Why is Spur eating Famous Brands’s lunch?

SPEAKER_1 (0:02)

You're listening to the MoneywebNOW podcast series with Simon Brown. Live streamed every weekday at 6:30 a.m. It's Friday, 16 October.

Simon Brown (0:15)

I'm Simon Brown coming at you live and loud from the Moneyweb Global Headquarters in Johannesburg, South Africa. On the show today, Danie Dörfling-Kruger, Moore Infinity. A lot coming through. I want to touch on Equity Property results. They're largely out of the UK. PSG Financial Services. It was a tough environment. I don't know. The market seemed to be a little bit harsh, I thought. And Famous Brands. I mean, they're struggling relative to Spur. We'll get Danie's view on that. Frank Blackmore, Kpmg South Africa, Lead Economist. Changing investment landscape in which investment rather than consumer spending is driving growth across our continent. And thoughts from me on the positive feedback loop in the bond market, as Treasury may reduce new bond issuance.

This podcast is brought to you by Standlip Asset Management. Invest in more global opportunities through their partnership with JPMorgan Asset Management.

Morning headlines, Moneyweb. Is this why Remgro shares are trading at a discount of 36 percent? Capital allocation remains the Achilles heel.

Businessday SA revenue could be 70 billion rand higher on gold windfall. This according to Bank of America. Morning markets, US was mixed. S&P was up a third of a percent. Nasdaq was down a little, 0.05 percent. Easter's all green. Sydney, 0.02 percent up. Tokyo, 1.8 percent higher. Hong Kong, 1.2 up and 10 cents just over a percent higher. Commodities all green. Gold futures, 4,204. Brent, 105 dollars, 27

Platinum, 1,650. Palladium, 1,145. Durand is 1646 Bitcoin, 81,900. And top 40 opening call, green open, 630 points or 0.6 percent higher.

SPEAKER_1 (2:06)

MoneywebNOW on the money. Also available on podcast.

Simon Brown (2:11)

Taking now with Danie Dörfling-Kruger, Moore Infinity. Danie, appreciate the early morning time. Next section is Equites Property Results. They largely out of the UK. I got to say, I thought a lot to like. I mean, loan to value, 28.1 percent. Vacancy, one and a half percent. Now focused South Africa, focused logistics. It's been a bit of a wild ride, but it's looking good at the moment. Your thoughts on the business and the results?

Danie Dörfling-Kruger (2:36)

Morning, Simon, and thanks for having me as always. I think what stands out for me and the most significant change is the freedom, the balance sheet actually gives management because distribution grew about 5 percent. As you said, loan to value fell roughly from 35 percent to 28 percent. That gives equities more room to fund development and withstand setbacks. And I guess full year distribution guidance was also maintained. So for shareholders, that matters because a property company under financial pressure can be forced to sell assets and raise equity at unattractive prices. But equities has more choice over where and when it wants to invest. My assessment is positive, just as yours is, with a clear next step and the UK sales created capacity to invest. The quality of the reinvestment will obviously determine the shareholder value.

Simon Brown (3:22)

I like your comment on the balance sheet. I mean, distribution payout ratio, 100 percent, which tells you a lot. I mentioned loan to value. What I didn't mention was 2.9 billion of cash and an undrawn facility. To your point, it just gives them that flexibility. They're not going to be pushed into a corner. They can stand back and kind of pick and choose and find the deals which, to be clear, management have been doing.

Danie Dörfling-Kruger (3:44)

Exactly that. And I mean, if you look at whether, because of that potential leeway, I mean, the question is also that other South African development returns actually attractive enough. So they need to be assessed over the life of the investment. I mean, the state of development yields are 8 to 9 percent. And if you compare that to the starting yield only with today's borrowing rate, that leaves our parental growth, construction timing, future capital expenditure. I mean, equally funding a development from disposal proceeds doesn't make that capital free.

Shareholders still require that return. So my question would be, how secure is the tenant? How much of the construction risk remains? And what happens if cost rise or occupation is delayed? I mean, development creates value when it's expected to return adequately and compensate for those risks.

Simon Brown (4:31)

Yeah, that's a great point. That's a great point. Let's move to PSG Financial Services. Used to be PSG Consult. Stock was down almost 4.5%.

I mean, some of it, I mean, they talk around the fact that challenging operating backdrop securities market conditions much less favorable. You're in the cold face of that. You get that part of it. There were, I mean, the Western Cape storms hurt a bit in their underwriting business, the insure investment part of it there, some lower performance fees. I thought the market was perhaps a little bit harsh on them. The stock has run, but this is a quality operation.