Finweek UK 20 March 2014

Finweek UK 20 March 2014

A NEW WAY TO MATCH UP WITH THE

Entrepreneurs BIG GUYS

I MADE A million

AND SO CAN YOU!

SA: R23.50 (incl VAT)

Other countries: R20.61 (excl VAT)

www.finweek.com

Entrepreneur Chris Bischoff

Jeep with ®

FYOUR QUARTERLY REVIEW INFUNDOF SA FUNDS

GLOBAL GROWTH STORY

INVESTORS BUY THE Inside

finweek

A NEW WAY TO MATCH UP WITH THE

Entrepreneurs

BIG GUYS

I MADE A million

AND SO CAN YOU!

INVESTMENT INSIGHT S FROM LEADING ASSET MANAGERS

On the cover: Chris Bischoff Photographer: Dino Codevilla Make-up: Rouge SA

P43

Finfund Your quarterly review of SA funds

4 Feedback From our readers

6 Trending News preview

8 Context The rise of the supercar market

10 Cover How to make a million in five years or less

18 Insight Emerging vs developed market challenges

22 Investment Listed property consolidation excites

24 investors; Petmin now seeking growth closer to home

25 Index-linked investments: The art of passive punting

30 Simon Says Standard Bank, Southern Ocean, Clover

32 Small Cap Petmin on the rise

33 Fund Focus Coronation Smaller Companies Fund

34 Invest DIY How to manage investment risk

36 Start-ups In the mind of Sylvia Gruber

38 Technology Tested: Slack

39 Time for David to cuddle up to Goliath

40 Life The week that was in SA sport

45 Finfund Set for another reasonable year

46 Slightly improved domestic outlook on the cards

48 Caught up in an emerging-market storm

49 Corporate investors target fixed income funds to

‘sweat’ their cash

50 The active versus passive debate

52 Predictability: a highly sought-after commodity for investors

53 Don’t overreact!

54 Understand your Allan Gray Stable Fund investment

55 Making sensible use of ongoing opportunities

55 Sasfin Premier Logistics lifts its game

60 Directors & Dividends Dealings and payouts

62 In Brief Crossword

P36

In the mind of

Sylvia Gruber

4 FINWEEK 20 MARCH 2014

Feedback

PUBLISHED BY MEDIA24 WEEKLY

MAGAZINES PRINTED BY PAARL MEDIA AND DISTRIBUTED BY ON THE DOT HEAD

OFFICE 40 HEERENGRACHT, CAPE TOWN,

PHONE 021-406-4552 GAUTENG OFFICE

5 PROTEA PLACE, PROTEA PARK, SANDOWN, 2196 OR PO BOX 785266, SANDTON, 2146 TEL 011-217-3053

WEBSITE www.finweek.com OVERSEAS SUBSCRIBERS +27-21-405-1905/7

FINWEEK SUBSCRIBES TO THE SOUTH AFRICAN PRESS CODE WHICH COMMITS US TO JOURNALISM THAT IS TRUE, ACCURATE, FAIR AND BALANCED IF YOU THINK WE ARE NOT COMPLYING WITH THE CODE, CONTACT THE PRESS OMBUDSMAN AT 011-484-3612 OR ombudsman@presscouncil.org.za © FINWEEK 2011 ALL RIGHTS RESERVED TO INQUIRE ABOUT PERMISSION TO REPRODUCE MATERIAL CALL OUR ARCHIVE AT 021-406-3232.

SUBSCRIBERS

0861 000 571 subs@finweek.co.za

SHOPS 0861-888-989 assistance@onthedot.co.za INQUIRIES

Share your thoughts with us on Twitter (@Finweek)

or find us on Facebook (facebook.com/Finweek)

Contact Finweek, P O Box 785266, Sandton 2146, tel (011) 217-3000 or feedback@finweek.co.za

THIS WEEK’S CONTRIBUTORS

Kelly Berold kellyberold@gmail.com Simon Brown simon@justonelap.com

Simon Brown heads justonelap.com, a free resource of financial information and investment education.

Blair Burmeister blairb@finweek.co.za Warren Dick warrendick7@gmail.com Simon Dingle

simond@finweek.co.za Jessica Hubbard jessicah@finweek.co.za Graeme Joffe graeme@butterbean.co.za Tandisizwe Mahlutshana tandisizwem@finweek.co.za David McKay

david@miningmx.com Garth Theunissen thewritegarth@gmail.com Kristia van Heerden kristiav@finweek.co.za

For more information, visit finweek.com

Acting editor Willem Kempen responds:

With the type of information in tion readily available elsewhere much

decided to rather use the space to give readers more of the type of content that we excel at We’d love to hear what other readers think as well.

