the other side of the coin, the amount of liquidity injected into the financial system to combat the effects of the pandemic is buoying equity markets back to the levels reached before the Covid-19 crisis, with the S&P 500 reaching new record highs in August. As a result, investors are questioning whether the price of global equities are running ahead of the underlying fundamentals, and when that trajectory will reverse.

Finding solace as a conservative investor

Conservative investors may be pleased to know that a solution that offers well-considered exposure to both sides of the coin does exist and the Coronation Global Capital Plus Fund sets out to achieve just that. An actively-managed, low-risk global balanced fund, Coronation Global Capital Plus represents our best long-term global investment view, moderated for investors with smaller risk budgets. This means that investors gain access to those asset classes that are able to outperform cash and inflation over time (up to half of the portfolio can be invested in growth assets) in a manner that doesn’t expose the fund to excessive risk.

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A unique mandate globally

Global Capital Plus is globally unique given its dual objectives of delivering both a reasonable return while being cognisant of its investors’ low tolerance for risk. In managing the fund to achieve these objectives, it aims to offer downside protection from equity market volatility, ideally preserving capital over a 12- to 28

finweek 10 September 2020

CORONATION GLOBAL CAPITAL FUND VS. PEERS* 5 4 3 Period performance

number of our clients have recently approached us with a common predicament. They want to invest offshore for all the right strategic reasons, but they don’t want to take on too much risk. The result is that they simply don’t know where to allocate their capital in the current environment. And it is because they are faced with the following conundrum:

2 1 0 -1 -2 -3

5-year

Since inception

10-year Annualised return in USD

■

1st quartile

■

2nd quartile

Coronation Global Capital Plus (GCP)

■

3rd quartile

GCP benchmark

■

4th quartile USD cash

*Peer group defined as all global funds with similar growth mandates available on all global investment platforms in South Africa. Returns are class P (clean or platform fund class), quoted for the USD-denominated fund for the period September 2009 (launch date of fund) to 13 August 2020. For full details on the retail class of the fund, refer to the fund’s comprehensive fact sheet. SOURCE: Morningstar as at 13 August 2020

24-month period (although this is not guaranteed). This focus on capital preservation is achieved through a carefully considered active portfolio construction process tailored to the desired fund objective. Investors get true diversification with the growth asset component of the fund spread across equities, real assets (such as infrastructure and property) and equity-like fixed income instruments, while the balance of the portfolio is allocated across assets that prioritise inflation protection, absolute returns and capital preservation.

A 21-year track record

The fund is built on our 21-year track record of managing global multi-asset class funds on behalf of South African investors and it sits comfortably in the first quartile of similar funds available to SA investors over meaningful periods (as illustrated in the graph). Its track record is also testament to the depth and breadth of our global investment research effort. Over the past decade, we have built up substantial international expertise and research capabilities with a team of 22 skilled individuals covering non-SA shares across developed, emerging and frontier markets. Doing proprietary research on opportunities across the world gives us the opportunity to blend the best ideas from our research into building resilient portfolios that can weather the times (whatever they might be) and matched to the varying investor needs. ■ Christo Lineveldt is an investment specialist at Coronation Fund Managers.

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fundfocus last word By Leon Kok

GLOBAL MARKETS

Priced for an optimistic outcome…

But choose carefully when investing offshore. n the March edition of Fund Focus I argued the case for long-term exposure to toprated global equity funds – and sticking with that standpoint. If anything, I believe, you’re probably even better positioned now to invest in them, as suggested in the macro metrics of the accompanying table. Says Russel Investments global head of investment strategy Andrew Pease: “We’re not so certain that investors have it wrong. For sure, markets seem to be priced for an optimistic outcome if no meaningful second waves of infections re-occur as lockdowns are lifted. But record levels of fiscal stimulus, sustained low interest rates and ongoing low inflation create a supportive environment for risk-asset outperformance.” While we saw the fastest 30% drawdown in market history of global equities in the first quarter of this year, it was followed by the largest-ever 50-day advance in the second quarter. The S&P is currently up 7% on a year ago compared with the long-term average of 0.5%. It fell from 3 327 in early February to 2 237 in April and in mid-August stood at 3 385. The S&P’s significance to global fund investors, of course, is that it constitutes more than 60% of the MSCI World Index. On the flipside, while being the largest developed market, the US’s size relative to the entire global equity market does fluctuate from time to time and was as low as 29% in the 1980s. Kate Moore, chief equity strategist at BlackRock, agrees with Pease. She says current valuations of global equities in general are more attractive than in 2018 – the third-worst year for multiple contractions in the @finweek

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past three decades. However, it is imperative to weigh the positive factors and the risks involved in offshore investing (see sidebar). “While I can’t say with certainty which region will perform best over the next decade, I’m confident that periods of outperformance and underperformance by US and international equities will persist and the benefits of diversifying your portfolio make a strong case for global equity investing,” says Ted Dinucci, an investment analyst at Vanguard Group. PSG Asset Management CEO Anet Ahern reminds us that the potential rewards for investors who remain sober and unemotional at times like these are rich. “After all, some of the best investment opportunities are borne out of the periods of greatest discomfort, when others abandon the tried and tested in their rush to secure a ‘sure thing’.”

Choice of funds

The Old Mutual Global Equity Fund is still by far the star among locally available global funds. It’s generated an annualised 21% return on ten years and 12.8% on five years. Others strongly recommended: Allan Gray Orbis Global Fund 17.6% (12.4%) and Prudential Global Equity Fund 15.2% (11%). On the funds of funds platform, you may wish to consider the Standard Bank Global Equity Fund of Fund 17.9% (15.9%); the Ninety One Strategic Equity Fund of Fund 16.5% (9.7%); or the Discovery Global Equity Fund of Fund 16.6% (10.3%). Prominent funds measured on five years alone comprise the PSG Global Wealth Creator 15.2% and the Coronation Global Equity Select Fund of Fund 11.1%. ■

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MACROECONOMIC FACTORS OF SELECTED WORLD NATIONS

COUNTRY Global US CANADA GERMANY FRANCE SWITZERLAND SWEDEN SPAIN UK RUSSIA MEXICO BRAZIL JAPAN CHINA SOUTH KOREA SINGAPORE AUSTRALIA SOUTH AFRICA

GDP growth 2020 est.

GDP growth 2021 est.

Govt. debt-to-GDP 2021 est.

Unemployment rate, June 2020

-4.9% -8% -8.4% -7.8% -12.5% -1.3% -8.6% -12.8% -11.5% -6.6% -10.5% -9.1% -5.8% 1% -2.9% -12.6% 1.4% -8%

5.4% 4.5% 4.9% 5.4% 7.3% 4.2% 0.9% 6.3% 9% 4.1% 3.3% 3.6% 2.4% 8.2% 1% 3% 0.9% 3.5%

– 125% 95% 72% 111% 54% 40% 112% 96% 18.5% 58% 85% 225% 54% 41% 16.5% 49% 83%

– 11.1% 13.7% 3.9% 8.1% 3.3% 9% 14.5% 3.9% 6.1% 3.3% 12.9% 2.9% 3.7% 4.5% 2.4% 7.1% 30.1%

SOURCES: IMF, OECD, ECB, TradingEconomics.com

Weighing the pros and cons of offshore investing Positive factors Underlying reasons for investing in top global equity funds in the near future: • More fiscal stimuli appear to be on the way in the US (the fiscal thrust is the most significant since World War II). • Europe’s exposure to financials and cyclically-sensitive sectors such as industrials, materials and energy, gives it potential to outperform when economic activity picks up and yield curves steepen. • The UK has been hard-hit by the Covid-19 crisis, and although the OECD has forecast an 11.5% decline in GDP this year, it expects it to rebound by 9% next year. • China seems well-positioned for a modest economic rebound this year, and a strong one next year, as stimulus kicks in and the global economy recovers. • The baton of growth is markedly

•

passing on to emerging markets, which now drive much of the world economy. They constitute about 30% of the world’s output. News of an effective vaccine, with the result in the immediate future, could drive markets significantly higher well in advance of doses becoming available. Main risks Given that Covid-19 is highly contagious, additional downturns cannot be discounted. The US federal elections are too close to call, and if Democratic nominee Joe Biden wins, he will at the very least partially reverse President Donald Trump’s 2017 corporate tax cuts. Risk of an escalation of the US-China trade war, but on balance it’s unlikely that Trump will endanger his chances of re-election by seriously reigniting trade hostilities. ■

finweek 10 September 2020

marketplace Simon says By Simon Brown

DOW JONES INDEX

The ins and outs I have written before that the Dow Jones is the world’s oddest index as it uses simple price movement (just the cents, not percentage) of its 30 constituent stocks every day to determine the index level. It also does not have a regular review process. Now it is shaking up its holdings due to the share split Apple is doing. This will reduce Apple’s share price by four times while increasing the number of shares by four times. This will reduce the tech component in the index due to a lower Apple share price. ExxonMobil, which has been in the Dow Jones since 1992, is exiting along with Pfizer and Raytheon Technologies. New entrants include Salesforce.com, Amgen and Honeywell International. This came into effect on 31 August. As with other index changes, it won’t impact the index level but may hurt those leaving and benefit those entering.

