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A week of lazy ‘strategising’ and sad realities

Share buybacks, retail sales figures, Massmart’s latest move, Gold Fields nabs a winner, and reminders of the ravages of the pandemic.
In recent days Spur, Sibanye-Stillwater and Telkom have each announced the unexpected passing of directors due to Covid-19. Image: Dean Hutton, Bloomberg

Last week investors were reminded yet again of one of the easiest ways for executives of a listed company to make good money – for themselves: use the company’s cash resources to buy back its shares.

Apart from a few spectacular failures, most notably Anglo American’s eye-watering multi-billion-rand value-destroying repurchase about 15 years ago, repurchases will almost always lead to an increase in the price of the remaining shares.

Even when value is destroyed, the share price will often increase.

And because large portions of annual and long-term incentives awarded to executives are linked to share price performance, this means they are in line to benefit from a strategy (buying back shares) that frequently reflects a dearth of real strategic thinking.

And so, last week, PSG reminded investors that it was in the market to buy back potentially 20% of PSG shares. This means there is a firm buyer for a large chunk of the shares; it also means there will be fewer shares available in the market. All things being equal, these two factors should increase the demand and the price of the remaining shares. In addition, year-end earnings-per-share calculations should be flattered.

And all without the need for a well-considered and well-implemented operational strategy.

PSG has repurchased just over 3% of its issued shares, equivalent to seven million shares – at a total cost of R367.5 million – since shareholders granted the general authority at its AGM last July. The repurchases were done in the last few days of August as well as on October 26 and, most recently, January 18. The highest price paid was R59.35, and the lowest R43.97.

News of the repurchase programme pushed the PSG share price to a recent high of R62.92 and means the investment holding company is showing a profit on its share dealing.

Prosus and Naspers execs are immersed in a similar ‘strategy’ ….

Of course there is one huge difference: where PSG talks in terms of millions of rands, Prosus/Naspers talks in terms of billions.

The most significant similarity is likely to be the boost provided to executive remuneration at both groups, unless shareholders are able to step in and mute the impact.

Sadly, given SA investors’ record on this front, there’s not much chance of that.

Retail sales

Last week’s news from the retail sector reminds us of the importance of having an engaged management team with a formidable operational growth strategy.

Read:

Mr Price took the opportunity presented by its latest three-month trading update to gloat a little over its struggling competition. It grew retail sales 5.8% in the 13 weeks to December 26, which was enough to secure an additional 2.3 percentage points of market share.

Less impressive was The Foschini Group (TFG) where, in the nine months to end-December, reasonably resilient performances from its operations in South Africa, the rest of Africa and Australia were countered by a 50% drop in revenue at its UK business. Without the sales notched up by recently-acquired Jet, TFG would have reported a 17.5% drop in sales.

Massmart steps up the outsourcing

Massmart shareholders, in particular Walmart, have probably resigned themselves to the idea that any turnaround they could hope for will be a very long time in the making.

Even without a Covid-induced lockdown, it was always going to be a tough battle to make this collection of retail oddities work together profitably.

Last week, the company informed shareholders that another management function was going to be outsourced.

Last year Massmart closed Dion Wired and outsourced the group’s SAP applications development and support to the Walmart India Development Centre. This year it is outsourcing its “financial transaction processing activities” to Genpact, which is a strategic partner of Walmart Enterprise Business Services.

Whether these moves are a damning indictment of Massmart’s management capacity or just a reflection of Walmart’s need for centralisation may never be known to outsiders.

Mining man

News that Chris Griffith will be back running a sizeable mining group is welcome – an industry can never have too many outstanding executives.

Read: Gold Fields appoints former Amplats boss as CEO

Griffith, who is described by many as the smartest mining executive in the country, rather dramatically announced his resignation from Anglo American Platinum in early 2020. In the absence of any detailed explanation, analysts speculated that Griffith, who had spent 30 years at Anglo, was keen to be the ultimate boss. This was unlikely to happen any time soon given Mark Cutifani’s secure position at the top of Anglo American.

Last week came the news that Griffith will be replacing Nick Holland as CEO of Gold Fields at the beginning of April.

Covid-19’s grim impact

Nedbank’s announcement that its chair Vassi Naidoo will be taking a leave of absence with immediate effect to focus on treatment for a medical condition that was not related to Covid-19 was as bizarre as it was necessary.

Last Friday’s announcement is a reminder – not really needed – of how Covid-19 has ravaged the globe.

Read: Jackson Mthembu’s death unites friends and rivals in tribute

The really chilling thought is that nobody appears to be safe from its deadly reach.

In recent days Spur, Sibanye-Stillwater and Telkom have each announced the unexpected passing of directors due to Covid-19 –  Graeme Kiewitz, Shadwick Bessit and Dolly Doreen Mokgatle respectively.

In this grim context it is incumbent on boards to do as Nedbank did and provide more detail than is usually expected.

On the subject of Covid-19, last week’s trading update from Mediclinic described a group that has essentially become a public-private partnership, as across the globe governments and the private sector combine forces to deal with the pandemic.

It is the only way we can expect to see some light at the end of this very long tunnel.

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The article seems to take the view that companies either have a strategy, or they buy back their own shares. The reality is a lot more complex than this “either, or” argument would suggest. A share buyback is just one of many tools in the strategic toolbox. In the current Covid and Communist planning (or, what passes for “planning”) environment, where many share prices have halved and future sales and growth are likely to disappoint, buying back shares is just about the smartest move one can make. If you have cash, that is.

End of comments.

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