Veteran money manager Piet Viljoen is shedding no tears for how Naspers/Prosus dispatched Bob van Dijk, its CEO of the past decade, who left immediately on Monday morning. Viljoen says he and Van Dijk see the world very differently – and by his calculation, under Van Dijk’s direction, management actions destroyed 40% of the value that would have accrued had they done nothing. In this typically hard-hitting interview, Viljoen discloses that he recently invested in Naspers/Prosus for the first time but won’t buy any more until he is shown interim CEO Ervin Tu is not ‘simply more of the same’. – Alec Hogg

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Relevant timestamps from the interview

• 00:09 – Introductions
• 01:06 – Piet Viljoen on whether Ex CEO Bob van Dijk not being on the call is usual
• 01:40 – Thoughts on the situation
• 02:41 – Value destruction over 10 years
• 02:59 – If Naspers had done nothing – shareholders would have been 40% better off today
• 03:14 – Who must take responsibility for the appointment of the Ex CEO
• 04:48 – Thoughts on the Interim CEO
• 05:44 – On the conference call
• 07:43 – The different styles of the CEO’s
• 09:20 – How new leadership is likely to change Naspers in SA
• 10:14 – Not too young, not too old
• 12:50 – Strategy of the new CEO going forward
• 13:51 – Reasons for Bob van Dijk exit after 10 years
• 15:50 – On if he will be buying more shares
• 19:16 – Conclusions

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Edited transcript of the interview with Piet Viljoen, portfolio manager of the Merchant West Value Fund.

Alec Hogg: In June this year, just before Naspers released its financial results, Piet Viljoen, who manages the Merchant West Value Fund, was highly critical of the management team for allegedly exploiting shareholder resources. Yesterday, Bob van Dyk, the CEO of Naspers, made a contentious exit, which we’ll explore shortly. Piet is here to share his thoughts. I attended the conference call on Monday featuring Koos Bekker and the new CEO, Ervin Tu. Some interesting points were raised. Notably, Bob van Dijk, the CEO until yesterday morning, was absent from the call. Is that usual?

Piet Viljoen: It’s unusual, but in this situation, it was expected due to the suddenness of the change. It was clearly not an amicable departure.

Alec Hogg: Naspers usually has a well-planned succession strategy. Ton Vosloo and Koos Bekker both transitioned from CEO to Chairman, for instance. But with this CEO, who had been in place for ten years, there is no planned successor. What are your thoughts?

Piet Viljoen: I think the controlling shareholders in Naspers have realised that there’s been significant value erosion in the business over the last decade. The responsibility for this usually falls on the CEO, in this case, Bob van Dijk.

Alec Hogg: Can you quantify the value erosion over the last ten years?

Piet Viljoen: It’s difficult to give an exact number, but if we consider that Naspers’ main asset ten years ago was Tencent, and ignoring other venture investments, shareholders would have been approximately 40% better off today had the Tencent asset been maintained.

Read more: Worst Storm Surge in 20 years leaves SA’s coastal towns battered…

Alec Hogg: That’s significant, given that the business is worth hundreds of billions of rands. If Naspers management had done nothing, shareholders would have been far better off. Who should be held responsible for appointing Bob van Dijk, who was highly remunerated during his tenure?

Piet Viljoen: The controlling shareholders should bear the responsibility. They appoint the management, and they too, have suffered due to value erosion under van Dijk’s leadership.

Alec Hogg: Have you met Bob?

Piet Viljoen: No, I haven’t.

Alec Hogg: Do you prefer to analyse these matters from a distance?

Piet Viljoen: I believe the financials speak for themselves. While talking to management can offer insights, the numbers ultimately tell the story. Bob van Dijk has been interviewed frequently, and his views differ significantly from mine.

Alec Hogg: In what ways do your views differ?

Piet Viljoen: Van Dijk comes from a consulting background, which often involves business jargon and growth narratives, but when it comes to generating cash flow — the crux of any business — there’s not much to speak of.

Alec Hogg: What about the new CEO, Ervin Tu? He has an MBA from MIT and seems quite tough.

Piet Viljoen: Given his background at SoftBank, prejudging wouldn’t be fair. But based on what I know so far, it seems more of the same.

Alec Hogg: Did you participate in yesterday’s conference call?

Piet Viljoen: No, I did not.

Alec Hogg: In the call, Koos Bekker took a back seat, allowing Ervin Tu to dominate the conversation. This was different from when Bob van Dijk was around.

Piet Viljoen: That’s interesting. I wasn’t aware of that. Presumably, there were discussions with Ervin before he was appointed interim CEO, and he would have set certain conditions. It’s not healthy if the controlling shareholder and the CEO are in an antagonistic relationship; they should be working in partnership. Considering the significant value loss over the last ten years, it’s understandable that tensions are high within Naspers.

Alec Hogg: Do you think the board is finally listening to critics like you?

Piet Viljoen: I’d be surprised if the board pays much attention to my views, but I do think I reflect broader concerns. One doesn’t need to be an expert to see the value destruction that has occurred. Tencent has outperformed Naspers despite being its main asset. Meanwhile, they’ve sold Tencent shares to invest in ventures that have not been cash-generative.

Alec Hogg: If I’m reading the situation correctly, and this new ex-SoftBank, Goldman Sachs, hard-nosed American CEO focuses more aggressively on the bottom line – the Amercian way in other words – what could happen?

Piet Viljoen: Well, it’s hard to say, because the American way up to now, over the past 15 years, has been fully supportive of money losing venture capital type investments. So I’m not sure what’s going to happen. I do think there will be more of a focus on ‘show me the money’, if I can put it that way. You will definitely get more of that, because I think that’s what shareholders are clamouring for. But we’ll see what happens. I still think that the controlling shareholders of Naspers are looking for their next Moonshot. Tencent is probably the best venture capital investment ever in the world and I think they are still looking for another of those and will continue seeding different businesses to try and get there. But I don’t think what they’ve got at the moment is one of those.

Alec Hogg: So nothing on the horizon that could deliver a very rich strike from what you can see in the portfolio today.

Piet Viljoen: From what I can see, but understanding that I am not a venture capitalist, so I don’t understand that world very well. So it might be there, but I think the odds are against it.

Alec Hogg: We’re South African, and Naspers has a huge hold on the South African media sector, for instance, but it doesn’t make much money here. Do you think, with this tough American running the place, looking for bottom line first, we might see some change in the ownership here?

Piet Viljoen: It’s possible but I think South Africa is so small in Naspers’s life at this point that there’s some bigger fish to fry. There are some really big money losing ventures and I think they’ll probably start there and work their way through. I think they will look at each individual business’s business case and make a judgement call on that. So I wouldn’t be able to say whether they will be for or against anything in South Africa. I think they will evaluate each business on its own merits, as they should.

Alec Hogg: I found a website that had the ages of all the Naspers executives, all 23 of them. And Ervin Tu is the third youngest of those 23 executives at 45, younger even than Bob Von Dijk who’s only 51. Is this a reflection of the way that the world’s going, particularly in technology?

Piet Viljoen: I expected to be that way. I think if you are looking for a chief executive of a business that needs to execute and manage the business properly, you probably want a 40 to a 50 year old. You don’t want somebody who’s too young that it doesn’t have the experience, but you also don’t want somebody who’s old and tired. I think you want somebody that still has a spring in their step and wants to get in and get their hands dirty. The prime age of that is men and women in their 40s.

Alec Hogg: Given the negative perception many have of Bob van Dijk, and considering a different style could impact Naspers positively, I’m considering adding it to the BizNews Model portfolio. What’s your take?

Piet Viljoen: We own shares in Naspers in some of the funds we manage at Merchant West, primarily due to the discount and the strong performance of Tencent. I can’t give advice, but in our portfolio, it’s a reasonable holding.

