MONEYWEB, BY ALEC HOGG, 3 DECEMBER 2002
MONEYWEB: David Shapiro we won’t be talking to you about that Corpcapital story, but we will be talking to you about the markets generally. Before we get into that, though, congratulations to Nicky Newton-King. I see she’s been formally appointed as Russell Loubser’s successor, as deputy CEO.
DAVID SHAPIRO: That’s the second appointment after Leanne Parsons was chief operating officer, and now Nicky as deputy.
MONEYWEB: Does this mean that Russell is on his way out?
DAVID SHAPIRO: No, not at all. I just think that it’s formally recognising their administrative skills. It’s a very powerful team up there, so congratulations to her, she’s an attorney and has been there and I think done a lot for the JSE.
MONEYWEB: Certainly our favourite person at the JSE, Nicky is. Turnover much better, much stronger on the JSE today than yesterday?
DAVID SHAPIRO: Alec, the second day over R2m but look at what made that up. If you look at that it was Anglos, I think Gold Fields, AngloGold, I’m not sure Angloplats ? it was made up of three shares which made up almost 30% of the market, so very highly concentrated on the resource sector. Take that away and not much trade below that.
MONEYWEB: A lot of trading in those stocks, playing if you like.
DAVID SHAPIRO: I don’t know if it’s playing, but certainly activity, and I think most of it probably coming from offshore movements, buying of these stocks overseas. If we look at our market today, the resource sector, considerably more than half is actually owned by foreigners. So when foreigners go into the market this becomes the source of shares for those markets.
MONEYWEB: Arthur Buchner was certainly saying last night that there’s a lot of trading going on, particularly in the platinum stocks, so I suppose to see Anglo Platinum up there, people going short of Impala Platinum, long of Gencor, he was explaining it to us after the programme.
DAVID SHAPIRO: You know, Alec, I mentioned it the other evening, and it’s interesting to look at the relationship between Angloplats and Impala, which are the world’s two leading producers of platinum. Angloplats is shading Impala at the moment, but over the last year or so Impala has outperformed Angloplats dramatically. If we went back a year ago, the share prices were equal even though there’s been movements in both of those share prices, but they were on a par. Today Impala is at a factor of 1.8 versus Angloplats. So if you were in a straddle ? that’s what he calls it ? if you would have bought Impala and sold Angloplats, you would have knocked in a lot of profits, and that’s what he was trying to explain. So the rating of Impala has improved dramatically against that of Angloplats.
MONEYWEB: David I know you’re not a tickey-stock watcher, but you’ve got to be a little concerned at what’s going on with AME. It’s a share that was at 5c as recently as beginning of July. It’s 1c today, so it can’t go any lower than where it is right now and it has to be a bad signal. Now, remembering that AME has got quite a high debt proportion, it’s got some nice assets there ? but assets don’t help you if your debt exceeds it.
DAVID SHAPIRO: But they’ve spoken about it ? Kevin Carter’s been on the programme?
DAVID SHAPIRO: Coyle, sorry, Kevin Coyle’s been on the programme talking about restructuring the asset base of that company. I know there was a failed take over, so of the assets I don’t know where it’s going now but at 1c, 1c spells danger.
MONEYWEB: Yes, just talk as someone who’s watched the market for a long, long time. You see a share price sitting at 1c a share, there’s somebody who’s prepared to sell, and there were 500,000 shares that traded today, OK at 1c it’s not a lot of value but it’s still 500,000 shares that one at a point in time presumably you bought them for quite a lot more money and you’ve seen earlier in this week we’ve had 6.2m shares trading as well also at 1c. Somebody’s prepared to drop them at 1c.
DAVID SHAPIRO: Well it means that you’d rather get whatever you can out of it, believing that the company is going to go belly-up. I think it’s a very strong signal that things are not going well where you get someone prepared to sell shares at 1c.
MONEYWEB: Perhaps time to get Mr Coyle back onto the show. At the other end of the scale, you mentioned golds had a good day and so did Bruce, but Dimension Data also picked up well.
