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contents

from the editor

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Opinion

JANA JACOBS

4 The paradoxes of pandemics 6 Hotly contested township markets

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In brief

8 News in numbers 10 Anglo’s plan to exit thermal coal 14 SA’s spiralling debt

Marketplace

16 Fund in Focus: A well-diversified global stock portfolio 17 House View: Purple Group, Woolworths 20 Killer Trade: Capitec, Standard Bank 21 Invest DIY: ‘Nobody ever forecasts for zero revenue’ 22 Simon Says: Barloworld, Combined Motor Holdings, Crookes Brothers, economic data, ELB Group, ETNs, Intu Properties, Redefine Properties, Stor-Age 24 Investment: Building an emergency fund 25 Invest DIY: New ETF tracking Chinese stocks launches in SA 26 Markets: The surge and pause explained 27 Technical Study: Chinese infrastructure upturn 28 Share View: Drones and holograms could support Walmart

Cover

29 Naspers: More than just a one-trick pony?

In depth

35 Green capital: Banking on clean power 40 Small businesses: Keeping the economy – and themselves – afloat

On the money

42 Spotlight: Steering a sector through a pandemic 44 Management: Hunting for opportunities in difficult times 45 Crossword and quiz 46 Piker

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t never ceases to amaze me that despite countless times of it being made abundantly clear that social media is not a forum for nuanced discussion, another Twitter war erupts because someone decided to make a sweeping (often incendiary) statement in 280 characters, or less.

Social media can create a space where ignorance obliterates critical thinking. If wielded as such, it can become an enormously powerful and divisive weapon. Just ask Donald Trump. Or Helen Zille.

It’s one of the reasons I’ve never been a particularly active social media user. The cynic in me enjoys those who can construct scathing, witty commentary, but I just as easily dismiss and roll my eyes at the more bizarre rants that I scroll past. Choosing not to engage. Clicking the unfollow button, and not thinking twice about my dismissive approach.

But then I recently attended the virtual launch of Fault Lines: A Primer on Race, Science and Society, a collection of essays edited by Jonathan Jansen and Cyrill Walters. Among other important takeaways in the discussion was the point that (specifically within the South African context) we tend to be immediately defensive as a reaction to anything that makes us uncomfortable or offends us. Instead of trying to empathise and understand.

While social media might seem to be the stomping ground for this behaviour, and a great example of how people can react to that which they do not understand, I would be remiss not to recognise the powerful tool it can also be, particularly in educating and communicating the unseen to the world – as was the case with, for example, the Arab Spring or now with the Black Lives Matter movement in the US that has taken hold around the globe. Or as was the case with the protests in Hong Kong that were triggered last year.

With the Covid-19 pandemic governing the world at the moment – and with SA currently in the grip of the virus’ rapid spread – it was easy to miss news of China passing a new security law in Hong Kong on 30 June in reaction to these protests.

The legislation covers secession, subversion and terrorism, with a maximum penalty of life in prison. It makes political views, slogans and advocating for Hong Kong’s independence or liberation illegal. Furthermore, as explained by The New York Times, “this new law mandates police censorship and covert digital surveillance rules that can be applied to online speech across the world … Hong Kong authorities can dictate the way people around the world talk about the city’s contested politics.”

So, while the implications of this draconian legislation extend far beyond simply being able to rant or share funny memes on Twitter, it reaffirms the threat to power those 280 characters can have. And while social media may not be my weapon of choice, it troubles me to imagine a world where those that wield it well, are not able to. ■

opinion

By Johan Fourie

ECONOMY

The paradoxes of pandemics

w

As with the varied impact of the 1918 Spanish flu, the long-term consequences of Covid-19 can’t be predetermined. hen a crisis hits, economic historians are in demand. long-term impact was, at best, context specific.

The 2008 financial crisis made students of the So what of South Africa? The work of Howard Phillips, emeritus Great Depression popular commentators and policy professor in history at the University of Cape Town and the undisputed consultants. The swift and correct reaction by the US guru of the Spanish flu in South Africa, is largely silent on the flu’s longFederal Reserve was undeniably aided by the fact that its chair at the term consequences. He does note that the 1918 influenza exposed the time, Ben Bernanke, had written his PhD on the 1930s depression and weakness of public healthcare at the time, culminating in the 1919 Public the weak monetary response that exacerbated the crisis.

Health Act that would establish a Department of Health for the first time.

The current global pandemic is no different. Now the historical Social transfers also increased; because the flu attacked mostly young analogy, of course, is the 1918 Spanish flu, an influenza pandemic that adults (in contrast to Covid-19, which targets the elderly), many young killed an estimated 6% of (or 300 000) South Africans and children were orphaned, compelling the government to issue a £3 as many as 50m people globally. Although far less studied per month subsidy for all flu orphans. by economic historians than the Great Depression, Phillips also reminds us that insurance companies did Covid-19 and its global impact have ensured that the not hesitate to exploit the fear that the pandemic (and its research gap is closing quickly. Several dozen working possible return) instilled. Here is an advertisement from papers have appeared since March, investigating the Old Mutual: economic, demographic and political consequences The Aftermath of a Great Scourge. of the flu.

The anguish and suffering from the toll of lives in Black What have we learned from this new research? In October (1918) are reflected in the hundreds of widows and short: the impact of the flu varied. Just as Covid-19 has orphans left almost helpless in our city. had very different effects between and within countries – REASON. Life Assurance neglected – No Endowments consider Sweden versus Norway or the Western Cape versus fixed for children – In one word, ‘Moneyless’ and stranded. What Howard Phillips KwaZulu-Natal – so too did the Spanish flu of 1918 have very a scathing indictment!

Emeritus professor in history at the University different outcomes, in the short as well as in the long run.

129 000 lives sacrificed and untold misery to the living for of Cape Town One issue, of course, is that the Spanish flu was what years to come. Can any Husband or Father hesitate to-day? economists like to call ‘overidentified’. It happened in 1918, This shows why the insurance industry bounced back in the same year as the Great War. A decline in GDP, for example, could easily 1919 to record its best year ever. The same was true of GDP, which grew be ascribed to the effects of war rather than the pandemic. There are 3.9% in 1918 and a remarkable 10.1% in 1919 before slumping by 11% in innovative methods that economists use to circumvent such issues. One 1920. (Things were a bit more volatile back then.) way is to ‘control’ for the effects of war by including the number of war These are short-run effects, of course. Were there any long-term casualties in a statistical regression. economic consequences? In a new working paper, I joined up with four Robert Barro and two co-authors employ this method for a group colleagues to investigate this question. We correlate the Spanish flu of 42 countries. They find that both the war and pandemic negatively mortality rate by magisterial district in 1918 to unemployment rates in affected GDP per capita; the Spanish flu 1936 and find, surprisingly, a negative relationship: was responsible, they find, for an average higher mortality rates for white men resulted in decline of 6% of GDP per capita. Another lower unemployment. Interestingly, there was no way is to look at within-country differences: relationship between mortality rates and white did districts that suffered greater numbers female unemployment. of pandemic deaths have lower growth rates But, again, things are never quite that simple. in the years to follow? Two separate papers While we find lower unemployment rates 18 years show that those US states that had higher after the pandemic, we also consistently find, using mortality rates had higher income and wage agricultural censuses of 1922, 1936 and 1948, growth in the decade to follow, the opposite lower maize yields in those municipalities with of what Barro and friends find. higher mortality rates. The long-run economic These counterintuitive results are also consequences within SA, just like the results for the present when we follow cohorts born during 1918. In a famous study, rest of the world, are inconclusive.

Douglas Almond shows that Swedish children born immediately after All of this suggests that we need to be sceptical of any attempt the flu were more likely to suffer chronic diseases in later life. More recent to predict the long-run consequences of Covid-19. No outcome is evidence from Brazil shows that children born during the Spanish flu were predetermined: much of where we end up depends more on how we more literate but less productive (measured in agricultural productivity). respond to the pandemic than its epidemiological properties. We are In a study covering 117 censuses across 53 countries, the authors find no indeed the masters of our fate. ■ consistent long-term effects of in utero exposure to the flu on education, editorial@finweek.co.za employment or disability outcomes. The one lesson, it seems, is that the Johan Fourie is associate professor in economics at Stellenbosch University.

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No outcome is predetermined: much of where we end up depends more on how we respond to the pandemic than its epidemiological properties.

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finweek 16 July 2020

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Change makes us resilient

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opinion

By Andile Ntingi

BLACK ECONOMIC EMPOWERMENT

Hotly contested township markets

t

Photo: Shutterstock

As formal retailers like Shoprite and Pick n Pay vie to expand into the spaza shop market, Andile Ntingi weighs in on the diametrically opposed views of black business on the subject. alk of large formal retailers being allowed by government to spread their tentacles into the spaza shop market is splitting the black business community down the middle.

Two diametrically opposed views on the thorny subject are beginning to emerge, with one camp supporting a tentative push by white-owned retailers into the spaza shop market and another camp arguing for retailers to be stopped in their tracks before they gobble up the lucrative market straddling South Africa’s townships and rural towns.

The issue came under discussion recently at a second instalment of a live Facebook panel discussion, known as Lockdown Convo, which I participated in.

The theme of the discussion, moderated by Miso Tini, posed this question: What does it mean for black business if Pick n Pay and Shoprite can enter the spaza shop market?

The panel that tackled the matter of whether these retailers should be allowed to operate in the sector also included Sabelo Macingwane (president of the National African Federated Chamber of Commerce and Industry, or Nafcoc), Gauteng department of economic development (GDED) official Tseliso Motsimo, and spaza shop start-up owner Mxolisi Goodman Buthelezi.

In the camp that entertained the idea of participation of formal retailers in the spaza shop market, either through franchising or partnership with black South Africans, were Macingwane, Motsimo, and me.

Buthelezi was vehemently opposed to big retailers owning spaza shops, fearing that they could end up totally dominating that market.

Although not opposed to participation, Macingwane does favour restriction of participation of formal retailers in the long term. However, there are members of Nafcoc who support short-term, gradual expansion of retailers through franchising of stores owned and operated by black South Africans. Nafcoc members do not want white retailers to expand through corporate stores.

Some form of partnership between spaza shop owners and Pick n Pay is already happening in Gauteng. Motsimo, who is driving the programme on behalf of GDED, pointed out that provincial government was funding spaza shop owners that partner with Pick n Pay, which supplies the shops with 60% of stock. Beneficiaries of the programme are also supported with training and technology that help them to efficiently operate the stores.

During the debate, Motsimo said that GDED also approached Shoprite to request it to participate in the programme, but the retailer declined.

I argued for an introduction of a dual model, whereby the entry of black South Africans into the spaza shop market is facilitated through a partnership between government and formal retailers. After 1994, black South Africans were kicked out of this market following an influx into township and rural areas of immigrant traders, some undocumented and others asylum seekers. Around this time, big retailers also made inroads into this market, but operated from shopping malls.

I am not opposed to big retailers operating in the spaza shop

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finweek 16 July 2020

market, provided they expand through franchised stores operated by black South Africans.

But I equally support an alternative entry route, whereby government financially backs the establishment of black-owned and -run companies that will roll out franchised stores operated by black South Africans. In turn, these companies must be utilised to facilitate participation of black players in their value chains, from manufacturing to distribution of goods sold by their networks of spaza shops.

The panel welcomed pronouncements by finance minister Tito Mboweni that after the Covid-19 lockdown, it will be compulsory for spaza shops to have trading permits, bank accounts and be taxcompliant. Spaza shops will also be subjected to regular checks by health inspectors following complaints that some spaza shops sell rotten or expired products.

It is estimated that there are between 100 000 and 120 000 spaza shops in SA, most of them unregistered businesses operated by immigrants, mainly from Somalia, Ethiopia, Pakistan, and Bangladesh.

The failure to regulate the encroachment of unregistered, illegally-operated businesses has enabled immigrants to also dominate non-grocery markets such as hardware stores, bottle stores, auto spares, vehicle maintenance workshops, hair salons, panel beaters, internet cafés, and many other businesses commonly found in townships and rural areas.

In most of these markets, black South Africans have been muscled out, with Nafcoc claiming that the non-payment of taxes by immigrants was giving them an unfair advantage over tax-paying South Africans.

If the government tightens law enforcement, it will be able to collect taxes and clamp down on money laundering and illicit trading. Furthermore, extensive regulation of informal markets will level the playing field and give locals a chance to re-enter these markets.

The panel agreed that participation of immigrants must be restricted in grocery and non-grocery retail markets, but stopped short of calling for a blanket ban of foreign participation as is the case in countries like Ghana and Ethiopia and many other African countries, where immigrants are not allowed to operate shops.

During the debate, Nafcoc came under severe criticism for allowing township and rural markets to fall into the hands of immigrants and white-owned retailers. Nafcoc was once the face of township businesses, but after 1994 neglected its traditional constituency. As the lobby group’s members and leaders were exiting the townships through the front door to integrate with white business establishment through black economic empowerment (BEE) deals, they opened the back door for foreigners and white retailers to set up shop in townships.

After the lockdown, this blunder will have to be rectified through meticulous state intervention that provides funding for locally-owned retail ventures and restricts participation of non-South Africans. ■ editorial@finweek.co.za Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service.

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Time. Make sure it’s on your side.

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in brief EDITORIAL & SALES Acting Editor Jana Jacobs Deputy Editor Jaco Visser Journalists and Contributors Simon Brown, Lucas de Lange, Johan Fourie, Moxima Gama, Schalk Louw, David McKay, Maarten Mittner, Andile Ntingi, Brendan Peacock, Timothy Rangongo, Peet Serfontein, 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 16 July 2020

>> Mining: Anglo’s decision on thermal coal: It’s partially divesting through a demerger p.10 >> SA economy: Steering towards a sovereign debt crisis p.14

“Not much to go around, yet not the right hands at the till.”

– Kimi Makwetu, Auditor-General of SA, titled his Kimi Makwetu office’s latest general report on the local government audit outcomes this way. He said this is “to reflect the state of financial management in local government. Billions of funds allocated to municipalities are managed in ways that are contrary to the prescripts and generally recognised accounting disciplines.” The report states that 8% of municipalities received a clean audit, and on average took 180 days to pay creditors. Irregular expenditure exceeded R32bn – up from R24bn in the previous year.

“WE’RE COMMITTED TO HELP FIND A SOLUTION IN THE FIGHT AGAINST THIS UNPRECEDENTED GLOBAL PANDEMIC.” – CEO of Cipla South Africa, Paul Miller. The drug manufacturer is set to bring its generic version of Gilead Science’s coronavirus drug, remdesivir, to SA within the next few weeks, reported Business Day. Remdesivir is the first drug to have been approved by US authorities to treat Covid-19 and has been shown to speed up the recovery of hospitalised patients. Cipla plans to sell the drug at $55 a shot, or $330 (R5 600) for a five-day course, according to Miller. He said Cipla has earmarked an initial batch of 35 000 vials for SA, which should arrive in the country in the week of 20 July.

“Given South Africa’s weak track record of fiscal consolidation in recent years and the weak medium-term economic outlook, debt stabilisation by 2023 will be very difficult to achieve.”

– Moody’s Investors Service said in a research note on National Treasury’s supplementary budget in response to the coronavirus crisis. The budget projected a wider budget deficit, while public debt was estimated to be more than threequarters of GDP in the medium term. Johann Els, chief economist at Old Mutual, told Fin24 that “apart from a reference in the speech that the state will be implementing policy changes highlighted in Treasury’s 2019 policy document, no new policy measures to address growth were announced, which in my view was very disappointing”. www.fin24.com/finweek

THE GOOD

DOUBLE TAKE

BY RICO

South Africa’s telecoms regulator, Icasa, said it is preparing to issue an invitation to apply (ITA) for high-demand spectrum and the Wireless Open Access Network (WOAN), a significant step towards the rollout of 5G across more of the country. Mobile operators MTN, Vodacom and Rain have started rolling out 5G networks in major SA cities using temporary spectrum assigned by the telecoms regulator. Operators’ data costs have come down recently after they were forced to cut data prices, but they still argue that costs could come down significantly once regulators auction the much-needed spectrum.

THE BAD SA’s budget deficit is forecast to more than double to 15.7% of GDP in the 2020/2021 financial year, finance minister Tito Mboweni said in his supplementary budget, which came in response to the Covid-19 economic fallout. Mboweni noted that the country’s consolidated budget deficit is now forecast to come in at R761.7bn, equating to 15.7% of GDP in 2020/2021. Mboweni said that the government’s projected total consolidated budget spending, including debt service costs, would exceed R2tr for the first time ever.

Photo: Gallo/Getty Images

THE UGLY Gunmen attacked the Pakistan Stock Exchange building in the city of Karachi, killing two guards and a policeman before security forces killed all four of the attackers. The Baloch Liberation Army (BLA), a separatist insurgent group from the southwestern province of Balochistan, claimed responsibility for the attack in a message on Twitter. The Pakistan Stock Exchange did not suspend trading during the attack. According to Reuters, separatists have been fighting for years in resource-rich Balochistan, complaining that the southwestern province’s gas and mineral wealth is unfairly exploited by Pakistan’s richer, more powerful provinces. Nevertheless, Pakistani Prime Minister Imran Khan told parliament he had “no doubt” that India was behind the attack on the stock exchange. @finweek

finweek

SHRINKING GLOBAL GDP

-4.9%

The IMF is forecasting that global GDP will contract by 4.9% this year, downgraded from its previous estimate in April when the fund projected GDP to shrink by 3%. The IMF has downgraded its global economic forecasts for 2020 and is now predicting that the coronavirus pandemic will cause a much deeper recession and slower recovery than originally expected. The IMF said the current global economic crisis, dubbed the Great Lockdown, is “unlike anything the world has seen before,” with a higher degree of uncertainty about a recovery.

The fund is still forecasting a rebound in 2021, expecting the global economy to grow by 5.4% next year — though that is still almost 7% below pre-coronavirus estimates.

EARNINGS GLOOM

-70%

Capitec announced that earnings could decline by more than 70% for the six months to the end of August. The bank said in a statement the national lockdown had resulted in increased credit impairment charges and lower loan sales and transaction volumes, which saw it incurring a loss of R404m for the quarter to the end of May. Its credit impairment charge was 145% higher than expected. The bank said this was predominantly due to R5.75bn and R236m in retail and business credit balances, respectively, rescheduled or granted payment breaks due to the lockdown.

