NAV on 2019/07/19
|NAV on 2019/07/18
|52 week high on 2018/08/29
|52 week low on 2019/01/02
|Total Expense Ratio on 2019/06/30
|Total Expense Ratio (performance fee) on 2019/06/30
Allan Gray Unit Trust Management (RF) Pty Limited
FTSE/JSE All Share Index
Duncan joined Allan Gray in 2001 as an equity analyst after completing his Honours in Business Science and post graduate diploma in Accounting at the University of Cape Town. He is a CFA charter holder and was appointed a trainee portfolio manager in January 2003.
As of 1 January 2005, Duncan was promoted to the position of portfolio manager and will be managing a portion of the balanced and equity portfolios of the segregated and life clients.
Allan Gray SA Equity comment - Mar 19
The local equity market recovered strongly in the first quarter and is up 13% from its low in October. Indeed, two of the larger positions in the Fund, Naspers and British American Tobacco, are both up 41% from their recent lows.
As part of our aim to outperform, we are alert to special or unusual situations where investors may buy or sell shares for reasons not related to fundamentals, for example, when an unbundling takes place. Unbundlings often present the opportunity to buy shares at an attractive valuation during the initial period of trading. This is particularly likely to be the case if the business being unbundled is a small part of a much larger group.
A recent example is the unbundling of MultiChoice Group (MCG) by its parent company Naspers. In the unbundling, shareholders in Naspers received shares in MCG, which were then separately listed. A review of research showed that investors were carrying MCG at a value of less than 5% of their estimate of Naspers’s intrinsic value.
While MCG’s pay-TV operations are well known in South Africa, many offshore investors hold Naspers as a means to invest in Tencent, its giant Chinese associate, at a discount. The value of Naspers’s stake in Tencent dwarfs that of its pay-TV business. This led to many Naspers shareholders simply dumping the MCG shares they received in the first few days of trading. MCG was not crucial to their Naspers investment thesis and would be a tiny portion of their portfolios.
When an unbundling occurs, there are sometimes regulatory and technical reasons that result in certain shareholders being unable to accept the unbundled shares and receiving cash instead. This cash is generated by the company, in this case Naspers, selling the shares in the open market. This creates even further selling pressure.
While we have always had a value for MCG as part of our overall Naspers valuation, we wrote a new detailed report on the business in anticipation of a potential opportunity. MCG also gave a lot more disclosure to the market on its financials and business which we could incorporate into our investment view.
MCG consists of the dominant SA pay-TV operator (which we know as DSTV), its Rest of Africa operations, and a small technology business. MCG has consistently been a good cash generator for the Naspers group. It is a relatively mature business in SA facing new threats such as Netflix and potential adverse regulation. However, it is the Rest of Africa business that could provide upside if it can be turned around. In the last financial year, the Rest of Africa business lost over R4b.
On the day MCG was unbundled it traded in a range of R93 - R114 and within the first week as low as R90.30. Based on our research, we believed this represented great value and were aggressive buyers for our funds. MCG has subsequently traded as high as R130 and closed the quarter at R121. We will stay on the lookout for similar opportunities in the future.
During the quarter, the Fund purchased MultiChoice and Woolworths and sold Impala and Nedbank.
Commentary contributed by Duncan Artus.
The Fund invests in shares listed on the Johannesburg Stock Exchange (JSE). The Fund is typically fully invested in shares. Returns are likely to be volatile, especially over short- and medium-term periods.