Bruce Whitfield  00:00

Chief Investment Officer at the Old Mutual Investment Group, Siboniso Nxumalo, this evening. Siboniso, if you were asked to vote in the shareholders meeting as to whether or not you think the strategy outlined a moment ago by Sipho Maseko was more favourable than the existing Telkom strategy, which way would you vote?

Siboniso Nxumalo  00:40

I would vote in support of Sipho, Bruce. I think if you look at Sipho, when he joined Telkom back in the day, he outlined a very clear strategy. And if we look at how he executed that strategy, that was great for shareholders, of which the government itself is a shareholder. He was very decisive, was very clear. And you could see the underlying fundamental performance of Telkom improving. So, when we sit where we are today, the market's actually telling you how, in theory, shareholders should vote, because before Sipho's bid came to the table, the Telkom fundamentals, if you look at their free cash flow generation, their earnings, and their cost, that actually just looked like, okay, somebody's got to do something with that. And then with this bid suddenly started coming into the market, actually, that's what really jumped. So, that tells you, the market's saying, hey, something needs to happen in this particular company, and Sipho and his constituents are the right guys, because they've recognized what the assets are. And the assets aren't the old telephone lines, but it's that infrastructure around data. And in the world that we live in today, that infrastructure is very important, and under the right hands, it will be worth quite a lot more going forward, than under the wrong hands.

Bruce Whitfield  01:56

Yeah. Okay. So, how do we see this playing out? I mean, Sipho Maseko says he's retreating, he's walking away for now. One gets the sense that there is going to be quite a lot of very quiet and persuasive work happening in the background, perhaps before a new pitch is made. Certainly, Telkom doesn't get left alone to focus on the business of being Telkom, it's going to have to ward off suitors all over the place. It's spent the last year doing it, and it's not going to, you know, unless it can make a really strong case for independence. I can't see suitors leaving it alone.

Siboniso Nxumalo  02:30

No, they won't, because the suitors are recognizing the value of the assets. The assets are highly valuable. And they're say, well, actually, under the right hands, we could extract far more value than under the current strategy. So, Bruce, I reckon there's gonna be one of two things that happen. It's either the current management and current, I suppose shareholders, which is the government in this case through the PIC, are either going to have to come up and say, hey, we've got a better strategy. And therefore and articulate what that strategy is. Or, they're going to have to come back to the table and say, actually, you know what, we need to do something here, and probably let the asset go to better hands. Because either way, if that happens, the government themselves with whatever remaining shareholding they would have, would win. And so, the incentives, yeah, are quite aligned.

Bruce Whitfield  03:20

Okay, I'm looking forward to seeing how this one plays out. Today wasn't the best of days from an investor's perspective on the JSE. It hasn't been the best of months, it hasn't been the best of six weeks, as far as this is on the JSE concerned. We're kind of in the doldrums at the moment, I'm afraid. How are you feeling about what you're seeing at play on the JSE at the moment, Siboniso?

Siboniso Nxumalo  03:41

Yeah, Bruce. So, I suppose as investors and as people who do research, one of our ways of making decisions is talking about themes. And one of the themes that we've been thinking are going to drive the market is what we call a global cycle down. So, we are seeing a slowdown in the world. And we are saying, actually, you need to invest with caution because we're seeing a slowdown. So, why are we seeing a slowdown? Well, in the US the biggest economy in the world, we've seen interest rates rise very rapidly. And last week, we got news that obviously the jobs market is still far stronger, which means the Fed is going to increase interest rates even more, which means at some point, the risk of a recession rises rapidly in the US because whenever interest rates increase at high speed, recessions tend to follow. Now, look at the second biggest economy, China. China came up with inflation data. So, while the rest of the world was struggling with inflation, China went into a slight deflation. So, that economy, that's a sign that that economy is not growing. So, now you've got two powerful economies that actually have got a risk of slowing down. And so, that for us, adds to the caution. Now, Bruce, if I take you to where our market is really struggling which is resources. Now, resources are interesting. So, if we take a step back and look over the last month, especially the platinum group companies. So, Anglo American Platinum is down 28% over the last month. Impala Platinum is down 25%. Northern Platinum is down 23%. Lot of big moves. And now, Bruce, why do those moves matter even more for South Africa than just the market? Well, those platinum group companies, they produce platinum group metals, palladium, rhodium, and platinum. And those metals are used in what's called catalytic converters, the stuff that goes in your petrol car, that cleans out the fuel that comes out of there. It's all good for this green world that we want to live in. Now, those three metals, platinum, rhodium, and palladium, rhodium was close traded in 2001, close to 30,000 an ounce. Now, it's 4 000. Palladium in 2001 peaked close to 3 000 an ounce, now it's 1 200. And so, Bruce, we've got a problem here. Because in South Africa, our corporate taxes, 350 billion of corporate taxes, a third of that, around 130, is paid for by the mining companies, of which most of it is by the platinum companies. So, with the platinum metal group prices coming down, that means relative to 2001, our corporate taxes from the platinum companies is going to hop in 2023. That's not good for our economy. So, we might be worried about the actual share market, but the share market is going to play itself out in our budget. And so, that is the read through that says to us, the global world is slowing, that's going to impact on commodity prices, it's had an impact on the market, it's going to have an impact on government revenues. Be cautious out there, Bruce, you've got to be cautious.

Bruce Whitfield  06:54

Thank you, Siboniso. I think it’s very, very wise thinking coming from you this evening. The caution, of course, of global slowdowns is very, very much real. It's been coming for an awfully long time. It's been a lot slower than expected, because nobody had really wanted to believe that the world could possibly go into a recession, but it's becoming increasingly likely that we will see some form of recession. However short in duration that might be, and that's painful, it's painful in the short term. And with inflation running not amock, inflation certainly coming under better control than it was a year ago, even two years ago. Inflation is still way outside of the comfort zone of central banks, and they're gonna keep raising interest rates. So, as Lesetja Kganyago has told us as much, we've got those signals coming through very strongly from the United States over the last couple of weeks as well, that they're not going to give up on fighting inflation, because of the destructive power of inflation on everybody is that much more terrifying than what you're going through at the moment.