Dear Fellow Investors and Friends

Today is Thursday, the 7th of September. It is the 250th day of the year; 115 days remain until the end of the year. On this day in 2021, Bitcoin became legal tender in El Salvador. Bitcoin was around $45,000 then; it is now $25,000. And you thought the ZAR was a weak currency!

Quote of the day

“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”
“Every decent man is ashamed of the government he lives under.”

H.L. Mencken

Despite our depreciating currency, weak economic growth and absolutely useless government, pockets of excellence exist in the local market. The management teams running these businesses are not using the environment as an excuse to stagnate but are continuously thinking of better ways to do things, thereby gaining market share and expanding their margins. After all, in a stagnating economy, the only way to grow is by taking market share.

Over the past three years, Shoprite’s share price has grown from R150 to R250 per share. In US$ terms – ‘cause that’s what we really care about – equal to 13% p.a. That is significantly better than the S&P500, which has returned just under 9% p.a. over the same period.

So, creating value in the local market is possible – management just needs to execute properly. And Shoprite’s team isn’t the only one executing.

The new team at Spur have also been doing a good job. Their latest results showed growth in HEPS of 81%, off double-digit revenue growth. Over the past three years, the market has recognised the execution of this (new) management team with a share price gain of 125%. That’s 25% p.a. in US$ terms.

Afrimat is another local business with an outstanding management team. The resource extraction sector is notoriously disdainful of shareholder value creation, but Afrimat has rewarded shareholders handsomely. Andries van Heerden and his team have skillfully acquired reasonably priced assets and executed sensible business plans. The market has recognised this, pushing the share price up by 68% over the past three years, or 13.5% p.a. in US$ terms.

Astoria, our Mauritius-domiciled investment company, owns Outdoor Investment Holdings, which, in turn, owns retailer Safari & Outdoor. Marco van Niekerk runs the company. If you ever wanted to meet a retailer who lives his brand, Marco is your man. Despite the country’s economic travails, Marco and his team have been executing a growth strategy – organic and via acquisition. And executing very, very well. Turnover has grown by 21% p.a. since Marco took over 8 years ago, and margins have expanded.

Despite a weak economy mainly due to a government that completely neglects the welfare of its citizens, these four management teams have created tremendous value for shareholders.

And these are not the only examples of this excellence. Your investment portfolio doesn’t have to be dragged down into the loadshedded mud where our politicians love to play, and more than a few management teams love to hide.

“New highs are bullish”

1. Namibia

Remarkably, Namibian government bond yields have declined to levels below the corresponding South African government bond yields. In the upside-down world of the bond market, new lows for yields mean new highs for bond prices.

This means Mr. Market is bullish on the economic outlook for Namibia. From what I hear, Namibia’s political (and fiscal) situation is similar to South Africa’s i.e. not outstanding.

What could be happening? One could turn to the equity market to see.

Specifically, the South African investment company HCI, which owns just under 50% of Impact Oil and Gas. Impact Oil and Gas owns 20% of the Venus oilfield off the coast of Namibia. This means HCI effectively owns almost 10%.

Here’s what Johnny Copeland, the CEO of HCI (and one of the best capital allocators I know) has to say in his 2023 shareholders letter:

“The importance attached to Venus by Total is obvious because it has committed more than 50% of its global 2023 exploration budget to this appraisal programme. Its CEO, Patrick Pouyanne, stated that Total believes “it may be at the helm of a new golden block”.

What does a “golden block” look like? According to press articles, Venus could contain reserves of 30bn barrels of oil. At $90 per barrel, that is a value of $2.7 trillion. Say the government gets, I don’t know, a 2% royalty, that would work out to $54 billion. The Namibian GDP is $12.6 billion. And Venus isn’t the only block off the Namibian coast being “appraised”.

No wonder the market likes the outlook for the Namibian fiscus. So do I. And the funds I manage on behalf of Merchant West Investments reflect this view.

