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Sappi up 50% in three months: David Shapiro – deputy chairman, Sasfin

Sasfin is a tiny employer relative to the market and yet bigger than Arcelor Mittal today in market cap.

RYK VAN NIEKERK: David Shapiro, good evening. What a nice day on the markets – 2.5% up.

DAVID SHAPIRO: I think the surprise is that global markets were so strong ahead of the Fed rate hike. It was inevitable, We knew it was going to happen, but I think what’s given comfort to the market is the gradual approach that they have said they will take – in other words 1% next year and maybe another 1% the year after. We don’t know. It’s data-dependent. If inflation starts to pick up in the United States next year then of course they could change their minds. No one knows. They say inflation is going to be at 2%.

Ryk, it’s interesting because I think we are coming to the end of the benefits they got from the stronger dollar a year ago – from commodity price falls and so on – so I think that you could find inflation picking up.

But the market is comforted, I think very, very comforted by the dovish remarks that Janet Yellen made.

RYK VAN NIEKERK: Over the past two years the JSE has detached itself from domestic events. Even with something like Marikana, the markets didn’t move that much. Suddenly last week we had this big political blowout and the markets reacted significantly. Obviously today we’ve linked up with international events again. Is this a new normal for us?

DAVID SHAPIRO: Very, very difficult to try and put it into one soundbite because the markets are incredibly complicated. I’ve been doing work now for the year-end and just for next year, but 70% of our market is dictated by what happens offshore, foreign profits, foreign movements, demand/supply – situations there.

Funnily enough, resources has a very much lower impact than it used to have. So then we come down to what’s the balance of that 30% here. Most of it is financials, a very little of it is SA Inc, and then there is a bit of property. That’s how small our market has shrunk. And, remember, even though small percentages are made up of a lot of stocks, the 70% is made up of only handful of shares, whereas that 30% is made up of a lot of stocks. And that’s the activity that we saw a week ago.

We saw the impact mainly on banking stocks. Banks always are looked at because they give confidence to a market. In bad times you get a banking crisis – why? – because banks are a service organisation, they lend money, they receive money, they decide on rates and so on. So they are a very important cog in an economic wheel and I think that’s why they took the hammering they did.

RYK VAN NIEKERK: But they are slowly clawing their way back; up 4% today. But the rand – R15.22. Before last week we had the rand at R14.30; it dropped to R15.20 and now we seem to stay there.

DAVID SHAPIRO: In fact, you are dead right because almost two weeks ago on the Monday we were at R14.30-something. When the news of Nene’s firing came out, that took us to R15.80, R15.90. It came back this morning. We were actually trading at R14.90 and the rand was improving. And then in the last hour of trade, for reasons that I can’t understand, something happened in American markets. We are now at R15.20, R15.25. And that seems where we are going to stabilise – R15.15, R15.20.

RYK VAN NIEKERK: Surely we are oversold?

DAVID SHAPIRO: We are oversold but the reports coming out on the commodity outlook are very negative. Even though commodities have little impact on the JSE, they don’t sway the markets the way they use to, they still are big employers, and they still are very important for manufacturing, and they are very important for employment. So we’ve seen the gold price falling, we’ve seen the platinum price fall. Iron ore is the big one. Goldman Sachs came out with a report seeing iron ore remaining weak. I don’t know what their projections are – they are always wrong, that’s the only good news – below $40.

But Kumba Iron Ore down another 8% today – that dragged Anglos down. Anglos now has a market value of around maybe R80bn, 90bn. It’s No 25 in value on the JSE, having been No 1 a couple of years ago.

RYK VAN NIEKERK: Looking at the platinum price – $850/oz, down $23. That is a big move. But obviously the rand prices for those commodities are actually quite high with the weaker rand. The rand gold price is at an all-time high.

DAVID SHAPIRO: What the market is saying to us is that even though we are getting record high values for our selling, the costs are going to kind of neutralise that, and it’s going to become a lot tougher to make money.

I think gold miners will do okay, but there are still a lot of problems in the platinum industry. Even at these levels the price is far too low to really make it.

RYK VAN NIEKERK: One of my favourite stocks hit another 52-week high today – Sappi. The story over the last three months has been phenomenal. It’s up about 50% in three months. What’s going on there?

DAVID SHAPIRO: It’s a turnaround stock. After years and years of battling excess supply, difficult conditions I think like Mondi – except Mondi took a different direction, much more into packaging. Poor old Ralph Boettger resigned just as things were going to turn around. I think he put a lot of work into reducing supply, changing the whole mix there. And also what’s in their favour is they are reducing their debt a lot, and that’s a benefit to them.

RYK VAN NIEKERK: Just [some] 52-week lows. Commodity counters under immense pressure. Northam and Lonmin are really scraping the bottom of the barrel. And then Arcelor Mittal under R3.

DAVID SHAPIRO: Incredible. Its market cap has fallen below R2bn. Now, if you think of all the steel that makes up those factories, you can get in any scrap yard significantly more than that. But what it’s pointing to is that the company is not going to make it. I don’t want to say that the company is going to become insolvent or anything like that, but what the market is saying is that things are extremely tough and that they are heading that way. The asset value – go and look at the smallest bank. I look at Sasfin – we are a tiny employer relative to the market, and we are bigger than Arcelor Mittal in market cap. Crazy.

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