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‘Sasol’s taking a bit of a beating’: David Shapiro – Sasfin

Foschini share inexplicably pounded, despite hefty recent gains.

SIKI MGABADELI: Let’s check those markets. Down again, close to 0.25% on the all-share at 52 810. The Top 40 index is down 0.1%.
    The rand is at five-week lows at R12.16/dollar, R18.57/pound and R13.27/euro. The gold price is flat at $1 186.81/oz, platinum at $1 115.65/oz and Brent crude at $61.94/barrel, down another 2.8%.
    David is looking like those people who are predicting that the oil price is going back to $40 might just be on the money.

DAVID SHAPIRO: I don’t know where it is going to go. It might not go back to $40, but it’s not going to go to $100. I think we are going to get a range of $50 to $70. Opec meets next week. We are going to get some guidance from them. I doubt whether they are going to cut back, even though a lot of their members, the more fringe members like Venezuela, Nigeria, would love them to cut back so they can get back to $100. It’s not going to happen.
    Sasol’s taking a bit of a beating as a result of that. The share price over the last few weeks has come from about R480 back to about R430 on the retreat in the oil price, and it seems to be making a level as well. You are probably going to see a range between R430/R480. It will trade there.
    The rand was the big surprise of the day, and I’m not sure what’s driving it. I hope it’s not connected with Fifa or our name in that scandal, but the euro has been under pressure. We saw a bit of an improvement in the rand yesterday; it came back about R12.04/R12.05 but then weakened today. That did give our market a bit of support, particularly on the industrial market. The index ended up flat.
    British American Tobacco, Breweries, Richemont all enjoyed a fairly good day. And overall the market wasn’t too bad in the industrials. Miners came back, as you mentioned in your introduction about nothing happening there in the metal prices. We just saw retreats there, Kumba not holding onto its gain, Heavyweights Anglos and Billiton also came back slightly.

SIKI MGABADELI: And are we seeing money going into retailers, where we had Foschini today down.

DAVID SHAPIRO: Foschini. We’ve got to speak about Foschini because I went through the results in fair detail and the reason that I went through in great detail is because the shares were pounded, something like about 7%. I asked why. And, going through the results, I couldn’t find anything. They complained of the warm weather over the last couple of weeks; it must be hurting sales, particularly if they’ve got winter merchandise [displayed], and then load-shedding and crime-related losses are hurting.

SIKI MGABADELI: Who wants to buy a scarf in hot weather?

DAVID SHAPIRO: You say that – it’s pretty serious. It is going to hurt Woolworths, it’s going to hurt everybody that is stocked with jerseys and coats and things like that. As soon as they put it on sale the weather will get bad – watch.
    Even their bad debts didn’t seem to have deteriorated too much, so I’m not sure why the market sold it down – because, overall, retailers were pretty strong. It was a fairly good day in retailers.

SIKI MGABADELI: But if you think about Foschini, over the past year or so their share seems to have rerated quite a bit. Do you think maybe there was a bit of a pull-back because of that? It had done not so well a year ago, and then in the past year people are kind of catching up a bit.

DAVID SHAPIRO: You are right. This is better than being in the studio with you – I’ve got everything at my fingertips now. So, year to date you are right – the share is up 25% – and over the last 12 months the share is up 54%. So that’s a hefty gain. It might be that investors were disappointed. There are not many shares that have performed better than that over the last year. Capitec’s been one.

SIKI MGABADELI: What did you think of Edcon’s update? I know obviously for them it’s about the bondholders.

DAVID SHAPIRO: You know what – I’ve got to admit I haven’t seen it. It didn’t come through on Sens.

SIKI MGABADELI: It was a bit convoluted. I had to go to their website to have a look at the trading update. They are trying to get rid of non-core assets to pay off debt. Cash sales up 11%, credit sales down 8% in 52 weeks to March.

DAVID SHAPIRO: I’m going to have to look at that because first of all I know they’ve been under pressure and I think all the other retailers are nipping at their heels, trying to grab share from them. But when you actually compare them with the rest, they are still the big gorilla in the room.

SIKI MGABADELI: Absolutely. Also today Anglo American telling us that they are going to have a new management restructure.

DAVID SHAPIRO: They are? You are on a different website to me. It didn’t seem to affect the share price. If anything, the share price was down 1%, but it didn’t have too much impact on that.

SIKI MGABADELI: Then finally let’s chat about |African Bank. Obviously the little guys didn’t expect anything, and the guys who had the secured debt were expecting that 10% haircut. Now it looks like there is a bit of a slight game-changer.

DAVID SHAPIRO: Look, it’s going to take a long time before this is sorted out. I’m not sure when they are going to come back to the market. I’m not sure when this whole thing is going to be sorted out. This is not final and I still remain very, very cautious on where this is going to go and what the eventual losses were. But probably the only people that will come out on the equity side with anything will be the preference shareholders. But it’s still a long road ahead. I’m not exposed to it and I haven’t had the same kind of interest in this that other people have. But I think for those that are exposed hopefully they come out on the right side because I think there are a lot of institutions that have come away with egg on their faces over this.

SIKI MGABADELI: Well, hopefully we’ll hear something by September as the curator said. Thanks, David. See you on Tuesday, I think.

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