Counterpoint’s Piet Viljoen unpacks what the disastrous unemployment data means for South African-focused investments, with nearly half of the labour force without a job. Viljoen says the ruling party needs to implement urgent reforms in order for the South African economy to thrive. He also gives his two best stock picks for 2022: Sasol and Rebosis. Sasol has had an incredible year supported by strong oil prices and Viljoen explains that the lack of investment in this space will keep pricing robust for the foreseeable future. He also chose the real estate company Rebosis, a highly leveraged property business that seems to slowly be getting back on its feet. – Justin Rowe-Roberts
Piet Viljoen on whether there are positives out of the unemployment data:
Well, the first sign of reprieve was that the ANC did really poorly in the last municipal elections. So, to the extent that their policies inflict this level of unemployment on the population and the population starts voting against them, that is a positive sign. We are grasping at straws right now. At the moment, the environment is not conducive for businesses to employ people; it’s not conducive for them to invest capital, and therefore it’s not conducive to growth. Fortunately, from an investor’s point of view, share prices by and large discount that this continues into perpetuity. I think there is a non-negligible chance that it doesn’t continue into perpetuity.
On that basis, there are still some investments that have a high enough prospect of returns to justify allocating capital to local South African investments. Having said that, and I’ve said this before, I think it would be very unwise to have all your money in this market by itself because the environment is risky. The political environment is risky. There are incapable states in charge. They cannot execute on any of the policies and the policies are dumb in any case. So, it’s an untenable situation. I don’t think we should add all your eggs in this basket; but because prices are so low, it warrants at least some eggs in the basket.
On Impala’s second attempt at Royal Bafokeng Platinum:
A couple of things, it seems that shareholders favoured Impala’s bid. I think the asset makes more sense for Impala. They are contiguous, they share the same facilities in some instances. There are more synergies to be had for Impala so Impala can probably pay a higher price than Northam can. I’m not sure Northam’s balance sheet can carry buying out the rest of Royal Bafokeng at the higher price that they would need to pay.
So, it looks like Impala is in a better position here, but I think the fight is not clear cut. If you’re going to have two large shareholders, it’s going to be difficult to make decisions. I think you’ll want one significant controlling shareholder and to get there, maybe Impala has to pay up even more. I guess that is what the Royal Bafokeng share price is signalling, trading at above Impala’s price of R150. It’s signalling that maybe Impala will have to offer to get more shares on board to get control of this.
On his stock picks for 2022
Okay, I’ll give you two picks. I’m going to hedge my bet somewhat. The one pick is Sasol. I think the world is not investing in oil and gas extraction enough to cope with a demand, which will still be there for years and years to come, despite the best efforts. The world will still need oil and I think we’ll see significantly higher oil prices because of the underinvestment in oil extraction capacity. That’s the one pick; and the other pick is a very small cap business.
It’s quite a stinky one and not well liked by people, but that’s why it’s cheap. It’s a property company and I’m well known for not liking property, so I’m taking this on purpose. It’s Rebosis A shares. It had distributable earnings now in the results today of over R2.00 per share. They haven’t distributed any dividends but the earnings are there and they say they’ve done a deal where they sold the company for multiples of the current share price.
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Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa’s rise to presidential power, narrated by our very own Alec Hogg.
Narration by Alec Hogg