COMPANIES & INVESTMENTS

Far from being a high-brow investor, my investment deci- sions are based on a single co n- cern: how much money can I make from as small an inv estment as pos-

sible? In Finweek terms, I’m the Little

Leagues In the 16 January edition, I mentioned that fees are one of the major concerns when investing I’m not alone in

my dread of fees Financ ial advisers stantly remind our readers to keep a close eye on the costing structure of products before investing

con-As an investor of my ow n money

(thankfully only my own) I have to admit

to a degree of reluctance when ing fees It’s just such a drag If you can actually get to the litera ture on product fees, it’s so full of jargon t hat a layperson can only understand it with much effort

investigat-Finweek reader Irene Botha can relate

to my frustration and a sked me to do

Top40 ETFs:

All things aren’t equal

report card, only instead o f subjects, you have a group of very big companies An index is not a product, just a report, so you can’t buy it That’s where E TFs come in

An ETF is in its essence a co llection of shares that track a specific index If, for example, you wanted to invest in the sweet chilli sauce sector, you wou ld buy an ETF that consists of all the sw eet chilli sauce companies – one for each com pany The ETF is therefore the product that tracks the index (To save you some time, I should tell you that there’s no ET F in South Af- rica that tracks sweet chilli sauce.) You can buy ETF products from various financial service providers and online platforms

Many people (myself incl uded) start their investment portfolio by investing in a Top40 ETF, but sadly it’s no t free Before

I choose an ETF product, I have to pare the costs It’s a lot like buying eggs, actually.

com-some digging into the fees of various products I’m going to do ju st that, work- ing on the assumption t hat you invest directly and not through a bro ker First, I need to explain three concepts that will help us understand wha t I’m on about, namely indices, ETFs and the total expense ratio (TER).For the sake of comparing apples with apples, we have to make sure that we’re comparing the fees of like products For that reason, I’m going to look at the fees involved in Top40 exchange-traded funds (ETFs) However, to understand what an ETF is, we have to under stand what an index is See how this is a lready getting out of hand?An index is a way for us to see what the market is up to It tracks the performance

of certain sectors of the ma rket (or the market as a whole) to se e if the sector is making or losing money Think of it as a

26 FINWEEK 13 FEBRUARY 2014

EDITORIAL ACTING EDITOR WILLEM KEMPEN DEPUTY EDITOR TANDISIZWE MAHLUTSHANA

MANAGING EDITOR NICOLE BOUCKAERT JOURNALISTS AND CONTRIBUTORS SIMON BROWN,

SIMON DINGLE, GLENDA WILLIAMS, JESSICA HUBBARD, DAVID MCKAY, BRUCE WHITFIELD,

KRISTIA VAN HEERDEN, GLENDA WILLIAMS, DANIELLE GARRETT, BLAIR BURMEISTER,

WARREN DICK SUB-EDITORS STEFANIE MULLER, JUSTINE OLIVIER OFFICE MANAGER

THATO MAROLEN LAYOUT ARTISTS BEKU MBOTOLI, TSHEBETSO DITABO, ZANDRI VAN ZYL

GENERAL MANAGER CHARLENE BEUKES PUBLISHER LEE-ANNE COOSNER PROJECT MANAGER

DEIRDRE MCDONALD CEO: MEDIA24 MAGAZINES JOHN RELIHAN CFO: MEDIA24 MAGAZINES

RAJ LALBAHADUR ADVERTISING SALES AND SOLUTIONS SALES DIRECTOR CRAIG NICHOLSON

011-322-0731 BUSINESS MANAGER (KZN) EUGENE MARAIS 031-566-4178 BUSINESS MANAGER

(DIGITAL) TERANCE WINSON 021-443-9418 NATIONAL SALES MANAGER WEATHERTON NYAMBEU

011-217-3185 CIRCULATION SALES & SOLUTIONS CIRCULATION MANAGER ARMAND KASSELMAN

021-443-9975 SUBSCRIBER ENQUIRIES ELMARIE EYGELAAR 021-443-9828

CHEAPER ETF S ?

Great article about the Top40 ETFs

(Fin-week, 13 February issue)! I have a question

related to costs: if I were to

go the route of using a

bro-ker instead of buying an ETF

through one of the providers

I would obviously incur

bro-kerage as a one-off cost

Sub-sequently, I would only incur

annual charges related to the

TER (total expense ratio) but

not the annual platform fee

This would amount to a saving

of 0.65% per annum if I use the

Satrix platform Am I correct

in this? I guess the only downside in going

this route is that if you buy and sell

regu-larly, then brokerage costs would be much

higher than the 0.1% transaction charge

Satrix would charge?