(Also see p.20.)

finweekmagazine

EXPENSIVE MOVE

-$164.7bn

The world’s biggest pension fund, Japan’s Government Pension Investment Fund (GPIF), lost 11%, or $164.7bn (R2.8tr), in the three months ended March. “Stocks plunged in Japan and overseas due to risk-off investor sentiment,” the GPIF said in its annual investment report. The fund nearly doubled the share of equities in its bond-heavy portfolio to generate higher returns, according to Reuters, which said the conservative fund had long kept the majority of its cash in super-safe and Japanese government bonds, generating anaemic returns. The move into riskier asset classes was aimed at financing the needs of Japan’s soaring number of retirees who depend on pay-outs from the fund.

AIRLINE TRAFFIC IN NOSEDIVE

-96%

Airline traffic in the US plunged 96% year-onyear from April 2019 to April 2020, according to data from the US department of transportation.

The report states that the 96% annual decline in the number of passengers from April 2019 is the largest year-to-year decrease on record, larger than the 51% decline from March 2019 to March 2020. US scheduled passenger airlines also reported a first-quarter 2020 after-tax net loss of $5.2bn and a pre-tax operating loss of $4.6bn.

Among South Africa’s seven main domestic carriers, four have entered business rescue and a bankruptcy protection process. finweek 16 July 2020

9

in brief in the news

By David McKay

MINING

Anglo’s plan to exit thermal coal

The mining giant is considering either a trade sale or return of shares for its export coal business.

The Anglo American Greenside Colliery is situated 15km southwest of Witbank in Mpumalanga.

Photos: miningmx.com | www.angloamerican.com

a

nglo American has given itself two to three years to dispense with its South African thermal coal export mines. This is in line with a response to questions at a virtual annual general meeting this year in which Anglo also disclosed that the divestment would be partial; that is, through a demerger with the new company floated on the JSE. However, the intention is to get on with the job in a much shorter timeframe than three years. “Once you’ve made the decision, you’re better off getting on with it and the demerger route was the quickest route from our point of view,” said Mark Cutifani, CEO of Anglo American, in an interview with finweek.

According to Cutifani, one benefit of the demerger route is that it cuts down on red tape compared with a trade sale. “You’re handing back a share, so shareholders can make their own decisions about what they want to do with that share. It’s got less government issues, and the government is pleased to see a local listing.”

Cutifani is perhaps mindful of the

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finweek 16 July 2020

route taken by South32, the Australiaheadquartered company, which announced the sale of its SA coal assets in 2018 but has yet to complete the transaction. (It’ll be done by way of a trade sale to Seriti Resources.) Or the 12 months taken to sell his firm’s domestic assets, which was also to Seriti Resources.

“That was the main issue: you’ve got at least 12 years life (of assets) so you’ve given the opportunity for that to be successful and at the same time we’re not trying to dictate to the country about what they should do with their natural resources,” Cutifani says.

He adds that he’s still open to a trade sale, but the offers would have to be from companies that Anglo could trust would not lead to recrimination later down the line.

The last thing Anglo needs is selling to a buyer who’d mismanage the legacy risks and therefore invite criticism from government as well as civil organisations. Having an ESG (environment, social and governance) issue blow up in your face is as damaging to mining companies these days as missing production guidance.

Mark Cutifani CEO of Anglo American

Vuslat Bayoglu Managing director of Menar Holdings

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in brief in the news

“We’ve done a lot of thinking about how to do this and we think we’ve come up with the right solution that ticks each of the stakeholder boxes.”

Interestingly, two of the companies most big challenge,” says Bayoglu. “If Anglo runs a likely to tick that box in the event of a trade process (to sell its coal assets) we would be sale happening are Seriti and Menar Holdings. interested, but I’m not sure we’d do a big due At face value, however, neither appear diligence on it,” he says. particularly interested in adding Menar ran a close second to Seriti for more coal to their respective the South32 coal assets. asset bases.

Bayoglu thinks in manganese “We are going to take over there’s an opportunity to seize on the several businesses that are fact that several existing producers not in coal,” said Mike Teke, are taking organic growth via CEO of Seriti Resources, in underground mining, which is more an interview with Bloomberg costly than a new open-pit mine such News earlier in July. “I want us as Menar is contemplating.

Mike Teke to build a strong, formidable mining Manganese is used in the steelmaking CEO of Seriti company.” sector, where it’s a strengthening agent.

Resources Menar’s managing director, Another coal product – metallurgical Vuslat Bayoglu, is of a similar mind. Menar, a coal – is also used to make steel. While Luxembourg-registered company with plans metallurgical coal doesn’t have the pollutant to take its thermal coal production to 20m properties normally associated with its thermal tonnes by 2022, an investment of some R7bn, brother, its life in modern society may be has eyes for the manganese sector and is also limited, says Cutifani. drilling for gold in Kyrgyzstan.

“We still think that metallurgical coal has “Funding a coal-mining project is now a got a good future, but by 2035 it will be

getting tougher there as well because the hydrogen technologies will be taking over in steelmaking,” he says.

Companies like Anglo are trying to figure out how existing streams of cash flow attached to minerals like thermal and metallurgical coal, among others, are going to be either engineered out of existence, or not wanted by its customer and consumer base.

With its significant funding headwinds and the way in which society has turned against the fuel, thermal coal’s days look numbered in the long term. The challenge for Anglo is moving forward in a way that does it right by stakeholders who rely on thermal coal.

“As I said, you can do a runner, and I’ve seen companies do that, but people remember,” says Cutifani. “We’ve done a lot of thinking about how to do this and we think we’ve come up with the right solution that ticks each of the stakeholder boxes. Hopefully, people remember we did it the right way.” ■ editorial@finweek.co.za

REPURPOSING A LEGACY Anglo American CEO explains decision ‘to move into this century and be something different’.

Photos: southafrica.angloamerican.com | www.seritiza.com

So Anglo American is bidding adieu to its Main Street offices in Johannesburg’s inner city for a more ‘burby’ vibe among the jacarandas and street cafés of Rosebank, a mere eight kilometres away but somehow much, much further in ‘feel’.

Having already moved De Beers out of its hallowed Charterhouse Street offices in London in 2016, after a century of occupation, it seems inevitable the Johannesburg chapter would follow.

The matter of the Joburg move was first raised in 2016 after jobs – then put at 66 000 – were shed (not necessarily lost) from the group following heavy restructuring by Mark Cutifani, Anglo CEO, shortly after his appointment in 2013.

Following that restructuring, the innards of 44 Main Street resembled more of a hotel with its deep carpet weft and individually appointed offices: to each a door that could hermetically seal its occupant.

“It’s time to modernise and time to set our

12

finweek 16 July 2020

to be very different. Some of the old offices up very differently to the way stuff has fantastic legacies, but we’ve done them in the past,” says there are also some difficult Cutifani. “The old Main Street legacies. So, it’s time to move offices weren’t really conducive into this century and be to a different way of operating: something different.” open plan,” he says.

One important rider to all There were other issues as of this is that Anglo plans to well. Security was one; so was the repurpose the buildings. One of associative power of cement and the properties opposite 44 Main plaster that has seen statues removed by The Anglo American Precinct at 44 Main is now a community school and government and civilian will. “The way Street in Marshalltown, there are discussions underway I see it: people think about Africa and Johannesburg. with government as to other uses to its history and its colonial past and they which the buildings can be put. think about some of the old edifices to the past.”

“We’re not walking away; we want to be part It’s an interesting observation because in of the definition of the future,” says Cutifani. other responses, Cutifani has raised doubts “That’s why we’ve gone to the government, about the ‘Anglo reputation’ or starched formality, the local communities, saying: how can we describing it once to this writer as “a myth” repurpose this? It’s not a matter of us wanting to mostly perpetrated by former Anglo staffers.

“How we work and how we operate is going make a quid out of this.” ■

www.fin24.com/finweek

IN PARTNERSHIP WITH

WE HAVE EMPTY RESTAURANT KITCHENS … BUT MORE AND MORE HUNGRY SOUTH AFRICANS

WE’RE RAISING FUNDS FOR RESTAURANTS TO FEED THOSE IN NEED

DONATE AT HELP.EATOUT.CO.ZA

SOUTH AFRICA’S INSATIABLE APPETITE FOR DEBT – ‘THE HIPPOPOTAMUS’S MOUTH’ SUPPLEMENTARY BUDGET 2020

22 20

DEBT-SERVICE COSTS AS A PROPORTION OF MAIN BUDGET REVENUE

18 16

On 24 June, finance minister Tito Mboweni presented the supplementary budget, which outlines the government’s economic and fiscal response to the Covid-19 pandemic.

As National Treasury director-general Dondo Mogajane explains in his foreword to the Supplementary Budget Review, the special adjustments budget “fasttracks normal processes to provide resources to frontline services, provincial and local government, and firms and households, with a focus on the most vulnerable South Africans. It also underlines our commitment to stabilise the public finances and enact reforms that will promote trade, investment and job creation.”

South Africa’s public finances were already severely stretched prior to the onset of the pandemic, and the country is steering towards a sovereign debt crisis if public debt is not stabilised. The supplementary budget review notes the following about

14 % 12 10 8 6 4

202 0/2 1

201 8/1 9

201 6/1 7

201 4/1 5

201 2/1 3

201 0/1 1

200 8/0 9

200 6/0 7

200 4/0 5

200 2/0 3

0

200 0/0 1

2

SOURCE: National Treasury

IN-YEAR REVENUE COMPARED WITH BUDGET FORECASTS (2020/21 PRICES) 150 100 0

R billion

-50 -100 -150 -200 -250

201 7/18 201 8/1 9 201 9/2 0 202 0/2 1

201 5/1 6 201 6/1 7

201 0/1 1 201 1/12 201 2/1 3 201 3/1 4 201 4/1 5

-350

200 5/0 6 200 6/0 7 200 7/0 8 200 8/0 9 200 9/1 0

-300

SOURCE: National Treasury and Sars

DEBT OUTLOOK SCENARIOS

MAIN BUDGET REVENUE AND EXPENDITURE

34 % of GDP

32

Main budget revenue Main budget expenditure

% of GDP

36

30 28 26 24 200 6/0 7 200 7/0 8 200 8/0 9 200 9/1 0 201 0/1 1 201 1/12 201 2/1 3 201 3/1 4 201 4/1 5 201 5/1 6 201 6/1 7 201 7/18 201 8/1 9 201 9/2 0 202 0/2 1

22

14

finweek 16 July 2020

140 130 120 110 100 90 80 70 60 50

The Covid-19 pandemic has led to a sharp deterioration in the economic and revenue outlook. The fiscal position, which was already unsustainable, will require significant adjustments as the immediate health effects subside.

In 2020/2021, the consolidated deficit is projected to increase to 15.7% of GDP. If this trend is not reversed, South Africa is likely to face a sovereign debt crisis.

Government remains committed to achieving fiscal sustainability, measured as stabilisation of the debt-toGDP ratio, and to narrowing the budget deficit. This will require large spending reductions and moderate tax increases in the forthcoming medium-term expenditure framework. Over the next several months, government will prepare fiscal consolidation proposals that will be published in the October 2020 Medium-Term Budget Policy Statement (MTBPS).

140.7

Active scenario Passive scenario

89.9 81.8 73.5 50.5

201 6/1 7 201 7/18 201 8/1 9 201 9/2 0 202 0/2 1 202 1/2 2 202 2/2 3 202 3/2 4 202 4/2 5 202 5/2 6 202 6/2 7 202 7/2 8 202 8/2 9

38

South Africa’s fiscal outlook and stabilising public debt:

www.fin24.com/finweek

A VERY, VERY SICK ECONOMY The economic fallout of the coronavirus-induced government lockdown has started to show in the GDP growth figures of the first quarter of 2020. It is indicative that SA’s economy has been in contraction since the second half of last year. The first quarter’s figures show the impact of the closure of mines, with this sector slumping by more than a fifth. Manufacturing and construction were also hit hard. Agriculture, due to bumper summer crops, bucked the trend and grew by more than a quarter. Was it not for this sector, the economy would have slumped by 2.5% in the first quarter. The government and financial sectors contributed 0.9 percentage points to growth.

Worryingly, gross fixed capital formation (an indication of

investment in the economy) sunk by a fifth during the first three months of the year. An ominous boost to the country’s trade statistics was the more than 16.7% decline in imports as exports fell by 2.3%, which will decrease the country’s trade deficit.

On a household level, Stats SA data paints a bleak picture, with more than a third of surveyed households experiencing some form of impact on their ability to cover their financial obligations. Almost one in ten households no longer earns an income. Despite record-low inflation recorded in April, which will support distressed households, an income still needs to be earned in order to purchase any goods or services – no matter the price.

HOW DID SOUTH AFRICAN INDUSTRIES PERFORM IN THE FIRST QUARTER OF 2020?

COMPONENTS OF EXPENDITURE ON GDP, FIRST QUARTER OF 2020

Industry growth in the first quarter of 2020 compared with the fourth quarter of 2019

Growth in the first quarter of 2020 compared with the fourth quarter of 2019

Government

Personal services -1.2 -4.7% -5.6% -8.5% -21.5% -10

-5

0

0.5%

0

0.5

0

Trade

-0.2

Construction

-0.2

Electricity, gas and water

-0.1

Manufacturing

-1.1

Mining

-1.7

5

Government expenditure

1.1%

Household expenditure

0.7%

0.2

0.1

1%

Transport and communication

-25 -20 -15

0.8

3.7%

10

15

Seasonally adjusted and annualised

20

25

30

Percentage contribution

Finance

GDP -2%

0.5

27.8%

-2.3%

-16.7%

-20.5% -25

-20

-15

-10

-5

Expenditure on GDP

-2.3%

0.4

Exports

-0.7

Imports

5.3

Gross fixed capital formation

-4.2

0

5

SOURCE: GDP, Q1 2020, Stats SA

CPI HEADLINE INDEX YEAR-ON-YEAR NUMBERS

PROPORTION OF HOUSEHOLDS IN FINANCIAL DIFFICULTY* 7 6.5 6 5.5 5

Moderate or major impact on ability to cover financial obligations

36.9%

No longer receive an income from salary or wages

9.9% 8.1%

Lost job or closed business due to Covid-19

4.5 4 3.5 3 Jan ‘15

Jan ‘16

Jan ‘17

Jan ‘18

Jan ‘19

Headline

@finweek

finweek

finweekmagazine

Jan ‘20 SOURCE: Stats SA

Experience hunger

7% 0

10

20

30

40

Change in proportion of respondents

*Percentage of 2 688 respondents surveyed between 29 April and 6 May 2020

SOURCE: Stats SA

finweek 16 July 2020

15

Percentage contribution

Agriculture

market place

>> >> >> >> >> >> >> >> >>

House View: Purple Group, Woolworths p.17 Killer Trade: Capitec, Standard Bank p.20 Invest DIY: Why a company would do a capital raise p.21 Simon Says: Barloworld, Combined Motor Holdings, Crookes Brothers, economic data, ELB Group, ETNs, Intu Properties plc, Redefine Properties, Stor-Age p.22 Investment: Having an emergency fund is a necessity p.24 Invest DIY: ETF tracking Chinese stocks a first for the JSE p.25 Markets: Be careful of climbing in when markets recover p.26 Technical Study: China builds, commodity countries benefit p.27 Share View: Walmart can cash in on Covid-19 online shopping innovations p.28

FUND IN FOCUS: INNOVATION BCI WORLDWIDE EQUITY FUND

By Timothy Rangongo

A well-diversified global stock portfolio This aggressive risk profile portfolio aims to deliver high long-term capital growth through domestic and global investments.

Fund manager insights:

FUND INFORMATION:

Benchmark: Fund managers:

Worldwide Equity General average Thys Vorster and Handré Retief

Fund classification:

Global – Equity – General

Total investment charge:

1.64%

Fund size:

R229.6m

Minimum lump sum/ subsequent investment: Contact details:

None/R15 excluding VAT on direct investor accounts with balances of less than R100 000 021 912 1020/info@innowealth.co.za

TOP 10 HOLDINGS AS AT 30 JUNE 2020:

1

Atlantic Leaf Properties

6.44%

2

Tencent Holdings

4.4%

3

Nvidia

4.27%

4

iShares Gold ETF

4.22%

5

Microsoft

3.9%

6

iShares Core SP500 ETF

3.72%

7

Adobe

3.69%

8

iShares Hong Kong ETF

3.39%

9

Peregrine Holdings

3.27%

10

iShares Global Clean Energy

3.24%

TOTAL

40.54%

PERFORMANCE (ANNUALISED AFTER FEES)

As at 31 May 2020 ■ Innovation BCI Worldwide Equity Fund

■ Benchmark

24 20

23.24%

16

Why finweek would consider adding it:

12 8 4 0

16

Innovation Wealth’s BCI Worldwide Equity Fund aims to deliver high long-term capital growth primarily through investments in global stocks. At the end of the first quarter of 2020, the fund had an offshore exposure of 74.36% against its peers’ average offshore exposure of 21.66%, according to fund manager Thys Vorster.

Being overweight on global equity without exposure to local bond or property sectors helped the fund weather the volatile investment climate in the first quarter of 2020, wherein it outperformed its benchmark.

“Even though the fund is skewed to the tech sector, it is well-diversified with businesses whose earnings are not correlated and are non-cyclical,” says Vorster.

“We embrace volatility and uncertainty because that leads to new opportunities.

Some opportunities which we have traded are companies like Beyond Meat and Netflix. Both had an incredible increase in their moat due to Covid-19.”

Conceptualised and named by Warren Buffett, an economic moat is a distinct advantage a company has over its competitors that allows it to protect its market share and profitability.

Another strategy to decrease volatility, according to Vorster, is to identify possible buy-out or takeover targets, like Peregrine Holdings and Atlantic Leaf Properties. The latter represents the largest holding in the portfolio and is set to delist in August if a R3.3bn takeover from American group Apollo Global Management is successful.

The portfolio also counts several exhange-traded funds (ETFs) among its holdings, which are held to gain exposure to certain markets and themes, such as to gold via the iShares Gold ETF, at a low cost. “We see the ETFs as being similar to a core-satellite strategy with the ETFs being the market (beta of the portfolio) to decrease the volatility and individual stock-picking (alpha) to enhance the return,” says Vorster.

He says the investment team remains cautious in the short to medium term, and agrees with the IMF that “the disconnect between the markets and the economies risk a correction in asset prices and we believe that the current markets are purely driven by sentiment”.

“Covid-19 has created a paradigm shift in human behaviour. However, we believe this shift is for the better and not the worse,” he says. Looking to the rest of the year, the team believes environmental, social and governance (ESG) issues will become a major investment criterion and have built their analysis model around ESG factors.

