SIKI MGABADELI: Let’s have a look at this market. We had a good start to the day, up. In fact we went above the 50 000 point mark. You will remember that the last time we did that this year was on the first day of trade on January 4, when the all-share touched above 50 200 points during intraday trade. We did that and then around midday everything went south.
DAVID SHAPIRO: We started well on the back of China, on the back of the Asian market. Also, Siki, there was a big story in the market, and that was that Russia, Saudi Arabia, Qatar – all those ministers – were meeting to discuss oil.
SIKI MGABADELI: And they said they were going to freeze their production.
DAVID SHAPIRO: That’s very good. So what did they do? They froze it at January levels, which are record high levels. So in other words they are not going higher from there. But these are already high, where they are flooding the market with production. So the oil price came back I think on that – a lot of disappointment. European markets, which had two very good days, also started reversing. We came back with weakness right across the board.
I think the big news you mentioned was Anglos. A lot of attention was focused on Anglos.
SIKI MGABADELI: Let’s talk a bit about Anglos. We’re going to be chatting to Warren Dick about the announcement itself, but the market reaction – initially it seemed to be okay, because people had expected they were going to freeze the dividend, they were expecting asset sales. I’m not sure if this was the extent of the asset sales, but they expected that. And then things turned around.
DAVID SHAPIRO: It ended off flat, without any reaction. Over the last couple of days we’ve seen big gains in Anglos. I think what also shocked the market, not that it was a surprise that Anglos became the first London miner – that’s where all the big miners are listed, Glencore and Rio and BHP Billiton, etc – to have a downgrade of its debt to junk. I mean, it’s unimaginable for Anglo American. If we went back ten years or 20 years, to have their debt downgraded to this kind of status. It was South Africa. So a little bit of a shock there.
But you can understand the problems that Cutifani is facing. So at the end, to bring it down to where they are heading, they are going to concentrate on diamonds, copper and PGMs, which are platinum and that. They have indicated their intention to get out of Kumba and also a lot of other mines.
SIKI MGABADELI: How did Kumba take that?
DAVID SHAPIRO: Very well. I’m not sure that it actually responded to that because one wonders who is going to take the 70% stake. I’m sure there might be a lot of miners at a time when iron ore is under pressure. What I think helped Kumba today was that we’ve seen a recent kick in the iron-ore price, 3% or 4% up to the mid-$40s or so, away from their danger zone, which is below $40/ton. So I’m not sure why it kicked up. I’d be very scared that there’s going to be an overhang, and that they are going to have to sell and get out of Kumba. But I think that really comes down to it. Look, Mark Cutifani is trying. He’s trying to cut back on opex, he is trying to bring down the debt to levels which will help the rating agencies. So poor Mr Cutifani I think faces a very tough battle.
SIKI MGABADELI: As South Africans we know how he feels, being so close to junk status ourselves.
DAVID SHAPIRO: I think the other important indicator that came out today was Tiger Brands.
SIKI MGABADELI: Yes. Tiger said that sales in the four months to end-January were up 7%, but it said all these headwinds…
DAVID SHAPIRO: That was the big one, the warning that the depreciation in the rand is going to increase input costs. Of course, the drought is also going to add to that, so they expect margins to be cut. And I think that’s what scared the market – the market came down about 5.5 or 6%, I can’t remember exactly how much. It was one of the poor performers, certainly in the Top 40.
SIKI MGABADELI: It was down 5.6% on the day. Santam also out, a trading update. That’s wonderful.
DAVID SHAPIRO: A very good result – 25 or 30% up, wherever. It was a trading update. I’ve got to ask one question which we need to see when their results come through, because they didn’t give you too much information. But good insurance, good investment result. We are not sure what the drought is going to bring. Santam was always that yellow umbrella, and I’m sure they’ve got a lot of farmers on their books, so there are no droughts, maybe no fires and that…
SIKI MGABADELI: But the sun has burnt down their crops.
DAVID SHAPIRO: So I’m surprised that the market didn’t bring something in to discount that. Maybe they are fine, maybe they are well covered. I don’t know. But that would be just a question mark that I’ll ask on their underwriting.
SIKI MGABADELI: Certainly. Look, there was Comair, there was Super Group out with their interims.
DAVID SHAPIRO: Comair – strange. Around the world everybody is focusing on airlines because of the low cost of fuel, and everyone has always avoided airlines because of the problems they face, with competition and all fighting each other for lower air fares and giving low air fares. Now it’s consolidated – low-cost airlines are starting to pick up. And, funnily enough, Comair is a company that’s never made a loss.
SIKI MGABADELI: The rand has not been their friend. One of the things Erik Venter said was it’s almost, if you look at where the rand has been during this period that they are reporting, the oil price might as well still be at $80/barrel because of the rand depreciation. So you can just see the impact. And competition.
DAVID SHAPIRO: It is strange. I’m not taking anything away from them, but I would have thought that a lot more people are travelling internally. The business seems to be okay. Ja, I know government are now going economy class, they are not going business class any more, but I don’t think that should have affected them.
SIKI MGABADELI: That should have helped them.