Johannesburg - A number of companies are currently being scrutinised for their anticompetitive behaviour, leaving asset managers with difficult decisions.
Earlier this week Pretoria Portland Cement (PPC) advised the JSE and investors that its staff had been found guilty of sharing price information with competitors. The company said it had entered into a "conditional leniency agreement" that would see it cooperate with competition authorities and leave it immune to prosecution.
PPC is the latest in a string of listed companies who have either come clean or been hit with fines from the Competition Commission. Such firms include Tiger Brands, Pioneer Food Group, Sasol and Adcock-Ingram. Retailers are being investigated for their business practices and government is forcing cellphone groups to cut their fees.
The problem facing investment managers is that many of the companies which have been fingered by the authorities are also generating super profits and returns for shareholders.
Simon Fillmore from Independent Securities said it was an issue his firm had been grappling with. He pointed out that a distinction had to be made between competition issues relating to price-fixing and attacks on business models and practices. The latter have been aimed most recently at JSE-listed food retailing groups.
He noted that Independent Securities had, for example, advised clients to buy MTN, feeling that the issues around interconnection fees had been overdone.
Paul Theron from asset management firm Vestact told Fin24.com: "It is never a positive obviously, because fines are negative for immediate earnings, and damage reputations.
"However, if rogue behaviour is inside the lower ranks and senior management roots out the bad apples quickly, we would not hold it against them forever."
PPC is a core holding in the Vestact portfolio, and the firm's preferred entrant into the building and construction sector.
Simon Brown of Standard Bank online told Fin24.com that investors may shy away from companies which have been targeted by competition authorities, until there is clarity on fines levied.
He points to the example of telecoms operator Telkom, which recently said it would oppose the Competition Commission's recommendation to impose a fine of 10% of turnover on it for contravening competition regulations. The fine is estimated to be in the region of R3.5bn to R4.5bn.
Concerning PPC, stockbrokerage Barnard Jacobs Mellet (BJM) advised clients: "The inclusion of this counter in our high dividend income portfolio is currently under review, given looming Competition Commission issues as well as the lack of special dividends."
BJM also previously advised clients that it remains "concerned" around Competition Commission action against Pioneer Food Group.
Earlier this week Arthur Kamp, an economist at Sanlam Investment Management (SIM), praised the South African government's efforts to step up investigations into collusion and anticompetitive behaviour.
"You can expect this to continue over the next few years," he said.
The sustainability factor
Good corporate governance, including adherence to Competition Commission authorities, tends to fall under the broader investment mandate of sustainability. This has become an increasingly topical subject in the South African investment community.
There have been a number of moves in South Africa to increase the profile of sustainability and good corporate governance. These include the introduction of a Social Responsibility Index (SRI), sustainability scorecards and reporting of sustainability in annual reports
Asset managers themselves have introduced sustainability-focused funds or products. These are aimed at investing in businesses which are not only sensitive to the environment, but are also run along strong corporate governance lines including contentious issues such as excessive pay for executives.
Recently more than 100 asset managers met in Cape Town at a United Nations Environment Programme Finance Initiative (UNEPFI) to discuss various issues around sustainability.
Paul Clements-Hunt, head of UNEPFI, told Fin24.com he got the sense that South African asset managers had been upping their focus on sustainable investment.
He pointed out that internationally ratings agencies and firms emphasised the long-term sustainability of businesses before rating their debt or making investments.
Alex Pestana, an SIM investment strategist, added to this saying: "It is becoming an increasingly important aspect for South African asset managers to consider."
However, Pestana said that while South African asset managers saw value in it, sustainability remained a more popular investment principle in Europe and the US than locally, as investors tried to weigh up investments economical soundness over long-term sustainability.
Fin24.com