Michael Gers

Finweek journalist Kristia van

Heerden responds:

While you are correct in assuming that

you will be saving on a platform fee,

it’s important to keep in mind that

bro-kerage fees are usually higher than the

brokerage fees incurred on an ETF

platform Having said that, if you aren’t

planning on selling often and your ETF

(R100 000 or more), you could save quite

a bit by transferring the balance of your

ETF to a broker to save on the annual platform fee In fact, my personal financial adviser told me to do just that It’s very important to compare apples with ap- ples, so take time to com- pare brokerage fees and different platforms Ask yourself as many “what if” questions as you can think of and try to figure out how different sce- narios would impact the fees you incur

Once you’ve done all your research, run

it by a financial adviser or a clever friend

to make sure that your logic pans out fore making a decision

be-LET US KNOW

There used to be a regular page with share prices and other useful information on the second and third pages from the back

Nowadays, I almost never see that, and I miss them because they used to provide a great summary of the market after all the tips and ideas Don’t you want to bring it back? How often can we expect it?

Herman Perry

This plan gives you Completely Unlimited Calls,

Unlimited On-net Data, Unlimited SMSs and free Wi-Fi.

Get unlimited benefits

on the network that

keeps you connected.

BEST FIXED

& MOBILE BROADBAND

Telkomshop.co.za 10213

@TelkomZA TelkomZA

Terms and conditions apply and can be viewed at Telkomshop.co.za E&OE Deal available until 31 March 2014 or while stocks last All mobile deals are available to individual consumers or businesses Free Unlimited Wi-Fi (10GB Fair Usage Policy applies) Free CLIP & Itemised Billing (email) *MyBroadband February 2014 service-satisfaction and perception survey # Calls to 35 selected international destinations All

Dial *120*8686# to find the nearest Telkom Store

6 FINWEEK 20 MARCH 2014

THERE’S BEEN A LOT of talk over the

last couple of years about what the

workforce of tomorrow will look like

Business today is a competitive place

where the only constant is change

In the 2020: The New World of Work

report, workforce solutions provider

Kelly Services explains how futurists

have focused, perhaps arbitrarily, on the

year 2020, plastering across the Internet

thoughts and ideas about how

every-one’s concept of a normal day of work

will be shattered in just a few short years.

But many of these changes are

hap-pening already, and by 2020, companies

that fail to embrace some very

funda-mental ways in which the global

work-force is transforming will fall behind the

competition.

“Making sure that you understand

future trends will ensure that you can

adapt and therefore grow your

busi-ness steadily, rather than run the risk of

becoming irrelevant,” says Ravi

Goven-der, head of small enterprises at

Stand-ard Bank

He explains that entrepreneurs tend

to get caught up in the day-to-day

operational trap of chasing deadlines

and taking responsibility for multiple

functions within the business, however,

he thinks that they need to pay more

attention to preparing themselves for

change instead

“Essentially, you need to look at

events differently and proactively

navi-gate your next challenge Where most

people see disruption and fight against

change, you must see opportunity and

embrace what change has to offer,” says

Govender.

“To prepare effectively, you must

identify which events have the est potential to disrupt it You also need

great-to consider which sources great-to consult great-to stay ahead of the curve Most important-

ly, you should have a long-term view of where you want your business to be in, say, five years,” he says

One of the major trends impacting businesses is technology New processes and products are constantly being intro- duced The dropping price of broadband and the introduction of a wider variety

of cheaper devices, with smartphones leading the pack (particularly in emerg- ing markets), are making it easier to access information

“You may have to view your tions, products and services in this light,”

opera-notes Govender “Instead of buying equipment that could be obsolete within

a year, you could be better off saving the capital and leasing equipment instead

If your business relies on marketing, the technological revolution could mean swopping from printed material to elec- tronically-delivered catalogues.”

He says that asking, “What if?” about your business and the industry that you work in is also important

Think about new processes that could be introduced, which competi- tors could enter the market and how your products or services would meas- ure up The key to success is being able

to look at your business with a critical eye, evaluate how it operates, and how things could be improved to maintain your competitive edge.

Evaluate your customer base Always

be aware of who your customers are, what they want and where they live

By keeping an eye on the area in which

your business

i s s i t u a t e d

or areas you serve, you can identify chang-

es in the bourhood and

neigh-be able develop your offerings accordingly to increase your sales

Govender explains: “You may find, for example, that young, upwardly mobile professionals are buying or renovating houses in the area By knowing this, you could develop products or services that would be of interest to them and cre- ate new market opportunities for your business.

