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Woolworths up over 4% today: David Shapiro – deputy chairperson, Sasfin

Strong day on the market, but no help from commodity prices.

SIKI MGABADELI: Checking on those markets, we are up again.

DAVID SHAPIRO: Ja. Three days up, one day down.

SIKI MGABADELI: One day down, so not so bad.

DAVID SHAPIRO: Another day up. Siki, I think a lot has to do with the Chinese GDP growth, which was better than expected. The market now believes that the efforts by government to stabilise it have worked. Funnily enough, the Chinese market fell, and the reason the Chinese market fell was that investors there believed, oh, well, the government isn’t going to do anything to stimulate the company any more – the fact that’s it has recovered. So they pulled out. I think they were buying on the basis that the government would continue to make efforts to keep the economy going. But it seems to have done so on its own steam. Rather perverse, very much like we used to see in the United States as well. Janet Yellen’s talking as we broadcast now, and she has very strongly hinted that there will be rate rises because of wage growth and because of the number of people that are employed there now.

SIKI MGABADELI: And this year … [crosstalk]

DAVID SHAPIRO: I think September 15 seems to be the date that everybody is now pencilling in. And yet the markets have discounted it. It is baked into the market already, so they haven’t responded.

SIKI MGABADELI: And the rand?

DAVID SHAPIRO: The rand is strangely at R12.43 – I can’t understand it. It picked up yesterday but seems to have weakened today.
    It was a strong day on the market, a lot of buying right across the board, even though we didn’t get any help from commodity prices. If you listed to Tumisang, platinum is down at $1 018 and gold is at $1 145 or thereabouts. They are falling. Oil is also coming down.
    And yet miners were pretty strong today. Strangely Kumba was up about 6%. It came out with a trading update that was an awful update, but I think it wasn’t as bad as the market was expecting. Only 60% down. So it just gives you an idea of how traders responded.
    I know you are going to cover the trading updates from retailers.

SIKI MGABADELI: We are absolutely going to do that. But look at Woolies, hey. Up over 4% today.

DAVID SHAPIRO: That’s on Australia. A very, very strong showing in Australia. Locally they are doing okay.

SIKI MGABADELI: So it was a good purchase.

DAVID SHAPIRO: They’ve turned David Jones around. Having had a negative trend it has turned positive.

SIKI MGABADELI: I must actually make a trip to Australia again just to go and have a look because the last time I was at David Jones in Australia it didn’t look that pretty … [crosstalk]

DAVID SHAPIRO: I think what they’ve done is kick out a lot of other retailers there, brought their own brands in, given more space to Country Road. I’m sure they are bringing their own Woolworths brands in there. I don’t know. I’ll only go to Australia – no, I don’t know when I’m due to.

SIKI MGABADELI: Let’s go check it out. Let’s take a trip, go and make sure.

DAVID SHAPIRO: That was a very, very good showing and the market liked it. I know you are going to discuss the other two – Shoprite and Massmart.
    For Massmart I think what stood out was big volume sales, really increasing volume. I think all of them are increasing at the expense of mom-and-pop stores or independent retailers.

SIKI MGABADELI: And our banks – a bit of a negative picture. It wasn’t terribly negative but it was still negative.

DAVID SHAPIRO: I think only a few brought them down. I think Capitec was up, PSG picked up a bit, Investec had quite a strong day. I think some of the major banks just were down a bit. But it’s very hard to read it on a day-to-day basis. I think the one big deal is Curro and ADvTECH. We’ll wait with that, because Curro is a R12bn company on a 200 PE and ADvTECH is, what, about a R5bn company on like a 25/26 PE. So I don’t know how you are going to merge the two. I don’t think we’ve got time to discuss that, but I’m not sure how the corporate financiers or the advisers are going to come out and make a deal that will be acceptable to ADvTECH. I’m sure Curro would love to buy it at that multiple, but I’m not sure ADvTECH is going to have an appetite for it, unless it’s a massive, big pile of cash. It’s got to be a really big pile of cash, and we are talking over R5bn. So I’m not sure.

SIKI MGABADELI: Is that a belief in the whole private education story and how that’s going to work , whether its higher end versus middle end?

DAVID SHAPIRO: They are two different groups.

SIKI MGABADELI: Yeah, and that’s what I’m trying to wrap my head around.

DAVID SHAPIRO: ADvTECH is much more tertiary education, commercial education, and courses. Of course it has got secondary education – Crawford College. It has also got a placement agency. And it has a very good track record. It has given steady, steady growth over the last decade. Frank Thompson has come back to run the company.
    Curro, on the other hand, is another model. But it’s a growth company. It needs money. I don’t know where it’s going to find the cash. So we are going to get our Boere Mafia down there in Stellenbosch to come up with some kind of plan that’s going to attract the ADvTECH shareholders. I don’t know how they are going to do it.

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