Piet Viljoen: Market commentator, Re:CM

MONEYWEB, Alec Hogg, 05 September 2006

Piet discusses Sasol, DigiCore and the Mvela Group.

MONEYWEB: Piet Viljoen joins us now for tonight’s look at investment insights. He’s with Regarding Capital Management. Piet, we need to just concentrate a little on Sasol – information coming to hand today that Sasol is writing off the Condea investment. When they made the investment initially, were you one of the critics?

PIET VILJOEN: Yes, I was. It seemed to be a very high price they were paying at the time, and the rand was also very, very weak at that stage, if I remember correctly.

MONEYWEB: And the thought then was, as Arthur Buchner from Nedbank Securities said earlier, stick to your knitting, you are really good at making oil from coal, don’t get too heavily invested in European chemicals.

PIET VILJOEN: Yes, but I think one has to cast your mind back to what conditions were at that time. The oil price was quite low, and experts were forecasting it would remain very low for a long time, and I think Sasol’s strategy at that time was to diversify away from producing oil and get into the chemicals business. You know, with the oil price at $80 and all the experts agreeing that it was going to go to $100 or higher, I think Sasol have changed that strategy.

MONEYWEB: But are they going to be selling out of chemicals entirely?

PIET VILJOEN: I don’t know if they are going to be selling out of chemicals entirely, but they are selling out of a large proportion of their chemicals business. I doubt whether they will be selling out of it entirely.

MONEYWEB: Now Piet, this is a lot of money that they’ve lost – nearly R3bn. There was a write-off also on Condea last year. Do you think there are going to be any implications for those who took the decision?

PIET VILJOEN: I doubt it. It’s five years ago. People tend to forget that sort of thing, especially when the share price goes up a lot, because there are factors outside the control of management. People tend to forget that thing. So I’d be surprised if anything does happen. You must remember that the owners of Sasol are basically the large index-tracking fund managers, and generally those people don’t act like owners. So the management has a free rein to do what they think is best.

MONEYWEB: Doesn’t this make a bit of a nonsense of executive remuneration, bonuses and …

PIET VILJOEN: Well, you must remember the share price of Sasol was up almost threefold over the past couple of years, so investors have done well by Sasol, and that tends to paper over a lot of cracks.

MONEYWEB: But that’s the oil price that drove that, not in fact anything that’s been brilliant.

PIET VILJOEN: Well, I think you’ll get a different view from management.

MONEYWEB: DigiCore – we had a chat with Nick Vlok a little earlier. That’s a nice little business, Arthur was also saying earlier – 70c to R3.50, pretty good going.

PIET VILJOEN: It is. Definitely a growth business, the way the crime situation is going at the moment. It seems to be going great guns at the moment – and no pun intended.

MONEYWEB: And the Mvela Group? We’ve got Stephen Levenberg in the studio. They are sitting on R1.6bn in cash – nice place to be. Fully empowered company, so no restrictions on what they might decide to buy. What would your tip be on Mvelaphanda Group?

PIET VILJOEN: My tip for them to buy, or my tip on the share itself?

MONEYWEB: Both.

PIET VILJOEN: I wouldn’t pretend to be able to advise on what to buy, but I am sure that a company with the sort of BEE credentials they have and cash is in demand. And they would be able to buy assets at good prices. So, yes, you are quite right when you say they are in a very powerful position.

MONEYWEB: Is it your kind of a stock? It’s got a net asset value of R12.05. The share price today was up nicely, 22c, but it’s still sitting at R8.80, so quite a big discount.

PIET VILJOEN: Yes, it’s trading at about a third discount to net asset value. The problem with Mvelaphanda is they need to demonstrate a track record of dealing fairly with shareholders before they can close that discount to net asset value. If you can compare to Rembrandt, which has a very long track record of fair dealing with their shareholders, and they trade at a 15% discount to net asset value, it’s probably not surprising that Mvelaphanda should trade at that discount.

MONEYWEB: How would they achieve that?

PIET VILJOEN: By consistently doing the right thing over a long period of time.

MONEYWEB: Buying the right companies, making the right transactions, giving back the cash when they can’t use it?

PIET VILJOEN: Yes, I think there are certain things companies do over time that show that they are acting in the best interest of all stakeholders, and they need to do that consistently through time. And it’s only time that will allow them to do that. I can only wish them good luck in that process.

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