PHUMELELA GAMING & LEISURE

A battle in the betting box Phumelela Gaming and Leisure seems set to come out of business rescue with two offers on the table. One from Mary Oppenheimer Daughters, while another cheeky-looking bid is from Betfred, a UK bookmaker. The latter has an offer deadline of 1 September, but that will likely be pushed out or it will lapse. Either way, shareholders are likely to receive extraordinarily little as neither offer, as expected, includes anything for current shareholders. 30

finweek 10 September 2020

Simon’s stock tips

STANDARD BANK

Founder and director of investment website JustOneLap.com, Simon Brown, is finweek’s resident expert on the stock markets. In this column he provides insight into recent market developments.

MURRAY & ROBERTS

Bite of the corona Murray & Roberts’ full-year results got badly hit by the coronavirus pandemic – with an estimated impact of R622m. Without this charge, the group would have had a tough but profitable year. The company reported its results on 26 August. Murray & Roberts’ local power and water infrastructure division barely made a profit as the large Medupi and Kusile projects have ended for the company. But the company is keeping the division ticking over in anticipation of new projects in the water space, which would see solid earnings for many years when the tenders are awarded.

1.69% A credit loss ratio of

during hard lockdown for half the period being reported is not bad, but the question is how much worse will it get?

How bad are bad debts? Standard Bank’s results for the six months ending June saw headline earnings per share (HEPS) down 43% and no dividend being declared (as per the SA Reserve Bank request early on in the pandemic). The bank’s credit loss ratio (bad debts) increased from 0.76% in the comparable period a year ago to 1.69%. The lender’s cost-to-income and net asset value (NAV) both improved a little. The bank put aside an extra R500m for additional bad debts. Considering that Liberty, of which Standard Bank owns 53.6%, reported a headline loss of over R2bn, the banking group’s overall results were not bad. Furthermore, the share price is currently trading below the NAV at the widest discount in two decades, and the stock is looking cheap. However, it is cheap for a reason: the risk of bad debts. A credit loss ratio of 1.69% during hard lockdown for half the period being reported is not bad, but the question is how much worse will it get? The bank helped customers with payment holidays and extended repayment terms, so a lot of the potential pain was pushed into the second half. Thus, we have no clear idea of how many of those helped will still default. It is also worth noting that several borrowers would have been trying hard to make the payments but may still fail and default. So, while cheap, the risks, especially from bad debts, remain real and as such I see no need to rush into buying banks. www.fin24.com/finweek

marketplace Simon says

BANKS

ARB HOLDINGS

Through the worst

Good results amid lockdown

Absa and Nedbank have also published results for the half-year ending June and I think Standard Bank stood out as the better one of the three, albeit all three got hit by bad debt and extra debt provisions. Two comments in the results struck me. From Absa: “The second-half credit loss ratio is expected to improve significantly but should remain well above the through-the-cycle range of 75 to 100 basis points.” Nedbank stated that “forecasting in the current environment is complex and estimates are subject to a much higher level of forecast risk than usual, but we are hopeful that the worst impacts of Covid-19 and the GLC (Great Lockdown Crisis) are behind us and that impairments in the second half will be lower than in the first half”. So, while no bank expects a great second half of 2020, they do expect it to be better. This ties in with the April and May hard lockdown being the low point. However, I expected bad debts to continue rising, especially as repayment holidays started to expire. If Absa and Nedbank are correct, the worst is behind the banks – and their shares are very cheap – with Standard Bank maybe even resuming dividend payments for the full year, which will be reported on in March.

ARB Holdings, owner of ARB Electrical Wholesalers and Eurolux, surprised the market with its full-year results through 30 June on 24 August. The group’s revenue sunk 13.1%, but gross margins improved from 24% to 25%. HEPS increased by 3% while the dividend was withheld. ARB also sits on R151.9m of cash, while its market cap is about R916m. Even though the lockdown only impacted its final quarter, overall the results were good. On a price-toearnings (P/E) ratio of around 6.5 times, the stock is cheap. But this share has always been cheap, and the board commented that “it will take at least two to three years to revert to the level of activity prior to the lockdown necessitated by the Covid-19 pandemic”. This is the telling statement. As the country opens up, we need to remember that getting back to pre-pandemic economic activity is still some way off and even a cheap stock such as ARB, with a good margin of safety, has serious risks in the years ahead. More importantly: What will trigger a higher valuation of the stock? Truthfully, I don’t see that happening any time soon.

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SHOPPING MALLS

Cell C adds to the pain Reports that Cell C is set to close 128 retail stores will see more pain for shopping malls. Sure, these stores are typically small, but it will add to vacancies and, as I have written before, new business is not springing up under lockdown or while consumers remain under pressure. @finweek

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“It will take at least two to three years to revert to the level of activity prior to the lockdown.”

GOLD FIELDS

Interim HEPS jump fourfold Gold Fields’ results saw its interim HEPS jump four times as it hit $0.20, while a dividend of 160c (in rand) was declared. If gold stays at around $2 000 an ounce for the rest of the year, the company’s second half will be even better. Gold miners’ share prices have, however, been under pressure, with local gold stocks off some 20%. This is no surprise as the shares are still up over 200% (and in some cases even more) since the start of the year and a lot of traders and investors will be taking profits while they can. I hold Pan African Resources* as my preferred gold stock and will continue to hold it if the case for gold remains bullish.

ITALTILE

A bellwether for the upturn Italtile’s full-year results through 30 June, which were released on 25 August, reported a dip in revenue of 7% and HEPS off 22%, while the company declared a 33c dividend that was down 20% from a year ago. Here the striking comment was that the group has resumed its R800m capital expenditure programme, showing confidence that the worst is behind them. It’s also good management because being too conservative and freezing all capex, while competitors are growing, could leave Italtile behind. As Italtile is linked to consumer spending, expenditure on DIY should be an early winner as consumer confidence improves and people adjust their living spaces for the new reality of working from home. ■ editorial@finweek.co.za *The writer owns shares in Pan African Resources.

