The Money Show | Navigating the shifts in telecom, mining and food industries

Portfolio Manager Arthur Karas discussed the current landscape of the telecom, gold mining, and food industries on 702’s The Money Show this week. Arthur highlighted the shift in user behaviour from less voice to more data, Harmony's strong performance that is sparking interest, and Premier Foods appearing to weather the storm better than Tiger Brands.

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Transcript

Bruce
Arthur Karas is a portfolio manager at the Old Mutual Investment Group. Vodacom's updates decline in earnings, Arthur. They're attributing it to startup costs in Ethiopia. But I think the cell phone businesses are much tougher than it used to be, isn't it? 

Arthur
It definitely is. I think that we're all using a lot more data than what you're used to, but we're using less voice and you can see that the data volumes are still looking good but the prices don't go up. In fact, for most of us they've gone down for a couple of years and Vodacom is suggesting that they're going to start to go up a little bit. But I think that's part of what they're facing. Lots of volume growth but no price growth

Bruce
Is any big problems that you spotted in these first half results other than a slight decline in profits explained away by Ethiopia. 

Arthur
I think that you need to look through this result. They spent about 11 billion on purchasing Vodacom Egypt. They also issued about 250,000,000 shares for that. So there's been some dilution at the per share level. There's additional debt to pay for that business. So that's something that the business still has to digest. So I think that you kind of need to look through that. Globally mobile businesses have gotten mature and I think Vodacom is on that track and they are looking for growth by buying into other markets where they think there's still scope for consumers to use more data. 

Bruce
Yeah, it's all the story about data. We've been talking about this for 20 years and it's truly coming to the fore now and it's a very expensive service to provide and they can't necessarily get all of their money back very quickly in the same way as they did with voice in the olden days. Harmony came out with a really strong trading update this morning, which was quite nice to see, actually an 8% leap in the share price related to news. Real news of good production. 

Arthur
Yes, good production, lower costs and higher grades. Definitely the kind of thing that can be a little bit surprising in a very positive and nice way from gold mining companies where they faced rising costs for some time. And as a gold mining industry in South Africa, we face generally lower declining grades for many years. So a very positive result and you can see that the market positively surprised by that given the strong result and they're sticking to their guidance for the year. So definitely a great result from Harmony, which remains, which is now the most leveraged gold mining company that you can buy as a South African, because it's got mainly South African or almost all South African production, as opposed to the other gold mining companies that have got quite a bit of global gold mines in them, which means you don't get the same leverage when the rand weakens. 

Bruce
Yeah. Now that's the big advantage, of course, and the big downside when it goes against you. But Harmony in a sweet spot right now, Premier Food seems to be holding up a bit better than Tiger brands. 

Arthur
Yes. And I think that you can see a lot of the story. There's what you've had with these food companies, and it was apparent in what's happened with Rhodes Food Group as well, even though we've only had a trading update from them, is that what we've seen is we've seen very sharp rises in their commodity prices, and they're unable to pass that all on in one go to the consumers. Typically, the supermarkets that they sell the goods through won't accept that, so they get a steady increase in prices over time. So they kind of catch up, as it were. And at the same time, they've got quite a big program of rolling out new, more efficient mega bakeries that can produce bread in a more efficient way. So they're seeing the benefit of that as well. 

Bruce
Thank you, Arthur Carras. Arthur is a portfolio manager at Macro Solutions for the Old Mutual Investment Group.