Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
The bogeyman strikes again
… but is the iron still hot?
Renier de Bruyn
Mar 02, 2018
Many have rightly asked how a small research outfit headed up by a former UK social worker and two 23-year-olds can influence investor sentiment to such an extent that an incriminating report by them – whether factually correct or not – can cause the market to panic and ditch the share. Here’s my (satirical) take on how to sink a multibillion-rand company, in six steps:
Note: On your first attempt, you may need some luck in order to gain the trust of the market. But if you’re successful, subsequent rounds should become much easier once everyone believes you’re the guru. Over time, your influence may fizzle out, so you need to keep striking while the iron is hot.
On a more serious note: Following their Steinhoff exposé in December, Viceroy Research released a report on another South African company on 30 January this year. The market had anticipated that the likely candidates for Viceroy’s second project would be either Aspen or the Resilient property ‘stable’, so investors were taken completely by surprise when Capitec Bank was named as Viceroy’s new target.
The research group accused Capitec of being a reckless lender that hides its bad debts by rolling delinquent loans into new loans. According to Viceroy, Capitec will need to write off R11 billion in loans to adequately reflect the quality of its loan book, and will be facing and losing a class action suit valued at R12.7 billion to refund predatory origination fees. This will make Capitec insolvent.
In contrast to Steinhoff, whose remaining executives weren’t in a position to respond to the Viceroy allegations without audited financial results, Capitec’s management team was much better prepared and can’t be faulted for its swift and detailed responses to the report.
There are good reasons why the market never added Capitec to the suspect list in anticipation of the bogeyman’s second strike. The bank’s accounting practices are widely known to be highly conservative, an important factor given the history of unsecured lender failures in South Africa. Capitec’s strong capital position and high cash balances make it reasonably resilient against attacks on investor confidence. While the bank is bound to attract further negative publicity as Viceroy reveals new evidence, in our view this is unlikely to derail the bank into curatorship.
Given the lack of trustworthy information, it has so far not been possible to either confirm or disprove the conclusions in Viceroy’s report on Steinhoff. But with Capitec’s transparency, higher level of financial disclosure and simpler structure, it was much easier for analysts to find the holes in the research group’s report.
Has Viceroy therefore lost its credibility after releasing the Capitec report? Not necessarily. Fortunately for Viceroy, Capitec was trading at a lofty valuation before the report was made public, so many investors who may disagree with Viceroy’s findings wouldn’t have found the bank’s share price attractive enough to capitalise on the opportunity and support the share price.
So the market may be looking at Capitec’s 25% share price decline thus far and continue to trust Viceroy, despite the best efforts of the bank’s management to reassure investors that the research group’s claims are unfounded. We may yet be seeing more of the Viceroy bogeyman in the future.
Meanwhile, with the market particularly attentive to stories of artificially inflated JSE-listed companies, separate reports from two other entities focusing on the intra-group trading of shares in the Resilient property ‘stable’ have been doing the rounds. This has caused large share price declines for Resilient-related companies. In contrast to the allegations in Viceroy’s Capitec report, we have for some time now shared some of the reservations raised in the reports related to the valuation of the Resilient ‘stable’.
As mentioned in our previous article, we don’t blindly react to every ‘bogeyman’ report circulating in the market. At Sanlam Private Wealth, we thoroughly analyse all new information as it becomes available and test it against our understanding of the companies in question. We’ve built a solid investment case and in-depth valuation model for each company we invest in, and we act only if either previously unknown information emerges that changes our investment case materially, or the share price has moved above our estimated fair value. We also take a conservative approach to valuation, to provide a margin of safety in the event of negative unforeseen events.
We don’t have exposure to either Capitec or Resilient in our house view equity portfolio, but this is based on valuation considerations after taking all available information on these companies into account. In both these instances, none of the reports mentioned contained any new information that affected the valuation we place on these companies.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
are they a good investment?
The great lockdown:
one year on
Head of Equities
IHG: focus on
quality pays off
Sanlam Active UK Fund
BUDGET 2021: THE RIGHT INTENT,
BUT RISKS ABOUND
Investment Economist at Sanlam Investments
INVESTING IN 2021:
WHAT TO EXPECT
Sanlam Private Wealth
MINING: IS THE
THROUGH THE HYPE
Head of Equities
Jack is back – business
as usual for Alibaba?
Global Equity Analyst, Sanlam UK
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.