finweek 10 September 2020

marketplace invest DIY By Simon Brown

FUNDAMENTALS

Be careful what you wish for

When it comes to managing risk, investors need to manage their expectations. Be realistic about the outcome you expect from an investment, and understand the consequences of this outcome not materialising. comfortable in retirement. If the returns s traders or investors, we are are lower (even if positive), and don’t essentially managing risk meet your expectations, this results in a and, typically, we focus on lesser retirement. the risk of losing money. In the case of retirement, life But risk in the markets is about far expectancy is another expectation risk to more than just losing money. I have written consider – living longer could mean that before that one of the great things about you won’t have enough money for your investing is that your downside risk is retirement. capped at 100%, as an investment can The lesson for investors is to take note only go to zero. But the reward is unlimited, of our expectations. Sure, we’re buying as a share’s price can rise to absolutely stocks because we want a profit and, dizzying heights. If we keep this in mind, truthfully, a profit that over time beats investing becomes much easier – even if our benchmark – the market. But we also there are a few dud shares along the way. need to be realistic with our However, there is a expectations – both in that lot more to investing One of the great things about we may be wrong and make than this – and there investing is that your downside a loss, but also in what are risks beyond losing risk is capped at the upside potential is. money. Nerina Visser, Expecting that every stock director at etfSA, once we buy will be a ten-bagger commented that risk in double-quick time is a is when the outcome as an investment can massive risk because you’ll is not as expected. only go to zero. find that few stocks are This fundamentally ten-baggers. changed how I view One way to manage this is, of course, risk with my own investments. realistic expectations and an acceptance One way to view this is that an exchange-traded fund (ETF) carries no risk that we may underperform these expectations. if you buy it with the expectation that the Part of how we manage these ETF will merely return the underlying index expectations is to constantly ask ourselves return. This is how an ETF is designed and what will drive the price higher. Is it a if you’re happy that indices bounce around growing market that will benefit the and that the ETF will track this movement, business, or perhaps pricing power that will then the expectation will meet the return see prices and hence margins and profits and the risk is removed. increase? Another avenue for a share price But, for an active investor, what of a increase is a rerating higher for the stock. It scenario where you buy a share expecting may be trading on, say, a price-to-earnings it to double in value, but it only goes up multiple of ten times, but we expect that to by 50%? This is still great but is not what increase to 15 times and just this rerating you expected; the risk here being that the will increase the price some 50% without return was lower than expected. Instead of margin or market share gains. being happy about the 50% return, you’ll But here a word of caution, as we run consider it a failed investment because the into exactly the same risk: an expectation share price didn’t double. that the market will rerate the stock higher. Looking at risk in this way – based on What will drive this rerating and what if our the outcome not meeting expectations expectation is not met? – is far broader and more useful for So, be very aware of your expectations. investors. For example, consider the Are they realistic? And what’s the impact if expectation that you will get a certain they fail to materialise? ■ return from your investments over your investing lifetime to leave you editorial@finweek.co.za

Photo: Shutterstock

100%,

finweek 10 September 2020

Part of how we manage these expectations is to constantly ask ourselves what will drive the price higher.

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marketplace markets By Maarten Mittner

TECH STOCKS

Let’s talk about bubbles

This time, however, it might be different.

enewed record highs on the Nasdaq and S&P 500 have raised the spectre of a market bubble floundering on the reality of adverse economic conditions. US markets appear out of sync with the economic realities of a still highly active global pandemic, weak company earnings and subdued economic data – with even the US Federal Reserve (Fed) warning that more uncertainty lies ahead. All market losses have been recovered since March, and the Nasdaq has surged more than 25% since January. Billionaire investor George Soros has been one of those warning of a bubble that could deflate soon, as with the dotcom bubble in 2000. Asset managers caution that the US economic recovery might not be the desired V-shape as anticipated, but rather be in the form of a K-shaped recovery where some companies have rebounded while others are still in the doldrums. In contrast with the tech surge, average stocks on the S&P 500 are about 30% off their peaks, prompting some to rename the index the ‘S&P 5’ to reflect the unhealthy market dominance of the highflying tech companies. Data shows that the market concentration of tech stocks on the S&P 500 has been unprecedented in recent times. Twenty years ago, the value of the top five stocks in the index, weighted by market cap, stood at about $2tr, accounting for just under 5% of the index’s total market cap. Now the market cap of the top five – Amazon, Microsoft, Apple, Alphabet (owner of Google) and Facebook – has risen to over $6tr, comprising more than 21% of the total market cap, the highest in 30 years. The market cap of the top five Apple hit a record market cap of $2tr on 19 August. – Amazon, Microsoft, Apple, Alphabet (owner of Google) and As this was largely expected, the real story was Facebook – has risen to over $6tr, probably the fact that Apple added another $130bn comprising more than to its $2tr market cap only a few days later, a further rise comparable to the total asset value of Chinese technology group Huawei. This is only the beginning, market pundits say. The rollout of the new-generation iPhone 12 over the of the total market cap of the coming months indicates further upward momentum S&P 500, the highest in 30 years. for Apple, with an eventual market cap of $3tr in sight. At a price-to-earnings (P/E) ratio of 37 times, Apple seems stretched, but not as much as Amazon, trading at a P/E of 140 times. Or Tesla at an astounding 1 000 times. Talk of a market bubble, and an imminent correction, seems quite reasonable. But it would be dependent on some or other catalyst. In the dotcom bubble of 2000, tech companies ran out of cash before the run started. In 2008, it was higher interest rates that caused defaults among homeowners and so affected certain financial instruments

Photo: Shutterstock

21%

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negatively – mostly in the subprime discounted categories. It is unlikely that these two issues would cause a present tech bubble to burst. The big tech companies have much-improved cash piles these days. Apple sits at $200bn, Microsoft at $136bn, Alphabet with $120bn and Amazon with a more modest $40bn. It is difficult to imagine that a bursting bubble would affect companies with huge cash resources negatively, especially when the Fed remains committed to its low interest rate policies, with rates now set to remain near or at zero for a considerable period of time. What makes it also more unlikely is that fundamentals have seemingly been discarded. A high P/E is not seen as a deterrent to invest in a company anymore. Nor a seemingly overvalued market cap. Nor ever bigger market concentrations, with Facebook and Google now dominating the US advertising market with a market share of over 50%. Normally this would attract competitors to enter the market. But the market dominance of the Big Five is so massive that any upcoming competitor soon faces a takeover offer. This has been the case with Facebook buying Instagram and WhatsApp, and Microsoft adding LinkedIn to its portfolio, among others. Alarmingly, the forward P/E ratio for the S&P 500 over the next 12 months has risen to 28 times, the highest since the bursting of the dotcom bubble in 2000. But again, this has not put a damper on predictions that the market concentration in the index could increase even further soon. Although it might be seductive to think that a correction might not happen, much in the same vein as the boombust cycles of the past having seemingly evaporated, an inflection point is likely to develop at some or other stage. But it is difficult to imagine what that could be. The yield of the benchmark US 10-year Treasury has ticked above 0.7% from around 0.6% on the Fed’s new inflation-targeting stance. Safe-haven investing is still seemingly not at odds with risky tech stocks on equity markets. Even if bond yields should spike, it could affect those underperforming stocks on the S&P 500 more negatively than the big tech stocks. Gold has risen above $2 000 an ounce but is still way off levels that would indicate concern about rising inflation or excessive unstable market conditions soon. Not even a black swan event, like this pandemic, had any major effect on the big tech companies. In fact, it benefitted them. There is simply truly little to indicate that a tech bubble will deflate anytime soon. ■ editorial@finweek.co.za Maarten Mittner is a freelance financial journalist and a markets expert.

finweek 10 September 2020

marketplace technical study By Lucas de Lange

JSE

Profits like magnet for prices

…but depressed smaller companies are focusing on survival. here are few things that you can be certain of when it comes to the stock market. One of these being that growth in profits, especially if coupled with dividends, acts like a magnet to boost share prices to new heights. This was recently proven by the latest profit figures of companies such as SibanyeStillwater, Impala Platinum and Northam Platinum. These three shares increased by 145%, 82% and 97% respectively over the past 12 months. Sibanye-Stillwater’s exceptional increase was given a boost by its decision to reintroduce dividends. Royal Bafokeng Platinum, currently at the top of the table of strongest shares, has improved by 74% over 12 months. Among gold shares, DRD Gold is way ahead with 264%. That the positive trend for platinum and gold shares is likely to continue is also confirmed by the consensus recommendations of analysts. Buys dominate for all of these shares, with not a single recommendation to sell. The favourites among analysts remain Prosus and Naspers*, with only buy recommendations for both shares from 14 and 13 analysts respectively. It’s through these international giants and mining shares that the JSE’s All Share Index is apparently in a bull trend. It’s lying about 5% above its 200-day exponential moving average (EMA). However, delving a bit deeper reveals a miserable picture. For example, the JSE’s small-cap index is currently at the same level as in October 2007. The mid-cap index looks a bit better; it’s at the same level as at end-2013. These two indices are in fact reflecting the distress of many companies. It is apparent from several annual reports that the management teams of smaller companies are currently more focused on survival than growth. The indices are reflecting what is happening in the SA economy and the massacre that is taking place as far as jobs are concerned. Annabel Bishop, chief economist at Investec, summarises the current climate as follows: “It is a crisis because people lose hope, consumers as well. We’re not going to see the loss of the economy that

