Bruce Whitfield  00:06

To Peter Brooke, who is Portfolio Manager at the Old Mutual Investment Group. And it's been, I don't know, a month since we last spoke, Peter Brooke, and things have changed quite substantially since then, in terms of if there was a competence indicator for - oh, there is, it's called the currency. Our national confidence indicator's taking a bit of a knock, hasn't it?

Peter Brooke  00:28

That's right. I would probably use the SA bond yield as a better indicator. And that has sold off quite a lot. So, SA bonds, which we were saying sort of six months ago, we said, wow, these are attractive, they're offering great value. Well, they're offering better value today.

Bruce Whitfield  00:48

Yeah, offering, and this is where the discussion around the potential of value traps, we had Duncan Artus at Allan Gray last week saying South Africa risks developing value traps in different parts of the market. There's some shares that are incredibly cheap. And they say cheap, and they get cheaper and cheaper and investors in them get more and more despondent about the prospects for them. I don't know that South Africa's on that never-ending downward trajectory, but how would you feel about some, you know, the bond market being something of a value trap at the moment?

Peter Brooke  01:24

So, I think it's better than to basically look at all that and say, what's being priced into them. And if you go and look at our bond market, you've got inflation of 5%. And also, you can... because we've got inflation linked bonds, and we've got bonds listed overseas, you can actually work out every part of the chain. And the truth is, it's really the country risk premium has risen a lot. Whereas inflation expectations have been pretty well contained, suggesting that the market still believes in the central bank, and that we'll hike rates into higher inflation. 

Peter Brooke  02:03

So, how much is enough in terms of that risk? I think in bonds, there's more than enough. And I think the value trap problem really lies much more in the equity space, because with higher interest rates, you get slower growth. So, let's take an example today, KAP put out their trading statement. Now, KAP, we think it's a really well run business, we like management. But we don't own any of their shares because they're in that part of the economy in terms of manufacturing in South Africa, very much linked into cost price inflation, tricky volumes, hard to execute in terms of your electricity supply. They produced their trading statement today, they were down four and a half percent, they're trading at R2.80. 

Bruce Whitfield  02:56

There's them, and then there's two other companies that are in the market that have come out with results today. There's Calgro M3, and if memory serves, these are guys in the affordable housing sector. And you've got Raubex, the road builders, that came out with results today. And both sets of results, actually in terms of a sector that is battered, bloodied, and bruised, actually holding up fairly well, it would seem. 

Peter Brooke  03:26

So, Raubex is a share that we've liked for some time. And then they delivered very credible numbers. Turnover up 32%, operating profit up 35%, and headline earnings up 32%. I think the good news was that the order book was 20 billion rand, so up from 17 billion rand, and quite well diversified. And you're starting to see... I'll give you an example, some residential property development in the Western Cape. So, maybe Joburg is battling a bit, you know, people migrate, but you get a winner on the other side. There's always opportunity. Another area that started to see some growth is you starting to see some renewable energy projects coming into the book. And that's a big opportunity for building and construction and fixed investment. So, yeah, good numbers from them. And it goes back to what I've always said, which is within the market, there's always opportunities to find some winners and losers. Interesting one in the fixed investment space, is there's very few players left. So, if you... the growth that is available, goes to those handful of players. So, for instance, Stefanutti Stocks put out a trading statement today. They're basically intensive care and are selling assets and their core business is still loss making. So, one's a winner, one's a loser. 

Bruce Whitfield  04:53

Yeah, tough times. And, you know, some people will fail, and some people will succeed, and the consolidators generally are the large companies in the next 20 years or so, provided they play it well.  

Bruce Whitfield  05:06

Vodacom. I just had a long chat with the Chief Executive, Shameel Joosub, this evening, and, you know, mitigating against the risk of grid meltdowns but can't protect themselves completely, huge additional costs, like every business in the country, in terms of having to make a plan while the failure of Eskom to do its job, you know, costs a vast amount for this economy.

Peter Brooke  05:33

You know, it was interesting, if you look at their results. They were up very slightly today, basically 0.3%. But remember, last week when they put up their trading statement, they were down 6%. So, the market hasn't been excited by this set of numbers. I think that's fair enough. But if you look, generally, results coming in are starting to show that pressure of loadshedding, and of the slowing economy. One thing that I did notice within their results is their financial services business is now 9.9 billion rand. 

Bruce Whitfield  06:08

It's astonishing!

Peter Brooke  06:12

It's extraordinary. So, first of all, I mean, Vodacom as we know is vastly bigger than it used to be. I mean, they've added Egypt in now, they've used Safaricom, investing into Ethiopia, so we're creating some really great Pan-African businesses. And in terms of financial services, this is quite cutting edge stuff.

Bruce Whitfield  06:36

Thank you. Peter Brooke. Peter is a Portfolio Manager at the Old Mutual Investment Group. Its data consumption, which is up hugely and its financial services nearly 10 billion rands worth of business coming through in the financial services part of the business of Vodacom. The big result today, Vodacom, Calgro M3, and Raubex performing nicely. Also updates from Stefanutti Stocks  and CAP Industrial, which is not something which is on Peter Brooke's buy list at the moment. Former Absa Director, Sipho Pityana, key figure of course, in the business community and leading the push back against Jacob Zuma. Massively courageous in that battle. Now, he has won the right to see records around his removal as a director of the Bank of Absa of Absa Group. He was in line to be the next chair at Absa, had it not been for an allegation, which as far as I can tell, has not been tested in court, or I don't know if there's been a finding on it anywhere, nothing that I can find, that he'd been accused of sexual harassment while the Chair at AngloGold Ashanti. Now, the bank was apprehensive about this, the regulator was apprehensive about this. And Pityana was told he couldn't be chairman. He then went full leather for the regulator to say, "you can't intervene in this matter". The regulator said it could and it got very, very messy. Now, Pityana had challenged his dismissal, which is what it led to from the Absa board in 2021, He is also accusing the Reserve Bank of interfering in his appointment as an Absa Board Chair. Pityana, of course, dismissed by the board after they decided that he'd pursued personal interests to the bank's detriment. In other words, picked a fight with the regulator, when he went public about his unhappiness about not being able to stand for chair of the group. So, yeah, it's a victory for Sipho Pityana, it doesn't solve all of his problems, but he will have access to the records of information, that were - and the discussions that were held, and he'll better understand how the bank came to its decision. And then he'll, I suppose, decide whether or not to take further action on that basis.