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Market watcher: David Shapiro -Sasfin

‘We got our gains from the mining board.’

HANNA BARRY: I’m talking markets now with David Shapiro of Sasfin. David, after struggling to find direction earlier this afternoon, the JSE all-share index goes and reached yet another record high today.

DAVID SHAPIRO: When we say “another record high”, the last time we reached a peak was back in July at 52 270. We are now at 52 508, so we are about half a percent higher than it was then.
   It was an incredible day. Hanna, driven largely by the mining board. Look, to be fair, global markets did get a bit of a boost by the news out of the Ukraine that a ceasefire deal has been signed. It’s the first part of a major move to sort out issues there. It will commence Sunday. It doesn’t mean that they’ve reached peace, but it’s just one thing that’s worrying the market. We’ve still got Greece to worry about. So I think with that out of the way markets are very comfortable.
   We got our gains from the mining board, and that’s on the back of some very good results that came out of Rio Tinto, up on a solid operational performance in very, very tough times. But I think Rio’s not listed in Joburg. It was up about 3% in London. But it picked up Anglos, it picked up Glencore and it picked up Billiton. And I think that gave us an underpin for the kind of gains that we saw.
   But to add to that, we did see an upward move in the oil price and that helped Sasol to about a 3% gain.
   Just on the negative side, gold shares were down. Gold Fields came back about 8%, and largely a disappointing performance from South Deep, its South African operation. So I think that just took it down. That was the only blot on the mining boards.

HANNA BARRY: We are talking to Nick Holland a bit later from Gold Fields. As you say, more than 8% down. It is interesting, though, because it did swing back to profit at the end of last year, largely driven by its foreign operations, Nick saying it derived 85 to 90%, I think, of its cash from its foreign operations. He told me that it’s quite keen to add another mine to its portfolio if it finds the right mine. Probably not in South Africa.

DAVID SHAPIRO: It’s not going to be South African. I think that was the whole basis of the Sibanye deal. They’ve got enough problems trying to get South Deep on track. I think one of the issues there is that they haven’t got the right kind of skills for mechanised mining. This is a deep mine, it’s a new mine and that’s been a problem.
   But what’s interesting, Hanna, that came out of it, is that they did this to raise the issue of load-shedding, but they are well prepared for it. But they also brought up in their report that the biggest problem in load-shedding is Ghana, where they had to make something like a 25% provision. So it’s far worse in Ghana than it actually is here.

HANNA BARRY: So we shouldn’t feel too bad about it.
   Also out today are some really good, strong results from Woolworths – that retailer doing well, rebounding the share price up more than 5% at close of business and other retailers also lifting – the Foschini Group up 6.5%, Truworths up nearly 7%.
   Chatting to Ian Moir yesterday, it seems that Woolworths acquisition of David Jones –which at the time a lot of analysts described as outrageously expensive. R21bn spent to acquire that Australia retailer – seems to have paid off for them.

DAVID SHAPIRO: And how it has! I think the other thing where they did make gains is that they’ve grown their share of the local food market. And one is wondering at whose expense they did that. Is it Pick n Pay – where are they gaining this? One always assumes that Woolworths is at the top end of the market and very expensive, but has a very high quality product, and in tough times they would actually give up share – but quite the opposite. It just shows you that they are gaining customers.
     But just on David Jones, I think there are a lot of prospects there. Having been to Australia in December, and having gone through David Jones, you realise that vast improvements can be made to the merchandising. It just opens the scope for them to turn that company around. So I think it’s going to be a lot easier for him there than everybody thought. And the market liked the story. It’s not easy to find really good retail stories in tough times, so it’s probably the one share that analysts will continue to recommend.

HANNA BARRY: That David Jones investment certainly is quite significant. As you pointed out at the beginning, Woolworths food is doing well. Sales growth of 14%, well ahead of the market’s 8%. So very nice for them.
   Lastly, David, the State of the Nation Address tonight – to what extent are markets really watching it, do you think, for direction?

DAVID SHAPIRO: Hanna, I thought the rand would pull back some of its losses yesterday. Where are we – R11.75?

HANNA BARRY: We certainly have pulled back some.

DAVID SHAPIRO: It looked unusual. And where you get a sharp move you think that it will rebound, and I thought it was associated with a specific deal. But it seems to be hovering around there. That worries me. And it does reflect a lot of concerns about the economy, a lot of concerns about government’s attitude to…business, particularly coming after the mining conference, worries about load-shedding and how that’s going to affect the economy – especially in the small and medium businesses. And, to be fair, I don’t think he’s gong to say much. What can he say? You are not going to get him changing direction. I don’t think he’s the right person to change direction. He’s obviously going to be guided by his advisers. So we come away disappointed.
   I think what will happen is a lot will depend on the Budget when it comes out in the next two weeks. I think that will give you a far, far clearer view of where this economy is heading.

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