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South Africa: Nothing to Worry About From Anglo, Reunert
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Business Day (Johannesburg)
COLUMN
9 May 2008
Posted to the web 9 May 2008
Ben Temkin
Johannesburg
PERHAPS some readers of this column may think I didn't notice the April 29 report by Anglo American for the first quarter of the year ended March . I noticed it, printed it and also read several media comments on it. I also read the news that Anglo American's conversion to new-order mining rights had been officially granted.
In digesting all this information, I concluded that the company is on track to meet -- more likely, to exceed -- the earnings growth criterion Jean and I have for the Private Investor portfolio.
I accept Eskom's ability to manage electricity supply is a risk for Anglo's production targets, especially on platinum group metals. This risk is, however, damped by Anglo's rand-hedge strength.
As I've mentioned before, Anglo is a big constituent of the JSE top 40 index, the 40 largest companies (by market capitalisation) on the JSE.
These 40 companies account for about 60% of the JSE's total market capitalisation.
Between the start of this year's trading until the close of Wednesday, the top 40 had risen to 29857 from 26589, a gain of 12%.
In the same period, Anglo's share price rose to R508 from R419,40, a gain of 21%.
Since the beginning of this year until Wednesday's close of the market, the rand had fallen about 9% against the British pound. You can conclude, therefore, that rand-hedging has improved Anglo's share price by 9% over this period, and market considerations have contributed the other 12%. I'm sanguine on the investment.
I'm also reasonably comfortable on our shareholding in Reunert following its trading update on Wednesday. I use the word "reasonably" because the update, which refers to the forthcoming results for the half-year ended March , indicates that normalised headline earnings will increase between 5% and 10% on the figure in the previous comparable period.
In the previous financial year, Reunert absorbed the huge cost of its empowerment transaction and, as a consequence, made a headline loss in the first half of the last financial year.
When selecting Reunert rather than Allied Technologies (Altech) or Jasco for the portfolio, I guesstimated the company's normalised diluted headline earnings for the 2008 financial year could be 690c.
With expected headline earnings per share for the half-year of between 288c and 304c, my guesstimate for the full year now appears on the high side.
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I already know part of the reason for the apparently pedestrian performance is weakness in the company's consumer products division. I had hoped, however, this would be more than offset from continuing infrastructural growth and telecommunications strength in the consumer products division itself.
Next week, when the interim results are published, I'll try another guesstimate.
It's worth noting that Altech's headline earnings per share rose 23% over the financial year ended February . Had we bought the share for the portfolio early in October, we would have had to pay around R68 a share, including brokerage. At Wednesday's close, its share price was R57,10, which, after dealing costs, reduced the realised price to R56. Our paper loss, had we bought, would be 17,6%. The comparable, but real, loss on paper for Reunert was 21,43%. Isn't the market astute?
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