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Alec Hogg: So you now own some Naspers shares, is this a new development for you?

Piet Viljoen: Yes, we only bought them in the past year when the discount became significantly large.

Alec Hogg: So it’s primarily a discount play for you?

Piet Viljoen: Absolutely. The discount could start narrowing if the new management changes strategy. We’re currently reserving judgment.

Alec Hogg: What do you make of the new interim CEO’s confidence?

Piet Viljoen: It’s too early to tell. A quick decision was made to appoint an interim CEO, and we’ll have to see how things develop.

Alec Hogg: What leads you to believe that Bob van Dijk’s exit happened abruptly?

Piet Viljoen: There was no succession planning in place, which suggests the exit was sudden and potentially contentious.

Alec Hogg: Do you think that the shift in executive power would have rendered him ineffective?

Piet Viljoen: I don’t buy that explanation. I think it’s a narrative they want to sell. The abrupt nature of the change tells a different story.

Alec Hogg: Would you be buying more shares at this point?

Piet Viljoen: Not at this moment. We need to understand the new strategy before making any further investments.

Read more: Europe is not ready for a second Trump presidency (again) – Marc Champion

Alec Hogg: So you’re skeptical about the effectiveness of American versus European leadership styles?

Piet Viljoen: The nationality of the executive doesn’t necessarily dictate effectiveness. Strategy and world-view are what matter.

Alec Hogg: How long will you wait before deciding on further investment?

Piet Viljoen: We’ll wait to see if the interim CEO becomes permanent and what his strategy will be.

Alec Hogg: So for NASPERS, clarity on the CEO position is crucial for investor confidence?

Piet Viljoen: Yes, until that’s resolved, the share price is unlikely to move much. They should take their time in making such a significant decision.

Read also:

• How South Africa’s legal system has been abused by those in power – Lessons learned and ways forward
• SoftBank alumnus replaces Van Dijk (51) today as Naspers/Prosus CEO leaves “by mutual agreement”
• Eskom ex-CEO André de Ruyter under legal fire for private probe and security contract

Central banks are meeting worldwide; the United States kept interest rates on hold, while the United Kingdom raised them by 25 basis points. Governor Lesetja Kganyago kept rates steady in South Africa while our Turkish counterparts got a five percentage point increase. But what does this all mean for investors and, more importantly, Fantasy Fund Managers? Join host Stuart Lowman from BizNews as he explores week 21 insights in the Fantasy Fund Manager podcast with guests making sense of it: David Bacher and Garreth Montana from Corion Capital. There’s also a discussion on a Bob-less Naspers and the rally in retailers. Remember, each dawn of Monday is your chance to pitch your winning stocks. With enticing prizes awaiting, the game is on. Rally your comrades and head to www.fantasyfundmanager.co.za to register—big thanks to our platinum sponsors, Sharenet, Terebinth Capital, ClucasGray Asset Management, and MoneyBetter. And mark your calendars: Subscribe now to our podcast to keep up with every episode.

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Stuart Lowman: It’s that time of the week again, and you’re listening to the Fantasy Fund Manager podcast. I’m Stuart Lowman from BizNews, and we’re into week 21 of a 27-week, six-month competition. Today’s guests, Garreth Montana and David Bacher from Corion Capital, need no introduction. Thanks for joining us. So, on week 21 of 27, almost the business end of the game. Are you playing the business end or floundering as we come to the end of the competition?

David Bacher: From my side, I have been in the same position as measured by the closest hundred for a few weeks. I’ve tried to do some different things in my portfolio, but I’m pretty steady now. Not by design, though.

Stuart Lowman: And Garreth?

Garreth Montano: They say you’re only as good as your last week, and I’m beating David in the last week. Things are good.

Stuart Lowman: Where are you sitting this week?

Garreth Montano: I’m down a bit on the portfolio, down 40 basis points, but given what’s going on in the market, I suppose it’s not terrible. It’s about one week in 20 that I’ve beaten David, so I’m happy.

Stuart Lowman: Hold on to those little victories. You mentioned the market’s down. We see South Africa under pressure again. Any insights as to why, David?

David Bacher: Yes, in the next 36 hours, we’ve had or will have 11 central banks communicating their monetary policy. And last night was the Fed. The Fed is a central bank that everyone watches. They generally set interest rate policies and have a significant influence worldwide. They came out last night saying interest rates are likely to be higher for longer or inferred it. And that sent a risk of trade across the globe. And South Africa was no exception. And you look at your screens, and seeing a lot of green is tough.

Stuart Lowman: You mentioned interest rates and monetary policy. We are saying terms like hawkish and dovish monetary policies. Should we just start there? Can you explain what the two are and the difference?

David Bacher: Sure, as one would expect, it comes from birding terminology, and a hawk is quite an aggressive bird. So by nature, when you’re talking about hawkish monetary policy, you’re talking about aggressive interest rate policy, a policy where they are concerned about inflation, likely to have rising interest rates, and that generally is negative for the market. And contrary to that, a dove is seen as a gentler bird. A bird of peace and that terminology refers to interest rates that are likely to come down, and that’s generally good for the economy and share markets.

Stuart Lowman: Is the concern that we’re still determining where we’re going with interest rates because we saw in the US expectations of a 25 basis point hike is probably the next and last upward movement? It may be the concern that there might be more; they’re not quite sure. And that’s why the markets, because ultimately, if you hit the top, you would move towards a dovish environment, which is better for stock markets.

Garreth Montano: The Fed did little to aid credibility over the last few years concerning the inflation outlook. There’s a general perception that there needed to be a greater range of expectations of what inflation would do. Many people have started seeing the end of inflation and potentially decreasing interest rates. The implication… That rates will be higher for longer is meaningful to equity market valuations. So, first of all, from a stimulatory perspective, if you start cutting interest rates, it should be good for economies, should be good for the consumer, but importantly, it also plays a way in how shares are valued, and especially for growth shares which are factoring in long-term growth. If you have got high-interest rates for longer, those valuations you’re discounting start reducing the perceived value of a share at any time. So it’s very important. And that uncertainty does play on markets. There is no doubt that markets are looking for inflation to have been brought under control and, hopefully, see the end of the rate hiking cycle. From a Corion perspective, we firmly believe we are near the top of the cycle. Whether we’re going to see massive cuts, that’s a different question. But we believe we are nearing the top of the rate cycle locally and globally.

Stuart Lowman: If we bring it to the local market, one thing we are sure of is Naspers CEO Bob Van Dyke is no longer in that box seat. The share is the most held stock in the game; one in five users hold Naspers. At the time of recording, the stock was down 6%. My colleague Alec Hogg interviewed veteran money manager Pete Viljoen. He cheered the fact that Bob Van Dyke had left. He called him the destroyer of 40% of value. I don’t know how you would see it, David.

David Bacher: First, hearing Pete’s views is always nice. He’s nice to get such a, wearing your heart on your sleeve, and what Pete says is always of interest. But that took us by surprise. So firstly, Naspers is down 6%. Is that surprising? The answer is yes and no. Yes, it’s surprising because of the likes of well-known investors such as Pete and other investors have been calling for Bob’s head for a while. So you would have thought there would have been a bit of a rally. But if you look at what drives Naspers, it is Tencent. That’s the big asset in the group. That share is down similar amounts for the week overseas, slightly less. So I wonder why Naspers is slightly more down than Tencent. But the most significant driver is Tencent and the trade risk. Once you have the risk of trade, technology shares come under pressure, emerging markets come under pressure, and maybe South Africa is a little bit high up the risk scale. Naspers took more than the fall of the overseas asset. But long story short, this is primarily driven by a risk of trade globally and not Bob Van Dyke’s resignation.