2.71%

Since inception in June 2019

finweek 16 July 2020

South Africa’s debt burden and inefficient state-owned companies are placing a lot of strain on the local economy. These factors inhibit National Treasury’s ability to stimulate the economy compared with developed markets’ fiscal authorities with deeper pockets and lower interest rates. Forward earnings for local companies will likely underperform relative to global markets such as Asia and the US. ■ editorial@finweek.co.za www.fin24.com/finweek

house view BUY

PURPLE GROUP

SELL

marketplace

CAUTION

By Simon Brown

Trading surge boosts Purple

Last trade ideas

During this pandemic I have held off buying shares and rather focused on purchasing diverse exchange-traded funds (ETFs). But I have been keeping an eye out for opportunities and Purple Group*, owners of no-frills discount brokerage EasyEquities, caught my eye. But it must be said this is speculative.

EasyEquities has seen a massive surge in new account openings, as have most brokers the world over. This will help them improve from their break-even point recorded in Purple’s February financial results. More recently they announced a deal with Capitec* that will see the bank’s clients have access to buy shares using the back-end platform of EasyEquities. This should add another surge of clients and transactions.

The risks with small stocks are always real and are heightened now, but a small position here for the next several years could yield a good return. There are several sellers at 50c/share that will cap the price for now, but in time these sellers will move higher or run out of stocks to sell. ■

CAUTION

Banks 25 June issue

CAUTION

Hospital Groups 4 June issue

CAUTION

Mining 21 May issue

CAUTION

Food Retail 7 May issue

* The writer owns shares in Purple Group and Capitec.

BUY

WOOLWORTHS

SELL

HOLD

By Moxima Gama

Davie Jones’ locker

Last trade ideas

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

Earlier this year Woolworths refuted suggestions that it will consider divesting its troubled Australian department store chain, David Jones. Woolworths bought the company for A$2.1bn in 2014 with dreams of creating a luxury retailer with more sales and higher profits. In July last year Woolworths wrote down the value of David Jones by A$437m, taking the total write-down figure since 2014 to A$1.1bn.

In a recent announcement in June, the retailer cited its decision to fund its floundering David Jones, to which it received harsh criticism from analysts, who believe David Jones is a bottomless pit. Woolworths will be spending close to R1bn to further fund the Australian business.

How to trade it: Woolworths has been trading in a bear channel since breaking out of its primary bull trend in August 2016. This bearish momentum steepened to the lower slope of the channel when the global markets fell during the Covid-19 sell-off. After retaining support at 2 400c/ share and bouncing on the lower slope, Woolworths has regained upside and has breached key resistance at 3 285c/share – thus triggering a buy signal. I suggest buying modestly above that level, then increasing positions once the next resistance level at 4 305c/share has been breached. Upside towards either 5 000c/share or the upper slope of the bear channel should follow.

Refrain from going long if Woolworths reverses through 3 285c/share as it could retest support at 2 400c/share. ■ editorial@finweek.co.za @finweek

finweek

finweekmagazine

BUY

Telkom 25 June issue

BUY

Distell 4 June issue

BUY

Sasol 21 May issue

BUY

Pan African Resources 7 May issue

Earlier this year Woolworths refuted suggestions that it will consider divesting its troubled Australian department store chain, David Jones.

finweek 16 July 2020

17

Annual results announcement for the year ended 31 March 2020 Naspers Limited (Registration number: 1925/001431/06) (Naspers or the group) JSE share code: NPN ISIN: ZAE000015889 LSE code: NPSN ISIN: US6315122092

www.naspers.com

Commentary

The past financial year has seen the Naspers group transform as we executed several significant strategic initiatives, which we believe will unlock value over time.

Operationally, the group ended the year in a position of strength with accelerating revenue growth in its ecommerce (online commerce) portfolio, improved profitability and a substantial net cash position with sufficient liquidity. Underpinning these results, Tencent continued to report resilience in an uncertain macro-environment. Most recently, the onset of a global pandemic has had a marked impact on the daily lives of people globally and the economy at large. While the impact is likely to persist for some time, we are confident to weather the storm. The group’s focus is on safety, plus leveraging its financial flexibility to continue building a business that grows strongly, generates high rates of return and provides employment for thousands over the long term.

After many years of stock-price outperformance, Naspers now represents an outsized position on the JSE Limited’s shareholder weighted index (SWIX). To extend our shareholder base and reduce that outsized position, on 11 September 2019, we listed our international internet assets on Euronext Amsterdam as Prosus N.V. (Prosus).

Prosus includes all Naspers’s operations and investments outside South Africa in online classifieds, food delivery, payments and fintech (financial technology), etail (online retail), travel, education, and social and internet platforms. As Europe’s most valuable consumer internet company, Prosus gives global internet investors direct access to our portfolio of international internet assets, as well as exposure to China, India and other high-growth markets. Prosus also has a secondary listing on the JSE Limited in South Africa. At the date of listing, Prosus was 73.84% owned by Naspers, with a free float of 26.16%. In January 2020, to fulfil an obligation to the South African Reserve Bank to repatriate US$1.5bn to South Africa, Naspers sold 22 million shares in Prosus, representing 1.35% of the issued Prosus N ordinary shares to institutional investors for gross proceeds of €1.5bn (US$1.64bn). Following the disposal, Prosus was 72.49% owned by Naspers with a free float of 27.51%. We have no intention to sell additional shares of Prosus.

All proceeds, net of expenses and costs, received by Naspers from this disposal were repatriated to South Africa as required and used to return capital to our shareholders in the form of a share repurchase programme. This was completed on 24 March 2020, with a total of 9 156 705 Naspers N ordinary shares being repurchased (representing 2.06% of the issued Naspers N ordinary shares prior to the programme). A total of R22.4bn (US$1.4bn), including transaction costs, was paid (representing an average cost of R2 447.11 per Naspers N ordinary share). The Naspers N ordinary shares repurchased have been cancelled and delisted. We are pleased with the outcome which, through the sale of Prosus N ordinary shares with a lower discount to net asset value and repurchase of Naspers N ordinary shares with a larger discount to net asset value, realised around R3.3bn in shareholder value. As a result, Naspers had 435 511 058 N ordinary shares in issue at 31 March 2020.

We ended the financial year facing the global Covid-19 pandemic, with many of our markets locking down in March 2020. Our priority was the wellbeing of our 25 000 people and the communities we serve around the world. As a global company operating in numerous local markets we take our responsibility seriously. We are helping our people and communities navigate this crisis. In April 2020, we committed R1.5bn (US$84m) in emergency aid to the South African government’s response to the crisis.

We contributed R500m to the Solidarity Fund announced by the South African president, plus R1bn worth of personal protective equipment and other medical supplies. This equipment was rapidly sourced – in partnership with the Chinese government and Tencent – to support South Africa’s frontline health workers. It was delivered in multiple shipments, with the final shipment delivered on 12 June 2020. Prosus also donated INR100crore (US$13m) to the Indian government’s response to the Covid-19 crisis via the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund. In addition, at local level, many of our companies have made meaningful contributions. Across the group, we continue to identify ways in which our technological expertise, global networks and resources can be used to support the fight against this virus.

We will continue to respond quickly to the evolving situation to safeguard our people, maintain our ability to serve our customers and protect our businesses. While we believe each of our segments will continue to benefit from secular growth trends, the global pandemic has affected operations and we need to draw attention to its potential impacts on 2021’s financial year. That said, we believe the fundamentals of our businesses remain strong. We have sufficient liquidity to run the company and the ability to invest in opportunities that may arise during this period.

Financial review The group’s financial highlights for the year ended 31 March 2020 are outlined below: 2020 C Group composition acquisition adjustment US$’m

2020 D

2020 E

IFRS US$’m

2020 B Group composition disposal adjustment US$’m

Foreign currency adjustment US$’m

Local currency growth US$’m

IFRS US$’m

Local currency growth %

18 678 3 934 875 360 377 1 847 234 241 14 744 14 457 287

(544) (502) (4) (11) (16) (343) (99) (29) (42) (38) (4)

400 344 133 25 55 73 – 58 56 – 56

(827) (210) (25) (20) (45) (102) – (18) (617) (615) (2)

4 162 1 114 320 74 380 281 11 48 3 048 2 975 73

21 869 4 680 1 299 428 751 1 756 146 300 17 189 16 779 410

23 32 37 21 >100 19 8 23 21 21 26

17 19 48 19 99 (5) (38) 24 17 16 43

326 2 (16) 18 990

(12) – – (556)

– – – 400

(23) – 1 (849)

(19) (2) 10 4 151

272 – (5) 22 136

(6) (100)

(17) (100)

23

17

3 324 22 314

(3 324) (3 880)

– 400

– (849)

– 4 151

– 22 136

– 23

(100) (1)

3 339 (613) 2 (43) (171) (150) (37) (214) 3 952 3 929 23

65 75 1 6 (7) 47 9 19 (10) (10) –

(101) (157) (31) (17) (91) – – (18) 56 – 56

(121) 50 14 (1) 28 8 – 1 (171) (170) (1)

553 (319) 58 (12) (383) 32 6 (20) 872 852 20

3 735 (964) 44 (67) (624) (63) (22) (232) 4 699 4 601 98

16 (59) >100 (32) >(100) 31 21 (10) 22 22 87

12 (57) >100 (56) >(100) 58 41 (8) 19 17 >100

Media (14) 9 Corporate services (21) – Economic interest 3 304 74 DISCONTINUED Video Entertainment 512 (512) Group economic 3 816 (438) (1) Figures presented on an economic-interest basis as per the segmental review.

(2) (3) (4) A+B+C+D+E [E/(A + B)] X 100 [(F/A)-1] X 100

– – (101)

– 5 (116)

13 (2) 564

8 (18) 3 725

>100 (10) 17

>100 14 13

– (101)

– (116)

– 564

– 3 725

2019 A

Revenue CONTINUING OPERATIONS Internet Ecommerce – Classifieds – Payments and Fintech – Food Delivery – Etail – Travel – Other Social and internet platforms – Tencent – Mail.ru Media Corporate services Intersegmental Economic interest DISCONTINUED Video Entertainment Group economic Trading profit CONTINUING OPERATIONS Internet Ecommerce – Classifieds – Payments and Fintech – Food Delivery – Etail – Travel – Other Social and internet platforms – Tencent – Mail.ru

2020 F(2)

2020 G(3)

– 17

2020 H(4)

IFRS %

(100) (2)

Salient features

ADR programme

Year ended 31 March Continuing operations Revenue

2020 Reviewed US$’m

2019 Reviewed US$’m

4 001

3 291

(720)

(567)

Earnings per ordinary share (US cents)

718

965

Headline earnings per ordinary share (US cents)

505

851

Core headline earnings per ordinary share (US cents)

656

687

Operating loss

Group revenue, measured on an economic-interest basis, was US$22.1bn, reflecting growth of 17% (23%) from continuing operations. Measured similarly, and including the stepped-up investment in Food Delivery, group trading profit grew 13% (17%) year on year to US$3.7bn.

Tencent grew revenues by a healthy 16% (21%) year on year. Driven by Classifieds, Etail, and Payments and Fintech, the ecommerce business posted strong performance. Overall revenue growth in ecommerce, adjusted for acquisitions and disposals, grew 32% in local currency, a 6% acceleration year on year. This was led by the Food Delivery segment, which grew orders 102% and revenues by 99% (105%), and strong growth in Classifieds, up 48% (37%). Tencent’s profitability improved 17% (22%). Trading losses in ecommerce rose to US$964m, reflecting our investment in Food Delivery to grow markets and sustain our leading positions. Excluding the increased investments in Food Delivery, and Payments and Fintech as well as acquisitions and disposals, ecommerce trading losses reduced by 24% or US$76m in local currency.

Core headline earnings from continuing operations were US$2.9bn – down 5% (1%).

Improving profitability in Tencent and the more established ecommerce businesses were partially offset by increased taxation related to the Prosus investment. Through listing Prosus and the subsequent sale of additional shares, minority shareholders with a 27.51% interest in Prosus were introduced. This reduced the attributable share of Naspers shareholders in the Prosus core headline earnings contribution for the year ended March 2020 by US$466m (2019: US$nil).

Across the group, we invested US$1.3bn to expand our ecosystem and reach. Notably: through PayU, an investment of US$66m in Wibmo to expand our Indian footprint in payment security, mobile payment solutions and processing services; an investment of US$163m in PaySense broadens our ecosystem in India as we now start to offer consumer credit, an investment of US$199m in Iyzico, a leading payment service provider in Turkey, and US$48m in Red Dot Payment (Red Dot), providing payment solutions in Singapore and expanding across Southeast Asia. In Classifieds, we acquired a controlling stake in Frontier Car Group for US$320m and the contribution of certain subsidiaries, expanding our transactions business. Ventures invested US$81m in Meesho Inc., a leading social commerce online marketplace in India, continuing our successful track record of identifying Indian opportunities with the potential to become large businesses. We are also increasing our exposure to the edtech (educational technology) businesses by investing a further US$25m and US$44m in our education associates Brainly and Udemy respectively. In the Food Delivery business, we invested a further US$100m in our associate Swiggy.

At year-end, we had a solid net cash position of US$4.8bn, comprising US$8.3bn of cash and cash equivalents (including short-term cash investments), net of US$3.5bn of interest-bearing debt (excluding capitalised lease liabilities). We also have an undrawn US$2.5bn revolving credit facility. Overall, we recorded net interest income of US$16m for the year. In December 2019, Prosus established a US$6bn global medium-term note programme. In terms of this programme, Prosus may periodically issue notes denominated in any currency, with a maximum outstanding aggregate nominal amount of US$6bn. The notes trade on the Euronext Dublin stock exchange. Under the programme, in January 2020, we successfully issued US$1.250bn 3.68% notes due in 2030. The purpose of this offering was to raise proceeds to redeem the US$1.0bn 6.00% notes due in July 2020. The principal and interest accrued to the maturity date of these notes were repaid in February 2020. The group has no debt maturities due until 2025.

Consolidated free cash outflow was US$383m, compared to the prior-year outflow of US$120m from continuing operations (excluding the Video-Entertainment segment).

This change reflects increased investment in the Food Delivery business, as well as negative working-capital effects, offset by merchant cash timing differences of US$28m, and transaction costs of unbundling MultiChoice Group and listing Prosus of around US$113m. Dividend income received from Tencent increased US$35m to US$377m.

Cash extractions from our profitable Classifieds businesses continued to grow, increasing US$70m to US$305m. Covid-19 may have a short-term impact on that trajectory, but the positive trend is expected to return.

We adopted the new accounting standard IFRS 16 Leases on a prospective basis.

Accordingly, comparative information has not been restated.

The company’s external auditor has not reviewed or reported on forecasts included in this short-form announcement.

Preparation of the short-form results announcement

The preparation of the short-form results announcement was supervised by the group’s financial director, Basil Sgourdos CA(SA). These results were made public on 29 June 2020.

Bank of New York Mellon maintains a GlobalBuyDIRECTSM plan for Naspers Limited. For additional information, please visit Bank of New York Mellon’s website at www.globalbuydirect.com or call Shareholder Relations at 1-888-BNY-ADRS or 1-800-345-1612 or write to: Bank of New York Mellon, Shareholder Relations Department – GlobalBuyDIRECTSM, Church Street Station, PO Box 11258, New York, NY 10286-1258, USA.

Important information

This report contains forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. Words such as “believe”, “anticipate”, “intend”, “seek”, “will”, “plan”, “could”, “may”, “endeavour” and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and should be considered in light of various important factors. While these forward-looking statements represent our judgements and future expectations, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. The key factors that could cause our actual results performance, or achievements to differ materially from those in the forward looking statements include, among others, changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; ongoing and future acquisitions, changes to domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political conditions; the occurrence of labour disruptions and industrial action and the effects of both current and future litigation. We are not under any obligation to (and expressly disclaim any such obligation to) revise or update any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. We cannot give any assurance that forward-looking statements will prove to be correct and investors are cautioned not to place undue reliance on any forward-looking statements contained herein.

Directorate

From 31 March 2020, our non-executive director and lead independent director, Fred Phaswana, retired from the board. Mr Phaswana served on the board since 2003.

He was lead independent director from April 2015 and a director of various group structures. He was also a member of the human resources and remuneration and nomination committees. The board thanks him for his superb commitment to the group over many years – his unique contributions were highly valued and will be missed.

From 1 April 2020, Hendrik du Toit, an independent non-executive director, was appointed lead independent director.

In addition, from 24 April 2020, Ben van der Ross, independent non-executive director, stepped down from the audit and risk committees and was appointed to the social, ethics and sustainability committee. The board thanks him for his valuable contribution over many years to the audit and risk committees.

The appointment of Manisha Girotra as an independent non-executive director was confirmed on 1 October 2019. Ms Girotra also serves as a member of the audit committee.

From 26 June 2020, Ying Xu was appointed as an independent non-executive director.

Further information

This short-form results announcement is the responsibility of the directors and is only a summary of the information in the full summarised consolidated financial results. The summarised consolidated financial statements have been audited by the company’s auditor, PricewaterhouseCoopers Inc. (PwC). PwC’s unqualified audit reports on the consolidated annual financial statements and the summarised consolidated financial statements for the year ended 31 March 2020, including the key audit matters, are available for inspection at the registered office of the company. The auditor’s report does not necessarily cover all the information contained in the summarised consolidated financial statements. Shareholders are therefore advised that, in order to obtain a full understanding of the nature of the auditor’s work, they should obtain a copy of that report, together with the consolidated annual financial statements from the registered office of the company. These documents will be available from the company’s registered office from 29 June 2020. The consolidated annual financial statements will be available on www.naspers.com on 29 June 2020.

The long-form PDF financial results will be published in the cloud for public accessibility through means of a web link on Naspers: https://senspdf.jse.co.za/documents/2020/jse/isse/NPN/FY2020.pdf.

Any investment decision should be based on the full summarised consolidated financial statements published on SENS and on the company’s website.

The information in this short-form results announcement has been extracted from the reviewed information published on SENS, but the short-form results announcement itself was not reviewed.

On behalf of the board Koos Bekker Chair

Bob van Dijk Chief executive

Cape Town 29 June 2020 Directors: J P Bekker (chair), B van Dijk (chief executive), E M Choi, H J du Toit, C L Enenstein, D G Eriksson, M Girotra, R C C Jafta, F L N Letele, D Meyer, R Oliveira de Lima, S J Z Pacak, V Sgourdos, M R Sorour, J D T Stofberg, B J van der Ross, Y Xu. Company secretary: G Kisbey-Green Registered office: 40 Heerengracht, Cape Town 8001 (PO Box 2271, Cape Town 8000) Transfer secretaries: Link Market Services South Africa Proprietary Limited, 13th Floor Rennie House, 19 Ameshoff Street, Braamfontein 2001 (PO Box 4844, Johannesburg 2000, South Africa) Sponsor: Investec Bank Limited

marketplace killer trade

By Moxima Gama

XXXXXXXXXXXXXXXX CAPITEC BANK

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Finding bull channel? apitec, one of the five largest commercial banks in SA, warned shareholders early in July that the provisions for bad debts for the three months ending May increased by R3.3bn since the end of February as the economic fallout from the lockdown filtered through to customers. Capitec said its earnings for the first half of the year to end-August could drop as much as 70% due to higher bad-debt expenses and lower transaction volumes.