“It may seem irrelevant to think about the environment when considering your small business The truth, however, is that people are becoming increasingly conscious about the impact they have

on the environment.”

It would be misguided to think that your business won’t be impacted because people love your products and don’t care about the materials or packaging you use By taking action to ensure that you use recyclable materi- als and that your products have no or a reduced adverse impact on the planet, you could be safeguarding the future of your business.

In his TED talk titled Profit’s Not Always the Point, COO of Unilever Harish

Manwani argues that 21st century panies have to look beyond self-interest and embrace responsible growth if they want to thrive He urges companies to define a purpose that embraces respon- sibility ■

com-Gazing into the

crystal ball of work

Trending

BY BLAIR BURMEISTER

business

i t u a t e d eas you , you can

fy the neigh- hood and ble develop offerings accordingly to increase sales

chang-ovender explains: “You may find, for ple, that young, upwardly mobile ssionals are buying or renovating

Absa Bank Ltd Reg No 1986/004794/06 Authorised Financial Services Provider Registered Credit Provider Reg No NCRCP7

Be physically and financially

fit for your retirement

You invest in yourself every day Why not invest in your future too?

Investing in our uniquely designed, low cost Core Retirement Annuity is as

easy as starting a work-out regime With the right attitude and commitment,

your finances will be in shape in no time Let us show you how, from the bank

that’s here for you to prosper.

Apply directly at absa.co.za/retirement

Supercar sales Total vehicle sales (%change in sales between

2009 and 2013) -35%

33%

THE BIG NAMES in sports cars

are all cashing in on the American

public’s ever-increasing appetite

for generously priced cars At

the recent Geneva Motor Show,

Lamborghini unveiled the Huracan

($182 000) and Ferrari the

California T (about $205 000)

Maserati, which has been doing

especially well in the US, showed

off its Alfieri concept car Porsche

went bigger with the 918 Spyder,

with a listed price of $845 000.

SUPERCAR MARKET

INSIGHT

LIFE IN THE FAST LANE

Sales of sports and luxury vehicles are proving to be highly resilient, both in South Africa and abroad

A Porsche has again been voted South Africa’s Car of the Year In many markets it would seem that sports and

exotic cars are outperforming other cars, not just on the road but also on the sales sheets and the bottom line.

ACCORDING TO THE National Association of Automobile

Manufacturers of South Africa (Naamsa), new vehicle sales

in the Sports and Exotics category increased by 27% in 2013,

making it the fastest-growing market segment for the year

However, growth still slowed down in almost all sectors

LUXURY BRAND TOTAL SALES IN

FEBRUARY 2014

FERRARI JAGUAR LAND ROVER MASERATI PORSCHE

4 714 2 96

How to make a mill

COVER

10 FINWEEK 20 MARCH 2014

Can it be done? Can you be a million rand richer five years from now?

ion in 5 years (or less)

COVER

11

BY KRISTIA VAN HEERDEN

NAME THE DESIRE

You would think your road to R1m

would start with some money, but we’re

happy to report that the first step is as

easy as answering a question

Garner says he often talks to clients

who want to save money or make a

mil-lion without knowing why “Without a

real reason to save, the odds of sticking to

the savings plan in the long term

dwin-dles slowly The simple reality is that we

need a cause or solid reason to get behind

a plan to keep us motivated The money

then becomes the means to an end, not

the end in itself.”

Oddly, wanting a million for the

sake of having a million is probably not

enough Before starting your journey to

the millionaires’ club, you have to decide

why you need the money Perhaps a little

introspection will reveal that you don’t

need a million after all If that’s the case,

we would recommend you stop reading

immediately However, if you find that

you need a million to start a business,

take a year off work or build yourself a

completely new face through intricate

plastic surgery, Garner says you might

just make it “Your chances of

succeed-ing will go up incrementally with each

month if you’re saving towards a specific

goal.”

FACE REALITY

Knowing what you want is an

important first step but not enough to get

you to the finish line, which is why your

next step should be a long, hard look in

the mirror Investors are often unwilling

COVER

12 FINWEEK 20 MARCH 2014

The word ‘million’ might scare you, but understanding how much you have to pay in current happiness in favour of future happiness is very basic mathemat-ics (provided the the word ‘mathematics’

the first million is always the hardest Unfortunately,

many of us non-millionaires can attest to the truth

of this statement Getting from one to a million is possible,

but if you hope to achieve that goal while you’re still in

charge of all your faculties, you should probably get

crack-ing right now.

