Ron Derby column
Agreat many companies quoted on the local bourse have an asterisk signalling that they are in a state of repair or a turnaround play. The entire resources index resembles a constellation of stars, given the end of the “super-cycle”, caused by the slowdown in the Chinese economy. It’s a slowdown that continues to surprise on the downside, hence China’s central bank moving to rein in the decline.
Investors have long moved out of resources, to the benefit of retail stocks, which for the most part continue to rise despite concerns about the state of the South African consumer. But even among the star performers of the JSE over the past seven-odd years, there are a few counters that have the asterisk symbol above their name.
I have chosen the most important “turnaround” stories from these two sectors of the economy, which perhaps best represent the shift in the SA economy from resources to consumption. With the reorganisation of its platinum unit its prime focus, Anglo American, which is nearing its centenary, is the main corporate story in the sector. In the retail space, the rescue of the middle-aged Pick n Pay and the role of its founding family is the most talked-about story.
Both companies appointed CEOs to lead the rejuvenation, appointments that were welcomed by the market.
They’ve recently completed two years, and IM thought it apt to look at their report cards, starting with Anglo’s Australian CEO, Mark Cutifani, who started his cleanup operation on April 3 2013. London-based Bernstein said in a note last June that the miner under his leadership would either succeed at its reorganisation and start production at its Minas-Rio iron ore mine in Brazil, or be acquired.
Not a job for the faint-hearted. Anglo has held centre stage in both the corporate and political history of SA, and any move tends to be read as a statement on not only the health of the commodity market, but the country’s political risk.
Markets haven’t been too kind in the two years since Cutifani took over to April 3 this year. Anglo’s stock has slipped 23% in Johannesburg and 40% in London. Over the same time, its larger rival, BHP Billiton, has seen its local shares fall in the low single digits, 3,6%. Rio Tinto’s London shares have declined 11%.
Cutifani’s main concern has been the disposal of two of the company’s platinum operations — Rustenburg and Union — which have been struggling to remain profitable in a platinum bear market. As for getting Minas Rio up and running, it is, but the iron ore market is in an oversupply position.
Before the end of the first half of the year, we should be updated about the sale process at Anglo’s North West operation. Investors want an end to the uncertainty around these assets.
Final judgment on Cutifani, I feel, will be made with whatever price Anglo gets for its assets and the strategic direction that he will outline to quite clearly unimpressed investors.
Pick n Pay’s Richard Brasher seems to have had a better time with investors, without halting the slide in the grocer’s market share — his main task.
In the two years to February 1, the day his term as CEO commenced, the retailer’s stock gained over 24%, just below the all share’s 26,3% appreciation over the same time. It beat Africa’s largest retailer, Shoprite, which gained just over 8%. Spar was the outperformer in the segment, rising 56,5%, while Woolworths stock climbed 41%.
The higher earnings are a result of cost cutting rather than finding chinks in the armour of Shoprite and Woolworths. Like-for-like turnover growth came in at 3,6% for its full year, behind its main rivals.
The turnaround for the long term that people want to see hasn’t yet come to fruition. All that Brasher has achieved to date is to strip out the fat in the business. Investing for growth is going to be his next challenge, which may have to involve tinkering with that oh-so-precious dividend policy.
With the reorganisation of its platinum unit its prime focus, Anglo American is the main corporate story