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    Markets and green light

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    Markets and green light

    Post  Seck on Mon 22 Jul 2013, 21:46

    THIS IS A INTERVIEW


    Smiles for Absa, gold shares rocket – and words like ‘ominous’ and ‘worry’ are heard.
    - DOWNLOAD THIS INTERVIEW

    HILTON TARRANT: David Shapiro of Sasfin is alongside me. David, before we get to you, the deal by Absa to buy Barclays African operations in a transaction worth R18bn has received the final nods of approval from regulators on the continent. Maria Ramos, the group chief executive of Absa joins us now.
       Maria, you had set your sights earlier on closing out this deal in the first half of the year. It needed regulatory approval in each of those eight countries. A few weeks after the end of the first half – not bad.

    MARIA RAMOS: Well, good evening, Hilton. No, it's not bad at all. In fact, we had the September 30 as the final closeout date and we've done it well ahead of that. So I'm quite happy by the way we've managed to close it out effectively two months ahead of our final closeout date.

    HILTON TARRANT: Maria, to recap, you are buying Barclays operations in eight countries across the continent, but you have been running these businesses for Barclays for a number of years now.

    MARIA RAMOS: Yes, we've been running them for the last just over a year-and-a-half now. We decided to bring together the businesses from an operational point of view, which meant that we closed the Dubai office of the Barclays Africa businesses down and consolidated the businesses in Johannesburg.
       But I think we had wanted to try and bring the businesses together more than just operationally, and so we announced in August last year that we were going to try to do this deal, and we went to Absa shareholders in February this year.
       I think this gives us really a great platform now across eight countries in Africa to build a really good business. Barclays have been in many of these countries for a many, many decades across Africa – for almost 100 years. We've got a well established…business-banking platform, a good platform for corporate and investment banking and for our card business.
       We've done well to establish insurance businesses in Mozambique, Zambia and Botswana and we are going to be growing those in a number of other countries. So great business.

    HILTON TARRANT: Maria, just looking ahead, this new vehicle, Barclays Absa group, which is practically the enlarged Absa Group on the JSE – will this be the preferred vehicle for further expansion on the continent?

    MARIA RAMOS: Absolutely. So the Absa Group becomes the Barclays Africa Group on August 2, and this becomes the vehicle through which we would do any other acquisitions across the African continent.

    HILTON TARRANT: Thanks to Maria Ramos. As Maria says, they will start trading as the Barclays Africa Group at the beginning of August.
       David, did you know that a third of Barclays’ employees work for Barclays Africa after the closing of this deal?

    DAVID SHAPIRO: One third?

    HILTON TARRANT: One third, almost 50 000 people.

    DAVID SHAPIRO: Very good. I just hope we are able to actually make Africa work and see what the benefits are, because I know that FirstRand have been battling there with their strategy. But a lot is leaning on the Africa growth story for a lot of South African countries – and of course the banks can lead the way. Well, let’s see. That’s a big number. They mark it under Barclays, not under Absa.

    HILTON TARRANT: Definitely under Barclays. Some of those operations are a century old in some of those countries in sub-Saharan Africa.
       Elsewhere on the market, a strong day on the JSE. Gold shares rocketed ahead.

    DAVID SHAPIRO: I can only think that the bears are being squeezed. Whoever sold that [the gold price] down to $1 200/oz are suddenly starting to get squeezed a little. It's more a response from a very oversold position. But one thought that the support base would be round about where we are now, $1 325, when it fell all the way from $1 800, but it seemed to go down to $1 200, I think pushed by bears. And they must be covering in now, or certainly being squeezed.
       But the commodity prices were up as well, Hilton. We saw copper up, [and] the oil price. Interesting for those who are watching oil, West Texas Intermediate has now regained its lead. Remember, it was always stronger than Brent for some reasons, because of the glut that we saw in America. The oil couldn’t get to the refineries. That’s changed now and the prices are back up almost together.
       But a good day for commodities. I like things there; when commodities lead it means that there’s a better feeling about the global economy. I think we can take comfort in the moves.

    HILTON TARRANT: Gold shares up nicely today on the back of that improvement in the gold bullion price. Sibanye out with a trading update this afternoon. It sees an impairment of about R600m for its Beatrix West operations. Headline earnings per share for the six months somewhere between R1.10 or R1.70, depending on which range you take. This share is trading at R9.