Stuart Lowman: On the flip side of that, in the game of the 60 stocks, the three best-performing stocks are retailers. When recording the podcast, it was Pepkor, the Foschini Group and Mr. Price. Is there anything in the retailers on this little wind of fires? Gareth, anything from your side? Indeed, a lower interest rate environment would be better for a retailer, but I wonder if the high-interest rates play into it or if it’s just a value of play.

Garreth Montano: It’s such a difficult one. If you look at current conditions this week, should retailers increase? Probably not. But given the sell-off already, priced into these retailers, and you know, we discussed it last week, is that markets look through a cycle. And potentially, you’re starting to see some investors saying, well, these retailers their significant depreciation. It’s time to start picking, time to start buying. Is there anything micro-economic this week driving it? I can’t see it. The retailers still face the same headwinds they did last week regarding spending money on diesel to keep lights on—challenges for consumers with disposable income. Not much of that has changed, but markets have started looking forward. Markets are not looking next week and two weeks. Markets are starting to look one year out and two years out; potentially, people are seeing value in these counters.

David Bacher: And if you look at the margins of some of these retailers, back to levels of 2018, so you’re coming off very, very low margins in the industry. And it’s such a gearing element to these retailers. If you take a three-year view and you think, okay, margins could increase, then you’re going to have not only an earnings bump, but you’re going to have a multiple PE expansion. And is that kind of gearing that I think many investors are… Okay, the environment hasn’t changed, as Gareth has said, but maybe if you take a bit of a longer-term view, we can’t time the bottom here, but that gearing over a long term can change quite quickly and meaningfully, so for the positive.

Stuart Lowman: David, one of the things is where to from here for our beloved SA Inc. We’ve got a Springbok director of rugby who does a 7-1 split. Do we need something special to drive SA shares forward?

David Bacher: I don’t know the answer to that question over the short term. At Corion, as you know, we’re valuation-based. We look at the earnings and the price you’re paying for those earnings relative to our history, relative to what you can get for emerging markets, relative to developed markets. And we think that although there is a lot of dire news out there and the economy is tough, you’re buying these shares in South Africa still at compelling valuations. When it turns, it turns quickly, so it’s been hard, but maybe the bench, the super bench, the 7-1 split might not be the right analogy, but you can get a change to the environment quite quickly, and that can change your fortunes quite quickly

Stuart Lowman: Okay, so you’ve mentioned that value across SA Inc., or is it specific sectors at Corion?

Garreth Montano: It’s worthwhile touching on what Carmen mentioned last week, and a bit more detail on that is that we’ve got to be cautious not to bucket the South African market into SA Inc. It comprises some of our market companies’ specific drivers to South Africa, like our banks and retailers. But the broader South African market, we’ve been mentioning it in some reports back to clients in the last week. 65% of earnings of the top 40 are foreign earnings. So we’ve got to be careful not to make the proxy for SA Inc. and the South African economy, the South African stock market. The South African stock market gives you quite a lot of diversification. We’ve got the resource potential kicker that we’ve discussed. You’ve got companies like Reshmont, the market-leading global luxury goods player. You’ve got the likes of Bidcorp—Bidvest with foreign acquisitions. Yes, SA Inc. is an element. We do need some specific drivers to get that going. SA Inc. is undervalued, but the South African market offers you more than that. Stay calm because of having exposure to the South African market, and it’s why the South African market is, through many decades cycles, one of the better-performing stock markets in the world. It is because of the calibre of the companies in the global nature of a lot of the earnings we’ve got.

Stuart Lowman: If we bring it back to Fantasy Fund, we would like to get a game tip of the week. David, I’d like to know if you’ve got any tips or tricks for the next week.

David Bacher: I think last time I was on the show, I said try, and if you’re looking for competitive advantage, try and wake up early on a Monday morning, see what’s happening off your market, see if the oil prices move to see what’s happening at Tencent and that can give you a bit of a lead in terms of how things are going to open. Now, that works for the first few hours but doesn’t work for the whole week, but you’ve got to start. And that’s that, to me, is still my best pick. I did that the last couple of weeks with why I went into Sasol, which has worked and not worked as well as I’d hoped. But yeah, that’s the most significant words of wisdom I can share.

Stuart Lowman: I know Rene Zietsman is fighting for that overall position with Grant Morris at the moment, and when she was on the podcast, she said that she and her friend would sit down on a Monday for half an hour and go through all the reports and stuff. So maybe there’s something to that. Garreth on your side, a gamer tip?

Garreth Montano: The Rand is an essential bellwether for what is going on with sentiment around South Africa and the market. We feed it all the time. It affects our oil price and importing it, and ultimately what your petrol price is going into your car every month. But in quite a risk-off environment, the Rand is trading quite nicely. We’ve mentioned retailers have performed exceptionally well. So if you’re taking a combination and looking and telling you, the market may hint that there’s a lot in the South African price. It might sound like we’re drumming on about this, but the Rand’s holding up quite nicely today. Retailers have been behaving well. So it could be that SA Inc. plays where we could look at some banks, retailers, and companies with specific drivers to South Africa.

Stuart Lowman: Thanks to Gareth Montana and David Bacher from Corion Capital. And, as always, thanks to the sponsors for making the podcast possible. That’s Terebinth Capital, Sharenet, ClucasGray Asset Management, and Moneybetter. And remember to subscribe to the podcast below to catch all the episodes. And send us your comments on X at Fantasy underscore fund. And from me, Stuart Lowman, until next week. Cheerio.

Read more:

• FFM podcast ep20: A media-fuelled frenzy; Rose-tinted glasses; Bottom drawers; A red aqua
• FFM podcast ep19: Winning from chemicals to finance; Debunking the Myth of the Barn Hole; A Springbok-inspired run?
• FFM podcast ep18: Cracking the code; Bidcorp; Sibanye-Stillwater; T20 or Bazball?

When GT Ferreira, Laurie Dippenaar, and Paul Harris founded the FirstRand group in 1998, they were determined to disrupt South Africa’s then-stagnant banking industry. Now worth R350bn, their venture is now second only to Naspers among listed South African companies – and is comfortably the most valuable financial services group in Africa. FirstRand’s disruptive ways continued this week when chartered accountant Mary Vilakazi, an erstwhile gifted child from Alexandria township, was named CEO to succeed the retiring Alan Pullinger. Vilakazi, 46, who has served as the group’s COO for the past five years, will break new ground when she takes over in April by becoming the first black woman to lead a major financial services group in South Africa. In this episode of UNDICTATED, BizNews editor Alec Hogg hears the journey of this quiet iconoclast from poverty into becoming the occupant of one of the country’s most prestigious corner offices – and explores how FirstRand might evolve under her leadership. – Alec Hogg

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Relevant timestamps from the interview

• 00:07 – Introductions
• 01:18 – Mary Vilakazi on feeling the weight of responsibility of the being the first Black female CEO
• 02:43 – On the culture within FirstRand – and if she have that entrepreneurial outlook on life within FirstRand
• 04:34 – Coming over to FirstRand in 2018
• 07:52 – Working closely with former CEO Alan Pullinger
• 09:14 – If Jacques Celliers was the other candidate
• 11:59 – The timing
• 15:22 – The succession planning within FirstRand
• 17:10 – In it for the long term
• 18:35 – Family and business
• 20:04 – Her journey in business
• 23:23 – Speaking truth to power
• 25:36 – Advice for the youth
• 27:41 – Conclusions

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An edited transcript of Alec Hogg’s interview with FirstRand’s incoming CEO, Mary Vilakazi

Alec Hogg: In this episode of UUNDICTATED, we meet Mary Vilakazi, the new group chief executive of Africa’s most valuable financial services group. This appointment starkly contrasts the recent abrupt CEO change at Naspers. FirstRand has its unique way of doing things, and today we’ll learn why. Mary, the announcement of your appointment has been years in the making. You’re set to take over on April 1st, and you’re the first black female CEO of a major banking and financial institution in South Africa. Do you feel the weight of this responsibility?