Outlook: After forming falling tops from an all-time high at 149 760c/share, Capitec eventually gave in at key support at 132 500c/share. In my March analysis, I had recommended a sell below that level, and anticipated downside to the

CAPITEC BANK

52-week range: R539.86 - R1 497.56 Price/earnings ratio: 14.7 1-year total return: -37.46% Market capitalisation: R92.2bn Earnings per share: R54.28 Dividend yield: 0.95% Average volume over 30 days: 469 015 SOURCE: IRESS

SOURCE: MetaStock Pro (Reuters)

lower slope of its long-term bull channel. The share plummeted through the lower slope of its channel to a low at 53 800c/ share amid Covid-19 fears.

On the charts: Though Capitec is forming rising bottoms (refer to the red arrows), if it fails to trade through the lower slope of its bull channel – to return to bullish

territory – it could trade within a wide sideways band between 106 520c/share and 78 000c/ share.

Go short: Downside through 78 000c/share would bearishly end the sideways band, potentially attracting further selling towards 70 500c/share.

Breaching that level could see the

share price retest its prior low at 53 800c/share.

Go long: Capitec would have to trade above 106 520c/share to resume its bull channel. A move above 117 885c/share would mark a complete change in investor sentiment, which could increase gains towards the all-time high at 149 760c/share. ■

STANDARD BANK

a

Sentiment still bearish

frica’s largest lender by assets, Standard Bank, has seen a steep decline in its share price since the start of the year – declining by more than a third. The bank painted a grim outlook of, among other things, how bad the impact of the slump in vehicle sales together with the closure of deeds offices was on local lenders, according to a report issued last month. The bank is expected to release its interim results next month.

Outlook: After breaching support at 15 390c/share, Standard Bank’s share price plummeted through the support trendline of its long-term bull trend – alongside the global sell-off amid the Covid-19 fears.

On the charts: Although the share price regained upside after retaining support at 8 340c/ 20

finweek 16 July 2020

STANDARD BANK

52-week range: R83.41 - R194.50 Price/earnings ratio: 5.79 1-year total return: -41.78% Market capitalisation: R165.5bn Earnings per share: R17.67 Dividend yield: 5.28% Average volume over 30 days: 6 014 280 SOURCE: IRESS

SOURCE: MetaStock Pro (Reuters)

share, it failed to resume its previous bull trend by reversing below the black bold trendline in the graph. Expect the share price to range between 12 040c/share and 8 340c/share until either level is breached.

Go short: If Standard Bank fails to trade through the support trendline of its bull trend (black

bold trendline) on the upside, it may give in at support at 8 340c/ share. A negative breakout and sell signal would be triggered below that level, with potential downside to 5 915c/share.

Go long: The share price would return to bullish territory above 13 045c/share – a move that could see the share price recover

towards resistance at 17 700c/ share in the short term. Above that level, further gains to 21 025c/ share would be possible. ■ 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

XXXXXXXXXXXXXXXX PORTFOLIO MANAGEMENT

‘Nobody ever forecasts for zero revenue’

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Photo: Shutterstock

With increased capital-raising activity on the JSE, investors should monitor their holdings that are under pressure.

apital raising by listed companies on the JSE is breaking records. As I write this (in the last week of June), we’ve had some R5bn of book builds from Harmony, Pepkor and Transaction Capital and more than R10bn of proposed rights issues (some mooted, but not yet confirmed).

There are many reasons for this activity. In the case of City Lodge, for example, it is being done to bail out its BEE deal. Curro, on the other hand, is suggesting potential acquisitions, but the education provider also has debt – as does Sun International and TFG. Mr Price doesn’t really need cash but is considering a R3.6bn rights issue to bolster its balance sheet, and Sasol has cautioned about a possible $2bn issue if required – but there hasn’t been further word on this likelihood.

This raises a few questions for investors as well as some important points to consider.

Companies raising money, especially when the need is not glaringly apparent, are doing so because they’re expecting tough trading conditions ahead and are getting ahead of the game. This matters because, at some point, investors will run out of money to fund these capital raises. So, making the play early gets these companies the money now, and might also hinder a competitor that tries to raise cash at a later stage, only to find that investor appetite for this is lacking.

But you need to remember that issuing new shares means these shares have a permanent claim on future profits. That is why taking on debt is always preferred to a rights issue, because debt is temporary and will eventually be paid back. However, lenders are certainly clamping down on issuing new debt, which means that fresh cash is being raised in the market rather than through debt.

But the big question is: What should shareholders do? Ideally, you need to follow your rights, otherwise you will get diluted. For example, the value of @finweek

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City Lodge’s capital raise is more than the company’s current market cap, so an investor’s holding will effectively be reduced by half if they don’t follow their rights. But not all investors have the cash or the enthusiasm to follow their rights, and a decision needs to be made sooner rather than later.

If you can afford to follow your rights – and you’re happy that the cash will be utilised well and will improve the company’s situation – then do so. But if you’re worried that this might become a bottomless hole, with more capital raises likely to come, you really need to think about whether or not you still want to hold the company.

In the early days of the pandemic, I wrote about needing to take a hard look at your holdings in companies that had high levels of debt and would struggle in this environment – perhaps even needing to consider exiting them.

City Lodge was one I did exit. Sure, the group owns most of its properties, but its recent expansion leaves it with a pile of debt. And, even with the new lockdown regulations allowing for some hotel usage, occupancy levels, and hence income, have collapsed.

As such, I suspect the initial R1.2bn rights issue is not enough, so current shareholders have to consider whether they are prepared to make a number of payments to keep the company going.

Even if the company is a great business, this pandemic changes things like never before.

Keith McLachlan of Alpha Asset Management made a comment that has stuck with me: “Nobody ever forecasts for zero revenue.” Yet this is exactly where many businesses have been for the last three months.

Even if you think you missed the opportunity to sell a stock, I’d still give serious thought to those under pressure, especially if they’re likely to be undertaking a number of capital raises.

Not all companies will survive and selling low is still better than holding a bankrupt stock. ■ editorial@finweek.co.za

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Not all companies will survive and selling low is still better than holding a bankrupt stock.

finweek 16 July 2020

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marketplace Simon says

By Simon Brown

STOR-AGE

Packing a punch Self-storage property fund Stor-Age* has again showed how resilient its business model is, despite economic conditions. It does well in good and bad times as clients’ needs shift – this sees some clients exit, but then a new group of clients gets added. Full-year financial results to endMarch were solid and saw an increased dividend (with a scrip option). Much of the business model revolves around building scale as they generate leads online. But, more importantly, is that when they build a new storage facility in an area, they essentially lock out any competitors as the Stor-Age brand is extremely hard to compete with. The company’s UK business is doing very well. Stor-Age has a loan-to-value ratio in the low 30s, which means debt is hardly an issue. I bought some shares just after the results were released on 22 June and will add to the position on any weakness. I will also be taking scrip, rather than cash for my dividend.

INTU PROPERTIES PLC

Simon’s stock tips 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.

EXCHANGE-TRADED NOTES

Metals expiring soon One of the features of exchange-traded notes (ETNs) is that they are essentially credit notes.

They always have an expiry date. As such, four Standard Bank ETNs on silver, gold, platinum and palladium are set to expire on 11 August.

Holders at that date will be paid out the fair value a few days after the ETNs expire. In the case of these four metals there are plenty of exchangetraded funds (ETFs) issued over them. So, while this will trigger a tax event as it will be considered a sale, if you hold on to them, you will be able to still get exposure to the underlying metals.

And it’s over Intu Properties’ life as a listed stock is over.

Its journey started when Liberty listed its UK property assets separately as Capital & Counties (Capco) and then Capco spun out the Intu shopping centre business. But debts of over R100bn and the impact of both Brexit and reduced high-street activity has placed pressure on Intu’s ability to pay down debt, and the company was unable to make a deal with lenders. So, the stock is suspended, and shareholders will likely receive nothing.

Interestingly, Capco is again splitting as it will list Earl’s Court separately and hold on to the Covent Garden portfolio.

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finweek 16 July 2020

R100bn Debts of over

and the impact of both Brexit and reduced high-street activity has placed pressure on Intu’s ability to pay down debt.

BARLOWORLD

War chest to cushion blow Barloworld’s interim results were rough, even though they were only to end-March. The key consideration for me was that the operating margin fell from 5.5% to 4.4%, slicing 20% off profits. Ultimately, headline earnings per share (HEPS) was down at 268.4c from 476c during the comparable six-month period a year earlier. Debt-to-ebitda (earnings before interest, tax, depreciation and amortisation) spiked from 0.2 to 0.9 times, but that is more a function of ebitda under pressure than the company’s debt rising. Barloworld has R8.1bn of funding available if required. Some areas are in dire straits due to the pandemic – the car rental division’s revenue, for example, was already down 4.1% to end-March.

This business will remain smaller after the pandemic. But overall, the group will survive and may even be looking for some deals with the significant war chest it has available.

CROOKES BROTHERS

Understand the valuation I own Crookes Brothers* shares as my nephew wanted to buy a banana stock for his birthday one year. This led to me watching the stock closely and learning about shares that hold biological assets. In the case of Crookes, they are fruit and nut trees. With York Timber it is forestry plantations, and for Astral it means poultry. The list goes on.

The key point is how the valuation of these assets is treated; any changes to these values are taken through the income statement.

So, in the latest Crookes year-end results the valuation changes hurt as the value of biological assets declined (truthfully, they also have other issues). As investors we need to keep an eye on this because revaluing these assets higher goes through the income statement, boosting profits, and we ought to strip this out to get clean results. www.fin24.com/finweek

marketplace Simon says

ELB GROUP

ECONOMIC DATA

Offer to shareholders

Indicators to watch

ELB Group has offered to buy back all its outstanding shares, excluding those held by Apex Partners Holdings, for 200c/share. This is a 66.6% premium to the price at the time of the announcement on 1 July. But, this for a share that has traded at over 5 000c in 2014 and, more importantly, has some 575c/share of cash on its balance sheet. However, the business has struggled and its contract in the development of the Gamsberg mine in the Northern Cape has really hurt the business and will likely see continued pressure on that cash pile.

Locally, most of the data we’re still seeing dates to pre-pandemic times, for example the latest GDP figures. At a contraction of 2% quarter-on-quarter annualised, it’s the third three-month period of no growth. However, it wasn’t as bad as many expected. That said, the second quarter of 2020 will be the true horror show. As we see more recent data from the rest of the world and locally, such as the purchasing managers’ index and US jobs data, the evidence remains strong that April was likely the worst month for the world economy due to the hard lockdown. However, we mustn’t confuse the worst being behind us with a return to normal. Economies the world over are a long way off from December 2019 levels and for me there are many important data points to watch. There are two indicators I’m keeping a close eye on. The first is the US unemployment rate that is now at 11.1%. This is way better than many (myself included) expected so soon into the pandemic, but the hard part is going to be getting back into the single digits and, ultimately, back to below 5%. I maintain that a US unemployment rate below 5% is years away. The second is TSA (US airport security) traveller numbers.

They publish a daily update that shows data compared with the same weekday a year earlier. Traffic remains at 25%. So, air traffic is returning but remains subdued and as such is a strong indication of continued weak economic activity.

COMBINED MOTOR HOLDINGS

Photos: Archive | Motorpress

Tough outlook I have liked Combined Motor Holdings (CMH) for a long time and its recent results for the year ended February were decent, considering SA was already in a recession. But vehicle sales have fallen off a cliff during lockdown and increased sales of vehicles from rental companies is going to flood the second-hand car market soon. This is going to hurt CMH’s new car sales as buyers are under financial pressure and second-hand cars are cheap. The spike in the supply of second-hand cars will cap prices of new vehicles.

And if people are working from home, how big is the need for a new (or even second-hand) car? Overall, the vehicle sales industry is heading for a tough couple of years before prices and consumer confidence start to return. @finweek

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Overall, the vehicle sales industry is heading for a tough couple of years before prices and consumer confidence start to return.

REDEFINE PROPERTIES Redefine Properties’ Rosebank Towers in Johannesburg.

Paying off debt Redefine has announced asset disposals of some R7.7bn that will be used to pay down debt. This will help its loan-tovalue (LTV) metric that is used for debt covenants, reducing it to 40.6% from 44.4% if calculated according to its mid-year February results. The problem is of course the valuation side of the LTV equation, and property values will most definitely be under pressure with a potential drop of 10% to 20%. This will potentially put its LTV back at around 50% and at risk of breaching its debt covenants. However, we are seeing lenders waive these covenants. Redefine sold its stakes in UK-based RDI Reit and its Australian student accommodation portfolio.

The group is now a much more focused South African property business, with some direct exposure to Poland through a joint venture and the listed EPP. The latter, I would think, is unlikely to be for sale as the price has collapsed and Redefine owns 45.44% of it. This means that any sale would trigger an offer to minorities, unless the buyer requested a waiver of such. ■ editorial@finweek.co.za * The writer owns shares in Stor-Age and Crookes Brothers.

finweek 16 July 2020

23

marketplace investment

By Schalk Louw

SAVING

Building an emergency fund

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Establishing an emergency fund and contributing to it should be seen as a goal independent of your other savings. ne of the most fascinating animals I have come across in my life is the northern short-tailed shrew. It must be one of the cutest little animals to walk the planet. It’s not its looks that make it so fascinating, but rather its “saving habits”, or more specifically, its “emergency fund”.

Its primary food source is insect larvae, but what I didn’t know, is that its saliva contains a type of venom that paralyses its prey. This venom makes the prey comatose, after which it drags it to its nest to feed on later. Because the shrew doesn’t know if its current circumstances will continue to guarantee the availability of food in the near future, it can keep the sedated prey alive for days, and even weeks, if required. If the prey wakes up before the shrew is ready to eat it, it simply bites it again to put it back to sleep.

As human beings, we are facing the same uncertainty, and I would like to emphasise the word uncertainty, as Covid-19 is the perfect example of the type of uncertainty I am referring to. While many people have lost their jobs, there are also countless others who are still employed, but due to current circumstances, they are either only earning a fraction of their usual salary, or no salary at all.

Yes, emergency measures have been put in place in the form of the UIF’s Temporary Employer-Employee Relief Scheme during Covid-19, and in the form of standard UIF outside the scope of Covid-19, but the chances of these individuals actually earning their full usual salary – even with such measures in place – are fairly slim.

Unlike the shrew’s method of preservation, luckily, we don’t have to make use of venom to protect ourselves against uncertainty. The primary purpose of an emergency fund is to cover your expenses for a period of at least six months in case of your retrenchment, dismissal, or any other situation that can prevent you from earning an income.

Photo: Shutterstock

How are these funds invested?

finweek 16 July 2020

How do I get started?

Not unlike the shrew’s prey, an emergency fund is something that needs to stay “alive”. It must be monitored and revised on a regular basis to ensure that it keeps up with your circumstances and stays that way.

Probably the first and most important step is to compile a comprehensive budget outlining your monthly income and expenses. This will give you an indication of your spending habits and will help you to cut back on unnecessary spending. Once you can see your expenses on paper, you will be able to calculate how much you will need for your emergency fund.

Also consider price increases. If you are starting with this process relatively late in the year, consider that medical aid contributions and electricity costs, for example, increase annually, and that your municipal accounts may vary from month to month, depending on factors such as water consumption and electricity use. Not unlike a comprehensive financial plan, your “paralysed prey”, or emergency fund, must be monitored and adjusted to compensate for any unexpected shortages that may occur in the future.

The next step would be to determine how you will be funding your emergency fund. If you already have the capital available, the process is relatively simple in that you invest it in the product you have chosen.

If you don’t have the capital readily available, you will have to work this into your budget through regular contributions. Do not underestimate the importance of an emergency fund. This fund shouldn’t be an investment into which you simply dump whatever’s left of your income at the end of the month. Rather set up a debit order or a regular withdrawal from your bank account if you can, so that a fixed amount can be allocated to your emergency fund every month. Of course you can also transfer any surplus you might have at the end of the month to your emergency fund to get to your initial target quicker, but only if such contributions are made in addition to your fixed monthly contributions, and are not the primary source of funding for your emergency fund.

It is extremely important that you understand that an emergency fund forms part of a comprehensive financial plan. It is an investment goal in its own right and shouldn’t be confused or combined with any other investment saving goals, such as saving for an overseas holiday, retirement or a new car. If you feel overwhelmed, however, or cannot see any room for saving towards an emergency fund in your current budget, it is always advisable to consult a professional who can assess your financial situation holistically to assist you. ■ editorial@finweek.co.za

The primary purpose of an emergency fund is to cover your expenses for a period of at least six months in case of your retrenchment.

Cash related to an emergency fund is usually placed in a savings account, or in a money market-linked account at a bank. It is imperative that these funds are protected against market volatility, and they should (preferably) be available at short notice, which makes the abovementioned products ideal for this purpose.

Growth is earned in the form of interest and your capital is protected against market volatility. It is important to note that interest rates between different banks and between different products differ.

While a fixed deposit account or a notice deposit account may offer you a higher interest rate, these products may not necessarily be the best vehicle to use for your emergency fund. The funds won’t be accessible on short notice without paying additional penalties for the early release of such funds before its maturity date, which in turn may have a negative 24

impact on the growth earned. Be sure to compare the same type of product from various banks or investment companies.

Schalk Louw is a portfolio manager at PSG Wealth.

www.fin24.com/finweek

marketplace invest DIY

By Simon Brown

XXXXXXXXXXXXXXXX INVESTMENT FUNDS

New ETF tracking Chinese stocks launches in SA

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While the increased choice of global exchange-traded funds on the JSE is welcomed, Simon Brown does warn against concentration risk that comes with the new Satrix ETF tracking the MSCI China Index.

where the price may surge. The ETF will just atrix is launching a new exchangetrade at its underlying fair value. traded fund (ETF) this month that This is a great addition to the local ETF will track Chinese stocks. This is space, but should one buy it? a first for the JSE; there was an China is the world’s second-largest exchange-traded note (ETN) from Deutsche economy, representing about 15% of world Bank which was delisted in January. This new GDP, yet in most global ETFs it constitutes ETF will be eligible to be included in your taxless than 3% of their holdings. Even if we free investment portfolio and, of course, in a look through the earnings of US-listed stocks discretionary investment portfolio. doing business in China (for instance Apple), This new ETF is a feeder fund, which we’re still not likely to have as much as even means Satrix will be buying the iShares MSCI 10% exposure to China.