So how do you go from zero to six zero hero in five years (or less)? Jason Garner, strategic relationship manager for Old Mutual Wealth, is familiar with the question “My clients often expect some magical answer, like there was a memo that they didn’t get,” he says “The reality is that most of

us have some idea of how to go about making the elusive million but, quite frankly, we lack the motivation to do so.”

to face up to the reality of their current financial situation, which makes plotting world domination tricky

“We need to look at what we have at our disposal, what changes we are pre-pared to make in order to achieve the desired goal and what risks we are pre-pared to take,” Garner says If you aren’t currently earning an income, odds are that you probably won’t be able to reach your goal of R1m in five years If you are putting three kids through school, you might not be able to save as aggressively and would have to delay the one million celebration by a few years A sustainable and achievable plan requires clarity and honesty Only once you face up to the reality of your situation can you pick an action plan that best suits you

DO THE MATHS

doesn’t scare you too)

“The goal is to accumulate R1m in five years,” explains Ben Smit, strategy and marketing guide at business incuba-tor Raizcorp “Break this long-term goal down into smaller objectives R1m in five years becomes R200 000 per annum, which becomes R17 000 per month.” This strategy is what Garner calls the ‘no growth’ savings plan Whether you put R17 000 in the bank or under your mattress, you’ll be a millionaire by the end of five years Luckily that’s not your only option You can also choose the capital and growth plan, where you invest

a lump sum for five years, or a ation of savings and capital investment to get you there

combin-THE CAPITAL AND GROWTH PLAN

13

WWYFAD? (WHAT WOULD YOUR FINANCIAL ADVISER DO?)

ALEXANDER BABICH is the CEO of Alexander Babich and Associates, an independent

financial planning firm in Johannesburg He says the basics of financial freedom are ally quite simple:

actu-■ Save more than you spend.

■ Let your money work for you: if you invest that saved money in shares, unit trusts or

a business and earn 10% per year, your money is earning you more money.

■ Compounding is your friend: when you earn interest, your money grows When you reinvest the interest you earned, that interest earns interest Compounding refers to this snowball effect and is what allows the money which you already have

to earn you more money.

■ Don’t rely on your salary: most wealthy people who became millionaires through blood, sweat, tears and determination

also realised that working for a salary was not necessarily a recipe for true financial independence You need to be courageous to venture out on your own Being an entrepreneur is not for the faint- hearted

■ Neither a borrower or a lender be: the recipe for financial independence is to save, plan and believe in yourself Brush

up on your knowledge and ing of investing

understand-■ Ask for help: if you lack the skills and confidence, find a competent and ex- perienced financial adviser with a proven track record.

Smit says that it’s important to be patient and not to lose sight of your goals once you’ve identified your strategy You also have to let those around you know about your strategy

Saving R17 000 in your personal capacity will

MILLIONS FROM BUSINESS

IF SETTING ASIDE your hard-earned

pennies doesn’t seem like the best way

to get your million, starting a business

might just help you on your way

Starting a business is an entirely

differ-ent matter, and at Finweek we spend

a lot of time unpacking the challenges

of entrepreneurship If you feel you are

up to the task, Smit says it’s important

to define the boundaries of where you

want to compete in the market Before

starting a business, he advises that you

answer the questions below to

deter-mine if you have a competitive

advan-tage Starting a business that is doomed

to fail probably won’t help you make

that million Ask yourself:

■ What is the current market size?

■ Can you segment that market further

to find pockets of opportunity that

you can specialise in or focus on?

■ Do you and your business have the

skills and expertise to be able to scale

to a size that will achieve your R1m

objective?

■ Do you know the customer’s needs so

that you can fulfil it?

■ How do you win in the markets that

you play in?

■ What sets you apart from the

compe-tition?

■ Do you have resources that are rare,

HONOUR THE STRATEGY mean that you have to say no to the

occa-sional weekend away When your friends understand that you’re trying to build an empire, they’re more likely to forgive your reclusive behaviour

MOVE IT!

Millionaires know that momentum

is key At some point you have to jump in and do, or – as is often the case – hurry up and wait “To get started, you are going to need to commit some capital Then you need to save some money every month and, lastly, you need to invest in something that will give you the real return that you need

to grow your money sufficiently over five years,” says Garner

It sounds simple, but that’s not the end

of it “You have to keep reminding yourself

to keep saving, stop wasting money and stay invested for the full five years, even if the investment doesn’t perform in the short term You have to stick to the strategy!”

