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‘Keep close to the door in terms of commodity prices’

Deryk Janse van Rensburg from Anchor Capital suggests using the somewhat negative Naspers/Prosus sentiment as an opportunity to gradually top up over the next couple of days.

SIMON BROWN: I’m chatting now with Deryck Janse van Rensburg, portfolio manager at Anchor Capital. Deryck, I appreciate the early morning time. We had Anglo Platinum [results on Monday] Kumba [interim results] came out yesterday – a little shy with the dividend. They only paid 99% of headline earnings per share. Some of their costs were up, but I suspect that’s simply because they’re mining what would normally be less profitable iron ore. But with that price above $200/tonne, they are printing cash. And then with Anglo [American] results [out tomorrow], we should see a chunky dividend from them as their sort of kid companies pay out.

DERYCK JANSE VAN RENSBURG: Yes, absolutely. I think this has really been the theme that people have been keeping an eye on for the past three to four months – the numbers that these resource counters are going to report. I might say it’s been the perfect environment for a company like Kumba to sort of capture the higher iron-ore price, and then translate that through into earnings. You are talking numbers where you’re looking at yields in excess of 10%, or even around 10%. 

I think in the backdrop of our local markets it’s very difficult to go and scratch around for a bit of yield at this stage of the game. So yes, we are obviously exposed to a bit of volatility in the underlying commodity prices.

But these are certainly some of the best results that I’ve seen in my career in terms of what these resource counters are doing – the PGM basket players and, as you mentioned, Kumba. 

So, even just sitting and being patient in these companies, one needs to be mindful that they’re highly cash generative at this point of the cycle. Obviously, you need to keep pace with production and capture these higher underlying commodity prices. I don’t think it’s over for them. I think that people are talking about ‘peak of the cycle’ stuff. I still think that there’s certainly some fundamental backdrop for the next sort of 18 months for these resource counters, a bit of a reopening trade. 

Obviously, we’ve seen a bit of a spat take place in China, but I do think that you’re going to be paid to own these things. You accept a bit of volatility, but it’s very comfortable to sit in these counters and collect the yield. And then obviously just, as I’ve always stated, keep close to the door in terms of what these commodity prices essentially do over the short- to medium term. 

SIMON BROWN: But, as you pointed out, 10% yield – this is an interim stage. And if commodity prices stay where they are, I take your point, we’ve got easily another year, perhaps year-and-a-half; we could get 40% dividends between now and the end of next year. 

You mentioned some selling of Naspers/Prosus. I mean, this is the Tencent story that has been bubbling under and has really come to the fore at this point. But I’ve got to say, looking at Naspers, looking at Prosus, they’re back to where they were in March last year – not the lows of March, sort of the post-recovery. It’s felt painful, but the stocks have had a massive run.

Read: When a (tech) giant sneezes

DERYCK JANSE VAN RENSBURG: Yes. We are obviously kind of coming back to the base that we started at, just looking back a few months. But this is the space that we play in. In anything China-related one needs to understand the risks associated with any sort of Chinese-regulated or domiciled company. You’ve got a very strong authoritative stance just from a government perspective within the confines of China. These are big monopoly-type companies that have really grown to the size that they’re at for the moment.

Just talking to their Tencent asset within the Naspers/Prosus stable, that sort of anti-competitive monopoly-type behaviour, authorities just want to make sure that their thumb is essentially on the pulse at the end of the day; they keep control, and they kind of make space for new entrants into the market so that the economy can have a bit of a longer-term runway when you start looking at a bit of a diversified approach in terms of where they want to get the economy to over the next five to 10 years.

Read:
China orders Tencent to give up exclusive music rights
Tencent investor Prosus slumps amid China’s ed-tech crackdown

All that said, I do think that we’ve been through times like this in the past. I certainly haven’t seen such a violent sell-off in such a short space of time when we talk to the sort of Naspers/Prosus movements that we’ve seen through the course of the last week.

But if you kind of detach from the noise, I think that 12 to 18 months from where we sit today we’re going to look back and think this was probably a great buying opportunity. You’ve got to accept the volatility that a high-PE stock like this will attract. 

But I love the assets. I love the quality of the business. I think that the growth profile, particularly from a Tencent perspective, is still intact. You’re getting a lot of the periphery assets within the Naspers/Prosus stable, probably essentially for free at this stage of the game, and I think one needs to use this sort of negative sentiment environment as an opportunity to slowly and gradually top up over the next couple of days. 

SIMON BROWN: I take your point on that. And if you remember back to 2018, when they were banned from selling games and the whole world was collapsing – that’s just moved past.

Deryck Janse van Rensburg, portfolio manager at Anchor Capital, I appreciate your early morning time.

Listen to Wednesday’s full MoneywebNOW podcast here.

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The Dollar is falling, Covid-19 numbers are shooting up, Inflation is shooting up, WAR talk creeping up between the USA and Russia and China.

How can anyone doubt PGM shares?

Locally, we have just had a Tsunami of looting.

Anyone disagree?

End of comments.

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