China UCITS ETF issued by BlackRock. This For SA investors, this exposure is, however, does help the process and reduce costs, but very much skewed due to the Tencent stake the total expense ratio will still be 0.63%. of Naspers and Prosus. These two companies This is higher than we’re used to with most dominate local ETFs and even general-market ETFs in South most of the Regulation 28 and Africa. But emerging market In most global ETFs China discretionary funds will have a fair ETFs are generally more constitites less than holding in these stocks and, by expensive due to smaller fund extension, in China. sizes and the challenges that Furthermore, there are concerns come with buying emergingabout the regulatory environment market assets and currencies. of their holdings. in China, with US stock exchanges The top holdings in the now considering delisting US-listed ETF will be Alibaba and Chinese stocks due to an alleged Tencent, at 17.59% and 14.8% lack of regulatory oversight. respectively, with China Construction and I also worry about concentration risk into Ping An Insurance the next two holdings at a single economy, even if it is the world’s 3.69% and 2.69%. So, there is concentration risk in the top holdings and, of course, Tencent second-largest and one of the fastestgrowing. As such, a better entry point into is well-known to South Africans who are likely China may be the Satrix MSCI Emerging already exposed to this company through Markets ETF that listed back in August Naspers* or Prosus.

2017. This ETF currently has 39% exposure It is also worth noting that exposure to to China and offers great exposure to other technological stocks is low at under 5%. The emerging markets, with Taiwan and South largest sectors are consumer discretionary at Korea both around 12%, India at 8% and almost 29%, and communication services at Brazil 5%. In other words, it is a much more just over 22%. geographically diverse ETF covering several of An important point is that this ETF the world’s fastest-growing economies, rather is a total return one and, as such, will than a single country. automatically reinvest dividends back into Personally, while I like the China growth the companies rather than paying them as story, I do worry about the regulatory risk cash dividends. and would prefer the more diverse emerging The Satrix MSCI China ETF’s initial public market ETF. But make no mistake, I love that offering (IPO) will conclude on 16 July and it Satrix is bringing more choice to our market – plans to list on the JSE on 22 July. The only this is always a win for investors. ■ real benefit of getting in on the IPO is that you don’t pay any brokerage. editorial@finweek.co.za Also remember that because it is an ETF, * finweek is a publication of Media24, a subsidiary of there won’t be any listing “pop” on the day Naspers.

Photo: Shutterstock

3%

@finweek

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I do worry about the regulatory risk and would prefer the more diverse emerging market ETF.

finweek 16 July 2020

25

marketplace markets

By Maarten Mittner

GLOBAL ECONOMY

The surge and pause explained

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Maarten Mittner sheds some light on why investors should be cautious of climbing in now that markets are at improved valuations. ecent global market movements have shown that remarkable recovery was in the tech sector, where Amazon the most dangerous moment is not when shares added $400bn to its market value since the beginning of hit rock bottom. It is when shares recover, and the the year. Microsoft and Apple both grew more than $200bn momentum cannot be sustained. before stabilising.

Global markets started to climb at the end of May following The irony is that investors often shun markets when they the rout earlier in the year and continued their remarkable are at their lowest. Usually at these times investors should pile recovery into June. At the end of the month markets started in, preferably through index or passive funds. Or, if already in to reflect daily record losses again as the fears of a second the market, increase their exposure. After 2009, when Anglo wave of the pandemic later in the year overrode optimistic American fell to R50, and Old Mutual to only R5, investors views of a V-shaped economic recovery. However, could have made a killing, increasing their returns more markets soon stabilised at negative single-digit than fivefold in the subsequent years. levels for the year so far, still a remarkable recovery Equity markets often behave like their fiscal compared with the March rout. counterparts, rising in uncertain times and Surprise was expressed at the initial swift remaining subdued in relatively good times. A recovery, given the generally dire economic data, countercyclical fiscal stance entails that spending with the job numbers in the US a remarkable is kept at accepted levels despite a negative exception. The expected lower economic growth economic environment. As what happened in SA did not justify the market’s optimism, some after 2009. When the economy improves, fiscal pundits said. consolidation should happen in that spending is Although markets at times appear to be curtailed when the times are good. Something that irrational, they act quite rationally most of the time. the government got spectacularly wrong in the Zuma The reason being that markets look ahead, and not at years, and for which every South African is still paying the what had happened or what the present conditions indicate. price today.

The renewed introduction of stimulus measures by central When a market, or a currency, reaches decade-low levels, banks and governments, as well as the relaxation of stringent pundits often predict further deterioration to occur. When lockdown measures, all appeared to be rational reasons to the FTSE/JSE All Share Index approached 40 000 points in support the recovery.

March, a view expressed was that the index could soon tumble Quite often, when a company reports good numbers, the to 30 000. And when the rand crossed R19 for a dollar, it was share price falls in response. That means that the good news predicted to further fall to R21. That did not happen. In fact, was already priced in on a forward-looking basis, and the the lower levels pointed to a recovery potential, which in fact prospects may look dimmer. But it is when shares are did occur soon thereafter.

When the rand crossed often available at rock-bottom prices that real buying What the predictions amply indicate, is the generally value comes to the fore. negative mood that accompanies any market tumble.

Once again, the market tumble following the spread Confidence simply evaporates into thin air. The “dead cat of the coronavirus pandemic remained true to trends bounce” syndrome raises its ugly head, with reference to of the past. Lower valuations offer compelling reasons Wall Street’s fall in October 1929. Then there was a small for a dollar, it was predicted to buy, no matter how dire the circumstances. Locally, it uptick on the charts before the radical downward spiral to further fall to became irresistible to buy Redefine at R1.40 and Capitec resumed. at R539. Or MTN at R26 and Sasol at R30. All are assetWhat should be acknowledged is that market and income-rich companies, affected negatively by the recoveries often present greater risks than when markets general market malaise. are at rock-bottom levels. That is because the recovery That did not happen.

The bond market is another good example. When SA now needs to stabilise and be sustained. Already there are finally exited the World Government Bond Index (WGBI) questions if central banks have enough ammunition to due to its newly-founded junk status, the predicted continue with the stimulus measures. How will ancillary outflows of billions of rand did not materialise. Most of the fiscal steps be successful given the fact that most countries outflows had already occurred in the previous months when already have high debt levels and budgetary and trade the market anticipated the exit. The real event was almost a deficits? Combined with an expected lower tax income. non-event, with the local ten-year bond at then yields of 13% When markets are at improved valuations, investors usually offering a tempting buying opportunity. climb in. When caution should be more appropriate. The lesson The S&P 500 fell 30% in March, presenting buying is to curtail the exuberance, for now. ■ opportunities almost immediately. Who would not want to editorial@finweek.co.za buy treasured US assets at a third of their value? The most Maarten Mittner is a freelance financial journalist and a markets expert.

Photo: Shutterstock

R19 R21.

26

finweek 16 July 2020

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marketplace technical study

By Lucas de Lange

JSE

Chinese infrastructure upturn

w

Serious investment in projects supports commodity prices. hile the US and the EU are pumping money into their economies on a large scale as part of an attempt to get growth going again, something quite different is playing out in China, which is good news for commodity countries such as South Africa. There are indications that China is making extensive investments in infrastructure projects to stimulate growth and create jobs.

One of the most important indicators being watched by outsiders is the product levels of China’s enormous steel industry.

Last year the industry produced just over half of the total world output. At the moment, Chinese factories are producing at full capacity, which always means that the demand is strong for infrastructural projects, varying from railway lines and ships to new cities being built. One of the most important is the Xiong’an project in the Hebei province. This new city will be three times the size of New York and will hopefully ease the pressure on Beijing, which already has a population of some 20m and is struggling with its infrastructure, including a water shortage.

According to the World Bank, there are 570m people living in rural China, of whom millions must still be assimilated into the modern economy.

This means that a healthy demand for commodities such as, for example, Kumba’s high-grade iron ore for which it’s currently receiving excellent prices, will continue for many years to come. It is also notable that the price of copper, an important indicator in commodity trading, is firm. Since a low in March, it has risen by about 30%. China is the world’s biggest importer of commodities.

On the JSE, there has been some improvement as 30% of the 100 largest companies by market cap, as measured by the percentage difference between the share price and their 200-day exponential moving averages (EMAs), lie above their EMAs. However, these are still mostly shares that earn their incomes offshore, with gold shares in the forefront, strongly supported by Naspers* and Prosus, and this gives the FTSE/JSE All Share @finweek

finweek

Index the appearance of a bull market.

Most of the shares that depend on the SA economy are battling with weaker profits or are recording losses. Dividend distributions are either passed or retained, which is an indication of the negative climate so prevalent in many boardrooms.

In fact, reports emanating from top companies such as Barloworld are increasingly characterised by what could be described as despondency.

The private sector cannot fathom why government can’t make the required policy adjustments, which are also spelled out by some international bodies such as the IMF and the rating agencies. It is also noteworthy that there is very little confidence that government will be able to get infrastructure development going properly to stimulate the economy and create jobs. Business leaders are making the point that there is a lot of talking going on and promises being made, but there’s still a lack of implementation.

It is quite worrying that savings are currently being impaired. Anton Pillay, Coronation CEO, predicts it could take up to two years before the outflow of money at institutions such as his comes to a halt.

In the six months to March, Coronation had an outflow of about R22bn. Other asset managers have had a similar experience, owing to the dire financial straits that many clients find themselves in to try and keep their heads above water.

However, what could be regarded as positive, is low interest rates, which tend to stimulate property investments, among others. It also brings some relief to listed property groups that are heavily indebted and experiencing difficulties in collecting rentals. Their dividends suffer as a result, and this makes it difficult for, among others, pension funds that depend on the substantial cash flow which usually comes from the sector.

Among shares that have broken through, it is virtually only Bidcorp that looks interesting. ■ editorial@finweek.co.za Lucas de Lange is a former editor of finweek and an author of two books on investment. * finweek is a publication of Media24, subsidiary of Naspers.

finweekmagazine

WEAKEST SHARES*

WEAKEST SHARES*

COMPANY

% BELOW 200-DAY EMA

COMPANY

% BELOW 200-DAY EMA

HAMMERSON INVESTEC LTD MASSMART INVESTEC PLC TFG GLOBE TRADE CENTRE SA REUNERT NEDBANK VUKILE ABSA GROUP BARLOWORLD REDEFINE SASOL FIRSTRAND CAPITEC STANDARD BANK LIBERTY HOLDINGS DIS-CHEM PEPKOR HOLDINGS DISTELL EPP TRUWORTHS OLD MUTUAL SAPPI CAPCO IMPERIAL LIFE HEALTHCARE NETCARE MTN GROUP GROWTHPOINT VIVO BIDVEST PSG FORTRESS A RCL INVESTEC PROPERTY AB-INBEV MAS REAL ESTATE PICK N PAY WOOLWORTHS AECI SHOPRITE ASTRAL NEPI ROCKCASTLE PSG KONSULT RESILIENT SANLAM ROYAL BAFOKENG PLATINUM GLENCORE ITALTILE MEDICLINIC MR PRICE AVI CLICKS

-47.6 -42.3 -42.2 -41.8 -40.8

ALTRON A SPAR DISCOVERY SOUTH32 MOMENTUM METROP ADCOCK INGRAM TELKOM LIBSTAR SANTAM TIGER BRANDS TRANSACTION CAPITAL

-4.9 -3.8 -3.8 -3.8 -3.4 -3.3 -2.9 -2.9 -2.3 -1.7 -0.9

-35.1 -34.4 -33.6 -29 -28.4 -27.5 -27.1 -27 -24.2 -23.5 -22.9 -22.5 -22.1 -22 -21.5 -21.5 -21.3 -19.2 -18.9 -18.9 -18.7 -16.7 -16.3 -16.1 -16 -15.8 -15.4 -14.8 -14.5 -13.6 -13.1 -13 -12.9 -12.9 -12.6 -11.7 -11.6 -11.5 -10 -9.2 -9.2 -9 -8.9 -8 -8 -7.8 -7.4 -6.4 -6

STRONGEST SHARES* COMPANY

DRDGOLD HARMONY GOLD FIELDS PAN AFRICAN RESOURCES ANGLOGOLD ASHANTI PROSUS ASPEN NORTHAM PLATINUM AMPLATS NASPERS OCEANA KUMBA IRON ORE SIRIUS AFRICAN RAINBOW MINERALS INVESTEC AUSTRALIA PROP BHP ANGLO AMERICAN QUILTER REINET RMI HOLDINGS MULTICHOICE GROUP IMPLATS BAT JSE RICHEMONT VODACOM ZAMBEZI PLATINUM PREF EXXARO BIDCORP MONDI CORONATION

% ABOVE 200-DAY EMA

106.6 53.1 46.6 46.3 38.7 26.6 19.1 18.8 17.4 15.9 15.3 14.9 12.4 11.3 9.1 8.1 7.7 7.1 7 6 5.3 5.0 4.4 4.1 3.7 3.7 3.2 2.8 1.9 1.8 0.4

BREAKING THROUGH* COMPANY

ZAMBEZI PLATINUM PREF EXXARO BIDCORP CORONATION

% ABOVE 200-DAY EMA

3.2 2.8 1.9 0.4

*Based on the 100 largest market caps.

finweek 16 July 2020

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marketplace share view

By Peet Serfontein

OFFSHORE XXXXXXXXXXXXXXXX

Drones and holograms could support Walmart

i

The world’s largest retailer could benefit from online shopping innovations to beat the coronavirus pandemic. am amazed by the vast number of people queuing outside retailers to do their shopping. And with lockdown hopefully nearing its end, I find myself wondering whether the potential second wave of Covid-19 could again trigger panic buying. The fear that any essential items might possibly become unavailable (again) leaves most people extremely anxious.

However, I have concluded that people’s buying patterns have quite possibly changed irrevocably, and they are going to depend far more on shopping online. Retailers will of course ensure they employ alternative methods so that their customers will be able to buy essential items – we’ve already seen that items can be delivered within an hour of being ordered. This is truly convenient and allows you to adhere to social distancing.

I’ve also noticed that empty shelves are restocked soon after hectic shopping sprees have taken place. So, for the time being, let’s push the scarcity of items into the background. What could become a reality is that – as predicted by the psychology of human behaviour – the longer the lockdown lasts, the more difficult it will be for people to heed the lockdown rules. What I mean by this is that people will keep buying, come hell or high water. The question is simply how retailers are going to meet this demand.

This is where Walmart caught my eye.

It’s one of the companies that can benefit from drone deliveries and holographic sales.

Holographic sales are used to create a virtual product experience. If this sounds like strange technological jargon, you are partially correct. Every time that a customer views a pair of shoes in 3D online, or has the ability to determine whether a cucumber is fresh, they engage in a virtual product experience.

Walmart is listed on the New York Stock Exchange, with share code WMT. The share price of about $119 makes it a bit expensive for our local investors.

The retailer and bulk trader offers a variety of goods and services. Its divisions are Walmart US, Walmart International and Sam’s Club. The Walmart International division manages supercentres, 28

finweek 16 July 2020

WALMART PRICE CHART

52-week range:

$102 - $133.38

Price/earnings ratio:

24.04

1-year total return:

12.4%

Market capitalisation: Earnings per share: Dividend yield: Average volume over 30 days:

– 140.0000 – 132.0000 – 124.0000 –- 119.0600 2d 9h

$336.69bn

– 111.0000 – 106.0000 – 102.0000 – 98.0000 – 94.0000 – 90.0000 – 86.0000 – 82.0000 – 78.5000 – 75.5000

$4.95 1.82% 8 306 503 SOURCE: IRESS

2018

May

Sep

2019

May

Sep

2020

May

Sep

SOURCE: Peet Serfontein, published on TradingView.com

supermarkets, hypermarkets, warehouse clubs and “cash & carry” outside of the US.

wave of Covid-19 and the consequences of social distancing could accelerate these trends.

The recent sideways trajectory of the What makes Walmart attractive? on-balance volume (OBV) indicates that A typical rising channel pattern that’s starting capital is retained in the share. The OBV is to develop (see the black parallel trendlines used in technical analysis to measure buying on the graph) makes the share an attractive and selling pressure. If the volume on rising investment option. This pattern consists of a days is higher than the volume on falling days, price action that constantly forms higher lows then the OBV will increase. and higher highs. This reflects The upward potential of the The basic theory behind the an underlying bull trend that share is currently OBV indicator is that volume is starting to develop, with the is the leading indicator of the prospect of further increases in price. the share price.

I will classify the share A smaller falling wedge as speculative, particularly pattern is also starting to after which I will because the falling wedge develop within the larger rising reduce exposure. pattern has not materialised. channel.

The graph shows the Such a pattern usually medium-term (weekly) graph breaks out upwards. The goal, of Walmart’s share price – please note that it’s or expected price, is the width of this pattern, a logarithmic scale. which is of course also close to the top of the The upward potential of the share is rising channel. currently $135, after which I will reduce The share’s trading volume increases exposure. This price correlates with the uniformly along with the share price. This resistance level of the rising channel and is the increasing trading volume, which supports objective of the falling wedge pattern. the price movement, offers investors peace Should the price break through below $115 of mind. or $110, you can expect the share to fall even further. Regard this level as a stop-loss to But should you buy? protect capital. ■ The prospect of possible drone and holographic shopping is what’s making this editorial@finweek.co.za share most interesting. A potential second Peet Serfontein is an independent market analyst.

$135

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cover story Naspers

MORE THAN JUST A ONETRICK PONY? In the wake of the release of Naspers’s annual results, BRENDAN PEACOCK analyses the performance and outlook for the JSE giant and the verticals it is invested in. Among others, a consolidation in the global food-delivery space may be a sweet spot for Naspers, but investors should also keep tabs on the risks to its largest investment, Tencent.

By Brendan Peacock

@finweek

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finweek 16 July 2020

29

cover story Naspers

f

or more than a decade, Naspers* has formed the bedrock of the retirement funds of most South Africans. Through sovereign rating downgrades, currency weakness and corporate scandals that have decimated the domestic economy and destroyed wealth, Naspers has dragged the JSE away from disastrous territory by sheer dint of its enormity in the FTSE/JSE Top 40 Index and Tencent’s ongoing growth.