BE YOUR OWN WORST CRITIC

Critical to the success and failure of your investment is the ongoing measurement

of your progress This process should entail revisiting the main objective to ensure that

it is still relevant Checking your progress

to date and ensure that you are on track Lastly, if any changes need to be made to the objective or the strategy, make the rele-vant adjustments sooner rather than later ■

valuable and inimitable, which give you

a unique value system and create riers to entry for competitors?

bar-■ Do you have intellectual property?

Smit says that you should decide what skills, capabilities and resources you pos- sess that are relevant and will enable you

to achieve your aspirations “Allocate resources to critical areas A lot of time you have to weigh up what you want with what you are willing to risk or sacrifice

Remember, entrepreneurship is living for

a short while like no-one wants to, to be able to live rest of your life like no-one else can afford to!”

For more tips on starting a successful business, visit the Shirts and Skirts section

on Finweek.com.

INFLATION IS NOT

YOUR FRIEND

The consumer price index (CPI) is the

measure that we use to determine how

much inflation eats away at what we can

buy with our money When your

76-year-old uncle drones on about how he only

paid 20c for bread back in the day, he is

referring to the effects of inflation

This means that your money is worth

a little less every year Even if you’ve

invested your money, the fees you pay

for that service chips away your wealth

“Make sure you understand all the

fees and inflation because these factors

erode the true value of our R1m

invest-ment outcome over a five-year period

For example, if inflation is 6% and you’re

paying 2% in fees, your money needs to

grow at a minimum of 8% in order to

achieve our goal of R1m in real terms.”

In other words, in five years you’ll need

R1.2m to buy what R1m could buy today

14 FINWEEK 20 MARCH 2014

This week’s cover star Chris Bischoff and his brother Nic

raised R1.5m on Kickstarter for their new computer game,

Stasis Impressive though it may be, the Kickstarter campaign

wasn’t the brothers’ first foray into the millionaires’ club

in our midst

15

Growing up, the brothers

knew that they wanted to

run a company together,

even though they weren’t

quite sure about the industry As a

high-school student, Chris worked

with his interior designer dad doing

illustrations for the restaurant

indus-try Choosing not to pursue a degree,

he spent two years honing his craft

and building a small client base

When their parents decided to move

to Durban, Chris approached his

largest client for a full-time job to

sus-ta in him He was permanent ly

employed as an architectural

illustra-tor for 18 months when opportunity

came knocking “At this time my

brother was a lecturer at Damelin,

which was doing some sort of

restruc-turing He got retrenched and got a

very nice retrenchment package.”

Nic’s retrenchment money, about

three months’ worth of his salary, and

a computer that Chris took from his

start their own agency, Burn The

company, which renders 3D

illustra-tions of architectural projects, took

its first steps in Nic’s kitchen At that

point the 3D illustration industry was

non-existent locally Aside from

free-lancers doing 2D hand illustrations

and one other Durban-based

com-pany, the brothers offered a brand new

service that would prove remarkably

lucrative

“We made as if we were in the

industry for 10 years,” Chris laughs

“The phone would ring and I would

be in the background moving papers

around to make it sound like there were more people in the office.”

The fact that they didn’t have offices meant that they would sched-ule meetings at their clients’ offices

This later became a trademark “We said we’ll come to your office because

we didn’t actually have an office, but that became a core component of our business We go to our clients’ spaces and fit in with their schedules We built our company around being able

to go to people’s offices to sit with them Even though we now have offices and boardrooms and the rest

of it, we don’t really have meetings at our studio.”

THE FIRST MILLION

“I can’t think of the date when we hit our first million, but we went out

to dinner, and Nic said, ‘Oh, by the way, we made our first million.’ It was quite a surreal experience, espe-cially because I thought it would be

bigger as a personal thing

When you actually get there, you think

t he ne x t million will actu-ally be better, and then you think five million will be even better.”

Chris says the best part about making your first million is prov-ing to yourself that it is possible “It makes the next one less daunting and you start to see the forest for the trees

You realise that you didn’t die doing

it It wasn’t a soul-crushing, horrible experience It was a lot of fun to get there.”

THE QUICK MILLION

“It was about three years into starting our company, Burn, that we got to our

first large landmark, which was R1m

By comparison, the Kickstarter lion took us 22 days to hit Because

mil-we had done it before, mil-we knew that

we could do it It sounds silly but you

do get a confidence boost Hitting the first $100 000 on Kickstarter was a relief It was a cool experience because

it happened a lot faster than the first one You get that rush of making your first money As a kid I used to house sit people’s houses and charged them R20 to walk their dog You get that same sort of rush of, ‘I did it, and I can actually do it!’ It gave us the con-fidence to move forward with the project.”