Mary Vilakazi: I felt an immense sense of responsibility when I learned about my appointment. This is a prestigious institution that I hold in high regard. I’m fortunate to be surrounded by a strong leadership team and board, which will be especially important as I assume my role after Alan leaves. My primary task is ensuring a smooth transition and maintaining the institution’s stability.

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Alec Hogg: Let’s explore some context about you and your journey. But first, can we talk about FirstRand’s unique culture? It was founded by G.T. Ferreira, Laurie Dippenaar, and Paul Harris, who were known for their entrepreneurial spirit. Does that culture still exist within FirstRand today?

Mary Vilakazi: Absolutely. The core business philosophy of owner management is still deeply ingrained in our culture. We believe in empowering exceptional people, giving them ownership and trusting them to deliver. This ethos continues to attract talent, which we’re very proud of. When I joined in 2018, a company-wide survey showed that this culture is still very much alive and valued across all our jurisdictions.

Alec Hogg: You joined FirstRand in 2018, leaving your position as deputy CEO at MMI. Did future leadership opportunities at FirstRand influence your move? Alan Pullinger told the board he would leave after six years – which he is now doing. Were any promises made to you?

Mary Vilakazi: I joined FirstRand for the opportunity to get into banking. I was also drawn to the opportunity to work closely with Alan Pullinger, whom I held in high regard. It was a compelling and exciting opportunity that leveraged my experience with risk and compliance. Alan’s sponsorship was also a factor, but I always operated with the mindset that I was there to learn. I’m grateful for the board’s decision.

Alec Hogg: Did you think you might succeed Alan Pullinger as CEO?

Mary Vilakazi: While it’s crucial to use every opportunity to learn, I was never complacent. I focused on doing my best rather than being preoccupied with leadership succession.

Alec Hogg: What can you say about Jacques Celliers and his new role?

Mary Vilakazi: Jacques has been leading FNB for 10 years successfully. He has now been given a new mandate to develop future business models. He is a builder. We are counting on his skills to build something new and exciting.

Alec Hogg: In the excitement around your appointment, it almost seems lost that Johan Burger, the former CEO before Alan Pullinger, who left when you arrived in 2018, will now be the person you’ll work closely with as FirstRand’s new chairman. That’s an interesting change.

Mary Vilakazi: Johan has been on the board for several years. I’ve observed his interactions with Alan over time. It’s always interesting to see someone transition from an executive to a non-executive director role. Johan has been quite mindful of this. I’ve worked with him in a different context before, and I believe having experienced bankers on the board is crucial. They challenge us constructively, and I look forward to working with them.

Alec Hogg: You’ve mentioned the importance of teamwork at FirstRand. This contrasts sharply with what happened at Naspers, where the CEO was abruptly replaced. Is this difference due to the nature of your industries?

Mary Vilakazi: I can’t speak for other companies, but at FirstRand, succession planning is a continuous discussion. The board understands the CEO’s tenure, which allows for active succession planning. This tradition provides a lot of stability within the organisation.

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Alec Hogg: Have you committed to a six-year term like Alan, or are you approaching your position differently?

Mary Vilakazi: At 46, I believe I have the energy and time for longevity in this role. However, there are checkpoints to consider: whether I remain relevant to the organisation and the maturity of my successors. My job is also to ensure the board has multiple options regarding future leadership. I’ll step aside when the time is right.

Alec Hogg: That provides valuable insights into the CEO role. Now, you and Prof Zeblon (vice chancellor of Wits University) are set to become South Africa’s power couple. Given your high-profile roles, how do you manage your personal life?

Mary Vilakazi: At home, we’re like any other family. Our children keep us grounded. We’ve been handling responsibilities from a young age and support each other well. We have a strong support system around us, which should help us remain grounded as we enter this new phase.

Alec Hogg: In some ways you followed a fairly traditional path for a bank CEO by becoming a chartered accountant. But you attended school in a rather challenging neighbourhood, Joubert Park in the Joburg CBD. How did your educational journey shape your career?

Mary Vilakazi: I primarily schooled in Alex, attending Kata Primary and East Bank High before moving to St. Enda’s College. The school initially started in Bramfontein, later relocating to Joubert Park. Despite being in a turbulent area, we had dedicated teachers who inspired us to make a difference. Originally, I wanted to be a lawyer, then a psychologist. However, I was guided toward accounting, and eventually, I found my sweet spot in leadership.

Alec Hogg: Your predecessor, Alan Pullinger, was vocal about national political and societal issues. Will your leadership at First Rand be different?

Mary Vilakazi: Alan is very direct and is passionate about South Africa. I may have a different communication style, but our aims for the country are similar. It’s our role as a major corporate player to offer constructive criticism and solutions for the country’s growth and development.

Alec Hogg:
Young people, especially those who aspire to leadership roles, will be looking to you for guidance. What advice would you offer them?

Mary Vilakazi:
Education is crucial, but passion is equally important. Use opportunities wisely, even if they’re not ideal. Consistency and ethics are key, and no one succeeds alone; surround yourself with supportive people. In my case, choosing a good spouse also helped.

Alec Hogg:
That reminds me of an African proverb: “If you want to go fast, go alone. If you want to go far, go with others.” Thank you, Mary Vilakazi, for your insights today.

Read also:

• A call for responsible and constitutional governance in South Africa – Eustace Davie
• Corporate SA refuses to pay for political PR, but…Government splurges R75m on 5 000 BRICS cops…
• Combative Sean Summers is back at Pick ‘n Pay – Gareth Ackerman appoints group’s ex-CEO in masterful coup

In the wake of recent leadership changes, Naspers faces a crucial juncture in its corporate journey. Can the company learn from the late Steve Jobs’ transformative strategies? Jobs, when he returned as Apple’s CEO in 1997, defied skeptics by focusing on innovation rather than cost-cutting. He pruned Apple’s product lines, designed beautiful, sought-after products, and invested in cash generation. The result was a resounding success, with Apple overtaking industry giants. Drawing parallels with Naspers’ current situation, this article highlights the importance of asset productivity and cash generation. It also suggests that Naspers could take a page from Jobs’ playbook, concentrating on differentiation, innovation, and seizing new market opportunities. With Naspers seeking its “next big thing,” a shift in strategy may be the crux of the journey ahead, much like Jobs’ pivotal decisions at Apple.

Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.

A Question: Is Naspers a “Casino”?

By Ted Black*

Given the recent change at the top, could Naspers learn something from the late Steve Jobs? He certainly didn’t believe in “casino capitalism”. That’s when you have a strategy based on hope you win the jackpot. In this case, to find another Tencent. 

When Jobs became Apple’s CEO for the second time in September 1997, it was nearly bankrupt. Nine months later in June 1998, with the turnaround taking shape, Bill Gates said, “What I can’t figure out is why he’s even trying. He knows he can’t win.” You can understand why. 

Microsoft’s market cap was $250 billion and Apple’s $4 billion. It would have been less than half that had Jobs not persuaded Gates to invest $150 million. He argued that keeping Apple afloat would help Microsoft in its fight with the Justice Department. 

At the start of the turnaround in 1997 he said the cure isn’t cost-cutting. It’s to innovate its way out of its current difficulty. So what did he do first? 

Unlike the “professional” corporate manager, he focused on one thing all successful entrepreneurs do – it’s to generate cash. In the end he did cut costs but designed a different business – not a bloodied, demoralised one, the usual effect of cost pogroms. 

He got to work like a gardener and cut back to Apple’s core. He pruned a range of handheld and portable products down to one laptop. He cut fifteen desktop models back to one. He dug out all side-line products like printers; slashed inventory by 80%; outsourced almost all manufacturing to Taiwan. 