    DAVID SHAPIRO: It's pretty good, I know. That’s why the share price is up, what, 6% or 7%. But in fact it was the best performer. I think Harmony 8%, 9%. So still a very good show if you believe this is the story. Remember, they’ve got to pay a lot of that out in dividends – whether this is sustainable or not at these levels. But it's the kind of earnings that I think will certainly give the share some kind of support.

    HILTON TARRANT: Group Five up 9.5% on the day. A trading update – all sorts of one-offs and adjustments in the prior period. Strange one-off accounting anomalies. Fully diluted headline earnings per share – that’s the number we should focus on – up 75% to 95%. That’s almost double.

    DAVID SHAPIRO: It is double and it takes into account the fines as well. I think today Group Five was the best-performing share of everything – above gold, up about 9%. So naturally the market wasn’t expecting such a good result. Once more, Hilton, is it sustainable? We are seeing these turnarounds. Remember, in gold companies, in platinum companies and in construction we are coming from such a low base, from very, very knocked-down earnings, and it's what lies ahead that’s going to determine whether or not construction and gold shares can actually maintain this up-trend.

    HILTON TARRANT: What about this announcement from MTN? Nazir Patel, the group chief financial officer resigned yesterday with immediate effect. This is what the statement says: “Mr Patel explained to the company that he does not wish his continued employment with the company to prejudice the company in respect of certain allegations made against him, which are subject to an ongoing investigation which had been commissioned by the company.” That sounds ominous.

    DAVID SHAPIRO: For sure it's ominous. When did that come out? Today only?

    HILTON TARRANT: It came out just a minute before five o’clock, and the timing of this is very curious. If your group CFO resigns on the Sunday, surely the market should be told in the morning?

    DAVID SHAPIRO: Well, that’s unless they had investigations, unless they wanted to go into it. But the market didn’t respond and it was one of the shares that closed unchanged on the day. That’s why I asked the question – because I didn’t know whether the news has come out. I didn’t pick it up. But it is ominous, especially for a company like MTN, which has had such a good name in the market. Yes, they’ve gone into dodgy areas, they’ve gone into Iraq

    HILTON TARRANT: Iran…

    DAVID SHAPIRO: But that’s all part of their expansion plan and they’ve handled it. But this is the first time that there have been accusations against the people at head office, senior staff.

    HILTON TARRANT: Truworths – a trading update this afternoon, the share down 7% on the day, leading the rest of the retailers lower. Full-year headline earnings per share up somewhere between 7% and 9% and there are sorts of “52 weeks this year, 53 weeks last year”. But if you do the calculations, you strip this out, and if you take 52 weeks, you take last year, in the second half earnings went backwards.

    DAVID SHAPIRO: Ja. It's an ominous sign. I think this is our soft underbelly, the soft underbelly for the market. Retailers don’t add a lot, they don’t push the needle on the all-share index, but they are still a very influential bunch of companies.
       And I also think it's going to translate into the banks. I don’t think the banks are going to be able to shrug this off, shrug off worries about spending, because it goes through in transaction costs, it goes through a lot to the banks. So it's a bit of a worry, and we are starting to get a much clearer trend of retail sales.
       Woolworths results were exceptional and there might be some exceptional companies, but generally this is pointing to weakness within the South African economy.

    HILTON TARRANT: And this is the risk that you run in disappointing a market where these valuations, these multiples, are stretched. Truworths at a P/E of 15, 16, ahead of the announcement today. And when you are not growing earnings by anything close to that number…

    DAVID SHAPIRO: Sure. I think they will still hold above their P/Es – in other words, they won't come all the way back to single digits. But I think we are going to go through a long period of inactivity or non-performance in the retail sector.

    HILTON TARRANT: Truworths down 7.08%, R80/share. The Foschini Group down by 3% on the day, Mr Price down by 3%. Pick n Pay – a new 52-week low there, R35.30 – down 3% as well on the day.

    [From end of show]

    HILTON TARRANT: David Shapiro, S&P500 in the States is looking good.

    DAVID SHAPIRO: Nearly 1700. I was just looking at the screen. In a few more points, another 0.2%, up to 1700.

    HILTON TARRANT: Heading to 1800.

    DAVID SHAPIRO: Ja, it looks that way.

      Current date/time is Wed 22 Nov 2017, 03:59