Gary Booysen stock comments - Retailers, Mining and RMI | Fin24
 
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Gary Booysen stock comments - Retailers, Mining and RMI

Jan 16 2015 15:42

The FTSE/JSE All Share Index is trading down near on 3% this year so far and we have seen some awesome volatility in this short time too. Regular market commentator Gary Booysen chats to us about South African based retailers (Pick ‘n Pay, Woolworths [JSE:WHL] and Richemont) and miners on the back of a precipitous fall in the copper price. Alec Hogg also adds some interesting facts about the economics of airlines in the face of a very low oil price. As always, there is something for everyone. – CP 

ALEC HOGG:  Well, let’s get an in-depth view now of how the market is trading.  Gary Booysen is with us in the studio.  Talk to me about Pick n Pay.

GARY BOOYSEN:  Pick n Pay [JSE:PWK] – Richard Brasher.  I think the turnaround strategy seems to be going fairly well.

ALEC HOGG:  So he should have stayed at Tesco and maybe, fixed that place first.

GARY BOOYSEN:  Perhaps.  Tesco’s definitely been under a lot of pressure since he left.  If I remember correctly, he did leave under a little bit of a cloud as well.

ALEC HOGG:  He wasn’t given a gold watch.

GARY BOOYSEN:  Exactly.

ALEC HOGG:  Put it that way.  Then again, the guys that he left behind royally messed it up.

GARY BOOYSEN:  No, they haven’t done too well.

ALEC HOGG:  So maybe Brasher was the best thing that happened to Pick n Pay.  I’m asking about this debate because as you know, the market is reporting a very high rating on Pick n Pay.

GARY BOOYSEN:  For us…I’ve been very public.  We’ve been very nervous about the turnaround in Pick n Pay.  As an investment thesis, we don’t like to buy turnaround stories.  We like to see the company proving itself and gathering some momentum before we pick it.  Everyone was very optimistic about Pick n Pay, but the supply chains at Pick n Pay have improved dramatically and they’re very caught up to the likes of Shoprite and Woolies.  If you look at it, Pick n Pay’s still suffering – just a little bit behind the curve – especially in that supply chain management.

GUGULETHU MFUPHI:  And with Woolies, as well – a lot weighing on that David Jones acquisitions.

GARY BOOYSEN:  David Jones: if you look at it, they’re also getting David Jones right, so they stemmed some of the losses there.  The Australian businesses are performing well, though.  If you look at their Country Road operations, it’s also a decent set of results.  The trading update today was fairly good.  The market loves it.  It pushed it up about four percent at one point.  If you look at it though, this trading update is actually, only for two months because they did give us the trading update interest at the end of last year.  It’s two months of new data, things seem to be progressing well, and I think Woolies has a bright future ahead of it.  The offshore investments that it’s made to make it one of the biggest retailers in the Southern Hemisphere, are going to do well for it.

ALEC HOGG:  It will be interesting after two months.  As you say, the Curry Cup is won in January.  The Richemont share price – also reacting quite nicely…two-and-a-half percent there.  Interesting, just on retailers before we leave it: Woolies is up two-and-a-half percent today.  Pick n Pay is down two-and-a-half percent today, so I don’t know if we can read much there.  What do you make of Richemont?

GARY BOOYSEN:  Lastly, on the retailers: I think we’re still waiting for Pick n Pay’s update.  Obviously, all of them are reporting now because their earnings are going to be in February, so we’ll wait and see how it goes.  Richemont: this is only a three-month update.  This is the Q3 sales number.  It did miss estimates slightly.  I think the guys were expecting six percent, as you said.  It came in at about four percent – a lot of that impacted particularly by the Hong Kong protests in October.  October was a very weak month but across Burberry, a lot of the luxury retailers offshore also had a very difficult October, with Richemont obviously, more geared to Asia – a little bit more sensitive to Asian sales.  It’s not that bad, in a quarter where they were under a lot of pressure, especially because of those protests, which fell in that so-called Golden Week.

ALEC HOGG:  Are you following Comair?