He cut development engineers because he already had the best operating system in Next – the company he started and brought with him. He cut software development and distributors. He cut five of six national retailers but opened a store to sell direct to consumers. His bold moves re-positioned Apple. It was concentrated and focused for growth through the design of beautiful products that people queued overnight for.

As Bill Gates already knew, a brilliantly designed business, even run in a mediocre way, will knock the socks off a mediocre business design run brilliantly. With one, bold strategic move and IBM’s unwitting help, Gates cut everyone off at the pass with his Windows operating system and positioned Microsoft atop the PC “Mountain”. Then along came Jobs … again. 

He re-designed Apple brilliantly, and ran it brilliantly. By the time he died in 2011, Apple’s market cap was bigger than Microsoft and Intel combined. It’s now the most valuable company in the world with a market cap of $2,7 trillion and an operating Cash Return on Assets Managed (Cash ROAM) of 40%.

In 1998, after the turnaround began – a ROAM improvement from minus 36.7% to plus 13.3% – Jobs was asked what his strategy was to compete with Windows and Intel who dominated the PC market. Apple had only 4% of it.

He smiled and said he’d wait for the next big thing. The cash war chest he was filling meant he could. High asset productivity generates cash. This buys you time to think, develop options and decide on the critical best next steps. 

He set out to make a “ding in the universe” as he put it. He leapfrogged what customers, not competitors, were thinking and created new markets. He made Apple uniquely different – the prime strategic move – and turned it into a low-risk, high-return business. 

Today, it’s a fortress circled by a moat of high ROAM, little debt and 50% of its total assets in cash and marketable securities – not intangible “goodwill”, a result of paying too much for growth, or “scale”, through acquisitions.

So, now look at the link between Cash ROAM and Market Cap in Naspers and Tencent (if Apple were to be included it would be off the chart).

The effect of Tencent on Naspers is clear. With asset productivity declining, financial engineering and share buybacks over the last few years have been a futile attempt to reduce any value discount. 

Here’s why. Look at sales next.

The biggest contribution to segmental sales growth is from Tencent – effectively the internet sector.  Classifieds, Payments, Food Delivery, Edtech and Etail form Ecommerce.

 Naspers stated strategy is to operate platforms. To take “strategic bets”  and be the “most desired partner” in high growth markets for “successful” entrepreneurs. Sounds good but there seem few, if any, of them. 

The next chart showing trading profit trends confirms that.

The firm’s goal is a positive EBITDA in another year or so, but goals aren’t strategy. You can wade through their typical, turgid annual report full of “Business Speak’ (BS) that probably scores at best 20 or so on the Flesch readability scale and learn little (the King James Bible scores 80 which is pulp fiction level). Look at listed companies in the various sectors, none make money, or generate cash. 

Delivery Hero hasn’t done either for years and nor do any of the others in Ecommerce. The food delivery sector is tough. Last year, Just Eat’s  Goodwill “write off” was $4,4 billion. 

“Start-ups” are a form of gambling. They consume cash voraciously. Most fail. Yet, the successful gambler, or entrepreneur, soon uses some “House Money” and eventually only that. Typical corporate start-ups take far, far longer to get there. In contrast, look at Tencent from 2003 – two years after Naspers invested in it.

Cumulative cash profit after tax is “House Money”. “Own Money” is Equity minus the cumulative cashprofit. By 2008 Tencent was using only “House Money”. That’s successful entrepreneurs at work. 

So, what to do next?

What about getting the brains out of bed for a few days at Babylonstoren? A wonderful project created by Karen Roos Bekker. They could learn something about design, gardening and farming methods that apply to management. To prepare, they might read Richard Rumelt’s latest book “The Crux”. 

Rumelt, the strategists’ strategist, takes the title from mountain and rock climbing. The crux is the hardest move to make on a climb to the top. The book’s message is to focus your thinking on the most difficult problem you face that you can, and must, do something about. 

Even better, go for the best. Get Rumelt to facilitate – they can afford him. He finds in his work with executive teams it’s not that they don’t know what their problems are or ways of tackling them, but that they’re hung up on something that stops them doing what they must do. He helps them identify the barrier between the way they think about things and taking decisive action.

And what must that action be? All bewildered investors – direct or indirect ones – keep wondering but still have their eyes fixed firmly on Tencent – the only china egg in the basket.

Read also:

• Piet Viljoen cheers the end of suddenly departed Naspers CEO, Bob “40% value destroyer” van Dijk
• SoftBank alumnus replaces Van Dijk (51) today as Naspers/Prosus CEO leaves “by mutual agreement”
• The ANC’s geopolitics and the National Democratic Revolution – Paul Hoffman

In the dynamic world of fantasy fund management, where the thrills of the trading floor meet the strategic battlefields of a game board, a remarkable journey has come to a close. After 27 intense weeks of sharp moves, unforeseen market twirls, and astute stock selections, the Fantasy Fund Manager podcast is a testament to the spirited competition and financial education it has stirred among its participants. Join Stuart Lowman from BizNews as he delves into the closing chapter of this exhilarating contest. In a conversation filled with insight and reflection, we hear from Corion Capital’s David Bacher and the triumphant inaugural winner, Raymond Steyn, unravelling their strategies, the pressures of market fluctuations, and the sweet taste of victory against the backdrop of a turbulent economy. This is more than a game—it’s a glimpse into the mindset of those who navigate the highs and lows of investing with agility and foresight. So tune in as we celebrate the culmination of an adventure that’s as much about the numbers as the narrative of those who dare to dream in digits. Big thanks to our platinum sponsors, Sharenet, Terebinth Capital, ClucasGray Asset Management, and MoneyBetter. Until next year.

Listen here:

As the Fantasy Fund Manager competition draws to a close, the excitement in the studio is palpable. Stuart Lowman from BizNews wraps up a riveting 27-week journey of stock market strategy, triumphs, and volatility with Corion Capital’s David Bacher and the inaugural winner Raymond Steyn.

For Raymond, the feeling of victory is just sinking in, a win clinched through weekly strategising, leveraging his financial background and intense market research. His method? Predicting weekly stock movements to optimise his portfolio—a paid-off strategy.

David Bacher reflects on the broader impact of the Fantasy Fund Manager game, highlighting its educational ripple effect—from individual investors to university classrooms. It’s a testament to the power of gamification in learning, making the complexities of the stock market accessible and engaging.

Throughout the series, participants dived into weekly market forecasts, anticipating the impacts of company announcements and global events. David points out the blend of skill and luck in investing but underscores that informed strategy is key, likening it to using knowledge strategically in Fantasy Football.

The competition, run during a notably volatile period, was as much about market smarts as resilience. Raymond’s strategic agility saw him shift his stock choices weekly, avoiding sluggish performers that plagued others.

The game also underscored a tough lesson: investing is not for the faint-hearted. David shares an anecdote about his own market beginnings, illustrating how markets can swiftly impart hard lessons, shaping investment philosophy.

The final week’s leaderboard shuffle resembled a thrilling sports match, with participants making last-minute gains. David humorously recounts an office incident where colleagues kept a strategic announcement under wraps, leading to some playful office rivalry.

The competition also revealed interesting market trends. The most held stock, Naspers, delivered a negative return, while the least favoured, MultiChoice, plunged dramatically. On the bright side, two top performers shone, with Truworths and Textainer delivering impressive returns.

The podcast wasn’t just about the competition; it also showcased market dynamics. After a turbulent October, the markets rebounded with a vibrant start to November. David aptly quotes the adage about the value of time in the market versus timing the market, reminding listeners that it’s the long-term investment that counts.

Closing with a nod to inclusivity, David and Stuart note the diverse range of participants, including many women, celebrating their success in the competition. The runners-up, Guy Macrobert and Grant Morris from Clucas Gray, also receive honourable mentions, showing that persistence and strategy pay off even in volatile times.

