MONEYWEB, Byron Kennedy, 16 November 2004
‘I think a lot of stocks have run ahead of themselves … I think start to look at your second line of industrial stocks. That’s where the value is to be had.’
MONEYWEB: Arthur Buchner from Nedcor is still with us in the studio. Piet Viljoen says it”s too close to call the bun fight between Harmony and Gold Fields. Which way do you think it”s going to go?
ARTHUR BUCHNER: I don’t think Harmony are going to win.
MONEYWEB: That’s a bold statement. Why?
ARTHUR BUCHNER: I just think they’re too different companies, first of all. We all know that. And there is so much in-fighting. If we take it back to Standard Bank against Nedcor, etc, etc, there’s always going to be a loser – and in this case I believe that Harmony doesn’t bring enough money, and they may say that they bring expertise but I don’t believe that it”s proven. They’re the hostile party and the hostile party in 90% of these transactions doesn’t end up winning. And I think that the Gold Fields shareholders see that Harmony is not the best fit for it – and that’s why I don’t think it”s going to work out. Personally, looking at all these full-page adverts in the paper and the like, it”s not the R7bn that they’re writing off to shareholders, it”s the fact that their bottom line is going to be impacted, because these things are not cheap and they should get back to mining gold. MONEYWEB: Now we heard from Piet Viljoen that all this noise should be filtered out if you’re a long-term investor. What about the traders? All this cloak-and-dagger information that’s coming out – is that the kind of information you guys would move on?
ARTHUR BUCHNER: Well, the fact of the matter is 90% of the information is coming from insider parties in both of those institutions, that are actually trying to support their bid – and who can you believe? So at the end of the day you trade the price that you’re seeing. And if it”s telling you it”s going down, it”s going down. If you look at the actual ratio, the 1.275, the market is actually trading at that ratio. So the market is actually saying to you that this deal is going to be done, or there’s going to be a substantially higher bid. Maybe someone else does come in for Gold Fields. But we had a 5% discount on it, and now all of a sudden we’re sitting right at the level that Harmony pitched at. Someone is believing that the deal is going to go through. Me as an arbitrageur – I can be partaking of the long Gold Fields, short Harmony trade.
MONEYWEB: Consensus has it that we’re in a bull market phase, our all share index at around 12,200. What’s the smart way to trade this market? Is it to get involved in an index tracker, or should you look at getting involved in stocks specifically?
ARTHUR BUCHNER: I think a lot of stocks have run ahead of themselves, and especially what you find is that the top-liners, your top 40 stocks, will run first. And then your smaller caps or your medium caps will follow. We had a run in the medium caps about a year ago. They started to flatten out. We’ve now had a nice big run in the industrial sector of the top 40. I think start to look at your second line of industrial stocks. That’s where the value is to be had.
MONEYWEB: Where does it need to get to, that all share index, before you can say it”s overheated?
ARTHUR BUCHNER: Well, it”s rand-dependent, the all-share, because about 23 of the 40 stocks are totally rand-earning facilitated. If the market’s correct and they say that the rand is going to start weakening, then I think there’s still 13,000 on it, because a 10% devaluation in the rand could take it easily to 13,000.
MONEYWEB: Arthur Buchner from Nedcor Securities is about to leave the studio, get on a plane to go to Twickenham to go see the test match between South Africa and England on Saturday. There’s no doubt about who you’ll be shouting home. But how far are the Boks going to win by? Come on, tell us.
ARTHUR BUCHNER: I’d say we’re going to win by 10, because everyone’s underestimating us and we always have one good game on tour – and it”s going to be this Saturday.
MONEYWEB: We’ll be right behind you, and we’ll be looking at the television closely to make sure that Arthur’s not having too many of those Castles, and drinking up too much of his portion as part of the festivities.