Stock research houses should have a voice

Investec Group’s decision to muzzle its securities arm came as a disappointment to some in the market. When Investec Securities said in a report it was time for Tongaat Hulett’s long-standing CEO, Peter Staude, to step aside, many in the investment community applauded the rare showing of activism. But Investec Group distanced itself from the report and apologised for the “embarrassment” it had caused Staude.

On the one hand, the move is understandable since the group has close ties with Tongaat. It is a major shareholder and acts as the sugar producer’s sponsor on the JSE, among other interests. But on the other hand, it is concerning that stock researchers are expected to toe the line in their assessments of listed companies. It seems wrong that research houses are only able to speak freely about stocks if their parent companies have no corporate ties.

And it is not outrageous to assert that a shake-up is needed at Tongaat, whose shares are trading at nine-year lows. Yes, the sugar industry has been tough — local producers have been battling against heavily subsidised imports and other difficulties. But that is probably the best time to bring in new blood and fresh ideas. Staude will only retire in April 2019, according to a report by Business Times at the weekend. In other words, expect some probing questions at Tongaat’s annual general meeting in August if Staude is still CEO. The Investec Securities report could be the elephant in the room, and other investors — including Old Mutual — plan to raise questions about executive pay.

Trade union Solidarity is in Brits on Tuesday discussing the recently announced US import tariffs on steel and aluminium products and how this will affect South African metals exports.

The trade union has good reason to be concerned. The North West town supports a range of industries, including for mining and vehicles. But, alas, like many other such towns, its manufacturing base has been whittled away over many years.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) reckons the tariffs will cause at least 7,500 workers to lose their jobs.

Companies that will probably be hit hard include diversified metals and mining group South32, premier steel maker ArcelorMittal SA and aluminium products fabricator Hulamin.

Along with general policy malaise in both SA’s steel and mining industries, critical parts of the domestic economy are now in further danger. The US tariffs became effective from June 1 2018, so it is too early to tell exactly what effect they will have, including on foreign exchange earnings.

But Seifsa estimates the tariffs will directly cost South African exporters about R3bn annually for steel products and about R474m for aluminium. That is a big negative, whichever way you look at it.

Solidarity says the South African steel and aluminium industries have undergone “serious contraction over the past few years” and are already under huge pressure.

The National Union of Metalworkers of SA has been surprisingly quiet about this matter.

It is hoped it will add positively to the debate on the industry’s future.