Arthur Buchner: JSE Report


BROADCAST TRANSCRIPT. We’re joined now by Arthur Buchner from BOE Securities. Arthur, a little profit warning from Richemont. Did it take you by surprise?

ARTHUR BUCHNER: It definitely took the market by surprise because over the last three to four days Richemont has actually been the strongest stock in the market and, funnily enough, yesterday we were commenting on how the rest of the market was looking quite good, but it wasn’t, so someone must have had a little bit of advance warning.

MONEYWEB: Well, you say that. It is the JSE’s second biggest company, yet the JSE down just 16 points on the day. Richemont wasn’t that affected by that warning?

ARTHUR BUCHNER: That’s what amazed us, because it opened down about R12 on the opening. Then steady buying from Switzerland, funnily enough, held it up. And if you look at the total volume on the day, 700m was Richemont’s and 2.4bn was the total market trade, so 30% from one stock.


ARTHUR BUCHNER: And it was definitely out of Switzerland because UBS Warburg were the biggest buyer and did about 90% of that volume.

MONEYWEB: But having a look at the warning. It was issued as a trading statement as so many of these things are. It did warn that its operating profit would be down 20%. Having a look at other luxury goods manufacturers, distributors around the world, LVMH, for example. In far more serious trouble than Richemont. Is that simply because Richemont has the advantage of selling tobacco as well, which is lightening that load, lightening the burden, rather?

ARTHUR BUCHNER: I think it is more diversified, but even though it has very upmarket products, it’s not all upmarket, whereas LVMH tends to be totally upmarket. Richemont can produce to the middle market as well.

MONEYWEB: OK. Having a look at the financial sector today, there were some very interesting moves there. I saw an announcement on SENS just a little while ago – which you may not have seen when you left the office. African Merchant Bank has bought back 1.25m shares. No surprises there, it did say it was buying back the shares. It is de-listing those shares, so lowering the number of shares in the pool, yet AMB today down 6% to R8.40. It hasn’t been that low in a while.

ARTHUR BUCHNER: It depends on where your earnings are really coming from, and people, when they’ve looked at AMB, they don’t think they’re sustainable. Even in a share buy-back, if you’re not going to produce any increase in earnings, then you’re not going up, even if you do a share buy-back. A share buy-back, I believe, is a temporary solution. And it’s almost always short-term gain for long-term pain.

MONEYWEB: Because it does make your earnings per share line look a little bit more healthy than it would look otherwise?

ARTHUR BUCHNER: It does, but if you’re not producing the earnings then it has no effect.

MONEYWEB: Surprise moves there. Liberty down 5%. Any thoughts on that one?

ARTHUR BUCHNER: There was a huge seller in the all-share market today on derivatives, and there were a lot of reverse arbitrages through the market. As it is one of the higher market caps … if there’s no support for it that day, it does tend to get knocked. And if you look at Absa, it was pretty much the same thing. Liberty also.

MONEYWEB: OK, because Absa over the last couple of days has been running very strongly. There’s been a lot of speculation in the market that Sanlam is poised to take out at least some of the shares held through the shareholding that owns 23% of Absa. Sanlam already owns about 24%. Yet I spoke to Liam Vermaak today, the chief executive officer of Sanlam, and he didn’t sound nearly as confident that he was about to make a bid.

ARTHUR BUCHNER: I’d be surprised if they came in and made a bid. I think Sanlam itself are trying to keep their own share price where it is. So why go in and suddenly be adventurous and take something else out when you can’t even maintain your own share price?

MONEYWEB: The gold price is moving tonight. $277.20 when we last looked. It has been down at $275 for most of the week.

ARTHUR BUCHNER: Yes, do we get excited over a dollar?

MONEYWEB: We get thrilled over a dollar, I think.

ARTHUR BUCHNER: It has come back from $282 and it tested the $275 level which was good support. And funnily enough with gold, the shares always lead the gold price, not the other way around. If you look at AngloGolds over the last two days, they’ve held very, very well. And arbitrage selling … I think gold is actually poised for a $2 or $3 bounce which we’ll see in the next two days.

MONEYWEB: Also interesting to see Nampak. We did have Astrapak reporting its results earlier this week. It’s a small cap packaging company. Then on Tuesday we saw all the little packaging companies, plus Nampak, add some value. And today it got smacked 6%. Is that the same sort of story as Liberty?

ARTHUR BUCHNER: The funny thing with Nampak is that at certain levels there’s a huge buyer, and then as soon as you get up to the, I think, it’s the R11 levels, there’s a huge seller. It’s actually trading at a range between R10.20 and R11.

MONEYWEB: Have you been following this Discovery Health spat with the Registrar at all?

ARTHUR BUCHNER: I’ve been reading about it. I only have one comment. I don’t look at a company necessarily because of the earnings they produce and the results they produce. But I do look at a company when they start to advertise excessively … I start to get worried. And if they go out and they build new offices I also get worried. In today’s paper suddenly there was a full page advert – and these things cost between R100,000 and R200,000 – by Discovery, saying don’t worry, everything’s great. So I get nervous.

MONEYWEB: You talk about offices being built. That did cost them a fortune, but we have seen a large number of corporate buildings going up in the Sandton area. Nedcor, for example, just before the share price dropped dramatically, moved into its new buildings, and then of course Didata is building a great brand new campus in the northern suburbs of Johannesburg as well.

ARTHUR BUCHNER: Well, I think it proves my point.

MONEYWEB: Arthur Buchner from BOE Securities.

Posted in Market commentary

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