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Market watcher: David Shapiro – Sasfin

Market down. AECI’s Modderfontein deal nears conclusion.

HILTON TARRANT: David Shapiro of Sasfin is our market watcher this Tuesday evening. David, what a day on the markets! It’s one of those busy weeks, and a busy day as well.

DAVID SHAPIRO: Very. From all sides – not only the results we had to try and get through. It’s almost impossible to do justice to so many companies that come out. But also there are things in the international market.
   Our market was down twofold – we were hit on two fronts. The first is China. A lot of worries there over rising property prices and also rising debt, and concerns that there won’t be property sales as a result of that. What I’ve established is a lot of regions sell land in order to get money to expand their cities or their districts. And once they can’t sell land of course it hurts growth as well. So that’s been playing on markets’ minds. That’s hurt emerging markets.
   And then we had our numbers out – fourth-quarter GDP numbers. That 3.8% is slightly ahead of where the market was expecting. We are still 1.9% on the year, which is very much in line.

HILTON TARRANT: What did we say a couple of months ago, about six months ago?

DAVID SHAPIRO: Below 2%. And also I think there are still risks on the downside for the year coming. Nevertheless, I think against that backdrop we’ve seen the rand improving. And the rand at R10.70/dollar also took a bit of an edge off the market, particularly with our foreign-listed stocks. So we ended down 0.9%.
   There were a few pockets of gains along the way, particularly in banks once more.

HILTON TARRANT: Cees Bruggemans, consulting economist at Bruggemans & Associates, tweeted this afternoon: “How fast will South Africa grow in 2014? Double the rate of Europe, slower than the US, less than half of Africa and a third or less of China. In a word, uninspiring.”

DAVID SHAPIRO: Ja. And it’s coming through in the results. I’ve always said here the best way to gauge the economy is to read these results. In fact, if it’s too much for you, just go to the outlook statement, because that will give you an idea.

HILTON TARRANT: Prospects.

DAVID SHAPIRO: Prospects – exactly what they are looking for ahead. Even if you look at Whitey Basson’s outlook, its still challenging, still worries there. Yes, they are going to do everything in their power to cut costs and to make the profits, but they see a continuation of the kind of profits that they are at, at the moment – 8%, which is not great. Shoprite shares down 20%. One of the favourites of the foreigners a year or two ago, it has lost 20%. I’ve still got great respect for him and I still think he’s trying as hard as he can. Unfortunately circumstances are against him.

HILTON TARRANT: Two big trading updates today – FirstRand first-half earnings somewhere between 19 and 21% better on a diluted normalised basis. And the JSE’s full-year earnings up 31 to 41%. The market liked both of them.

DAVID SHAPIRO: Well, the market liked the JSE’s. It’s really a monopoly that prints money.

HILTON TARRANT: Be careful what you say!

DAVID SHAPIRO: [Laughs] You can’t go elsewhere.

HILTON TARRANT: You can’t trade anywhere else.

DAVID SHAPIRO: If you want to trade you’ve got to go to the JSE. Ja, you can go overseas at the moment if you want to. You can go and trade on Saxo [Captal Markets] or any of those other platforms, but every time you touch a button look for a price.
   They make a lot of money. So it’s a wonderful position – and you have to do your books through them as well. There is no competition. So they’ve got the financial market wrapped around their hands. And the other thing is, it’s a R10 trillion market this. So a lot of trade you can do.

HILTON TARRANT: Volumes up, the JSE makes money.
   Aveng – first-half revenue up 11%, R28bn. Earnings down 21%. I spoke with the new chief executive Kobus Verster earlier. The building division, while lower margins, still managed to pick up three big projects here in South Africa to keep them busy.

KOBUS VERSTER: I think that’s good, ja. As reported, we have three large building projects in the order book. Unfortunately I think, as you are aware, a building business normally attracts a lower margin. And also in the local construction order book about 37% of our order book is in the building side of the business. So obviously for roads and earthworks, civil engineering, mechanical and electrical we are a bit soft in the forward order book.

HILTON TARRANT: Thanks to Kobus Verster, the new chief executive, having taken over from Roger Jardine. Those three projects are the new Sasol head office in Sandton, the Strand Private Hospital, and the Mall of the South being built in the south of Joburg. David, you’ve got to keep your teams busy.

DAVID SHAPIRO: Ja, they are doing it at slightly lower margins, and that hurts them when things do pick up, because you’ve got these legacy issues. That’s the cycle we go though.
   But Hilton, still pressure on the market. No-one’s buying into it yet. I still think there are concerns. Construction shares were down today, even Aveng. We knew these results were coming out. It just took another 2% knock today as well. So, as we say, it’s still very patchy. They are not firing on all cylinders. It’s not every division that’s doing well. Just little bits here and there.

HILTON TARRANT: Explosives and chemicals business AECI – I spoke with Mark Dytor, the chief executive there this afternoon. Revenue for the full year up 15% – a nice kicker from the weaker rand. Earnings up almost 60%. That R1bn-plus Modderfontein property sale to Shangai Zendai – that’s not in these numbers, but Mark Dytor has got some good news.

MARK DYTOR: Yes. I’m quite happy to report that’s progressing very well. The Competition Commission’s given approval. We’ve also had the Zendai shareholders giving approval and now we actually, probably next week, will be lodging the first tranche of land with the Deeds Office for transfer. As soon as that takes place the cash will hopefully roll. So we are holding thumbs that it’s going to be a little bit earlier than June/July.

HILTON TARRANT: That’s was Mark Dytor.

DAVID SHAPIRO: What I like about it is they are looking for acquisitions abroad. I’m watching this company very carefully. I think they are a solid management team, and have done very well. And if they can find decent fits in some or other emerging markets, then it’s one that you must keep your eyes open for. They are going to have the cash as well. I’d prefer them to do that than to return the money to us, because I’m not sure what we’ll do with it.

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