Looking ahead, David hopes to maintain the game’s simplicity while expanding its educational reach, ensuring that the foundation built this year paves the way for an even more inclusive and enlightening future.

Thanks are extended to all sponsors, participants, and supporters who have made the Fantasy Fund Manager podcast not just a competition but a learning journey. With insights gained and lessons learned, the anticipation for next year’s competition begins to build, promising another season of strategy, education, and, undoubtedly, excitement.

A big thanks to Terebinth Capital, Sharenet, ClucasGray Asset Management and MoneyBetter.

Read also:

• FFM podcast ep26: The business end; delisting dynamics; property prowess; Equites; GrowthPoint
• FFM podcast ep25: ‘This too shall pass’, the barbell strategy, pick and pray, energy stocks
• FFM podcast ep24: Navigating market tensions, Gold bulls, Bling bears, rates higher for longer?

*This content is supplied by Naspers

Naspers is successfully delivering on its commitments. The fundamentals of its operating  businesses are improving, driving proftable growth. The ongoing open-ended buyback  continues to compound value over time and the removal of the cross-holding agreement  has greatly simplified the Group’s structure. Lastly, with its strong balance sheet and  through active portfolio management, the Group is well positioned to generate improved  returns through smart and disciplined capital allocation, benefitting all its stakeholders.

Headlines 

• Sustained topline growth of 15%, more than double the rate of peers, with Ecommerce  consolidated revenue of US$2.9bn.

• Meaningful improvement in profitability, enabling the Group to bring forward its Prosus  Ecommerce profitability target by six months to 2H 2024. 

o Consolidated Ecommerce trading loss of only US$38m, representing a 9% margin  improvement year-on-year. 

o iFood is now profitable overall, not just in its core.

• Core headline earnings more than doubled, increasing 112%, on improved Ecommerce  and Tencent profitability.

• Free cash inflow increased to US$677m, a 8x improvement year-on-year.

• US$25bn of value created by the ongoing buyback programme since launch, delivering  7% NAV per share accretion.

• Strong balance sheet with central cash of US$15.1bn.

• Removal of cross-holding agreement between Prosus and Naspers completed in  September 2023, to simplify the Group’s structure.

Ervin Tu, Interim Group CEO, Prosus and Naspers, commented: “We are making  substantial progress against our commitment to drive profitable growth. Through active  management of our portfolio, we have delivered improved results as our Ecommerce  portfolio is now close to breakeven and growing at scale. We’ve simplified our Group  structure, and the open-ended buyback programme is driving daily NAV per share  growth – magnifying returns over the long term. With deep institutional knowledge  across a number of technology domains, including AI, we are well positioned to support  exceptional technology companies around the world. We remain ambitious in our plans  and disciplined in our approach to drive real returns for all of our stakeholders.“

Group performance 

Basil Sgourdos, Group CFO, Prosus and Naspers, commented: “The Group has  delivered strong financial performance, beating industry levels of growth, while  significantly accelerating profitability. Driven by continued strong execution across our  Ecommerce portfolio, I expect this trajectory to continue at pace. Our Classifieds and  Food Delivery segments are both profitable, and PayU is making strong progress towards  profitability. Core headline earnings have doubled and the impact of the strong  improvements in Ecommerce and Tencent are also evident in our free cashflow, which  has increased six times. Our strong and flexible balance sheet, active portfolio  management and disciplined capital allocation will underpin our success.” 

Industry-leading growth and accelerating profitability across core Ecommerce  portfolio

Food Delivery: Sustained revenue growth with significant profitability improvement 

• iFood’s core restaurant business more than doubled trading profit to US$114m,  with a 19% trading margin.
• iFood grew Gross Merchandise Value (GMV) by 15% and revenue by 17%, resulting  in a trading profit of US$23m, up 149%.
• Strong performance by key investments:
• o Delivery Hero grew group GMV by 8% in Q2 2023, with H1 revenue up by  27%, boosting profitability to an adjusted EBITDA of €9m. 
• o Swiggy grew GMV by 28%, as operating metrics improved, and trading  losses reduced to US$208m.

Classifieds – OLX Group: Strong performance, with peer-leading growth and expanding  margins

• Classifieds consolidated revenue grew 32%, driven by a strong performance in  European auto verticals and OLX horizontal platforms. 
• Trading profit more than doubled to US$94m, with trading profit margin  increasing 12 percentage points, to 27%. 
• Exited OLX Autos businesses (excluding the US), with expected proceeds of  US$181m. 

Payments & Fintech – PayU: Strong overall performance, with core Payments Service  Provider (PSP) business profitable and sustained growth in Indian businesses

• Consolidated revenue increased 32% to US$497m, as core PSP business grew Total  Payment Volume (TPV) by 20% and delivered a trading profit margin of 2%.
• Indian credit business grew its loan book by 66% with revenue up 31%.
• Consolidated trading loss narrowed to US$22m, with a 15 percentage point  improvement in trading profit margin. 
• Agreed sale of GPO business, excluding PayU Turkey and Red Dot Payment, to  Rapyd for US$610m.
• Strong performance at Remitly in Q3 2023, with revenue increasing 43%. At 30  September 2023, value of Remitly stake approximately 5x initial investment.

Edtech: Continued growth in majority-owned platforms, with investment to leverage the  significant opportunity of generative AI

• Consolidated revenue grew 11% to US$71m with trading losses flat at US$66m,  despite the macroeconomic downturn and continued investment in new  technologies.
• Stack Overflow revenues grew 7% and successfully launched Overflow AI, a  roadmap for the integration of generative AI.
• GoodHabitz grew revenue by 22%.

South African businesses

• Takealot Group grew GMV by 15% and revenue by 9%, while reducing trading  losses by 85%, despite challenging trading conditions.
• Mr D grew GMV by 15% and revenue by 11%.

For full details of the Group’s results, please visit www.naspers.com.

Read also:

• Unlocking Naspers’ potential: Lessons from Steve Jobs’ turnaround at Apple – Ted Black
• Piet Viljoen cheers the end of suddenly departed Naspers CEO, Bob “40% value destroyer” van Dijk
• SoftBank alumnus replaces Van Dijk (51) today as Naspers/Prosus CEO leaves “by mutual agreement”

After enduring three challenging months, investment markets experienced a robust rebound in November, marked by double-digit increases in global equities. In this month’s comprehensive recap, Corion’s David Bacher delves into the reasons behind these shifts and the specific impacts. He highlights both the top-performing equities and the money managers who navigated these changes successfully. His insights were shared in a conversation with BizNews editor, Alec Hogg. 

Watch Here

Listen Here

Edited transcript of the Interview between Alec Hogg and David Bacher

Alec Hogg: Early in October, amid market turmoil, we published an article analyzing historical trends suggesting strong markets from November to May. David Bacher, author of the Corion Report, joins us to review November’s extraordinary market performance. David, impressive turnaround with data already available. Why was November so exceptional?

David: Well, coming off three consecutive months of losses, the market was down almost 10%. Historically, such corrections often led to favorable outcomes. Additionally, investors believed the US Fed would keep interest rates steady or even cut early next year, responding to positive inflation indicators.

Alec Hogg: So, the focus was on inflation and a shift in investor perception. But the magnitude of the jump, especially in individual shares like those on the Johannesburg Stock Exchange, was notable. What drove this?

David: Equities are inherently volatile, and while uncommon, substantial gains do occur. Short-term volatility can be challenging, but missing out on months like November by avoiding equities may prove costly in the long term.

Read More: Poetic Rob Hersov rides to Gayton Mckenzie’s defence

Alec Hogg: Timing is crucial, and emotional decisions can be detrimental. A disciplined plan, guided by a financial advisor, helps navigate market swings.

Alec Hogg: David, let’s discuss the remarkable surge in Harmony Gold, Anglo-American Platinum, and Process shares, all posting significant gains in a single month. What fueled this?