Visit Finweek.com for a video

interview with Chris Bischoff ■

Who better to give advice on ing a million than someone who has

mak-managed to do it many times? Chris

has five no-nonsense tips to make

a million:

1 “Nic always says it’s a case of scratching your own itch Find something that you do and do very well, do it very well and charge money for it.”

2.“Don’t avoid the tax man because you will get bitten.”

3.“Hire a good accountant.”

4. “Have good hair.”

5. “Have confidence in your ideas and have confidence going forward If you doubt yourself someone else isn’t going to have confidence in your ideas We told people that we were this massive company If you’re not confident, just fake it You will get there.”

HOW TO GET TO ONE MILLION

ASIDE FROM FREELANCERS DOING

2D HAND ILLUSTRATIONS AND ONE

OTHER DURBAN-BASED COMPANY,

THE BROTHERS OFFERED A BRAND

NEW SERVICE THAT WOULD PROVE

REMARKABLY LUCRATIVE

16 FINWEEK 20 MARCH 2014

Scott Picken, senior managing

partner of Wealth Migrate,

author and founder of the

International Property

Foun-dation (IPF), believes that asking how

to make a million is the wrong

ques-tion, and he might just be right “What

wealthy people understand is that it’s

not about how much money you have

in the bank but how many passive

income streams you have Is it better to

have a million in the bank, or a passive

income of R10 000 per month from

five different sources? I can guarantee

you that anyone who is wealthy will

understand that it is the latter,” he

states While R1m can help you unlock

opportunities, Picken believes not

knowing how to create passive income

will always stand in the way of your

financial freedom

Picken, who earned R2m on his first

ever property deal, believes that

creat-ing value is the easiest way to make

R1m This is a concept he grasped at

age 22 and offers his own success story

as an example

“A friend and I found a house

in Cape Town with high density

zoning when I was 22 We wanted to

bought the property together and

occu-pied it with students while we went

through all the planning and zoning

Once we had everything in place, we

proposed a joint venture with an

estab-lished developer, which was accepted

We developed the house into six

town-Let income streams

become a flood

houses and sold them into the market

We made over R4m in profit, just over R2m each.”

He understood right away that his first millions were an opportunity to create more wealth and they started looking at offshore property They invested in a property in London, close

to Wimbledon station and home

to nearly 60 000 South Africans

in need of ing They put in

lodg-£20 000 of their own money to use to build two more bedrooms

“In London you rent properties by the bedroom and suddenly we had five income streams We lived in the house while we did this, which was inconveni-ent, but if you live in a property for one

year in the UK you aren’t susceptible

to capital gains tax With the value we added to the house, we re-mortgaged and bought another property, which

we moved into and did the same thing again We earned over £1 000 passive income per property.”

The same principles that earned Pickens his first million later ended

in him turning a $4m company into a

$40m company that listed on the tralian exchange in less than five years

Aus-“To create money or income streams, you have to have knowledge and skills,”

he says, but adds that nobody ever learnt to swim by reading a book “You have to get started, manage your risks and learn along the way The more you can partner with experienced people, the more successful you will be If you understand this, achieving both objec-tives is easy!” ■

“TO CREATE MONEY

OR INCOME STREAMS, YOU HAVE TO HAVE KNOWLEDGE AND SKILLS.”

First Na

Search FNB Forex or email fnbforextrade@fnb.co.za to find out more about

Letters of Credit and other services and products offered by FNB Forex.

In any foreign trade agreement,

small mistakes can have

big consequences.

Foreign trade can be a complex, detail-oriented process So it pays to make

sure that you have dotted your i’s and crossed your t’s A Letter of Credit

through FNB Forex does just that By focusing on the details of your foreign

trade agreement, a Letter of Credit ensures that you get exactly what you paid

for and remunerated correctly for your goods exported or services rendered.

Terms and Conditions apply

For any business, regardless of

its size or the sector in which it

operates, entering new

mar-kets is a risky and, on many

levels, daunting prospect But for many,

it is the only way forward – and the

nat-ural next step in a company’s life cycle

In our previous two articles in this

series, Finweek explored the

opportu-nities presented by the nascent African

FEATURE

DYNAMIC MARKETS –

THE UNUSUAL SUSPECTS

Besides fast-growing African countries, PwC’s Venables says that large multina- tionals seeking growth are also looking closely at parts of Europe, the Middle East and South America

Indeed, in its recently released

Dynam-ic Markets Index, GIBS identified some unexpected countries as ‘Dynamic’ – a term used to describe markets that have shown steady improvement and growth since 2006 The GIBS list included Geor- gia, Poland, Bulgaria, Peru, Uruguay, Pan- ama, the UAE, Kuwait and Jordan