2. Yellow Cake plc

The price of Yellow Cake plc reached a new high this week:

Yellow Cake is a London-listed closed-end investment fund. Or “Investment Trust”, as they call them in the UK. Its only asset is 20,1mn pounds (not of the Great British variety) of Uranium Oxide or U3O8. As the world searches for alternative baseload energy sources, nuclear energy is increasingly finding favour. And because the price of Uranium Oxide has been so low for so long now, the big mines that produce it have either been mothballed or have cut back production.

Today, many nuclear power stations’ lives are being extended, China is building new ones, and Japan is restarting its fleet. This sets the scene for a classic capital cycle. The price of Uranium Oxide has to go up and stay up to incentivise the mines to expand again.

Oil, copper, coal, and iron ore prices are closely linked to economic activity. As economic growth slows, demand for these commodities decreases, and prices fall. However, during the most recent commodity downturn, the price of U3O8 showed remarkable strength compared to other commodities. This is likely due to two factors: a) the uranium market benefits from geopolitical disruptions, and b) due to baseload demand, the price of uranium is relatively unaffected by medium-term economic cycles.

Could uranium – and, by extension, Yellow Cake – be an antifragile asset?

“New lows are bearish”

1. Steinhoff

Steinhoff traded at 4 cents per share this week. That’s down from R98 per share in 2016. And precisely 4 cents per share too high. On many occasions over the past year or so, the company has reminded its remaining equity investors that they WILL lose everything. Yet the share price remained stubbornly above 0. I never owned this stock when all the cool kids did.

And I won’t miss its forthcoming absence.

2. Dis-Chem

Dis-Chem is hitting lows – in fact, it’s approaching its Covid lows. Since it was listed at R21 per share in 2016, it has only returned 1,5% p.a. to its shareholders (excluding dividends) This is despite a top management team running the business. Just goes to show that it pays not to buy IPOs.

Oh, and insiders are still selling, so they can’t be too optimistic about future returns even from these levels.

Did you know?

  • Aveng has a market value of just under R1 billion at its current share price of R7 per share. Head office costs are around R150 million p.a. That is despite the head office’s only real job being to compile the accounts of two subsidiaries, each with its own head office and management team. And people complain about the 1% fee charged by fund managers.
  • Compounding is the 8th wonder of the world: Berkshire Hathaway can lose 99.4% of its value and still have outperformed the S&P 500 since “current management” bought control in 1965. But, how about this for a fun stat: Mr. Buffett PAID under $11 per share for his position in BRK. Today, the company EARNS $11 per share. Every 2.25 hours!
  • Larry Fink, the CEO of Blackrock – the biggest fund management firm in the world – is on record as saying he will force ESG behaviours using his corporations’ financial might. Also, last month: “The world’s top asset manager, BlackRock, has named Saudi national Amin Nasser, the chief of the world’s largest oil company, Saudi Aramco, as an independent director.”

What I’m reading:

When you turn 60 – as I recently did – thoughts around mortality force themselves to the fore. Fortunately, I have a very thick book handy, with which I can beat them back. The book is called “Outlive” and is written by Dr. Peter Attia, whose podcast I listen to weekly.

Although scientific, his writing is readable and enjoyable for the layperson. And the target market includes everyone above 18. In other words, everyone who thinks they’re mortal.

What I’m watching:

Grant Williams interviewed Anthony Deden, the Chairman of Edelweiss Holdings – a privately held investment holding company. The way Deden thinks about money management is anathema to the fund management industry, but it really resonates with me.

In conjunction with this interview, revisiting the seven sins of fund management, a critique by James Montier in 2005 is worthwhile. You can use Google to find the original document (I highly recommend it), but Morningstar published a summary at this link.

What I’m listening to:

Neil Young released Chrome Dreams 2 in 2007. There never was a Chrome Dreams or even a Chrome Dreams 1. Until this year.

‘Chrome Dreams’ plays like a Best Of – which it effectively is, at this point. All the songs have appeared in different forms on various studio or live albums over the years. If this album had been released at the time it could have been a landmark in his career. Right now, it just sounds great.

Enjoy it on Apple Music at this link.

And on Spotify here: Oh – I’m sorry, his music is not on Spotify. Apparently, he is protesting against something that Joe Rogan might have said or done. Go figure, but I guess that’s how artists roll.
That’s all for this week. Be careful out there.

Piet Viljoen



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