DAVID SHAPIRO: Sure, I think, I’m not quite sure what’s driving that but that’s a good move over 400c again, and edging up. We’ve had a very good recovery in tech stocks on the Nasdaq so I think it might be on the back of that that we’re starting to see some buying. While the blue-chip Dow Jones hasn’t quite made it, I think the Nasdaq has been edging towards that 1,500 and slowly recovering and what you’re finding now is that, with the recovery in the US market, I think there’s a more aggressive attitude on the market. People are prepared to take that more aggressive stand and buy growth stocks again. There’s an interesting thing that came out as I was on my way here. Richard Bernstein, who’s the Merrill strategist, has now downgraded his holding from 50% to 45% in equities, calling the market highly speculative, so it’s bound to have some impact and could take the edge off those markets.
MONEYWEB: Hasn’t taken the edge off Iscor, though. There’s lots of fun and games going on there. We’ll be talking to the man who’s been driving the purchasing of almost 50% of Iscor now by an international group. The share price, though, reacted well to today’s announcement that shareholders can sell 16% of their shares for R30 a share. But, David, if you own 1,000 shares does that mean that you can sell, say, 200 shares for R30 ? but you’ve got to keep the rest?
DAVID SHAPIRO: You’ve got to do it, you have to do it because the current share price is R24 ? so you may as well get R30 and you can go on and use the money and buy more shares back on the market if they don’t go up to R30.
MONEYWEB: What’s the sense in something like this?
DAVID SHAPIRO: I think LNM are trying to build up their stake to just under 50%. It’s a huge success story and remember about a year or almost two years ago Iscor was trading at R12. Now, together with Kumba, close to R50/R60 and I think the relationship with them is really proving very, very positive. Even though steel prices are down.
MONEYWEB: Today’s announcement says when Iscor was unbundled the share price was R5.92, and you’re sitting today at R22.79 is where it closed.
DAVID SHAPIRO: Yes, that’s taking away the Kumba, or putting a value on Kumba, so if you’ve held it it has to be one of the success stories of the last month.
MONEYWEB: Yes, that R5.92 is the Iscor side. Amongst the stories we’re looking at tonight is the acquisition by PSG of Appleton. Now, you’ve got to start questioning companies that move into aggressive share buy-backs and Appleton went into this mode in February to June last year. They bought back their own shares, 4% of their own shares, using good cash in the company, at between 8c and 15c, and today the whole company’s being sold for 9c a share.
DAVID SHAPIRO: Well that just shows you ? don’t buy back shares in a bear market, because you lose value ? and I think this proves it. I think that companies have to be very careful when they do buy back shares because it doesn’t necessarily improve the rating, so I think it’s a bull market strategy, not necessarily a bear market strategy. And I think BJM this morning, also another company that in fact bought back their shares if you look at that balance sheet you’ll see that they actually had to write off their treasury shares, meaning that it was a bad strategy. And I think they continue to do so again. I think they’ve got to relook at the strategy ? rather give it back to shareholders.
MONEYWEB: What happens in a case like that? If you, as a manager of a company, make a stupid investment somewhere and you cost the company money, surely there’s some discipline for it? In these share buy-backs the guys merrily go ahead, buy back the shares, keep the share price up for a while but ?
DAVID SHAPIRO: I think that’s a worst, because shareholders never attend the meetings and never bring these things up. When they do, it’s normally with a soft voice. But I think you’ve got to look at management’s decision to actually do that and what the purpose is. In most cases the purpose is to lift the earnings and therefore lift the share price, but it doesn’t always work.
MONEYWEB: There are some notable exceptions to the rule, Sasol being an obvious one and Reunert also amongst them.
DAVID SHAPIRO: Sasol did it in the bull market when their shares were R40 or thereabouts, and they were able to then pass those shares on, but in a bear market?
MONEYWEB: No, they’re still holding onto those shares.
DAVID SHAPIRO: Well they’re still holding, so they’ve made a considerable profit on those shares, but I think where the market is tending down, don’t try and support it and don’t go against the trend.