As investors digest the latest set of annual results from Naspers, it is worth taking stock of how the company is positioned as the world continues to grapple with the economic fallout of an unexpected and unprecedented health pandemic.

In February of 2019, Naspers listed its satellite entertainment division, MultiChoice, and in September spun off a new entity called Prosus onto the Amsterdam Stock Exchange, designed to house all the company’s internetbased businesses, of which the largest and most notable is its 31% stake in Chinese internet powerhouse Tencent.

Chief among the aims of the spinoffs was management’s desire to accede to shareholder demands for value to be unlocked by reducing Naspers’s discount to net asset value (NAV).

Photos: Supplied

The discount

Since then-CEO Koos Bekker’s prescient and highly successful speculative investment into Tencent two decades ago, the Chinese company’s rapid growth soon dwarfed the value of the ‘rump’ of Naspers, which was effectively valued at less than nothing by the market.

Shareholders clamoured for management to dismantle the rump to deal with the discount. Prosus was a substantial step in that direction, but the Naspers discount remained – and Prosus had developed its own discount to NAV. Currently, Naspers’s discount sits around 40% and that of Prosus is approaching 30%.

Is the discount an issue if the share price continues to perform? That depends entirely on where you happen to live, says Nadim Mohamed, investment analyst at First Avenue Investment Management. “It is clear that the future

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finweek 16 July 2020

of the global economy is being driven by big tech companies like Apple, Google and Facebook, which now make up nearly half the S&P 500. If you want to invest in the future of digital transformation and the future economy, you have no choice in SA but to invest in Naspers and Prosus.”

Likewise, he says, local retirement funds, which are mandated to invest most of their funds domestically, have no choice. “That’s why Naspers has done so much better than other stocks. However, from a non-SA perspective, there are some risks intrinsic to the future of Tencent that become more of a concern.

Also, you’d have done better holding Tencent directly, and you wouldn’t have to sacrifice the dividends.”

Nadim Mohamed Investment analyst at First Avenue Investment Management

Small local pool

Mohamed says, as a portfolio, the domestic investment universe is much smaller than a decade ago, with Covid-19 hovering above those companies that have so far kept above water but are increasingly unable to pass on costs to struggling consumers.

“With little depth to invest, it’s the same as an example like Richemont – there are better players out there globally, but domestic investors have access to only Richemont in its class. It is a big debate in the pension fund industry – Naspers is by far the largest constituent of the All Share Index, for example, but those funds that have tried to limit their concentration risk by reducing their Naspers weighting have struggled.

Naspers is still expected to do better than what most local companies could deliver in the next decade.”

Chris Wood, portfolio manager at Prudential Investment Managers, says Prudential’s house view was a preference for Naspers to list offshore, rather than to end up with the current complex structure and creation of Prosus. “This is in effect a clone company that now holds the majority of assets previously held by Naspers. Instead, we’ve seen that Naspers is still trading at a discount to its 72.5% stake in Prosus, and Prosus is trading at a discount to its underlying holdings. This means that the combined

“If you want to invest in the future of digital transformation and the future economy, you have no choice in SA but to invest in Naspers and Prosus.”

Chris Wood Portfolio manager at Prudential Investment Managers

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cover story Naspers

discount at which Naspers trades relative to the underlying holdings is now wider than it was when Prosus first started trading in Amsterdam.”

Wood says the result is an effective failure to unlock value for shareholders. “It is instead the continued price appreciation of Tencent that has seen the share prices of both Naspers and Prosus increase, despite the discount to NAV widening.”

Chinese risk

On the issue of risks for Tencent and therefore for Naspers and Prosus, Mohamed says Chinese government regulations are in constant flux and have increased red tape around the release of new internet games into the market. “In the third quarter of last year, Tencent’s results showed that the company was reliant on a few games that people were tiring of. It was actually a fortuitous boost for Tencent that Covid-19 and lockdown saw mobile gaming demand rise by 40%. Where that revenue will stabilise is difficult to guess.”

He says Tencent’s push into other areas of China’s highly competitive

It was actually a fortuitous boost for Tencent that Covid-19 and lockdown saw mobile gaming demand rise by

40%.

Byron Lotter Director at Vestact Asset Management

consumer economy to make up for gaming revenue that is reaching a plateau comes at the cost of much smaller margins. “There is no room to grow at the same pace. Tencent has to make $3 from other services to cover the profit it would achieve from $1 of gaming.

“We won’t see Tencent sustaining returns of 40% from the non-consumer side of the internet in years to come. Also, the entry into the market of ByteDance, which owns TikTok globally, is in my view the most exciting tech company in the world right now. It has managed to become number one in advertising in China and is gaining traction in games, competing against the likes of Alibaba, Tencent and Baidu,” Mohamed says.

Byron Lotter, director at Vestact Asset Management, agrees that Tencent can be a confusing proposition for investors who don’t see the company in action.

“We have little idea of how incredible their assets are, which now extend to property rentals, food ordering, gaming, advertising, communications and more. Tencent just has to keep following what other big tech companies are doing, such as investing in cloud services, in a market where they

Naspers and Prosus – a buy? And at what price?

“In my opinion you can’t afford not to hold these companies. Their long-term prospects are so much better than most other options available to investors by virtue of having exposure to the digital economy,” says Nadim Mohamed, investment analyst at First Avenue Investment Management.

“For the next few years, the market will be basing its valuations on what Tencent does, but I don’t think Tencent will rush from HK$450 to HK$550. Tencent’s price is very much at the high end of my valuation. However, if it wasn’t clear last year, it will be clear this year – the next companies driving global growth are the tech giants and especially as a rand hedge, exposure to the digital economy in any portfolio is a must. It should be the core

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shareholding of anyone with a long-term investment horizon. Not having Naspers or Prosus as a domestic investor is a big risk in this market,” he says.

Byron Lotter, director at Vestact Asset Management, says Naspers is trading at a bigger discount. “But that’s because of the size of our domestic market. I would go for Prosus because the European listing will give the share wings to reach its market cap potential. And on the JSE it will track the euro price. At the risk of sounding pessimistic about the domestic economy and political risk, these are the first two shares I would buy, and I’m not one for price targets – I would be buying more at today’s prices and not selling for ten years.”

Chris Wood, portfolio manager at Prudential Investment Managers, also

sees significant value in Naspers. “We believe the current discount at which it trades to the underlying value of its portfolio of holdings is too wide. As a result, Naspers remains a core holding in our client portfolios and we retain an overweight position in the combined holdings of Naspers and Prosus relative to our benchmark,” he says.

“We prefer the majority of our exposure through Naspers and find it attractive to own a ‘discount on discount’ to the underlying portfolio of assets. Our client portfolios do, however, have exposure to both Naspers and Prosus, with one having the ability to take advantage of the relative discount between the two listed entities that both derive the majority of their value from the same portfolio of assets.”

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cover story Naspers

Naspers 10-year price chart Jul 2010

Jan 2011

Jul 2011

22 Feb 2014: Naspers announces that long-time CEO Koos Bekker will step down from his position and be succeeded by current CEO Bob van Dijk. Bekker took a year-long sabbatical before returning to the board of Naspers.

Jan 2012

already have immediate scale and a huge target market. It doesn’t have to reinvent the wheel. Tencent also has stakes in other businesses, including Epic Games.

“I think it is a fantastic business. If it were listed on the JSE, I would be buying Tencent. And, I think if Naspers listed in Hong Kong, you might find investors would give it a higher value because they understand Tencent.”

Wood says Tencent’s utilisation of its market-leading position as a Chinese consumer internet platform to expand into other areas of business will continue to be the driver of Naspers’s performance, with underlying earnings compounding at more than 20%.

Photo: Gallo/Getty Images

Leadership

The problem for Naspers is making sure the rest of the company’s underlying portfolio starts to deliver profits and that the discount to NAV narrows.

“Naspers is just in the right spot.

Under Bob van Dijk the company has taken the scalpel to the multitude of small businesses it used to own and has become very clear on the verticals

32

finweek 16 July 2020

Jul 2012

Jan 2013

Jul 2013

it is invested in: online classifieds, food delivery and tech-based ventures. In terms of capital allocation, the nature of internet businesses is that to grow and scale works differently from traditional industrial models. Marketing and development are expenses, so the businesses show chronic losses. To date, Naspers has spent around $12bn in trying to get underlying businesses to dominant positions in their markets so that they can monetise,” says Mohamed.

“They’ve also realised that vertical classifieds, which target specific markets rather than being generalised, monetise better. It’s moving in the right direction, but not fast enough for many shareholders. What I like about Van Dijk’s leadership is that he’s been willing to consolidate with other operators in order to stop the cash-bleeding stage of competing through discounts. That then allows the businesses to extract profit at healthy margins,” he adds.

Illustrating the point, the company made a move for WeBuyCars in SA, though it was blocked by the Competition Commission earlier this year because of

Jan 2014

Jul 2014

Jan 2015

Bob van Dijk CEO of Naspers and Prosus

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Jul 2015

cover story Naspers 4 Mar 2018: Naspers spins off pay-TV business MultiChoice Group and lists it on the JSE.

Rand

11 Apr 2017: Naspers invests R960m in online retailer Takealot.com.

4 000

3 000

2 000

26 Sep 2017: Naspers unbundles its printing business, Novus, to shareholders.

11 Sep 2019: Naspers spins off Prosus and lists it on the Amsterdam Stock Exchange.

1 000

0 Jan 2016

Jul 2016

Jan 2017

52-week range: Price/earnings ratio: 1-year total return: Market capitalisation: Earnings per share: Dividend yield: Average volume over 30 days:

Jul 2017

Jan 2018

Jul 2018

Jan 2019

R1843.80 - R3278.00 37.08 34.68% R1.39tr R5.05 0.18% 1 452 214 SOURCE: IRESS

monopoly concerns. Naspers’s SA assets, which include Takealot and Mr D, remain less than 1% of the group.

Prosus is reportedly bidding for the eBay classifieds business, worth an estimated $8bn to $10bn, which would hand the company one of the most recognised online marketplace brands in the world. “It would definitely cement Naspers’s status as the world’s numberone online classifieds player, and though there is actually little overlap with its existing assets, there could be some potential for sharing of tech platforms to optimise its offering,” says Mohamed.

“Picking up eBay would be a big deal. They’ve had a few recent disappointments in the shape of failed

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“Picking up eBay would be a big deal. They’ve had a few recent disappointments in the shape of failed acquisitions, but eBay is a pioneer name in online classifieds.”

Jul 2019

Jul 2020

acquisitions, but eBay is a pioneer name in online classifieds and would constitute a great entry into some new markets. It’s too late to start from scratch because every country already has entrenched players, so the route of growth is acquisition, and they’re more likely to be profitable at scale. I think they could make a lot of money with eBay and it would be a good fit,” adds Lotter.

By contrast, Wood feels it is not clear what benefits would arise from the eBay acquisition, precisely because of the lack of overlap with the other online classifieds operations within Prosus. “We would prefer to see Prosus continue to consolidate its position within its existing classifieds portfolio by rationalising its businesses further, such as cost-cutting, closing or selling off the loss-making operations and by buying out joint venture partners in strategic territories.”

Unbundling classifieds

As a general rule, Wood says, he would like to see management “continue to focus their efforts on driving profitability of the core internet assets and sell or close those

finweek 16 July 2020

33

cover story Naspers

Photos: Shutterstock

The problem for Naspers is making sure the rest of the company’s underlying portfolio starts to deliver profits and that the discount to NAV narrows.

operations in which the company does not have a competitive advantage”.

“I’d like to see Prosus unbundle the online classifieds business into a separate listing to unlock value. If you look at the kinds of multiples classifieds businesses trade on right now, they tend to be highly cash-generative, which could be a positive for Naspers shareholders. It’s hard to tell whether that is what management is thinking, though,” says Mohamed.

Lotter agrees capital allocation under Van Dijk has been good, even accounting for the shadow of Tencent over all decisions.

“For the record, we’ve been big fans of the business for the last decade, and big companies do attract a lot of attention.

He’s done a good job while the Tencent investment runs itself, and after the sale of another percentage point of Tencent, Naspers has cash to redeploy and no need to worry about how Tencent is doing.

“The online classifieds businesses have mostly rocketed back to almost full operation post-lockdown, and it’s a great space to be in. The company has targeted large economies and it continues to consolidate and pick up assets. And the 2018 Flipkart sale to Walmart in India was very well-timed. Around the world people are embracing food delivery and it will become entrenched like all online retail. Naspers operates in all the key sectors driving the future and there is a lot

going on behind the scenes. People tend to think the company is a one-trick pony, but a lot of what they have done has been incredibly successful,” Lotter says.

Wood agrees the exit from investments like Allegro and Flipkart and consolidating its position through selective merger and acquisition activity represent good progress in streamlining the company’s portfolio and focusing its strategy, but says despite all these moves the market remains impatient in desiring a positive earnings contribution from the ex-Tencent rump.

“An investment into either Naspers or Prosus continues to result in one receiving ‘Tencent minus’ rather than ‘Tencent plus’ in terms of the delivered earnings versus a direct investment in Tencent,” he says.

Food delivery

Food delivery, Mohamed says, is at an even earlier stage of maturity and the market is awash with venture capital trying to be the last service standing – potentially exacerbating the ‘Tencent minus’ situation.

“In the United States the food delivery war has been waged aggressively for years, and it is still not clear when consolidation will happen. When the money eventually dries up and enough players have had their

TENCENT 5-YEAR PRICE CHART

fingers burnt, Naspers is hoping to be one of the lead consolidators.”

Naspers lost in its battle to be the winning bidder for Just Eat in the UK, but Mohamed says the company, which now has around $5bn in cash, will be back.

“I think they could raise another $10bn easily. As shareholders we need to accept that we need to be patient with the Naspers rump, which may go through the investment stage for a while longer.”

Releasing its full-year figures to the end of March 2020 and illustrating the market’s take on the group’s business, Naspers recently recorded group revenue up 17%, group trading profit up 13% and Tencent’s revenues up 16%. Naspers’s Tencent stake is now worth around $186bn.

By segment, e-commerce revenue was up 32%, food delivery revenue grew 99% and revenue from classifieds was up 48%. However, trading losses in e-commerce totalled $964m on the back of continued investments into maintaining market leadership positions and bolstering food delivery and fintech or payment services like PayU. Prosus recorded net profit growth of 6.7% for the year. ■ editorial@finweek.co.za *finweek is a publication of Media24, a subsidiary of Naspers.

HK$312.20 - HK$531.00

52-week range:

HK$

Price/earnings ratio:

500

1-year total return:

400 300

Market capitalisation:

HK$4.93tr

Earnings per share:

HK$10.03 0.23%

Dividend yield: Average volume over 30 days:

200

46.60 43.82%

22 587 970 SOURCE: IRESS

100

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2018

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in depth green capital

Image: Shutterstock

By Jaco Visser

N O G N I K BAN R E W O P N A E L C

able energy build w ne re ’s A S ng ni tio on ac is could become ity from government th ar ut cl B of y. th ck al la a he te ill pi st es is D or r. vestment in this sect in r fo e tit pe ings, writes Jaco Visse th ap r e he th ot e, g on am y, programm nt to ensure policy certai ils fa t en m rn ve go if d subdue

w

hile the government’s plans to restructure the sources of South Africa’s power generation over the next decade are ambitious, lack of funds can constrain any ambition. But is seems as though the appetite for funding renewable energy projects in SA remains intact – even as several risks stwill linger.

The sector, if the government’s policy on energy gets put into action and moves forward, may prove a much-needed light at the end of the local economic tunnel. It may even potentially boost Eskom’s cash

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flow as well. But in order for this to materialise, the caveat remains: National Treasury must continue guaranteeing the power purchase (offtake) agreements signed with independent power producers (IPPs).

The appetite for renewables

Since 2012, funders forked out R192bn to invest in renewable energy, either through debt or equity investments over seven procurement bidding rounds (which included calls for large and small suppliers) finweek 16 July 2020

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in depth green capital

Photos: Gallo/Getty Images I www.aiimafrica.com

“If the procurement process and the underlying projects are well-designed, there should be sufficient long-term capital to fund the projects.”

until late 2016, according to an academic article by University of Cape Town Professor Anton Eberhard in the Journal of Energy in Southern Africa. Figures from the Renewable Energy Independent Producers Procurement Programme (REIPPP) show that financial commitments to these projects topped R209bn.

This investment that took place has seen 6 422MW of renewable energy procured from 92 large-scale IPPs and 99MW from 20 smaller projects, according to the latest quarterly report of the government’s Independent Power Producers Office, released in June. By the end of March, 4 201MW had been connected to the grid, the report states.

The department of mineral resources and energy aims to increase the country’s electricity supply by more than 37 000MW (excluding the extension of the Koeberg nuclear power station’s 2 000MW shelf life) between 2019 and 2030, according to the Integrated Resource Plan (IRP) released in October last year. This will necessitate billions more in funding.

“We have not witnessed a reduction of the appetite to fund renewable energy projects,” Vuyo Ntoi, investment director at African Infrastructure Investment Managers (AIIM), tells finweek. “If the procurement process and the underlying projects are well-designed, there should be sufficient long-term capital to fund the projects.”

And this “appetite” will be tested over the next decade. The IRP calls for an increase of 6 484MW of additional photovoltaic power to the grid from the 2018 supply level of 1 474MW. Of this, 814MW has already been committed or contracted. The contribution of concentrated solar energy would have doubled from 300MW in 2018 to 600MW by the end of last year, the plan shows. Wind power will see the largest megawatt jump from 1 980MW in 2018 to 11 442MW by 2030, the plan shows. Some 1 362MW of the planned 9 462MW increase has already been committed or contracted, according to the IRP. Interestingly, the plan makes provision for 2 500MW from the Quixotic Inga hydro scheme in the Democratic Republic of Congo, but only in the final year of the IRP’s long-term plan: 2030.

If all goes according to the IRP, SA’s installed capacity will increase to 78 344MW by the end of 2030 from a baseline of 54 177MW in 2018. The contribution of coal-fired power plants will decrease

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Gwede Mantashe Minister of mineral resources and energy

Vuyo Ntoi Investment director at African Infrastructure Investment Managers (AIIM)

from 39 126MW in 2018 to 33 847MW as older power stations reach their end-of-life.

“The size of renewable energy generation will almost triple over the next 10 to 12 years,” Theuns Ehlers, Absa Investment Banking’s head of resource and project finance, tells finweek.

But procurement requires policy certainty.

Reassuringly, government’s flip-flopping on deciding when the next independent power projects will be allocated hasn’t scared off those committed to seeing the rollout of renewable energy in SA speed up.