GARY BOOYSEN:  I’m not following it too closely.  It should be doing fantastically on the back of the lower oil price.

ALEC HOGG:  Can I give you the other side of that story?  When oil prices are high, you need highly efficient aircraft – very expensive aircraft -, which you pay a lot of money for but as the oil prices decline, you can get the old bangers out.  I would expect, given the decline in the oil price that we’re going to see quite a lot more competition coming into that sector.  At the moment, Comair has it all to itself (just about), but with an oil price at half the previous level, surely that’s the way you should be looking.  I’m talking about a share price here that’s gone from R1.50 to R5.50 in two years, in an industry that Warren Buffett said ‘if you’re a capitalist, you should have shot the Wright brothers before they got off the ground’.

GARY BOOYSEN:  Definitely.  I hope it does influence plane tickets a little more than the oil price has influenced the petrol price.  Oil is down by about 50%/60% now and petrol’s only down by 20%.  After the exit of One Time from the industry, hopefully, we can get some competition – maybe cheaper airfares for us to get around the country.

ALEC HOGG:  But if you were looking at that kind of a share price performance, wouldn’t you be a little cautious, given that the fundamentals are changing and it’s just sucking in competition, no doubt?

GARY BOOYSEN:  Definitely.  As I said, I haven’t looked at in a lot of detail, but I have steered clear of it because it is a smaller company and airlines are notoriously volatile and risky.  It doesn’t really fit into our investment universe but it’s definitely one for the punters on the lower oil price.  I remember when that Opec meeting first came out.  All the offshore…Boeing and the lot of them, absolutely rocketing up by 7%/10%/15% in a matter of minutes.

GUGULETHU MFUPHI:  Resource is still a worry, though.  Glencore fell quite substantially yesterday – I think, down by more than 12% and it’s interesting to see some Directors’ Dealings today, with some picking up a share in London.

GARY BOOYSEN:  We had the copper price, which I think was the biggest one-day drop in six years or something like that so obviously, commodity prices are still under pressure – feeding into the diversified miners and putting a lot of pressure on them.  I saw today as well that Kumba was downgraded by Barclays, so from overweight to equal weight.  Again, some of the banks are upgrading some of these resource counters as well – so perhaps, bargain hunting.  It’s a sector that’s just so unloved at the moment; it’s difficult to drum up a good story for investors around a resource company.

ALEC HOGG:  Can you imagine what those politicians in Zambia are thinking now?  They trebled the royalty rate at the worst possible time.  Miners (even with the old copper price) were saying ‘we’re not so sure that we want to keep mining in Zambia’.  Now, with the copper price having fallen off the edge of a cliff, you’d think there’d be a longer-term approach towards these kinds of things.

GARY BOOYSEN:  You would hope so and again, you’re seeing it.  It’s not just from the executives’ point of view.  There’s still pressure on the bottom end.  We’ve seen it in the northern platinum strike as well.  Again, it was nipped in the bud very quickly.  The labour courts came and interceded, and declared the strike unprotected but the hiatus that the whole mining sector has taken…those tensions are still simmering under the surface.  I think that it’s just a matter of time before we get another flare-up in South Africa.

ALEC HOGG:  The problem is that with the mine, it’s not a one-day game.  It’s more like a marathon.  A timeless test, isn’t it?

GARY BOOYSEN:  Definitely.

GUGULETHU MFUPHI:  Financials on the other hand, see lots of optimism.  FirstRand has been running quite strongly.

GARY BOOYSEN:  Yes.  We like it and I think the insurers are looking particularly good as well.  With RMI now being included in the Top-40, that’s become one of our favourite picks for the next couple of months.  With a stake in Discovery and Outsurance, it’s going to do very well, especially if markets can remain slightly elevated.

GUGULETHU MFUPHI:  Well, that’s where we leave it with Gary.  Thank you so much for your time today.  That was Gary Booysen from Vunani Private Clients.

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pick n pay  |  woolworths  |  biznews  |  alec hogg  |  oil
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