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Sasha Naryshkine, a Director at Vestact joined Alec Hogg and Gugulethu Cele on CNBC Africa’s Power Lunch to share his views on the hottest news coming out of today’s markets. The trio have a look at Bidvest’s move to purchase the rest of Adcock Ingram, results coming from Nedbank, WBHO and Sun International as well the resignation of Jamie Wilson from SAB.
Well, if Joffe gets Adcock Ingram or the balance, he will end up paying R10bn for the whole lot. He paid R4bn for a third, so he is now paying or offering another R6bn for the two-thirds that he doesn’t own so far. If you owned Adcock, would you be jumping at R52, when you could have got R70 a year or so ago?
I would think as a Bidvest shareholder it is a wonderful opportunity but, because remember at the time, when Joffe put forward the idea of their bid being better than the Chileans and having to pay up, so that’s the backdrop. He had to pay up in order to trump someone else’s bid. The PIC, interestingly are probably the most important party in all of this because they own just over 22 percent. They are more than likely to say ‘thanks but no thanks’ because if they didn’t take R72 or didn’t accept an offer from Bidvest at R70, why would they take R52?
Surely, Brian Joffe is not going to put it on the table if he knows that the PIC is going to say no.
This is an offer to two specific empowerment parties, who I think, collectively are around 14 and odd percent, so that means they get another 14, which takes them over the R35.00, which then triggers the mandatory offer to everybody else, at R52.00.
Right, so it is that he actually wants to buy everybody out at R52.00 and he’s got to make the…
Of course, it would be amazing.
So if you’re an Adcock shareholder, don’t sell.
I would think so, and I would think that’s probably the line and that the PIC are going to come with and say ‘thank you’. It’s a little bit in terms of the South African Company law here.
Technical.
Yes.
We saw Nedbank out with numbers as well today. The numbers do look positive, with a 14% increase in profit but if you go back to quarterlies not so impressive. Is there anything that caught your eye there?
You’ve got ‘cauteritis’. You’ve got ‘interimritus’. I think to take it in perspective, over a longer term, because this is a bank that struggled through the late 90’s and early part of the 2000’s, for probably changing away from what is their core. I think a lot of credit must be given to this management team for having done what they have they done, in a relatively short period of time, in terms of the whole group’s history.
I think it is a Dutch bank, founded in South Africa. The first branch opened in Pretoria in 1898, I think (I was doing a little bit of reading this morning), so I think that against that backdrop they’ve done a wonderful job, of going back to basics. It is actually a very well diversified bank, growing internationally, and by that, I mean across the rest of the Continent, very quickly. It is still a small contribution to overall, so I think they’ve done a wonderful job. The morale is probably a lot better and let’s not forget that there were rumours every second week of someone knocking at the door, with Old Mutual [JSE:OML] looking to offload their stake.
With that kind of uncertainty gone, it becomes a better place to work. There’s probably a better energy there and I think they’re starting to deliver on, probably, longer termed plans that they’ve got. Probably a good thing that Old Mutual never sold to anybody.
The WBHO results – pretty ordinary.
Yes, very ordinary and they kind of indicate that they’re just doing work at lower margins, just to keep ticking over and everyone is waiting for Government infrastructural program to rollout but let’s be honest, we’re going to see in the Budge that Government is pretty constraint, so where’s all this money going to come from? In order to continue to boost our infrastructure. Even their businesses in Australia are razor-thin margins. You’ve got an incredible business and lots of smart engineers in a business, but yet it almost seems easier to sell cabbages, if you go and ask Whitey Basson.
You’ve got better margins and it is probably more consistent, so it is a strange one that these construction companies always find themselves. When it is bad, it is awful, but when it is good, it is really good and ironically, the market will pay 20 to 25 times earnings when it’s really good. If you are going to be owning a business in the construction space, I think it probably is the best one to own but you’ve got to time it, and that is just too hard.
Looking at Sun International, also out with numbers today. Interesting moves there, with potential changes.
Yes, I think again Graeme Stevens must be given credit where it is due. He’s done a pretty good job in a relatively short period of time because the Group certainly was a laggard, relative to some of their peers, for quite a while. I don’t know. In the end, you’ve got to ask yourself, what sort of assets do you want to own over a ten to 20 year period?