finweek 10 September 2020

occurred in the second quarter being made up in the third quarter. In fact, it’s going to take us to 2025 to get back to the level of activity that we were at in the last quarter of last year in real terms, adjusted for inflation. If you take inflation back into it, it’s going to take us to 2023. The reality of the situation is that South Africa is likely to be one of those [economies] that lag.” Bishop’s pessimism is echoed by Mike Schüssler, founder of the research house Economists.co.za. He predicts that only three of the larger economies are likely to show positive growth this year, namely China (1.7%), Egypt (0.6%) and Indonesia (0.2%). He added that SA would bounce back, but that a full recovery would take years – about six to nine years to reach 2019 levels and 11 to 14 years to reach 2014 levels. “SA’s gross government debt will reach 100% by 2024,” he said. He indicated that, with the addition of new entrants to the labour force next year, the best case for the country’s unemployment rate would be about 36.2%, while the worst case would be around 44.6%. Last month the US share indices once again reached new highs. However, certain important circles are worried about this. This includes the influential research division of Morgan Stanley, which points out that the disconnect between the S&P 500 and the real economy is constantly increasing – mainly because of large-scale money creation by authorities. It’s also important to note that, like in SA, it’s a relatively small group of tech shares, such as Apple, that’s firmly pushing up the S&P 500. In contrast, companies such as McDonald’s and Starbucks have been severely affected by the pandemic. On the local bourse, among the shares that have broken through, Bidcorp, JSE Ltd and Clicks are looking interesting. JSE Ltd and Clicks experienced brief upturns, but retreated to close to their 200-day EMAs, which many consider as a favourable buying area. ■ editorial@finweek.co.za Lucas de Lange is a former editor of finweek and the author of two books on investment. * finweek is a publication of Media24, subsidiary of Naspers.

WEAKEST SHARES* COMPANY

% BELOW 200-DAY EMA

NAMPAK HAMMERSON FORTRESS B VUKILE REDEFINE HYPROP MERAFE MOTUS INVESTEC LTD INVESTEC PLC EPP EMIRA REMGRO TELKOM NEDBANK ABSA GROUP BARLOWORLD MAS REAL ESTATE PICK N PAY PEPKOR HOLDINGS DISTELL GROWTHPOINT SAPPI INVESTEC PROP TFG OLD MUTUAL ASTRAL NEPI ROCKCASTLE TRUWORTHS NETCARE MR PRICE RESILIENT LIFE HEALTHCARE IMPERIAL ADCOCK INGRAM STANDARD BANK CAPITEC FIRSTRAND BIDVEST WOOLWORTHS RHODES MOMENTUM METROP DIS-CHEM SASOL RCL SANLAM MPACT MASSMART VIVO BAT LIBSTAR FORTRESS A SUPERGROUP TRANSACTION CAPITAL PSG KONSULT SPAR AVI

-66.1 -56.5 -56 -49.3 -40.2 -39.2 -38.8 -37.3 -33.7 -33.6 -32.4 -31.4 -30.1 -28.5 -26.5 -22.9 -22.8 -22.5 -21.9 -21.5 -20.6 -20 -20 -19.4 -18.8 -18.3 -18.1 -17.8 -17.2 -17.1 -15.7 -15.5 -15 -14.6 -14.3 -13.9 -13.7 -13.7 -12.6 -12.4 -11.5 -10.8 -10.7 -10.6 -10.4 -10.1 -9.9 -9.7 -9.1 -8.6 -8.4 -8.3 -8.2 -7.6 -6.9 -6.7 -6.6

WEAKEST SHARES* COMPANY

MTN GROUP KAP MEDICLINIC TIGER BRANDS MC GROUP TRUSTCO SHOPRITE GLENCORE EQUITES AB-INBEV OCEANA

% BELOW 200-DAY EMA

-6.6 -6.5 -5.8 -3.6 -3.3 -2.1 -1.8 -1.2 -0.7 -0.5 -0.3

STRONGEST SHARES* COMPANY

% ABOVE 200-DAY EMA

ROYAL BAFOKENG PLAT GOLD FIELDS HARMONY PAN AFRICAN RESOURCES SIBANYE-STILLWATER NORTHAM PLATINUM AFRICAN RAINBOW MINERALS IMPLATS KUMBA IRON ORE CARTRACK PROSUS ANGLOGOLD ASHANTI DISCOVERY ASPEN BHP REINET AMPLATS ALTRON A STENPROP EXXARO RMI HOLDINGS INVESTEC AUSTRALIA PROP QUILTER CORONATION NASPERS ANGLO AMERICAN THARISA VODACOM ZAMBEZI PLATINUM PREF MONDI BIDCORP JSE RICHEMONT CLICKS SOUTH32

53.1 53 50.8 48.3 39.3 37.8 25.9 25 24.8 23.4 22.1 18 15.8 11.6 11.5 11.1 10.9 10.5 9.8 9.3 9.2 9.1 8.7 8.7 8.5 8.1 6.1 5.1 4.4 3.6 3.4 2.5 1.8 1.2 0.9

BREAKING THROUGH* COMPANY

BIDCORP JSE RICHEMONT CLICKS SOUTH32

% ABOVE 200-DAY EMA

3.4 2.5 1.8 1.2 0.9

*Based on the 100 largest market caps.

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cover story alcoholic beverages

A TRIPLE WHAMMY:

HOW A PRE-COVID ECONOMY, PROHIBITION AND LOCKDOWN LOGISTICS HAVE SUCKED AN INDUSTRY DRY The alcoholic beverages industry lost R25bn due to the government’s cumulative 14-week ban on alcohol sales. Thousands of businesses, suppliers and producers’ financial futures are at stake. How could the government get it so wrong?

Photo:

By Jaco Visser

finweek 10 September 2020

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cover story alcoholic beverages

he domestic alcoholic beverage market was hit three times in relatively short succession as the government, among others, fumbled its response to the coronavirus pandemic. The industry lost billions in sales and thousands of workers’ livelihoods were placed in a precarious position. “The value of sales lost for the industry overall as a result of the first and second ban [on the sale of alcohol] is approximately R25bn,” Kurt Moore, CEO of the South African Liquor Brands Association, tells finweek. “Just more than half is from beer (R14bn), followed by RTDs (ready-to-drink at R4.4bn), then wine (R3.5bn) and then spirits (R3.4bn).” Distell, the second-largest listed liquor manufacturer in SA, alone lost R4.3bn in sales, or approximately 100m litres of volume during the ban, according to Richard Rushton, CEO of the Stellenbosch-based company, in a conference call with investors on 26 August. The first ban on the sale of alcohol was in place between 27 March and 31 May, with the second in place between 13 July and 17 August. But it was more than just the two lockdown bans that hit the alcoholic beverage market. The three strikes to the industry were: Firstly, a pre-Covid decline in consumption as consumers tightened their belts in an ailing economy – thanks to the government’s mismanagement of SA’s economy; secondly, the two physical bans on sales; and thirdly, the dawdling of operations at Cape Town’s harbour, which potentially cost local winemakers their cherished export markets, especially in Europe.

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finweek 10 September 2020

cover story alcoholic beverages

Vinpro estimates that the wine industry may lose up to 80 wine cellars, 350 grape producers and 21 000 jobs over the next 18 months.