David: Harmony Gold’s 35% gain resulted from strong quarterly sales, robust production numbers, and geopolitical tensions boosting the gold price. Naspers and Prosus also delivered a solid trading update, driving their shares higher.

Alec Hogg: Unfortunately, our business portfolio lacks Harmony Gold, but we’ve seen success with Naspers and Prosus. On the flip side, Sibanye Stillwater, once marginal like Harmony Gold, underperformed, possibly tied to Palladium dynamics. What’s your analysis?

David: Sibanye faced company-specific challenges, announcing a restructuring of SA operations, issuing a significant convertible bond, and revealing potential job losses. This positioned them less favorably compared to competitors, exemplified by Amplats’ substantial gains.

Alec Hogg: Industrials on the JSE had the best run, up nearly 11%, outpacing resources’ 6% increase. Surprisingly, property, often disregarded due to remote work trends, saw a significant rebound. Any insights into this?

David: Property is sensitive to interest rates, and as bond yields dropped, it benefited the property market, contributing to its strong performance.

Read More: UNDICTATED: Business appeasing Pretoria a disaster, NHI shows ANC ignores them anyway

Alec Hogg: Globally, interest rates have peaked, set to decline, favoring equities. Individual unit trusts showed Coronation leading, driven by its overexposure to Naspers and Prosus. However, ClucasGray equity, typically a strong performer, lagged. Any reasons for this?

David: Coronation’s performance was influenced by its significant exposure to Naspers and Prosus. ClucasGray’s short-term underperformance, about 3.6%, is not alarming considering its strong medium to long-term track record.

Alec Hogg: Global equity funds performed well, with Sygnia Faang Plus and Sygnia’s Fourth Industrial Revolution showing interesting contrasts. The former, driven by big tech, outperformed, while the latter, also tech-focused, did not. What does this reveal about the market?

David: The performance disparity highlights the dominance of a few tech giants in driving overall market returns. Despite the success of tech-heavy funds, the broader market did not reflect the same level of gains.

Alec Hogg: Sean Peche’s value-focused Randmore fund stood out, delivering a strong one-year performance of 38%, defying the dominance of big tech stocks. Your thoughts?

David: Sean Peche’s persistence in value investing paid off, showcasing a turnaround after a challenging decade for value managers.

Alec Hogg: PPS Equity attracted significant inflows, but you cautioned against reading too much into this due to volatility. Any noteworthy observations in terms of unit trust performance and inflows?

David: Unit trust inflows, like PPS Equity, can be volatile and depend on the size of the asset manager. MNG as an equity fund, part of Prudential, saw substantial inflows, potentially indicating offshore investors recognizing value in the local market.

Alec Hogg: David, Prudential as a house was always known in South Africa for being very focused on value. Is MNG in a similar vein?

David: It is. It’s not as deeply value-oriented as other managers. Positioned as relative value, they consider value relative to the benchmark but not to the same extent as Alan Gray, Perpetua, Excelsior, or Camissa (formerly Kagiso Asset Management).

Alec Hogg: Outflows for the month show Old Mutual Investors facing challenges again. Alan Gray Equity is also prominent on this list, not where a unit trust manager wants to be.

David: True. Alan Gray Equity is among the largest equity funds. Outflows may not necessarily mean a loss of assets for Alan Gray but rather a reallocation to other funds, possibly part of the trend towards offshore investments.

Read More: BHI PONZI: Q&A with GCI Wealth over Global & Local client portfolio takeover

Alec Hogg: Looking ahead, we’ve had three challenging months followed by a strong rebound. Can we anticipate a positive December and January, as suggested by previous research?

David: It’s a time for balance and better diversification. Global bond yields at 4.5% offer reasonable returns. While tech-heavy American shares may be overvalued, there’s still value in the broader US market and South Africa. Stay invested with a tempered approach.

Alec Hogg: So, stay committed to your selected money manager, avoid trying to time the market, and trust them over the long term.

David: Absolutely. Identify managers with long-term potential, even if they’ve had a tough one-year period. Investing more during challenging times often yields better results than the common retail investor behavior of buying high and selling low.

Alec Hogg: David Bacher, co-founder of Corion and author of the Corion report, provides insights into the past month. November was impressive, and while December’s outcome is uncertain, the market has rebounded from earlier challenges. I’m Alec Hogg from BizNews.com.

For access to the Corion Report click the file below

Read More

• US stocks surge in best month since 2020, fuelling December optimism
• Rand struggles against emerging market surge and domestic headwinds
• Naspers accelerates profitability target and delivers on objectives

In a surprising move, China has introduced stringent measures targeting online gaming, erasing approximately $54 billion in Tencent Holdings Ltd.’s value. The draft rules, disclosed by Beijing’s gaming regulator, aim to curtail spending and content, prohibiting practices like rewarding frequent log-ins and player duels. This unexpected crackdown suggests renewed scrutiny of the world’s largest mobile gaming sector. Amid concerns of gaming addiction and societal issues, these regulations may force companies to revamp monetisation models, impacting China’s booming gaming market projected to grow 14% to ¥302.9 billion ($42.4 billion) in 2023.

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Tencent Sheds $54 Billion as China Unveils Latest Gaming Curbs

By Zheping Huang

China unveiled a raft of new measures to rein in spending and content in online games, signaling the start of another industry crackdown that wiped out roughly $54 billion of Tencent Holdings Ltd.’s value.

___STEADY_PAYWALL___

Beijing’s top gaming regulator on Friday published draft rules broadly designed to clamp down on practices that encourage players to spend more money and time online. Among other things, they include a ban on rewards for frequent log-ins, forced player-duels and a vague prohibition on any content deemed to violate state secrets.

The sweeping restrictions, which likely surprised industry players and investors, suggest Beijing is getting ready to launch another crackdown on the world’s largest mobile gaming arena. Tencent slid as much as 16% — its biggest intraday fall since 2008 — while smaller rival NetEase Inc. dived 28%. Nexon Co., which derives a chunk of its revenue from China, fell 8%. Bilibili Inc., a social media service popular with gamers, fell 6.1%.

Xi Jinping’s administration has sought to combat gaming addiction, blaming online entertainment for the rise of myopia among youths. Critics have also linked its rise to various ills from unemployment to low birth rates. At the height of the tech-sector crackdown, the government froze approvals for new titles and launched several investigations into content, forcing developers including Tencent to modify certain games.

“This will deal a blow to the overwhelming majority of games in China, except those that sell copies. Companies will need to overhaul their monetization models, including how they charge money from different tiers of players,” said Zeng Xiaofeng, a vice president at Niko Partners.

The latest rules emerged after Beijing in 2023 appeared to thaw on the sector. Officials in past months had encouraged esports for instance as an engine for the post-Covid economy. Xi himself attended the opening ceremony of the 19th Asian Games in Hangzhou, which featured professional gaming among the medals up for grabs for the first time. 

In December 2022, Tencent secured a green-light for a clutch of major releases including Valorant and Pokémon Unite — a milestone that reinforced hopes China was easing its two-year crackdown on Big Tech. The WeChat operator is now locked in a fierce battle with NetEase as it rolls out casual title Dream Star in hopes of replenishing an aging gaming portfolio. Both companies have poured advertising and other promotional costs into the so-called party royale genre, at a level unseen in recent years.

China’s gaming market was set to grow almost 14% to 302.9 billion yuan ($42.4 billion) in 2023, reversing a 10% decline from the year before, according to data provider CNG. 

Yet the Communist Party since 2020 has waged a campaign against a private sector it regarded as amassing more power and expanding recklessly, an effort that managed to rein in once-dominant tech sector leaders such as Jack Ma’s Ant Group Co. and Alibaba Group Holding Ltd. The crackdown on gaming actually pre-dated that movement, with the first suspensions of game approvals starting around 2018.

