SIMON BROWN: I’m chatting now with Gary Booysen, portfolio manager at Rand Swiss. Gary, I appreciate your early morning time. Standard Bank’s trading update (for the 12 months to end December) yesterday was truthfully very, very short; not very much to it except to say that they’re going to be about, on the headline earnings, 40% to 50% lower. They do a nine-month update because of the 20% that the ICBC holds in the business. I was expecting a little better. This looked a smidge light to me, or am I missing something here?
GARY BOOYSEN: I think it was a little bit light. Light on detail, but then also light on what the earnings are going to say. As you say, this is really an update on the more detailed update that we had on November 30. But if you look at SPG, which is Standard Bank’s own research team, they were expecting earnings down around 38%, and the range is now 40% to 50% down. So I think it was certainly a miss on expectations. The update? We’ll obviously get a lot more information from the bank on March 11, when they report.
But if we just go back to that update on November 30, 2020, they’re just saying there’s obviously an incredible amount of pressure in the business at the moment, and a lot of this is going to be more short term because of the coronavirus.
They’ve identified pockets of pressure in their business, especially in their personal and business-banking segment, where they’ve had a lot of requests for relief. And of course, they’re a bank. They are well regulated, they can’t be creating record profits when an economy is under pressure like this. It’s just not possible, especially when you’ve got the Reserve Bank coming in and being very strict on the way that they pay out the dividends and the way that they operate their business.
What was interesting in that note, though, is that in their CIB, which is more the commercial and investment banking unit, the requests for relief have actually tapered off. So that was kind of positive in that update. But, as you say, it’s a difficult environment for them at the moment.
While the Reserve Bank has now said that the Prudential Authority has said that they can pay dividends, it remains to be seen. There was no detail in that update as to whether they’ll be paying a final dividend.
SIMON BROWN: We’ll wait and see on that. I take your point that they’re not going to be doing booming profits in a pandemic year.
The markets – as I was prepping for this interview yesterday we were at record highs. The market turned south. But if I look more broadly – and I mentioned it in the update – markets started stuttering a little bit, especially the Nasdaq. Do we worry, or do we carry on carrying on?
GARY BOOYSEN: That’s a good question. I think it depends on what you’re holding. Honestly, if you look at what’s happening in markets – and I can only give you our view and what we’re doing on our portfolios – as you know, we went very overweight on financial exposure, US financial exposure, which we’ve been very happy with. We’ve now slowly started to lighten that. We were also overweight oil and gas about six months ago, which we’d lightened very recently.
Now we’re almost waiting for this tech selloff to give us some more opportunities. I think there are going to be a lot of opportunities coming because, when you look at the Nasdaq specifically, it’s nose-bleeds at the moment; they’re pricing in just incredible growth from these companies. But I think the nature of tech is changing. So would I be buying a Tesla or DocuSign at these levels? Probably not. I think if you are holding those, maybe it’s time to panic and panic early.
But if you’re looking at some of the more established players – things like Google – if we do see a more protracted sell-off, especially in tech as we see a little bit of a rotation out of it, I think it’ll probably be a good opportunity to start accumulating. We still like some of the more established players.
And then if you look at tech specifically as well, one of the other points I’d just like to make is that when people think tech they think communications tech, and that’s really where the gains have been over the last couple of years, maybe the last five to 10 years, even.
Tech I still think is an incredibly exciting sector, but you’ve got to look to the future tech, the future inventions that are going to drive profits, and that price is not necessarily communications tech. It’s not going to a super year in communications. It’s going to be biotech. It’s going to be a year with economists driving mobility.
One of the interesting sectors that we’ve picked up is maybe looking at some of the more traditional international car players – things like Ford – which are trading on very low multiples compared to something like Tesla, but are definitely making the transition into an autonomous driving future.
So that’s kind of how we’re thinking about markets at the moment. It’s difficult to call on overall index level, but definitely pockets of value start in Tokyo. That’s kind of where our head is.
SIMON BROWN: I like your point about Ford. Those are boring at this point, but let’s roll forward 10 years, there will be tech stocks as well.
Gary Booysen, portfolio manager at Rand Swiss, I appreciate your early morning, sir.