Piet Viljoen: Investment strategy

MONEYWEB, Byron Kennedy, 16 November 2004

Piet expresses his views on the Harmony/Gold Fields tussle.

MONEYWEB: We’ve just heard from Ian Cockerill from Gold Fields on an update from the Gold Fields camp. There was an annual general meeting today and the opportunity was used to muster support against the Harmony bid. We’re joined now by Piet Vijoen from Regarding Capital Management. He’s our investment strategist this evening. Bernard Swanepoel from Harmony’s pretty confident that he’s going to get his hands on Gold Fields, Piet. Are you anywhere near as confident as Bernard is?

PIET VILJOEN: I don’t know. You know, I think it’s still very, very much up in the air. I think the meeting that Harmony had last week and Gold Fields had this week shows that each company’s own set of shareholders supports that particular company. I think it’s not very easy to call at this point in time.

MONEYWEB: So too close to call, and the cloak-and-dagger stuff that’s starting to come out now – do you think that’s going to be a factor when all is said and done, when the votes need to be counted?

PIET VILJOEN: Well I think shareholders should just turn down the volume on all that stuff. It’s like Warren Buffett said in the past – Never get into a mud fight with a pig, because you both get dirty and the pig enjoys it. So turn down the volume on that stuff and just look at the Harmony numbers, look at the Gold Fields numbers, and make up your mind in terms of which company offers the most value. I think it should be as simple as that, and all this other stuff I think one should just ignore that as far as possible.

MONEYWEB: Piet, is this pretty hard to ignore when, as Ian Cockerill said today, at the AGM, R7bn has been knocked off the value between Harmony and Gold Fields since the bid was announced.

PIET VILJOEN: Yes, look, if you had been an existing shareholder I’d be pretty upset. Generally the only party that benefits from these type of transactions ultimately are the corporate financiers. And it’s becoming clear in this whole saga that, you know, these guys have been pitching business left right and centre, sometimes to both parties, so if our clients had been shareholders in either of these companies we would probably have been pretty upset.

MONEYWEB: There’s also been a lot of noise around the Thintana transaction, getting Andile Ngcaba involved and his potentially buying up a 15% stake for close on R7bn. Is that noise that investors should filter out as well when they’re considering buying or selling Telkom shares?

PIET VILJOEN: Well I don’t think it really matters very much when one shareholder is selling to another shareholder, Thintana selling to the Andile Ngcaba syndicate or consortium, and I don’t think it concerns any other shareholder. I think one has to look at the long-term effect of these transactions, because the one thing that will always be true in the financial market is that when capital is mispriced, as they are on a lot of these empowerment transactions, somewhere down the line somebody pays for it. And our view is that that will just create opportunity. So we’re just sitting back and waiting for those opportunities to unfold, because the capital mispricing does not end with everybody living happily ever after.

MONEYWEB: Piet, there’s around 120,000 South Africans that do hold a stake in Telkom. The price is flirting with the R93 level. We heard from Arthur Buchner just a little earlier. He’s not too keen on Telkom at that price. what’s your view?

PIET VILJOEN: Well, we’ve been on record previously as saying that we think Telkom is fully priced at around the R70 to R80 level. I think it’s slightly getting ahead of itself. I think there’s huge regulatory uncertainty in a company like this, because the regulators can either decide that in the long term Telkom can make a lot of money, or they can decide that Telkom won’t make a lot of money. It depends on how they view and how they would want to influence a competitive landscape. So with that sort of regulatory uncertainty hanging over a share, management can only do so much to influence the underlying value at the end of the day, and that to us is not an attractive prospect as a shareholder.

MONEYWEB: Piet, some big insurance company third-quarter trading updates come out this week. Metropolitan Life’s numbers out today look very good. Old Mutual’s are coming out tomorrow. How important are these numbers that are coming out this week?

PIET VILJOEN: Well, I think they’re important to the extent that it shows – well, we don’t know what the Old Mutual numbers are going to say, but, looking at the Metropolitan numbers, it does show that it looks like they are gaining traction in the lower end of the market. And the reading one can probably take from that is that that part of the market which a lot of corporates have in the past ignored is actually growing, and the disposable income is growing in that portion of the market. And I think Metropolitan seem to be well placed and are taking advantage of that. Having said that, a quarterly update doesn’t give you full disclosure. It gives you some numbers in terms of policy sales and that sort of thing. That’s the sort of conclusion that we draw.

MONEYWEB: I guess we don’t know what their costs are going to be to generate that kind of business.

PIET VILJOEN: I think is very interesting that, if one compares Old Mutual with Metropolitan, Old Mutual went offshore in a big way – a lot of money in both the UK and the US – and has very little to show for it, except huge asset write-downs, whereas Metropolitan stayed in South Africa and has expanded into the lower end of the market which [indistinct] has been very unpopular. And to compare the performance of the share prices over the past three years Metropolitan by far outperformed Old Mutual.

MONEYWEB: Well the quality of that line started to deteriorate, so we’re going to have to leave it there with Piet Viljoen, who is from Regarding Capital Management.

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