Strike 1: Consumers under strain

finweek 10 September 2020

Charl du Plessis CEO of Orange River Cellars

Josef Dreyer Member of the family that owns Raka Wines near Caledon in the Overberg

Boyce Lloyd CEO of KWV Photos: Supplied I Shutterstock

local spirit, has been well-reported over the years, as consumers switched to imported whiskey As SA’s economy tanked during 2019 – and over the past decade. businesses, consumers and offshore investors And the road to recovery may be long. BFAP lost confidence in the government’s handling estimates that wine consumption will increase 1% of the continent’s most advanced economy – annually in the period to 2029. consumers started to tighten their belts. The “Within the still wine category, the low situation was exacerbated by the and basic price segments constitute growing ranks of jobless people, the lion’s share of consumption the exposure of governmentRaka wines harvest by volume, and the bulk of the linked corruption, and the loss decline is also attributed to of political trust as proven these categories,” says BFAP. by the lowest electoral “These categories are typically turnout for a national consumed by lower-income election in May last year. consumers and continue to Add to that a standoff face strong competition from between the monetary beer in the alcoholic beverage and fiscal authorities, with complex.” the former demanding the We’re afraid of the economy, latter to implement structural Josef Dreyer, a member of the family economic changes – as a that runs Raka Wines near Caledon in the central bank cannot shoulder all the Overberg, tells finweek. “Wine is a luxury and responsibility for the economy – and consumers people are going to drink cheaper.” were left in a desperate financial malaise. Against this backdrop, demand for wine, among Strike 2: The prohibition others, began to wither. The severity of the first ban was such because “Domestic wine consumption was already it was imposed during the peak of many wine declining during 2018 and 2019 (by 4% and 7% and liquor makers’ working capital peak. respectively) on the back of lower disposable “They couldn’t have chosen a worse time,” incomes and higher prices. In 2020, domestic says Lloyd. “It will take several years to rebuild consumption of still wine is expected to decline the industry and some sales will never be by as much as 19%,” the Bureau for Food and recovered.” Agricultural Policy (BFAP) said in their baseline The prohibition came just as those producers agricultural outlook for 2020 to 2029. of alcoholic beverages that rely on grapes as an “Wine sales started experiencing pain in ingredient (especially winemakers and brandy the second half of 2019,” Boyce Lloyd, CEO distillers) bought their inputs and maxed out of KWV, a company that is 102 years old and their credit facilities to pay suppliers (mostly an institution for many South Africans, tells finweek, adding that on the back of the economic farmers). Late March is usually the peak of the contraction the wine industry put through sales grape harvest season in the Western Cape, with the Northern Cape’s harvest completed a week price increases last year. The price increases or two earlier. were primarily driven by the prolonged drought “It had an unbelievably bad impact, conditions. especially the timing,” says Lloyd. “We buy (our On the other hand, a shift in taste also drove stock) between January and March and exactly consumption patterns before the pandemic hit. at the peak of our working capital cycle sales The decline in brandy consumption, a stalwart

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cover story alcoholic beverages

were stopped.” This led to KWV not being able across-the-board pay cuts for SA employees to pay for its inputs and other suppliers at the of 10% and salary reductions of 12.5% for end of April and they had to make payment management in September. arrangements with creditors, he says. Vinpro estimates that the wine industry may Orange River Cellars (OWK), the secondlose up to 80 wine cellars, 350 grape producers largest cellar in the southern hemisphere, and 21 000 jobs over the next 18 months. and still a cooperative, shared the same blunt The impact of the local alcohol ban also experience as KWV – its former legislated found its way into global brewing giant offtaker of so-called “rabat” wine (used in the AB InBev’s second-quarter results. It is, making of brandy and other fortified spirits). however, unclear how large SA’s contribution to “Following the ban, everyone’s stock the asset impairment was. They didn’t respond levels doubled,” OWK CEO Charl du Plessis to a request for an interview. tells finweek. “The supply side of the market “However, we were exposed to a risk of swelled so much that prices went into free fall.” impairment for the South Africa and Rest of Upington-based OWK had to postpone and Africa cash-generating units under the worstreduce payments to its members, he says. case scenario and concluded it was prudent “Our producers hasn’t had any cashflow to recognise a $2.5bn non-cash goodwill since March and we’re already in September,” impairment charge, applying a 30% probability Du Plessis says. of occurrence of the worst-case scenario,” the In addition, the push for black empowerment brewer said when it released the results for in the wine industry has also taken a hit from the three months ending 30 June on 30 July. the government-imposed ban on alcohol sales. Thus, it reckons there’s a 30% chance that the “Black producers have in certain instances government will ban alcohol sales again. already large quantities of wine in stock, which is reflected on their balance sheets at a certain Strike 3: The port’s a mess valuation,” Phil Bowes, Vinpro’s manager for To add insult to the alcohol industry’s injury, the enterprise development, tells finweek. “In a Port of Cape Town, a subsidiary of state-owned surplus situation it leaves them in a difficult Transnet, almost halted the export of alcoholic position when it comes to applying for funding beverages after the industry could again from the government, banks or the industry produce and ship their products in June. because the stock’s valuation is uncertain.” “The high number of positive Covid-19 cases Black trademarks mainly try to compete in in the Western Cape since the onset of the the lower super-premium price class, explains national lockdown contributed (to) interrupting Bowes. With lower prices, due to surplus normal operations at the Cape Town Container stock, their margins are Terminal,” Oscar Borchards, extinguished, and their acting terminal manager, “Almost all black business models will responded to questions from probably be destroyed, trademarks that sell finweek. “We now recognise according to him. “Almost all a complete eradication in the into the local market number of vessels waiting to be black trademarks that sell into the local market may and now berth vessels may go out of business berthed go out of business without on arrival.” assistance,” he says. During the strictest level without assistance.” The impact on jobs is of the government-imposed similarly blunt. OWK, for lockdown, there was a build-up instance, employs 250 of up to 11 vessels waiting at temporary workers during the harvesting anchorage for service, he says. season, but didn’t hire anyone this year, Du This has cost the alcoholic beverage Plessis says. KWV froze all vacant posts and industry, especially the wine producers relying didn’t take on between 40 and 50 temporary on exports, dearly. SA winemakers export workers, says Lloyd adding that salary cuts almost half of their production. The sector directly of between 10% and 35% were introduced, employs 40 000 people and is a large contributor depending on job level. Distell will implement to SA’s positive trade balance for agricultural

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EXCISE TAXES LOST The fiscal woes of South Africa’s government – whose debt is not rated as investment grade due to international investors’ fear of its ability to repay it – just got deeper with the alcohol ban. The value of tax and excises losses is estimated to be equivalent to R25.1bn as the money would have flowed through the whole value chain – from farmer to producer to the end consumer. “The first and second bans will result in about R19.4bn reduction in tax revenue (excluding excise tax), and about R5.7bn reduction in excise tax,” Kurt Moore, CEO of the SA Liquor Brand Owners Assocation, says. ■

finweek 10 September 2020

cover story alcoholic beverages

goods, according to BFAP. “Exports are disastrous, and the damage will “The impact on the SA wine industry due become clear in 2021,” says Lloyd. “We have to Covid-19-related delays at the Cape Town a risk of losing up to 20% of our sales in key Port Terminal was significant,” Maryna Calow, markets through delistings. We weren’t on the communications manager at Wines of SA shelves; consumers bought other brands and (WoSA), tells finweek. “For a while they cited retailers got other suppliers.” force majeure and closed the entire terminal for Rushton says Distell couldn’t fulfil almost periods of time. This led to major delays, with half of its export orders during the port ships not being able to dock and in due course, blockage and many customers cancelled their we saw a number of shipping lines opting to orders. “It’s getting better, but not where it used completely bypass Cape Town port.” to be,” he says. The Western Cape government jumped in Calow says that WoSA communicated fairly to facilitate talks around the successfully with importers, agents backlogs at the port. and retailers abroad that the delays “Exports are were not due to the fact that SA “In the case of the port, the (provincial department of were unreliable exporters, disastrous, and producers agriculture) coordinated with but that they were not allowed to other government entities in the transport wine. Since this ban was the damage province (such as Wesgro and lifted, the delays at the port created will become an additional issue for producers, she the department of economic development and tourism) clear in 2021.” says. in the engagement with the “In the highly-competitive retail port authority,” Dr Ivan Meyer, space, when it comes to international provincial MEC for agriculture, wine, this had the potential to be said in response to questions from finweek. “It disastrous for our producers as retailers would is now clear that the majority of the blockages have their pick from our competitor markets in that existed have been ironed out and order to fill the shelf space,” Calow says. operations are getting back to normal.” OWK’s Du Plessis puts the situation Despite the delays being cleared at the port, succinctly: “SA is becoming structurally the government’s decision to ban the production unstable. We have not been able to get two and export of alcohol will echo into the future. export containers on a vessel for the past Most of the exporting winemakers, and five weeks and have basically been told by locally-branded spirits producers, have dedicated our customers that they will discontinue the shelf space in European supermarkets. programme next year.”

