Arthur Karas discusses some positive investment activity in the market this week amid the headwinds facing the country’s foreign investment drive, as well as encouraging performance from Sappi and Mondi.
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Arthur Karas discusses some positive investment activity in the market this week amid the headwinds facing the country’s foreign investment drive, as well as encouraging performance from Sappi and Mondi.
Thanks for listening! Follow us on Linkedin.
Bruce Whitfield 00:00
Arthur Karas, Portfolio Manager at MacroSolutions at the Old Mutual Investment Group, on the line to us from Cape Town this evening. Nice to see a little bit of positive investment activity, we hope, Arthur Karas, but it is coming against some fairly severe headwinds. It's really as to whether or not we can convince foreign investors, I suppose, that the stuff we promised we would do five years ago is beginning to come to fruition.
Arthur Karas 00:30
I think that's correct. I think you've mentioned probably some of the larger headwinds, both Transnet and Eskom being real obstacles in terms of getting the country moving again towards some economic growth, but they're also trying to convince investors to invest in emerging markets in a macro environment where normally one doesn't expect emerging markets to do well while rates are going up, while the dollar is so strong, and while the globe is heading to recession. So, it's a tough ask for them.
Bruce Whitfield 01:01
Yeah, it is. A couple of nice performances coming through, though, I mean, Sappi and Mondi are both global companies with operations in South Africa, both were strong on the day. And that was off the back of a really positive update coming out of Sappi.
Arthur Karas 01:13
That kind of - the Sappi story really kind of encapsulates where we are with resource and commodity stocks. So, in the case of Sappi, they've been benefiting from strong prices for the products that they produce, so it's paper, packaging, dissolving wood pulp, and pretty much the market had made up its mind that the result that they're going to, or that they had released, was pretty much going to be the top of the market. And from here on, we're going to see the other earnings from them. And as a result, the share price is actually trading at a very low valuation, and you're paying like something like four times forward earnings if you buy Sappi today. And then they came out this morning, and they indicated that they were in fact going to have a strong quarter, Sappi does report quarterly. And this was going to be well in excess of what people expected. So, it gave the market a bit of a positive surprise there, saying that notwithstanding high energy costs in Europe, prices have held up well, they've had an excellent quarter. And that led to the paper companies getting a bit of a bump up.
Bruce Whitfield 02:17
Ja, they got a lovely bump. Sappi's bump was 8%. And Mondi's was around 4%. Famous Brands also, of course, Famous Brands, Steers, Wimpy, Mugg & Bean, and a whole bunch of others really now beginning to recover from the dark days of restaurant closures and bans on the sale of hamburgers.
Arthur Karas 02:36
So, they had really two issues that they were dealing with. Prior to Covid, they made an acquisition in the UK, bought a burger chain there. And they'd really done that at the peak of the, you know, eat out, the casual dining experience in the UK, just as those chains all expanded in the UK, and that really was something that they timed poorly. It cost them a lot of money, they spent a couple years trying to fix it, trying to make it work a bit better. And then on top of that, they ran into Covid. So, they now... appears to be shut down that UK business, it's out of their earnings. And we're back to the businesses that we know as South Africans in Famous Brands and we've steadily coming out of the lockdown period, with earnings' recovering. On top of that, their reporting or the trading updates refers to the month to August, and usually you'd expect the second half of the year there is a good piece that struggles, Christmas to be stronger as people go on holiday, they tend to eat more. So that all augurs quite well for the Famous Brands' full year results.
Bruce Whitfield 03:46
Wonderful. Thank you, Arthur Karas, Portfolio Manager at MacroSolutions at the Old Mutual Investment Group. Negative day for the JSE, pretty much in line with what's happening in global markets today. Still the big underlying themes: rising inflation, rising cost of living, rising worries about continued rises in interest rates. Those are... that's where we are in the world at the moment and that's going to dominate the agenda for some time to come. I see the former RMB - Rand Merchant Bank - Chief Executive James Formby, who stepped down, announced he was stepping down months ago with RMB. And then I think officially left last week or the week before. James Formby joining the board of Pick n Pay as a non-Executive Director. It's his first roles since stepping down from the bank a couple of weeks ago and I don't think that will be the last appointment either. James Formby going into the non-executive roles that are available to him. Very talented guy, very capable guy, interesting to see him turning up at Pick n Pay.