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Kevin Hedderwick abruptly resigns as COO of Long4Life

Rand, PSG, Group Five, Sovereign Foods and PPC – Wayne McCurrie considers Friday’s market moves.

WARREN THOMPSON:  Good evening and welcome to the SAfm Market Update with me, Warren Thompson, standing in for Nastassia Arendse today.

We are getting close to ushering in the weekend but, just before we do, we’ve got a show to round up the week in business and finance. I trust you will enjoy the time spent with us.

The markets today: the JSE closed in the green at 57 232, or 0.41% higher. That takes gains over the last three months to 5.25%. Industrials were firmer at 0.54%, financials 0.29% higher and resources 0.25% up. Even the gold miners squeezed a little gain, closing at 0.07% higher.

The gold price just managed to keep its head above water, closing at $1 272/oz. And palladium has kept its premium above platinum, finishing the day 2.48% firmer at $941/oz, while platinum closed marginally higher at $912/oz.

The big news in the market was the rand, which continues its recent slump against the US dollar, where it’s now trading at R13.75 to the greenback. The rand also sustained losses against the euro, closing 1% lower at R16.11. It did however, make a small gain of 0.2% against the pound, where it close at R17.90.

Here to discuss these developments is Wayne McCurrie from Ashburton Investments. Good evening, Wayne.

WAYNE McCURRIE:  Hello, Warren.

WARREN THOMPSON:  It’s been a record-setting run for the JSE, Wayne, but it really doesn’t feel like that. Tell us what your thoughts are around the new levels we’ve seen on the local market – and is it just the rand that’s been driving this?

WAYNE McCURRIE:  It’s actually a combination of two things. Obviously the rand is the most important, because a major part of our market, probably in total 70 or 80% of our market, is driven positive by a weaker rand.

But within that there are some factors supporting the resource shares, not just the weak rand. In other words, it’s been the dual-listed, overseas-focused companies and the resource shares that have been doing this heave lifting. I must say it’s nice to be above 55 000, let alone 57 000, because we’ve been trading in a very narrow band for three years without any sort of break-through on the upside. Whether this is sustained or not you don’t know, but it certainly is good news for investment markets.

WARREN THOMPSON:  So we’ll certainly take that, Wayne. We had a few companies with some notable developments. For starters, PSG issued a trading statement indicating that their sum-of-the-parts valuation as an investment holding company – they use that term – is going to rise by about 8.4% for the six months ending August, to R261. PSG has been a market darling for a long time. Are those increases enough to sustain the premium…

[line break]
WARREN THOMPSON:  We’ve just lost Wayne. While we get Wayne back we’ll have a look at some of the other developments that we saw today.

Group Five’s share price advanced as much as 17% in response to an update on strategy. And what investors noted is that there continue to be expressions of interest for various parts of its business. I think that’s what’s really driven the increase up in the share.

There is also an update from Sovereign Foods, which indicated that the Avian outbreak that had caused it to trim its poultry stock had been contained. So that might give investors a little more confidence when markets open on Monday.

[Wayne returns]

WAYNE McCURRIE:  You were talking about PSG. Obviously they’ve had some spectacular successes – Capitec, Curro. Another subsidiary of theirs, PSG Konsult reported also during the week and that was maybe a little subdued on the earnings numbers. And Zeder as well – those results were not good. But the share does look a bit expensive to me. However, you’ve got to value it on a sum-of-the-parts basis, not on an earnings basis, and certainly they have been incredibly successful in the past.

WARREN THOMPSON:  Wayne, when you say it looks a little expensive, how do you value an investment holding company that has pieces in all these different pies? You talked about the sum of the parts – what would you compare that to?

WAYNE McCURRIE:  You compare that to the share price. What premium is it trading at? Is it trading at a discount, etc?

I also do a secondary look at the company. I work out their proportion of all the underlying earnings of the company. Now, they don’t report like that. But say they own 30% of that, 20% of that, 60% of that, I add up all the earnings and then I compare those earnings to the share price, to see what the price/earnings ratio is. It looks a little high to me. But a high price/earnings ratio is normally an indication of a very good business, and you certainly cannot discount it.

WARREN THOMPSON:  Wayne, we mentioned while we were trying to get back to you that Group Five’s share price climbed today on the basis of that strategy update, indicating again to the market that they are getting “expressions of interest”. In other words, there are a number of parties that are looking at buying parts of the business. It doesn’t seem like they are going to buy the whole business, but certainly parts of the business. Why do you think that’s got the market so excited?

WAYNE McCURRIE:  Look, any bit of good news in the building and construction sector is well received by those share prices, and we can see exactly the opposite today when Dangote pulled out of PPC. The share price was destroyed.

If you are a capitalist and you can afford to take a 20-year view, and you are positive about South Africa on a 20-year basis, these shares are seriously cheap at tis level. Of course, if you buy them now you might not see any return for five or ten years on that 20-year basis. Maybe some people with capital are saying you are literally getting these assets at bargain-basement prices, so why not make a bid for it, as long as you can afford to sit on that investment for quite a while until the South African economy and our fixed investment turns – which it will, it’s cyclical – we just don’t know when. Sit on it for a while and make a good return because you are certainly buying at a cheap level.

WARREN THOMPSON:  One last question, Wayne. We saw that Kevin Hedderwick had resigned as the chief operating officer at Long4Life. That was obviously the one he was involved in with Brian Joffe. What do you make of that? Does that say anything in the eyes of investor, in you opinion?

WAYNE McCURRIE:  It will change. Very simply because the announcement came out only this afternoon, and there was no backup information. Obviously we’ll get some more information next week. Kevin was clearly successful in his previous ventures, and he was part of Life and part of the outlook and the very positive view that the market has got on it. And of course Brian Joffe is still there as well. But it’s not good news when such a senior person resigns immediately. But I stress again – we don’t know the reason why yet. The market will eventually be informed of that.

WARREN THOMPSON:  All right. We’ll be keeping track of that. Wayne, thank you very much for your time this evening.

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