Maryna Calow Communications manager at Wines of SA

Dr Ivan Meyer Western Cape MEC for agriculture

THE BREWER’S BRUNT South Africa’s large brewing industry, the 12th-largest in the world according to the Beer Association of SA (Basa), sketched a bleak picture of the sector in a release in mid-August. The association counts SA Breweries (SAB), Heineken and the Craft Brewers Association among its members. “Many businesses in the beer industry have still not recovered from the first nine-week ban in place from 27 March to 31 May, including 8 000 licensed taverns and 30% of craft breweries that were bankrupted,” Basa CEO Patricia Pillay said in its statement. “The second ban, that came into effect on 13 July, forced an additional 15% (of) craft breweries and thousands more taverns to shut down permanently. This is a tragedy of epic proportions, especially since 54% of taverns are owned by women supporting their families.”

finweek 10 September 2020

And it wasn’t only jobs lost and wholesale customers forcing to close. The association referred to SAB cancelling capital infrastructure upgrades worth R2.5bn during this financial year and reviewing another R2.1bn planned spending for the next book year. Heineken SA, a joint venture in which Namibia Breweries owns a 25% stake, halted plans for a R6bn brewery expansion in KwaZulu-Natal, which would have employed 400 jobless people, Pillay said. The 100-year old Namibia Breweries (owner of brands such as Windhoek Lager and Tafel Lager) sold a third of its beer volumes in the SA market in its financial year through 30 June 2019, according to the Namibia Stock Exchangelisted company’s annual report. It sells 64% of its volumes in its home market, with the remainder sold in Tanzania, Zambia and Zimbabwe, according to the report. In an interview with finweek, Namibia Breweries CEO Marco Wenk

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cover story alcoholic beverages

Photos: Shutterstock I www.twitter.com I www.wineandfood.co.za I www.distell.co.za

Now what?

With SA’s economy deeper in the doldrums than before the pandemic hit and international sales compromised by a seemingly weakly-informed government export ban, it will take time for the industry to recover. Distell, whose shares slid by 44% this year, has a fighter mentality to regain lost sales. “We’re not waiting for the economy to help us,” Rushton said on the investor call. “We will move to protect our market share. We’ll drive our premium spirits internationally.” Distell’s chief financial officer, Lucas Verwey, echoed something that other players in the industry also mentioned: “There is pentup demand.” In Namibia, which experienced a shorter alcohol ban, Namibia Breweries’ CEO Marco Wenk is cautiously optimistic about demand: “In Namibia we saw a massive resurgence in the month after lifting the ban.” (Also see sidebar.) He did mention the caveat that the country is only now entering its peak coronavirus infection phase, whereas SA has passed it. The question, according to Wenk, is how the sales dynamics of liquor will now be impacted by consumers’ ability to spend on alcoholic beverages and how restrictions to combat the pandemic in Namibia will alter consumption patterns. “We’re still trying to understand this,” he tells finweek. For a winemaker focusing most of its attention on the local market, Raka Wines’ Dreyer says that his family’s business might now actually consider

44%

Distell, whose shares slid by

this year, has a fighter mentality to regain lost sales.

said that the alcohol ban in SA, because of the Covid-19 pandemic, is expected to have a “significant impact” on the volumes sold to its SA partner. This is mainly due to Heineken SA being able to produce most of the volumes required in SA locally rather than importing it from Namibia. Volumes exported to SA will likely decline to between 20% and 25% of total output for the foreseeable future, he estimates. Namibia Breweries is 59.4% owned by NBL Investment Holdings (which is owned by Namibian investment group Ohlthaver & List and Dutch brewer Heineken in almost equal shares) and the surplus by public shareholders. The rarely-traded stock declined from N$48.26 at the beginning of the year to N$29.01 at the time of writing. “We anticipate that our Sedibeng brewery will have much more line capacity in the medium term than what they used to have,” he said. The overcapacity mentioned by Wenk has another impact and that is on barley growers. Barley and hops are key ingredients in brewing beer. Grain SA’s winter grains supply and demand report on 27 August shows that a barley crop of 345 080 tonnes is expected for the current marketing

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Lucas Verwey Chief financial officer at Distell

exporting wine. They’re only selling 10% of their production outside SA, he says. Others, like OWK, must mitigate its current oversupply situation in the meantime. With one of the few juice concentrate plants in the country, and being one of the largest processors of the product, the winery now plans to use about 80% of the next season’s crop to make the concentrate, Du Plessis explains. About 96% of OWK’s wine production is white varietals. KWV’s Lloyd highlights the direct link between economic growth and demand for their products where economic contraction results in diminishing demand. “We expect a 5% to 10% decline in volume in 2021, but with possible price reductions and competition, volumes could maybe hold at 2019 levels,” he explains. “But then, naturally, turnover and margins are under pressure.” Lloyd’s assessment may be the only saving grace for large players in the alcohol industry. For those producers – from winemakers to craft brewers and large distillers – whose markets are solely reliant on SA’s poor economic outcomes, trouble lies ahead. Vinpro’s horrific estimations may even be their future. Getting back into the export markets, with a Distell-like attitude, on the other hand, might ensure survival. But then again, the vagaries of the government will be the determinator. As Rushton says about his company (and applicable to the whole industry): “Where we’ll end in this, we don’t know.” ■ editorial@finweek.co.za

year (ending on 30 September 2020). SA had opening stocks of 268 405t on 1 October last year. Accounting for a total demand of 364 500t in this marketing year, SA will be left with carryover stock of 248 985t when the new marketing year kicks off on 1 October. It’s uncertain whether the lower demand for human consumption (especially for malting barley) has been factored into Grain SA’s projections. However, the Bureau for Food and Agriculture Policy (BFAP) notes that barley prices “remain derived from wheat prices and are therefore projected to increase, but with malting activities prohibited during the stage 4 and 5 of Covid-19 lockdown, stock levels have increased dramatically”. Nevertheless, taking Grain SA’s estimates, SA will be left with a barley surplus of 329 201t at the end of September 2021. Josef Dreyer, member of the family that owns Raka Wines and practices mixed agriculture, points to the uncertainty of barley production. “We sow barley on 1 200ha and the current crop has already been sold to SAB. We don’t know what the next season is going to look like,” he tells finweek. ■

finweek 10 September 2020

on the money motoring By Glenda Williams

Is this really ‘the one?’

In a bid to free up interior and boot space, BMW makes the big shift to front-wheel-drive for its new BMW 1 Series. But can this new front-wheel-drive model pip its rear-wheel-drive predecessor?

The sporty silhouette of the new front-wheeldrive 118i.

front-wheel-drive BMW! Heresy, was the first thought when I got wind of BMW’s plan to ditch rear-wheel-drive (RWD) in the new 1 Series. BMW has historically eschewed frontwheel-drive (FWD) in its predominantly performance-orientated cars for the better weight balance, precise handling and somewhat faster acceleration off the line that comes with a rear-wheel-drive setup. Predictably, the announcement raised many an eyebrow. So why the change? BMW says customer requirements for more interior room and luggage space meant moving to a different platform, hence the change to a front-wheel-drive system. Another compelling reason for the move was the ability to share a production platform, giving the 1 Series access to Mini architecture and engines, which would reduce production costs.

finweek 10 September 2020

But moving to FWD means the new BMW 1 Series is quite a bit different to its RWD predecessor. So what will BMW enthusiasts make of this about-face on RWD? And could this new FWD pip the RWD 1 Series in terms of appeal? There was only one way to find out: drive it. finweek got behind the wheel of the BMW 118i, one of only two models available in South Africa; the other being the flagship BMW M135i xDrive.

