Ben Temkin
5 December 2008
column
Johannesburg — EVEN while I was writing nice things about Grindrod's investment fundamentals yesterday, the market view on the company's expectations was taking a different view from mine. On a dismal trading day, on Wednesday, Grindrod's share price had the biggest share price loss on the JSE -- down more than 11% to R10,90.
As most of the counters in the Private Investor portfolio also fell, its paper loss was again back to R30000.
Typically, in a bear market, most company news is skewed to the bad. I could take some comfort -- no gloating -- that the portfolio doesn't hold shares in banks and other financial services companies. There is little comfort that most of the portfolio holds are in sectors that have visible structural cracks.
As part of my reading this morning, I carefully perused colleague Bheki Mpofu's article on prospects for the forthcoming year. Among the litany of woeful expectation, the single glimmer of light was the comment of Murray & Roberts CEO Brian Bruce: " We are sharpening our organisational focus to ensure we are able to secure the work that will still be available, and to deliver it efficiently and effectively to our clients." It would have been less reassuring -- and surprising -- had he not re-emphasised this message that was already embodied in the trading update on November 25 and which was supplemented by the December 1 update on the company's Middle East order book.
The bad news in the December 1 update was that M&R's partnership contract for the Trump Towers project in Dubai was being suspended. M&R's 50% value of its order book amounted to R3,2bn, of which R0,5bn relates to the current financial year. The good news was that M&R is in partnership in advanced negotiation to secure additional infrastructure work for the Dubai government. The suspension of the Trump Towers project is not, therefore, expected to have a material impact on M&R's prospects.
Don't count on this. Oil revenues are under pressure. The Dubai government, for all we know, could delay their plans.
Elsewhere I read the report that the FNB building c onfidence i ndex dropped to 40 in the fourth quarter of this year from 52 in the third quarter and was less than half of its index level of 86 in the fourth quarter of last year.
This quarterly index is compiled from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research at Stellenbosch University.
I take such surveys seriously, because of my belief that expectations are important, if not the most important, drivers of economic trends, and, therefore, also of investment fundamentals.
Pessimistic expectations are clouding the strong core investment fundamentals of many companies such as M&R and, for example, Sanlam.
Sanlam's operational update on Wednesday had a dismal reception. Of course, as long as equity prices fall, its headline earnings will fall as it accounts for unrealised capital losses -- this is the grey cloud of expectations.
But the company is generating significant new business, its reserves are strong and it's done well for shareholders on its share buy-back programme.
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