The government now wants to set a cap on how much money each player can spend within a title, according to the draft.

The regulations also asked that game publishers operating abroad respect Chinese laws and culture and refrain from endangering national security, without elaborating. Tencent is the world’s largest gaming publisher, with investments in studios from Epic Games Inc. in the US to Supercell in Europe. The agency will take feedback on the proposed rules for a month, without saying when they take effect.

“It’s hard to quantify the impact at this stage but the draft rules raises concerns over the gaming companies’ monetization prospects,” said Daisy Li, a fund manager at EFG Asset Management HK Ltd. “With the rules, gaming players behavior could change and the companies daily active users could take a hit.” 

Read also:

• Diamonds in the rough: The FT chats to De Beers CEO Al Cook
• Cape Winelands Airport’s big plans: Premier diversion hub, doubling tourist numbers – Nick Ferguson
• Public Procurement Bill: No moral way to account for BEE’s impact on black unemployment – Gabriel Crouse

© 2023 Bloomberg L.P.

By Loni Prinsloo, Jennifer Zabasajja and Janice Kew

Naspers Ltd., Africa’s largest company by market value, is boosting investment into its South African online retailer ahead of Amazon.com Inc.’s entry into the country’s fast-growing ecommerce market. 

“We are investing a lot more into our businesses,” Phuthi Mahanyele-Dabengwa, chief executive officer of Naspers’ South African unit, said in an interview on Bloomberg TV Wednesday. “We are well positioned toward being able to deal with whatever could be coming from Amazon.”

Read more: Amazon announces launch of online retail in South Africa in 2024

South Africa is the continent’s most developed economy and has a youthful population, together with one of the largest upper-middle-income markets in the region. It’s potential is drawing increasing attention from retail giants like Walmart Inc. and Amazon, which will roll out online delivery there this year.

Naspers owns Takealot, South Africa’s top online retailer, and has been expanding its services to include one-hour delivery for items ranging from phone chargers to toys, in anticipation of Amazon’s arrival. 

E-commerce only makes up about 4% of South African retail, presenting the opportunity to grow the market three to five times faster than in peer countries, Takealot Chief Executive Officer Mamongae Mahlare said last year.

Read more: Naspers accelerates profitability target and delivers on objectives

Online retail sales in South Africa grew 30% to 55 billion rand ($3 billion) in 2022, according to a study by market research firm World Wide Worx.

“It’s good for South Africa that Amazon is attracted to coming into the market,” Mahanyele-Dabengwa said. “At Takealot I think we’re very well positioned. We know our market very, very well.”

Read also:

• Steenhuisen on the latest ANC scandals – and SA’s “cowardly” President…
• South Africa’s chances of winning case against Israel seem unlikely – Prof Theo Venter
• South Africa’s MTI Bitcoin scam leaders face jail, massive fines

2024 Bloomberg L.P.

Amidst a backdrop of skepticism and market turmoil, Chinese stocks teeter on the edge of opportunity or peril. Brimming with untapped value, these equities present a tantalising prospect for astute investors, offering compelling valuations and potential growth. Yet, lingering doubts over corporate governance and geopolitical tensions cast a shadow over the market’s revival. The key lies in a dual transformation: companies must shift focus from lofty promises to tangible returns for shareholders, while domestic investors must rediscover faith in a market marred by past disappointments. As Beijing hints at policy shifts and regulatory reforms, the stage is set for a potential resurgence, where returning cash to investors could prove to be the much-needed remedy. It’s a pivotal moment, where discerning investors may find the chance to seize the elusive value hidden within the depths of China’s stock market.

Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.

By Robin Harding

When an asset is declared ‘uninvestable’ it is often time to buy

It was a dire January for Chinese stocks. After falling almost 10 per cent, Hong Kong’s Hang Seng stock index now trades around the same levels it did in 1997, when Tencent and Alibaba, two of its largest constituents, had not yet been founded and the territory had just returned to Chinese sovereignty.

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At a recent conference in the city, more than 40 per cent of participants declared Chinese equities to be “uninvestable”. Strategists complain that fund managers have stopped listening, while frustrated mainland investors have taken to grumbling on the US embassy’s social media accounts, where they have some hope of evading censorship.

A generation of missing returns, market exhaustion and the magic word “uninvestable” — it sounds like an opportunity. A value trade requires enough gloom to drive market prices below intrinsic value and China’s market is not lacking for pessimism. The question is whether this is a value trade or a value trap. For it to be the former, two things need to happen.

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First, the companies themselves must act as what they currently are: an unfashionable discount product that needs to sell itself on tangible results, rather than airy promises of future growth. Specifically, Chinese companies will need to rebuild investor confidence by returning cash with buybacks and dividends.

Second, Chinese domestic investors must regain trust in the market. Foreign buyers might ride a recovery. They cannot drive it.

On valuation alone, there can be little doubt — Chinese stocks are some of the most attractive assets available in global markets. According to Deutsche Bank, the Hang Seng index trades at a forward price-to-earnings multiple of about eight, ie you pay $8 for around $1 of annual earnings, which compares with global equity valuations of more than double that. Its price-to-book value is less than one.

Nor are these failing companies. The largest, such as Tencent and Alibaba, are highly liquid and still growing. They are trading on forward price-to-earnings multiples of eight to 13 times, with healthy free cash flow yields, indicating they generate ample flows of cash after covering their investment needs. If these companies reverted to trading in line with their US peers, investors would comfortably double their money overnight.

The cause of these low valuations comes in two parts. First, there are factors that have damaged investor confidence in the future profitability of Chinese companies: the weak economic recovery, which hampers revenue and profit growth in the short term, and Beijing’s regulatory crackdowns, which reset perceptions of profit potential in many sectors. To the extent that their investment opportunities have diminished, companies operating in these sectors should return cash to investors instead, and in some sense they are doing so. Both Tencent and Alibaba paid dividends and repurchased shares last year.

Beijing is slowly easing up. It will provide more fiscal support for the economy this year and has set more explicit rules in areas such as online gaming. Fundamentally, China’s economy still has a lot of room to grow, and that should be good for corporate earnings.

The more difficult issue is geopolitics. Geopolitics, in most cases, has no direct effect on corporate profits: tensions over Taiwan do not stop players of Tencent’s online games or shoppers on Alibaba’s Taobao mall. Rather, it creates a hard-to-estimate risk that, at some future date, international investors will arbitrarily lose access to their stream of earnings. This is what happened to foreign investors in Russia when it invaded Ukraine. Quite naturally, investors will pay less for a stream of earnings that might suddenly evaporate.

At present, the removal of this discount via a reduction in geopolitical tension is implausible. However, the discount will be especially severe when a company retains its earnings for internal investment, in which case all the potential cash flows to investors belong to the distant, uncertain future. By delivering buybacks and dividends, Chinese companies can make those cash flows more immediate, more certain and therefore more valuable.

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But geopolitical risk still creates an unavoidable wedge between the value of a Chinese stock to an international investor — who runs the risk of appropriation — and a domestic investor who does not. A recovery will only come when domestic investors regain their appetite for a stock market that has treated them badly in the past.

Signs of official intervention caused stocks to rise a little on Tuesday, but state-backed buying by the “national team” will not produce a sustained recovery. More promising is a decision by the body in charge of state-owned companies to start evaluating managers based on the stock performance of their listed units, while the securities regulator is pushing for dividends, buybacks, mergers and swifter delisting discipline over issuers that misbehave.

Chinese investors rightly question whether the market will be run in their interest, but with the housing sector unlikely to recover any time soon and capital controls as tight as ever, they lack other places to park their money.

A Chinese market revival based on returning cash to investors would be painful medicine for a set of companies that a decade ago seemed set to conquer the world, but it would bring the value trade to fruition — giving foreign investors a final chance to cash out.

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