Exterior character

I like the look of the new 1 Series. Its athletic proportions are pleasing to the eye and it has an appealing sporty silhouette, with distinctive shoulders and windows that rise towards the rear. The M Sport package on the test vehicle merely serves to enhance an already handsome hatchback. Thanks to the FWD layout, this

third-generation 1 Series is quite a bit wider and higher than the previous model. That, together with a short overhang, slanted headlights and slightly shortened hood (courtesy of the transversely mounted engine of a FWD setup) contribute to a somewhat more beefy look. Its grille has also grown in size, with the specially-shaped air intakes of the M Sport-model front apron further boosting its dynamic stance. The compact hatch’s rear is equally attractive. Broad and low set, its slim rear lights sweep into the side emphasing its width while the black BMW M rear apron, rear lip spoiler, burly exhaust and chunky alloy wheels cement the sporty look.

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on the money motoring

TESTED:

Photos: Supplied

BMW 118i with M Sport package

Engine: 1.5-litre 3-cylinder TwinPower Turbo Transmission: 7-speed Steptronic dual-clutch 0-100 km/h: 8.5 secs Top speed: 211km/h Power/Torque: 103kW/220Nm Fuel tank: 50 litres Fuel consumption (claimed combined): 5.9 litres/100km C02 emissions: 135g/km Ground clearance: 153mm Luggage compartment: 380 litres (expandable to 1 200 litres) Safety: Front, side and head airbags Warranty/Maintenance Plan: 2-year warranty/5-year/100 000km maintenance plan M Sport model price: R556 800 (incl. VAT; excl. CO2 emissions tax) Standard price: R524 100 (incl. VAT; excl. CO2 emissions tax)

A wide rear, black M rear apron, lip spoiler, and chunky exhaust cement the 118i M Sport’s athletic stance.

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Freeing up cabin space – command a pretty brisk performance. It’s responsive and the 7-speed automatic BMW purists will no doubt breathe a sigh gearbox is supremely smooth. of relief on entering the cabin. It is typical It is poised on the road and immensely BMW design, the polished, premium comfortable to drive. The M Sport interior familiar in its setup, quality and feel. suspension setup is sublime; the ride on Internally, there is little to tell it apart from the optional 19-inch alloy wheels (17-inch its 3 Series sibling. runflat tyres are standard on the M Sport) Having grown its girth by 34mm and its is comfortable, with a subtle hint of height by 13mm, the new BMW 118i’s cabin sportiness. It is nimble, navigates turns offers significantly more space. Now there and road imperfections effortlessly, with is more rear leg space, more head room and good overtaking capability, particularly it is less of a squeeze to enter and exit. in sport mode. It’s also an ideal urban The digital dial display and BMW’s commuter. user-friendly infotainment touchscreen Torque steer (pulling to one side under dominate the 118i’s cockpit. And the M hard acceleration) is a malady Sport model boasts many that sometimes accompanies bells and whistles; adjustable Boot space vehicles pulled by their front multi-function leather steering wheel, ergonomic has increased wheels. And while there was a hint of this, it was not enough to sports seats with M Sport badge detail, and plenty of to 380 litres, make a case of. Understeering (front connectivity features. Even 20 litres wheel traction loss during the handy wireless charging has always been a pad fitted in the test car more than its cornering) concern with FWD cars, more worked a treat. Connectivity, navigation and entertainment predecessor. particularly those with larger motors. BMW has implemented is operated by BMW’s iDrive new ARB technology (a slip controller, touch, voice or control system) to manage this gestures depending on the particular quirk and it seems to have done setup. A concierge service is another feature of BMW’s connected services. the trick, as there was little evidence of wayward steering. There’s plenty of storage in the I came out of the test pleasantly 5-door sports hatch and in the surprised. So, rather than banging on rear the three seats can be split about FWD which, as it turns out, proved to create additional storage mostly to be a non-issue, I emerged, if not and loading capacity, a convert, a pragmatist to the benefits loading made easy with an that FWD has given the 1 Series. electric tailgate. And perhaps this new FWD 1 Series Boot space has increased to 380 litres, is even better suited to a wider range of drivers because, unlike its RWD 20 litres more than predecessor, there is less drift in the back its predecessor. wheels when cornering at pace. For the A 17-inch spare inexperienced, that was often their undoing. wheel is present So does it pip its RWD predecessor? in the BMW 118i In some ways, yes. It is still a dynamic M Sport, but on the and engaging car to drive. And that, standard BMW 118i, together with its great build quality and a spare wheel costing many new benefits, are likely to get the R2 200 is optional. nod from consumers. Taming the Still, the 1 Series predecessor just felt a tad more balanced and less squirmy FWD system The new third-generation under acceleration. While impressed 1 Series is around 30kg lighter than by the FWD system on the BMW 118i, its RWD predecessor. That helps the I would still opt for RWD or AWD on 1.5-litre twin-turbo petrol engine – the vehicles fitted with larger engines. ■ same engine used in the new Minis editorial@finweek.co.za

finweek 10 September 2020

on the money management By Amanda Visser

Protecting data now fully law

Companies will only have a year’s grace to comply with the provisions of the Protection of Personal Information Act.

R10m

The good

The act will enable SA to participate in the global data economy and ensure trade with countries that have significant data protection legislation in place. Mather says the lack of adequate data protection laws in SA affects trade with jurisdictions that have extensive privacy laws, such as the EU.

The bad

Only time will tell how effective our legislation is, but there are concerns that the current wording of the act may allow for different interpretations, notes Mather. This means that businesses may need significant guidance from the Information Regulator, established to implement the act and to enforce compliance with the provisions of the act. “Absent this guidance, it could give rise to inconsistent application or litigation,” she says.

The collection process

Any business that collects, stores, organises or uses 44

finweek 10 September 2020

Terence Govender Director at Mazars IT Advisory

the personal information of a data subject such as an employee, supplier, customer, job applicant, visitor, trainee, or contractor is involved in the processing of personal information. It is unlikely that there are any businesses which do not engage in the processing of personal information of any data subjects in any manner or form. Most companies in the public and private sector must comply with the provisions of POPIA. Govender notes that many companies are primarily focused on policies and procedures. In many instances companies’ systems generate documentation that contains requests for personal information. It will be crucial to revisit these systems to see whether the information required is relevant to the business operations, and whether customers are informed that their information is being stored, he says. Mather adds that there has been this widely held misconception that companies need an individual’s consent to process (collect, store, use) their information. “This is not so.” The act describes consent as a “specific voluntary expression of will”. However, there are various grounds where consent is not needed. This includes compliance with an obligation by law, such as Covid19 regulations in terms of health screenings.

Storage

The act requires that businesses must take “appropriate, reasonable, technical and organisational measures” to prevent loss or unauthorised access to personal information. Unfortunately, the act does not provide further guidance as to what would constitute “appropriate, reasonable, technical and organisational measures”, says Mather. “We are hoping for further guidance from the Information Regulator in this regard. In the meantime, businesses should comply with global security standards.” This may include the installation of anti-virus programmes, using encryption software with complex passwords and protected wireless networks to avoid data breaches – if not already in place.