“We’re not seeing our clients pull out of the country,” says Ehlers. “They’re rather positioning themselves for the government’s emergency power procurement.”

Last year, as the lights went out in SA due to Eskom’s inability to meet businesses’ and consumers’ electricity demand, mineral resources and energy minister Gwede Mantashe used his emergency powers to call on independent suppliers to furnish proposals to supply the grid with power.

No limits as to the source of power generation were set. This induced interest from those players that are already operating in the renewable sphere.

“There does seem an urgency to get the emergency power procurement programme going with a request for proposals expected during July,” says Ehlers.

But not all participants in the ramp-up of SA’s renewable energy build agree, and in the absence of policy certainty, the country stands to lose some dearly-acquired expertise and experience.

“The success of any government-sponsored programme is dependent on certainty and line of sight on the future,” says Dario Musso, co-head of RMB’s infrastructure team, and Daniel Zinman, infrastructure finance transactor at the bank. “A clear policy and programme, with timelines that are delivered upon, will be critical to ensuring the success of REIPPP and any other renewable energy programmes.”

The government’s energy policy decisions have led to a great deal of uncertainty for participants in the renewable energy value chain, says AIIM’s Ntoi. “We have seen various assemblers and manufacturers in the sector shut down their operations in SA due to uncertainty,” he says.

In addition, some project owners and sponsors

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advertorial Development Bank of Southern Africa

Development Bank of Southern Africa Climate Finance Facility The Development Bank of Southern Africa’s Climate Finance Facility is a lending facility intended to increase climate-related investment in Southern Africa by addressing market constraints and playing a catalytic role with a blended finance approach.

Jeffrey’s Bay wind farm

i

n August 2019, the Development Bank of significant milestone that represents DBSA’s Southern Africa (DBSA) and the Green concerted effort to address climate change Climate Fund (GCF) signed an agreement and contribute to the broader low-carbon and to kickstart a programme to accelerate resilient development trajectory in Southern investments into climate projects and break Africa,” says Olympus Manthata, head of market barriers. climate finance at the DBSA. The agreement seals the GCF’s investment “The CFF will enable the DBSA to increase of $56m into the DBSA’s Climate Finance our finance support to climate-friendly Facility (CFF), a first-of-its-kind climate finance projects in the region and crowd-in private facility in Africa using a pioneering Green capital investors.”

Bank model. The programme will target The Southern Africa region is South Africa, Namibia, Lesotho, exceptionally susceptible to adverse and Eswatini, but has a strong effects of climate change, such as potential to be replicated in extreme droughts and rainfall other developing countries to fluctuations. Moving national rapidly scale up private sector economies away from fossil fuels, climate investments. which still dominate the energy The CFF will break mix in the region, will come at existing market barriers to a high price. It is estimated that climate financing by providing in SA alone, more than $349bn Olympus Manthata credit enhancements, such as will be needed to reach national Head of climate finance subordinated debt tranches 2050 goals established in the at the Development Bank and tenor extensions to derisk country’s Nationally Determined of Southern Africa and increase the bankability Contributions (NDC). of climate projects in order to crowd-in Significant investment beyond public significant investments from commercial resources is needed to tackle the challenge banks and projects sponsors. and mobilising private sector investments “Climate change is a severe and growing is crucial. Nevertheless, a series of market threat that affects Africa’s economies, barriers in the region hinder private natural resources, livelihoods and social investments in climate action. They include stability. The signing of this agreement was a a lack of affordable long-term financing,

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Key features of the Climate Finance Facility • Structured finance platform with initial committed debt funding of R2bn • Aims to catalyse private sector funding by co-funding to achieve a 1:5 leverage • Rand-denominated targeted and available to co-fund private sector projects in SA, Eswatini, Lesotho and Namibia • Offers credit enhancement products in the form of a first-loss or subordinated funding and tenor extension (up to 15 years) through a blended finance approach with highly concessional funding provided by the Green Climate Fund

perceived financial and technology risks, and high up-front capital cost, among others.

“The DBSA Climate Finance Facility is a great example of GCF support for financial innovation, which helps promote transformative climate action in the private sector,” explains Manthata. “The banking sector in SA alone has total assets exceeding $380bn. CFF has the potential to accelerate Green Banking and shift significant private capital into climate investments.” ■

finweek 16 July 2020

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in depth green capital

have decided to exit the SA market, Ntoi explains.

The impact of this is likely to be reduced competition in future procurement rounds, potentially resulting in higher tariffs, which will need to be covered by consumers, according to him.

on project refinancing,” says AIIM’s Ntoi. “There is an indication that project refinancing will soon be allowed, and this should result in more optimised debt funding, which recognises reduced risk in the projects, and allows for the sharing of the benefit with government or the consumer.”

Cost of debt

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Novel debt structures

Projects that rely heavily on debt for their completion, such as the renewable energy sector does, are faced with interest-rate risk. This risk is amplified in an environment where the outlook for inflation deteriorates. Given the easy cash splashing around the world in a bid to mitigate the effects of the coronavirus pandemic, this becomes a real risk for the future cash flows of renewable energy projects.

To bridge this risk, the offtake agreements, which are guaranteed by government, between the IPPs and Eskom were partially indexed to inflation. That Tito Mboweni means that the price which the producers receive will Minister of finance increase (even if only a proportion of the price was indexed) along with inflation.

Thus, theoretically, it means that even if the central bank tries to rein in inflation with higher Between interest rates, with the concomitant higher interest payments on debt at least the producers receive some form of inflation adjustment and subsequent higher revenue. One of the key risks facing renewable and energy projects after their completion is low inflation.

This has led to funders benchmarking the cost of debt to inflation, rather than the general Johannesburg Interbank Acceptance Rate (Jibar), of a renewable energy which banks use to lend to each other and some project’s initial cash flow large corporates. is used to service debt.

Absa’s Ehlers explains that this creates a natural hedge against inflation. This is important as between 70% and 80% of a renewable energy project’s initial cash flow is used to service debt.

“If inflation declines, the project’s revenue line declines too,” Ehlers explains. “Inflation-linked debt instruments relieve pressure on a project's cashflow, especially in the early years of its life.”

According to Prof Eberhard’s calculation of the completed bids through to round 4, R129.4bn of debt was issued to fund the renewable projects. If we use Paul Semple REIPPP figures – which may modify for currency Portfolio manager movements, early revenue and VAT facilities – of the Futuregrowth according to Ntoi, the debt funding rises to R132.8bn Power Debt Fund for these rounds of bidding. R69bn was funded through equity, according to him. Semple estimates that local investors provided around R30bn of this equity funding.

70% 80%

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Photos: www.futuregrowth.co.za I www.treasury.gov.za I Gallo/Getty Images

As these renewable projects are mainly funded through debt, the cost of these borrowings will play a significant role in the longevity of renewable power companies and the tariff at which the electricity is sold to Eskom. With long-term borrowing rates of the sovereign local issuer, the government, at elevated levels due to the investment grade of its debt, one needs to ask whether this will have an impact on long-term infrastructure projects such as renewable energy builds.

When the renewable energy build programme was launched around a decade ago, both the technology involved and the inherent risk of completion and operation were high. This increased the perceived risk of these projects’ ability to service and repay debt. As the projects rolled out successfully, and local financiers increased their understanding of the nascent industry, the risk premium on debt issued to these players started to decrease, albeit marginally.

“Depending on the technology in the underlying project, the interest-rate margin on REIPPP projects has dropped from high-300 basis points in bid window 1 to mid-300 basis points in bid window 2 to low-300 basis points in bid window 3 and high-200 basis points in bid window 4,” Paul Semple, portfolio manager of the Futuregrowth Power Debt Fund, tells finweek.

“As the understanding of the various technologies and the programme has improved, coupled with the positive track record of projects being constructed on time and operating at or better than forecasts, the risk perception around renewable projects has reduced,” says RMB’s Musso and Zinman.

Consequently, the risk margins required by banks have decreased significantly, according to them.

“More recently, however, the cost of longer-term rand funding has increased, as a result of, inter alia, the SA sovereign downgrade and market liquidity issues relating from Covid-19.”

A tangible reduction in the cost of funding for renewable projects may be on the cards, but this can only happen when these projects are refinanced. This entails substituting current debt for “new” debt.

“The ability to take advantage of reduced debt rates has also been limited by the slow progress

in depth green capital

“Renewable energy is the cheapest form of new energy development, but its contribution to Eskom’s cost mix can be lost within the inefficient operational structure of Eskom.”

Future guarantee

Given these amounts of funding, it is evident that the appetite for renewable energy projects is alive in SA. That, however, doesn’t mean there are no risks involved going forward.

As government debt spirals out of control – as is evident from finance minister Tito Mboweni’s recent adjustment budget calling for a radical rethink of how the public purse is managed – the government’s ability to add to its stockpile of guarantees is being questioned. Remember that a guarantee remains a contingent liability for the government, even if it isn’t issued as cash.

This means that the financial malaise at Eskom doesn’t pose a direct risk to renewable power projects. The government’s ability to issue guarantees, however, does.

“Eskom has been in a financially precarious position for some time and the success of the REIPPP has been driven by the National Treasury guarantee underpinning Eskom’s obligations under the (power purchase agreements),” says Ntoi.

“National Treasury’s ability to add to its contingent liability stock will be the big driver over whether there will be further renewable energy rollouts.”

Furthermore, the affordability of renewable energy as a source of electricity has been questioned. At the beginning of the REIPPP, on both a worldwide and a local level, putting up wind turbines and solar panels was extremely expensive. However, SA’s rollout of renewable energy came at the same time as similar builds across the world, leading to a substantial decline in the establishment costs of these technologies.

Absa’s Ehlers uses photovoltaic plants as an example, where the tariffs offered by IPPs reduced from between R3/kWh and R4/kWh in the first bidding rounds to its current level of around R0.60/kWh. Futuregrowth’s Semple shares the same view, but is also worried about the energy pricing efficiency

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at Eskom. “Renewable energy is the cheapest form of new energy development, but its contribution to Eskom’s cost mix can be lost within the inefficient operational structure of Eskom, including the vastly inflated costs incurred from its new-build coalpowered stations Medupi and Kusile.”

Ntoi agrees with this view: “It is our view that subsequent rounds of the renewable energy procurement programme will result in tariffs that are lower than the current Eskom charge to consumers.

In fact, this procurement will create a revenue surplus in Eskom, which can be used to stabilise its overall financial position over time.”

And it is not only the reduced cost and subsequent lower tariffs to consumers that increases the allure of renewable energy.

“Renewables currently come out ahead of their competing technologies on many measures like cost, risk, delivery times and environmental sustainability – and that gap is set to keep widening,” says RMB’s Musso and Zinman.

While there may be a temporary decrease in demand for power due to the global pandemic, “there is no doubt that the future economic growth of the country will require more cost-effective, reliable and clean electricity in the medium to long term, particularly as Eskom’s ailing coal fleet is decommissioned,” they say.

One can only hope for two things. First, that the government’s ability to continue guaranteeing renewable power producers’ offtake agreements remains intact. This means the public purse should be strengthened through productive spending by government.

Second, that energy policy certainty somehow becomes the norm in the department of mineral resources and energy. This should entail a fixed line-up of future rounds of bidding for renewable energy projects.

SA can’t afford to lose the experience and talents it gained through the REIPPP to inefficient government actions. ■ editorial@finweek.co.za

finweek 16 July 2020

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indepth in depthxxxxxxxxxxxxxxxx small businesses

By Timothy Rangongo

KEEPING THE ECONOMY – AND THEMSELVES – AFLOAT From payments processors, payroll suppliers and online retailers to art houses: How SA businesses coped in the darkest days of the pandemic.

c

ovid-19 has not only impaired lives, but business continuity too.

Around the world, businesses – from small to the largest of conglomerates – have had to grapple with how to keep operations running while maintaining social distancing and adhering to national lockdown restrictions, to limit the spread of the coronavirus.

A crisis of this nature and magnitude placed enormous pressure on organisations to quickly adapt or cease to operate, either briefly or indefinitely.

How quickly a business harnessed the technology it was already employing within the organisation, or digitally transformed its operations, was what kept most enterprises from losing huge chunks of their productivity and output.

Processing mobile payments

Irma Stern’s Zanzibar Arab, oil on canvas

Yoco was primarily built on easing the use of cash in the economy by taking cash transactions digital and at low cost. Some seven out of ten adults in South Africa have bank cards, according to Katlego Maphai, co-founder and CEO of Yoco. But, the challenge in the country During level 5 of the lies in the ability to accept card payments, which is government-imposed lockdown, transactions costly for small businesses. dipped by On 15 March (incidentally the Ides of March), when President Cyril Ramaphosa encouraged social distancing, it effectively signalled the start of a new reality. Maphai and his team immediately started working from home on 16 March and began and reached the lowest point of 8% around the forecasting probable scenarios of how transactions Good Friday holiday. could take a knock from social distancing and the upcoming national lockdown. “We knew transaction volumes were going to plummet,” he says.

95%

Transaction volumes

During level 5 of the government-imposed lockdown, transactions dipped by 95% and reached the lowest point of 8% around the Good Friday holiday. Maphai says as businesses began to understand that they could make applications to government to be declared an essential 40

finweek 16 July 2020

service and trade, Yoco started to see transaction volumes steadily pick up towards the end of level 5. When level 4 kicked in, transaction volumes began to rise above 25%.

As the payments provider to over 80 000 small businesses, Yoco had a direct overview of how hard entrepreneurs were hit by the pandemic through the use of a small business turnover index. The index tracks the total amount of money small businesses are making on sales through their card machines or online payments. Overall, transactions rose by 60% during lockdown level 4 and had increased by 84% at the end of June.

According to Maphai, the small business monitor also worked as a tool to provide entrepreneurs with insight into how well or poorly they were doing in comparison with peers, as it also showed how transaction volumes were impacted in different industries. “It drove the entrepreneur to think of a change in strategy in response to a changing environment,” he says.

Employee payments

Payroll software company SimplePay helps businesses manage and streamline the process of making payments to employees, automating processes such as calculating payments, withholding tax and depositing monthly payments into designated bank accounts of employees.

“The nature of our product, payroll software, means that we are a crucial link enabling employers to avail themselves of the various government schemes to try and stay afloat during lockdown,” says Dave Ungerer, managing director of SimplePay. Due to the lockdown, in early April SimplePay decided to put other plans on hold in order to give such aspects their full attention and ensure that these processes were, and continue to be, as smooth as possible for clients.

In terms of keeping abreast of what clients need in order to complete registrations, submissions and claims, the biggest challenge by far, according to Ungerer, has been the inconsistency of the government systems, particularly around the Covid-19 Temporary EmployerEmployee Relief Scheme (TERS) claims. For example, the export file to complete TERS claims required many www.fin24.com/finweek

in depth small businesses

iterations in a truly short space of time due to changes in the government specification.

“This pandemic has clearly posed a tough tech challenge and learning challenge for all, the government included. We realise the government is also operating under difficult circumstances. There has been definite improvement since April, but we and our clients are still struggling with some inconsistency in the UIF systems,” he explains.

Ungerer says costs have remained relatively unchanged because, being a software development company, tech has always formed the centre of their operations. “We did, however, do some cost-cutting in terms of making our use of certain services and tools (such as our servers) more streamlined and efficient.

“We are also able to help cut costs for our clients because our system and its functionality is available anywhere with an internet connection and browser.

There is no need to be in an office or on a specific company network, as with some other packages,” says Ungerer.

According to Bina Genovese, managing director at Strauss & Co., old and new ways of trading converged in the virtual sale, with elite buyers frequently opting for live telephone bidding despite the seamless bid logging offered through invaluable.com’s platform.

With art fair season upon us, one of the country’s most anticipated, the RMB Turbine Art Fair, said they are also going virtual in August because of the coronavirus pandemic. “Due to Covid-19 and lockdown safety precautions across the country, a physical fair is not possible. But a fair is most definitely required to offer support and a platform for galleries and artists alike,” says Glynis Hyslop, founder of the fair.

Each gallery will have a dedicated virtual viewing room where they will display their artworks with interactive messaging, according to Hyslop, with behind-the-scenes profiling of artists, and video. Visitors to the virtual RMB fair will be able to search artist, exhibitor, or medium.

Hyslop says some of the technological challenges anticipated with going virtual include data and internet access that may be a challenge for some of the audiences, however, “we are working towards making the fair as accessible as possible for audiences with fast and efficient loading times”.

Photos: Strauss & Co. I Supplied

Bidding from home

The coronavirus pandemic also led to widespread closures of art galleries, art fairs, and live auctions, with sales from Christie’s, Phillips, and Sotheby’s falling 87%, according to London-based art market research firm ArtTactic’s survey. “Economic uncertainty, coupled with the art market’s inability to function as normal, has thrown the art market into the unknown,” states the report.

“When Covid-19 regulations forced us to postpone the sale from 30 March, we were expecting to proceed as usual in May and looked forward to the cocktail preview, viewings, walkabouts and other events, culminating in the sale at the Vineyard Hotel saleroom,” says Frank Kilbourn, chairperson of Strauss & Co. “It soon became clear that it was not to be and we faced a choice: cancel the sale or find a different way to proceed,” he says, adding that “the prospect of having to arrange a virtual live auction for the first time was daunting”.

The auction house enlisted the help of invaluable.com, which specialises in online auctions, to reach new audiences internationally while also having to adjust its current online technology and bidding practises to align with that of invaluable.com.

Kilbourn says that “while it worked very well, there were some teething problems”. For instance, there were prospective bidders who had trouble getting into the website, registering, following the sale, or placing bids.

Held over two days with auctioneers leading the livestreamed sale from studios set up in Cape Town and Johannesburg, the nearly 650-lot sale earned R79m with a lot sell-through rate of 77.34%, according to the auction house. Irma Stern’s painting Still Life with Lilies achieved the highest price and was sold to a telephone bidder for R14.8m, while the artist’s oil-on-canvas Zanzibar Arab sold for R11.4m, also to a telephone buyer. @finweek

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Katlego Maphai Co-founder and CEO of Yoco

Laurian Venter Director of OneDayOnly

More products offered

Unlike anything the world has seen before, the pandemic fuelled a sudden digital surge that catapulted both global and local e-commerce traffic to unprecedented levels, says Matthew Leighton, spokesperson for OneDayOnly.co.za.

“To put this level of growth into perspective, OneDayOnly is a 30% to 40% bigger company today than it was just four months ago,” he says.