If it’s entertainment, then yes. I think I would like to be in that space but I suppose the good part for them is that Government is not going to grant any more Gaming Licenses. They said this is a pretty closed Group, so if you can manage to get your hands on as many as possible and maintain that, of course they are one of the leaders in this regard. Then that’s okay but it’s a pretty soft target for Government to say ‘well hold on a second here, we’re having some budgetary constraints ourselves, let’s discourage people from spending their money here’. ‘Let’s raise certain taxes on winnings’. ‘I think it is probably a part of the market that, I don’t know but I wouldn’t want to own the stock. I’ve got a lot of respect for the management team but it is not a business that I would want to be owning in the long run.
You said a bit earlier that we shouldn’t get in to ‘interimitus’ but when you take a long-term view of a company like Sun International, I wouldn’t like to be working there. The reason for that is you’ve got online gambling that is now increasingly biting into the juicy part of their earnings and you’ve got Airbnb and other options online that is biting into the hotel side of the earnings. If you take a five-year view, it looks a bit like radio companies to me. We see podcasts are surging around the world. Radio companies are legislated monopolies, and they’ve been enjoying massive EBITDA margins in South Africa. Much higher than anywhere else and as technology starts eating into that margin, it is not a good place to be. This is a similar place.
Yes, I think so. Obviously, with some of their locations, it is about location. You can’t replicate natural beauty, so if you manage to find yourself in a place that’s attractive, from an entertainment perspective, you’ll continue to draw in the big crowds. Anyone can replicate, I guess, in your home. If you wanted to pimp your own house out and say ‘hey, I’ve got a few rooms here, you’re welcome to come’ and you share a cut with Airbnb, but I think that’s going to take time and it is more, kind of millennial, who are not necessarily the bigger spenders. Whilst important to watch those trends over a longer period of time, I think it is going to take a long time for that to kind of fruition. Who knows, maybe they’ll start selling their rooms on an hourly basis, just so people can come in, have a shower, have a two hour kip and then ship on out. It is possible to be able to do that. Certainly, it is changing.
Have you seen what’s happening to hotel companies globally. Ratings are really coming under pressure.
But I think, at the same time, they are a lot more interactive tools online to be able to make people aware, so the services of excellence are arising. With the likes of Trip Advisor, so people are advising on these businesses. That gets them to the core of their service levels much better.
Sasha, I don’t know if you read the Sunday Times but there was a fascinating story there about Jamie Wilson, the departed Financial Director.
Yes a bit bizarre.
Isn’t it just. It appears it wasn’t for health reasons that he’s leaving. He’s giving up an enormous amount of money and options, and he’s leaving immediately.
Yes, and he’s 55, so it’s not…
I spoke to their company and they are very cautious to elaborate any more but they say there is definitely no fraud involved. What does it leave you with?
Well, it says ‘he leaves the company in sound financial health’, which means it probably wasn’t performance related either. It all sounds fine. The only funny one I could come up with was he’s a Scotsman selling beer, but we’ve got Chris Gilmore in this market who does the same.
Yes, but Chris admits that he loves beer more than whiskey, which is nice.
Maybe when he went home, they said ‘you’ve got to drink whiskey. It all sounded rather fishy and like the company was maybe trying to cover something bigger, or maybe the stresses of the job. I think what people have to…
Then its health related and this is a company and they’re very good at it.
Then it’s a personal issue.
SAB has been good at saying ‘Graham Mackay had health issues and that’s the reason he left’. In this case, they are being extremely opaque.
Should they have said ‘he wants to spend more time with his teenage kids’? I don’t know.
I would say that that is probably smarter than what they’ve done.
To leave us questioning his departure…
Insiders all know. Everybody within the company knows, whereas outsiders, who own the company, don’t. It doesn’t appear to me as though they’ve played this well. They could have done better because now you’ve got the Sunday Times putting its main story in the Business Section, explaining in pretty rational terms ‘why does somebody gives up huge amounts of money’ and just walk out the door?
Leave behind such an enormous amount of money.
There has to be something and it is not health reasons, and it’s not fraud, so what is it?
I don’t know, like I said the business said ‘he leaves it sound financial state’, so maybe it is not performance related but maybe he could have done a better job. Maybe there is something else there that we don’t know about but I think that point about work pressures is well made. There’s a reason why company execs are well remunerated, and that’s because they can get a call in the middle of the night and say ‘on the job’. I think that part a lot of people…
You don’t think that that’s just the norm in society today.
Yes and no. I suppose we’ve been invaded with these devices, to a certain extent, but there’s a reason why people are well paid.
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