Disclosure

In her 2020-2025 strategic plan, Pansy Tlakula, chair of the Information Regulator, said that the number of data breaches in both the public and private sectors, the unlawful and unauthorised use of personal information of individuals, cybercrime and identity theft are increasing at an “alarming rate” in SA. www.fin24.com/finweek

Photos: Supplied

outh Africa remains vulnerable to the threat posed by data breaches and has been found to have the highest probability of experiencing it. The recent hack of credit data firm Experian SA, in which the personal information of as many as 24m South Africans and almost 800 000 businesses was exposed, illustrates our vulnerability. It is against this background that many South Africans have eagerly awaited the implementation of the remaining provisions of the Protection of Personal Information Act (POPIA), says Nadine Mather, associate director at law firm Bowmans. The act came into effect on 1 July and businesses have been granted a grace period of 12 months (until 1 July 2021) to ensure they amend their systems, procedures and policies to become fully compliant. This may sound like sufficient time, but Terence Nadine Mather Govender, director at Mazars IT Advisory, says few Associate director at businesses have a clear road map of how to become law firm Bowmans compliant within this time frame. “This also means that it is difficult to implement a compliance strategy that is cost-effective.” The maximum penalty for serious offences is a A survey done last year showed that 34% of businesses have been ready to comply with the POPIA requirements. The key sections that came into effect on 1 July include the conditions for the lawful processing of fine or imprisonment for a period personal information, dealing with special personal not exceeding 10 years, or both. information (such as race, health, religion) and direct marketing.

on the money quiz & crossword

REVISITING DIRECT MARKETING PROCEDURES Section 69 of the POPI act outlaws direct marketing by means of any form of electronic communication unless the data subject has given their consent. The electronic communication includes emails, SMSs and automatic calling machines (robot calls). A subject can only be approached once to obtain such a consent. Once such consent is refused, it is refused forever. In terms of existing customers, their contact details must have been obtained in the context of the sale of a product or a service. The direct marketing by electronic communication can only relate to the supplier’s own similar products or services, and the customer must be given the right to opt-out at the time that the information was collected and each time such a communication is sent. ■ SOURCE: https://www.popiact-compliance.co.za/popia-information/13-direct-marketing

Any data breach must in future be disclosed to the regulator and the data subjects that are affected. If any such breach is not disclosed by the business, but it is brought to the attention of the regulator, the business is in breach of the act itself. The maximum penalty for serious offences is a R10m fine or imprisonment for a period not exceeding 10 years, or both.

Getting it right

The act requires businesses to register an information officer with the regulator to ensure compliance and to deal with requests made by individuals about the processing of data and to assist the regulator with investigations. It does not have to be a new position or an external appointment. It can be an individual already employed by the company who has sufficient knowledge of the business and its operations. Govender says that depending on the size of one’s organisation, it is possible to become POPIA compliant on a reasonable budget. “While there are certain aspects of becoming compliant that may be best to do with the help of an outside service provider, it is possible to make all of the necessary changes oneself.” He explains it will be vital for businesses to conduct some form of readiness assessment within the next three months. This includes identifying what information is collected, the purpose and relevance of doing it, where it is stored, and who has access to it and for what purpose. Then the hard work needs to be done in which internal processes, document storage, policies and all aspects of the organisation that deals with personal information should be amended where needed. The final two months of the grace period should be set aside for verification, says Govender. If there are any gaps or errors, two months will likely be just enough time to detect and rectify them before the deadline. ■ editorial@finweek.co.za @finweek

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Test your general knowledge with our first quiz for September, which will be available online via fin24.com/finweek from 7 September. 1. True or False? Investment holding company PSG Group is unbundling its stake in Capitec. 2. On 31 August, South African food producer RCL Foods reported a 65.4% drop in annual headline earnings. Which of these brands is not under RCL Foods? ■ Selati sugar ■ Rainbow chicken ■ Morvite 3. True or False? South Africa is a member of the Organization of the Petroleum Exporting Countries (Opec). 4. Name the CEO of Shoprite.

7. AngloGold Ashanti and Barrick Gold announced they agreed to sell their 80% stake in Morilla Gold Mine. In which country is the mine? ■ Mozambique ■ Malawi ■ Mali 8. True or False? In August 2020, the Prime Minister of Japan, Shinzo Abe, announced that he is running for a fifth term. 9. In July 2020, South Africa recorded a budget deficit of: ■ R134m ■ R134bn ■ R134tr

5. True or False? Raisibe Morathi resigned as the chief financial officer of Nedbank. 10. US actor Chadwick Boseman, who died of cancer in August, was best known for 6. Which South African sector did Murray & playing the role of T’Challa in which hit Marvel Roberts exit in 2016? superhero movie? CRYPTIC CROSSWORD

ACROSS 1 British-born socialite is first to show up (6) 4 Signs at end of meeting (6) 9 Ruth emulates a performance of Nancy Drew, for one (7,6) 10 Achieve influence in dispute (7) 11 They show you approve of bloodsuckers (5) 12 Oddly fail resit, nevertheless a winner! (5) 14 Ejects from church seats at end of Mass (5) 18 British, Anglo-Saxon and English order (5) 19 Exporting aluminium from one country to another (7) 21 Second chance works for lively music passage (5,8) 22 Speak at length precisely (4,2) 23 Comment on first year results in magazine (6)

NO 760JD

DOWN 1 Lacking liveliness, like women’s clothes worn by men? (6) 2 Break independent story about a step to canonisation (13) 3 Pounds, any dough, we hear, will provide for the basics (5) 5 Sort of desk pot (4-3) 6 Pipes in priest’s assistants (13) 7 Breach school practice (6) 8 Noses around quarries in Spain (5) 13 Tick off address (5,2) 15 Partner unnamed male causing a riot (6) 16 Food time on the cards (5) 17 Your old hearing-aid’s on top, somewhat soiled (6) 20 Make off with a bargain (5)

Solution to Crossword NO 759JD ACROSS: 1 Sole trader; 7 & 22 Sea dog; 8 Liberation; 11 Terminal; 12 Fish; 14 Artful; 15 Florin; 17 Rare; 18 Dampener; 21 Ostracised; 22 See 7; 23 Leprechaun

DOWN: 1 Split hairs; 2 Laboratory; 3 Terminus; 4 Actual; 5 Eton; 6 & 20 See you; 9 Micronesia;

10 Shandrydan; 13 Alopecic; 16 Fairer; 19 Esse; 20 See 6

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finweek 10 September 2020

Piker

On margin Live and let live

This issue’s isiZulu word is hlaza. Hlaza is to shame/embarrass/ humiliate. Hlaza can also relate to the colour green, rawness and crudeness. We live in a world that just wants to hlaza us. You will be hlaza-ed for the colour of your skin. Your weight. Your religious beliefs. Your sexual orientation. Your level of education. Anything really. It is sad. But there is a kind of hlaza-ing I have been seeing take root on social media, and it makes me sick. Sick to my stomach. It also makes my blood boil and gets my goat. It riles me up. Yes, all the idioms. Add yours as well. However, I, as Melusi Doctor Tshabalala, take a stand on this issue. I will not be bullied. Let it be known that I refuse to be hlaza-ed for putting sugar in amasi. I will not stand for that kind of bigotry. No, Sir. Not today. Not ever, Satan.

You will not hlaza me. YOU. WILL. NOT. To me amasi = cereal/dessert, and dessert and cereal need sugar. But the lunatics who put sugar on avocado are the worst. Eeuw. They hlaza humanity. Shameful. Who does that? You know what, I am wrong for hlaza-ing the sugar-and-avo crowd. I apologise. Not really. Avo and sugar is gross. Sies. Hlaza-ing us, yourselves and your loved ones. When something is green, like avocado, you say iluhlaza. However, blue is also iluhlaza, but iluhlaza okwesi bhakabhaka – sky green. A person that is crude, rude or eats avocado with sugar, uluhlaza. Okay, let me leave the avocado eaters alone. Each to their own. It really is not right to hlaza people for their choices. If it makes you happy and does not harm anyone, it is alright with me. – Melusi’s #everydayzulu by Melusi Tshabalala

Verbatim

Waterstones Piccadilly @WaterstonesPicc A customer has just bought a 2021 calendar. Sir, we admire your optimism. Songezo Zibi @SongezoZibi “Dead East London man wins PPE tender”. True story. JUSTICE 4 BELLY @findingmalo So, I found out recently that babies cry when other babies cry because they’re developing empathy and don’t like seeing other babies distressed. Up to now I just thought they were jobless and had nothing better to do than to cry in unison. Mark @TheCatWhisprer DATING: Can’t wait to see you again. MARRIAGE: Part of your knee was on my side of the bed again last night. Paul Theron @paul_vestact We are urged to buy local, now that the lockdown-ruined economy is struggling back to its feet. I’m doing my part, buying 100% of my electricity from Eskom. Doc @DocAtCDI My son asked me what a Canadian was... I told him a Canadian was an unarmed American with health insurance. Khadija Patel @khadijapatel Welcome to South Africa where the country’s elite crime-fighting unit is arresting someone for keying a car. David K.@DavidKPiano Facebook is extremely over-engineered for a birthday reminder app.

“There is no greater harm than that of time wasted.” — Michelangelo, Italian sculptor (1475 - 1564)

finweek 10 September 2020

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