“As an online sales company, we felt the impact almost immediately after the announcement of lockdown in March. Our focus needed to shift from our normal sales tack of offering customers an assortment of discounted deals, to a very specific range of products such as PPE [personal protective equipment], sanitisers and essentials items,” Laurian Venter, director of OneDayOnly, tells finweek.

She says the e-retailer also noticed a marked increase of customers, as many people abandoned traditional shopping in favour of purchasing their essentials and other goods online. “They were looking for safe and convenient deliveries to their front door,” she says.

However, such unprecedented growth was not without a challenge. “We needed to radically rework our customer communications to ensure we could keep an increased number of customers informed and updated on the whereabouts of their order. Our warehouse systems needed to be adjusted to account for the drastic increase in goods, especially at the time e-commerce reopened. Several processes were redesigned to increase scalability,” she says, admitting that “it has been a frantic time.” ■ editorial@finweek.co.za finweek 16 July 2020

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on the money

>> Management: Bargain hunters must beware the duds p.44

CEO INTERVIEW

By Glenda Williams

Steering a sector through a pandemic

Growthpoint’s CEO of South African operations, Estienne de Klerk, has been at the helm of the property industry’s response to Covid-19.

a

s the largest South African primary real estate investment trust (Reit) listed on the JSE, Growthpoint Properties has always had an appreciation that the property industry would look to them to take the lead in industry matters.

But it’s unlikely that Estienne de Klerk, CEO of Growthpoint Properties South Africa, ever imagined he’d be navigating a wilting economy and global pandemic simultaneously … and steering SA’s property industry through the crisis.

“I don’t think anyone in their working careers, even those who’ve retired, have had to deal with something like this where, on top of a weak economy, government closes down the economy physically. It is the toughest thing anybody has ever had to deal with,” De Klerk said in an interview with finweek.

De Klerk has always been involved in industry-related matters. He was an original signatory to the Property Charter, is current chairman of the SA REIT Association (SAREIT) and is a past president of the SA Property Owners Association (SAPOA).

In rallying the troops, he brought together the country’s major real estate bodies SAREIT, SAPOA and the South African Council of Shopping Centres (SACSC) as the Property Industry Group to steer the

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finweek 16 July 2020

Locally, Growthpoint’s office portfolio was the best performer from a rental collection standpoint.

industry through the Covid-19 lockdown.

“We took an active decision as an industry to make sure we pay our staff, our suppliers and financiers. We’ve protected the municipalities, the banks and the debt capital market.”

He was at pains to avoid a situation that was playing out abroad; a standoff between the real estate industry and its clients on rent, many reverting to legal processes. It’s a goal achieved, in part due to the industry’s rental relief and assistance programme for affected tenants, in particular SMMEs. Cash flows may not be back to 100%,

but De Klerk says the SA property industry is “way past the scenario in the UK where some are only getting 25% of their income”.

Locally, Growthpoint’s collections over three months averaged 75%.

The consequence of reduced income

For some months now, property companies have had to deal with weak cash flow that has not covered expenses, nor ongoing capital expenditure. Where to then for cash?

One option is to retain profit, normally paid out to investors in the form of distributions. www.fin24.com/finweek

on the money spotlight

Advice from the CEO Estienne de Klerk has acquired several qualifications, but deep down considers himself a salesman, paying his way through university by selling overalls.

“Sales skills is the ability to communicate; it’s the ability to demonstrate the value you can provide to an organisation or industry. That’s something all our youngsters in this country should be working on and be proud of having.”

He places value on the power of the collective, used to full effect by the Property Industry Group.

“The collective sharing, advice and help from all the other CEOs is what has helped us as an industry navigate the worst environment we’ve ever seen in our careers.”

He advocates focusing on that which can be controlled and keeping focus.

“Persistence and tenacity are really underrated.

People are often close to success but don’t keep at it long enough. It helps to have a positive mindset; try finding opportunity in every situation.” ■

Estienne de Klerk CEO of Growthpoint Properties South Africa

phase is over. “At best I think you’ll see Unlike their peers abroad, most SA Property value pressures refurbishments and maybe expansions or Increasing vacancies and dented income Reits have been paying out 100% of their improvements at existing facilities.” exert pressure on property values. But distributable earnings. But that’s about Office development, driven by that’s not just a local story. In the UK, to change. valuations have come under huge pressure, improved technology, lower operating Asked what Growthpoint’s future costs and top-end clients, will also be much more so than in SA, De Klerk says. distributions and payout ratio policy will arrested, he thinks.

Despite a possible 10% to 20% decline be, De Klerk replies: “We’ll be debating in values in the listed property sector over this at board level once we know what Weighing in on opportunities and a two-year period being cited, De Klerk our distributable earnings are [for June says valuations are not expected to come financial year-end]. acquisitions Growthpoint has entered the market off to that extent for Growthpoint’s “We are appreciative of the impact for data centres. “We are well June financial period. “My gut it will have on investors that rely on the down the line in developing feel is maybe 5%.” sector, but in saying that, about 70% data centres for two large And he expects the of investors are big institutions. Around international operators in group’s loan-to-value 85% of Growthpoint’s investors are local Midrand … for their balance ratio (within covenants and international institutional investors.” sheet,” says De Klerk. at 38.2%) to “move up a SA’s Reits have been looking at Opportunities might bit”. Still, Growthpoint has international best practice to determine come a-knocking for a strong balance sheet future payout policy. De Klerk cites Growthpoint has a 50% stake Globalworth Real Estate with access to liquidity and Australia’s average of around 85%. in the V&A Waterfront.

Investments (GWI) in which its interest cover ratio is a “Those Reits are retaining capital to Growthpoint has a 29.4% share. healthy 3.5 times. ensure capex and cover cash flow. It’s GWI plays mostly in the top-end a sustainable practice office space in Poland and Romania.

Putting the brakes on and if you are going to SA’s Reits have been looking With €600m in cash on its balance reset, it might as well be development at international best practice to determine future payout sheet, “they are potentially on the front “We have pulled the handbrake to the right level. You’ll policy. De Klerk cites foot looking for opportunities in this up as hard as we can and have probably find that across Australia’s average of around environment”, says De Klerk. withdrawn where we think there the board companies will Still, given the current environment is any liquidity risk,” De Klerk says retain a bit.” when asked about Growthpoint’s and industry focus on liquidity and Embattled retailer sustainability, acquisitions are generally development pipeline.

Edcon, now in business not on the radar.

“We still have around R1bn rescue, will reduce “It’s very difficult from a pricing in activity, finishing projects Growthpoint’s income perspective to understand what yield you and existing commitments. But that’s somewhat and add to vacancies. Edcon should be buying at and how sustainable demand-driven.” comprises 88 000m2 of Growthpoint that income is,” explains De Klerk. space. It contributes just under R220m Years of strong office and retail Growthpoint’s story is more one of annually to income; just over 1% of development have saturated the local consolidation than growth. It after all has a Growthpoint’s entire portfolio. market.

R160.2bn portfolio, 35.2% of that offshore “It will take time to give a clear answer Some retail development was in through Capital & Regional in the UK, on the impact to vacancies and income. underserviced areas, but often the Growthpoint Australia and GWI, aside from Some of those stores will probably be catalysts were retailers themselves its local and V&A Waterfront assets. ■ taken over in an acquisition; others will cannabalising their stores. editorial@finweek.co.za take some time to relet,” says De Klerk.

De Klerk believes the development

Photos: Supplied

85%.

@finweek

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finweekmagazine

finweek 16 July 2020

43

on the money management

By Amanda Visser

Hunting for opportunities in difficult times

f

Buyers looking to acquire a distressed business or assets therein need to be careful of making costly mistakes.

ew sectors have been left unscathed by the Covid-19 pandemic, and although it may affect the appetite for new business transactions, it will provide significant opportunities for ‘fast-moving’ buyers who have done their homework and are looking to acquire a distressed business or assets.

“We are already seeing buyers with strong market positions or balance sheets who want to capitalise on the opportunities available in the most challenged sectors, as well as in those who have performed well,” says Marc Yudaken, partner at law firm Baker McKenzie in Johannesburg.

But buying a distressed business or asset in times like this carries huge risks, as owners may want to sell before the buyer realises they are, in fact, boarding a sinking ship. There are, however, those owners with good businesses who have simply lost their nerve and want out.

Although there are no hard and fast rules, “good businesses” are generally the ones that have maintained sound records and financial controls, have no claims against them and carry little inherent risks. It is also important to consider the financial statements of the last three years. A badly-managed business usually has outstanding tax returns (see box). However, if they are fairly up to date, it is a good sign.

Generally, corporate advisers, accountants, lawyers, business brokers and business rescue practitioners are the best go-to-people to assist with finding the right deal.

According to Tobie Jordaan, director and business rescue specialist at Cliffe Dekker Hofmeyr, a riskier business to buy may be one that is locked into

Madelein Burger Partner at Webber Wentzel

onerous or long-term contracts, has claims against it, or is a party to a dispute.

“One would need to measure the price against the value of the business – both present and potential future value – and the risks associated with the investment,” he says.

Madelein Burger, partner at Webber Wentzel, says it is important to focus on buying good assets rather than an entire business. When buying the entire legal entity, it comes with “warts and all”. If possible, it is better to “cherry-pick”.

“Even in good times, our advice will be to buy assets and some of the liabilities rather than the entire legal entity.”

Do the work

Marc Yudaken Partner at law firm Baker McKenzie in Johannesburg

Tobie Jordaan Director and business rescue specialist at Cliffe Dekker Hofmeyr

Buyers will need the right support in this time of unprecedented uncertainty, says Yudaken. “Due diligence investigations have always been essential to assess business vulnerabilities, but they will be crucial post-Covid-19,” he stresses.

It will be important to identify which Covid19-related questions could be relevant in the due diligence. For example: Will the company remain capable of complying with existing contracts? Can any third parties terminate their contracts as a result of the pandemic?

The legal and financial investigations must include detailed reviews of a seller’s supply chains, an understanding of the geographic scope of operations, dependencies and business risks and legal rights.

Cliffe Dekker Hofmeyr director Rachel Kelly adds that a proper due diligence upfront can save considerable

THE FINANCIALLY DISTRESSED COMPANY AND TAX DEBT There is often a variety of tax debts outstanding in a company that is financially distressed, says Joon Chong, committee member of the South African Institute of Tax Professionals. This could include income tax and provisional tax payments due, as well as VAT and employees’ tax (Pay-As-You-Earn).

The Tax Administration Act (TAA) provides that a senior official of Sars may temporarily write off tax debts for the duration of

44

finweek 16 July 2020

business rescue proceedings.

Chong says the decision may be withdrawn if the official is satisfied that the total cost of recovery of the tax debt is more than the anticipated amount to be recovered.

In making this determination, the official must consider the amount of the tax debt, how long it has been outstanding, steps taken to recover and costs so far, likely costs to continue and anticipated returns, the financial

position of the business including assets, liabilities, cash flow and possible future income streams.

The TAA provides that a portion of a tax debt can be compromised if the purpose is to “secure the highest net return” and is consistent with good management and administrative efficiency. “This is the common method for Sars to write off permanently the tax debts of companies in business rescue.” ■

www.fin24.com/finweek

on the money quiz & crossword Test your general knowledge with our first quiz for July, which will be available online via fin24.com/finweek from 13 July. time and money for the buyer. The process typically starts with a checklist of questions covering corporate governance, assets, liabilities, funding, litigation, tax, employment and regulatory compliance.

The due diligence report should contain a description of the business and material risks for the transaction or the business, as well as recommendations on how these risks can be managed or mitigated, she says.

Burger says it is vital to consider the profit margins, the assets and historic values. In terms of the legal due diligence, the buyer should consider all the contracts, bank loans, employee contracts and even environmental issues. “The aim is to identify the risks …

Do not be penny-wise and pound-foolish by saving on the right advisers at this time.”

Kelly agrees. While obtaining professional assistance will add to the overall transaction cost, it can also save buyers from making costly mistakes in the long run.

Yudaken points out that a distressed sale is characterised by a compressed timetable, limited available information and invariably limited contractual protection for buyers. “Buyers need to be well-prepared, with experienced advisers, and they must be ready to act quickly. The success of the transaction depends on having real knowledge instead of relying on market perception.”

Photos: Supplied I www.cliffedekkerhofmeyr.com

Deep discounts

Lara Kahn, turnaround specialist at Webber Wentzel, says more businesses are entering into business rescue.

The upside for buyers is that they are buying at deep discounts. However, the risks include the absence of warranties and the speed at which the sale should be made (very little time for due diligence investigations).

She expects an uptick in transactions quite soon and companies with cash will find it a good time to buy. A successful business rescue process can rid the company of the “warts and all”, but it is quite expensive. “In most instances it is not suitable or affordable for smaller companies that are already in trouble,” says Kahn.

Stefan Steyn, senior business rescue practitioner at Business Rescue Partner, says the best buys are family-owned businesses. In most instances they are the easiest to turn around. It may be necessary to invest in the turnaround of the business. “It will be best to understand the industry in which you want to invest to ensure you are not being sold a lemon.”

He adds that a frequent mistake buyers make is not understanding the cash conversion cycle of the business, and then the business is undercapitalised.

“You need a full parachute when jumping from the plane. It does not help if it only lasts three quarters of the way. It is the same as having no parachute.” ■ editorial@finweek.co.za @finweek

finweek

1. True or False? Allan Gray’s head of investment, Andrew Lapping, is leaving the company towards the end of 2020.

5. Fill in the missing name: In 2011, a South African painting titled Two Arabs by was sold for R21 166 000.

2. How many new jobs were created by US firms in June?

■ 1.4 million ■ 3.7 million ■ 4.8 million

6. True or False? MTN has launched a 5G network across major cities in SA.

3. True or False? Casinos are closed under level 3 of the national lockdown.

4. By how much did SA’s GDP contract in the first quarter of 2020?

■ 13% ■ 5.2% ■ 2%

7. Name the Public Protector of South Africa.

8. Who is the new chief financial officer of Transnet?

9. True or False? The Jaguar I-Pace was crowned the 2020 SA Car of the Year.

10. Name the actress who will be playing the role of Diana, Princess of Wales, in the upcoming biopic Spencer.

CRYPTIC CROSSWORD

NO 756JD

ACROSS

DOWN

4 Shrill cry of an owl, for one (7) 8 Lizard, one relocated upfront from South American country (6) 9 Male baddie, one stripped of part in pantomime (7) 10 Carol appears in scant hemline, causing a stir (6) 11 Vote against signalling buoy (6) 12 Grant major quarters (8) 18 Noted soporific (8) 20 Zoo has no right that is not available for family members (6) 21 Oil platform accommodation fell to pieces (6) 22 Fit between the lines first person had redrawn (5,2) 23 Girls have to deny any connection (6) 24 Badly led on to no good outcome lengthwise (7)

1 Good thing to get back, albeit damaged (7) 2 Understanding thanks to street flyer (7) 3 Take over East Wing (6) 5 It can be frosty in Australia (4,4) 6 Win over complete audience (6) 7 Features nothing in menswear (6) 13 Russian from south of Spain (8) 14 Make a lot of? (7) 15 It’s downhill – after last month (7) 16 Capital left one in another capital (6) 17 Afterwards found wearing little Sally’s shoe (6) 19 About 50 to 199 relatively rich in lime (6)

Solution to Crossword NO 755JD ACROSS: 1 Ministry; 5 Meow; 9 Skits; 10 Precise; 11 Ecru; 12 Democrat; 13 Speed merchant; 18 Bigamist; 19 Tidy; 20 Ewe lamb; 21 Maple; 22 Odds; 23 Leathers

DOWN: 2 Inky cap; 3 Intrude; 4 Reprehensible; 6 Eritrea; 7 Wrentit; 8 Heroic; 13 Sub-zero; 14 Egghead;

15 Damian; 16 Hot bath; 17 Nodular

finweekmagazine

finweek 16 July 2020

45

Piker

On margin Stay home, please

This issue’s isiZulu word is isizungu.

Directly translated, isizungu is the way of the Zungus. It is loneliness.

Within the Zulu nation, the Zungus are generally known as a lonely bunch.

Lonely and melancholic. And lame.

Don’t forget lame.

The state of the Zungus is so well-known, Boy George (who is not um’Zulu) even dedicated a song to them – 2002’s “I specialise in loneliness”. What a weird song. What a weird boy. What a weird George. What a weird old man, called Boy George.

Be like the Zungus, and embrace isizungu during this pandemic because it might just save your life. Or it might save somebody else’s life because not everything is about you.

In fact, I propose we all change our surnames to Zungu; change the country’s name and the national anthem. From today, I am Melusi Zungu, from the Republic of Isizungu, with the national anthem titled “Nkosi

Sikelela isiZungu”.

Seriously – stay home and suffer from isizungu. It’s better than getting the attention of doctors, nurses and orderlies.

If you are a Zungu, and are offended by my abuse of your surname, and I have abused it to make my point, don’t come find me. Travel increases the spread of the coronavirus. Fight me on social media – I am on Facebook.com/ everydayzulu. You can even fight me on Zoom or Microsoft Teams. Just fight me from wherever you are. I’d even say call, but some people spit so much when they talk, I might contract the virus through the phone.

Zungus, don’t now try proving you are outgoing and sociable – we believe you.

I think in some neighbouring countries umzungu is a white person.

I don’t know if that has to do with loneliness as well.

– Melusi’s #everydayzulu by Melusi Tshabalala

Verbatim

Seth @Dudewithsign Some good news: We’re halfway done with 2020.

Sammy Phatlane @_SammySA But is 2020 done with us?

Chester Missing @chestermissing Non-contact sports allowed. GREAT news for Bafana Bafana.

The Dad @thedad This is the best time to build a new deck, according to my wife and other family members who won’t be building the deck.

Tressie McMillan Cottom @tressiemcphd So, who else is still smiling at people, dogs and babies from behind a mask like a fool?

BrooklynDad_Defiant! @mmpadellan Just when you think we’ve hit peak stupidity in 2020, Texas bar owners are staging a “Bar Lives Matter” protest while their state is spiking. I am shaken, not stirred.

Dr. Emily Porter, M.D. @dremilyportermd Wear a mask. That is, unless you want to be intubated by a gynecology intern July 1st who did her last semester of med school via Zoom.

Guy Leech @guyrleech I took my 8-year-old to the office on Take Your Child to Work Day. As we were walking around, she started crying and getting very cranky, so I asked her what was wrong. As my coworkers gathered round, she sobbed, “Daddy, where are all the clowns that you said you worked with?”

“Hope is being able to see that there is light despite all of the darkness.”

Archbishop Emeritus Desmond Tutu, Nobel Prize-winning South African Anglican cleric (1931 - )

46

finweek 16 July 2020

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