BY JESSICA HUBBARD

Emerging vs developed

market challenges

e-commerce industry, as well as the ways

in which businesses can position selves for success in fast-growing African markets

them-While these markets are indeed attractive propositions, and are mak-ing steady progress in becoming more business-friendly, outsiders still face significant challenges As Greg Benja-min, Mergers and Acquisition (M&A)

advisory leader at Deloitte, pointed out to

Finweek, when one compares the

num-ber and intensity of discussions around going into Africa (i.e the intent) and the number of deals that actually go through, there is clearly a very solid stumbling block that businesses run into

INTENT VS ACTION

“When you look at the overall picture, and the deals that are consummated, it’s not massive,” explains Benjamin, which

is a strong indication that the barriers remain high These barriers, unsurpris-ingly, are vastly different in nature to those one would encounter when enter-ing developed markets such as the US and Europe

FEATURE

First, as Dr Lyal White, director of

the Centre for Dynamic Markets at the

Gordon Institute of Business Science

(GIBS), points out: “nothing is what it

seems”

“When doing business in African

countries, for example, it is often a far

cry from what our expectations are,” he

says “The legislation and regulations are

very complex and in many cases, are fluid

and changing all the time certain rules

and requirements can change overnight,

so there is a lack of consistency which

outsiders are not used to.”

He adds that often South African

businesspeople tend to try and simplify

the problems, whereas the issues are

much more granular and require a

flex-ible, open-ended approach

PUTTING IN THE HARD GRAFT

To best prepare for such complex

envir-onments, White emphasises the

impor-tance of doing the necessary due diligence

and making sure that you understand the

legal and regulatory environment that

you are entering into

“Due diligence is imperative,

espe-cially for the smaller guys, as the costs of

entry are very high and you need to have

a solid foundation to work from,” he says

Critically, due diligence involves

spend-ing time in market, formspend-ing relationships

and getting to understand the various

cul-tural nuances that will directly affect the

way business deals are carried out

LOCAL PERCEPTIONS

Another challenge that White highlights

is the tendency among African locals to

view South African businesspeople as

‘neo-colonialists’ – something which

hasn’t been helped by what White says is

often ‘arrogant’ behaviour on the part of

South Africans and a need to do things

‘their way’

“In many cases, we are not seen as

‘African’, so I believe there is a lot of

work that needs to be done around that,

which could go a long way in improving

business relations across the continent,”

White adds

Besides the cultural and historical challenges, Deloitte’s Benjamin says that there is also a clear mismatch with price expectations

“Unlike in Europe or the US, where there is a large number of big businesses, there aren’t nearly as many attractive opportunities in African markets – the volume is vastly different,” he explains

“But cash is chasing yield, and for that, the locals are pushing up prices bridg-ing that gap between the expectations of buyers and sellers is still a huge hurdle when trying to execute deals in these markets.”

He adds: “That said, every deal is unique, and the challenges will differ for everyone.”

EMERGING MARKET EXPERTISE

Simon Venables, M&A leader at PwC, says that those who come from emerging markets, such as South Africa, have a sig-nificant edge over their developed market counterparts

“Many businesses have a good gree in emerging markets, and under-stand the challenges,” he says “That understanding of how things work in emerging markets definitely plays in their favour, because there are lots of similari-ties across these countries.”

pedi-For example, investors from dynamic and fast growing South American mar-kets might well be far better equipped to handle inconsistent government policies and political uncertainty in African coun-tries than business people from the US or Australia – where stability and control is the name of the game

On the other hand, as White lighted, the ‘ring-fenced’ nature of the business environment in countries such

high-as the US and Western Europe – where strict controls and tight regulations char-acterise deal making – often prove enor-mously challenging for entrants from emerging markets ■

REAL ESTATE BOOM

Simon Venables

In the Real Estate 2020: Building the future report which focuses on the glo-

bal real estate industry, PwC highlighted the impact of explosive emerging econ- omy growth on the sector

The report forecasted that the global stock of investable real estate will rise

by more than 55% to around $45.3tr by

2020 (from a 2012 total of $29tr) This expansion, states PwC, will be greatest

in emerging economies “where nomic development will lead to better tenant quality and, in some countries, clearer property rights and will play out across housing, commercial real estate

eco-and infrastructure”.

“A l re a d y th o u s a n d s of p e o p l e migrate from country to city across Asia, the Middle East, Latin America and Africa, attracted by the wealth of these new economies,” explained Kees Hage, global real estate leader at PwC

“By 2020, this migration will be firmly established Cities in these regions will swell and some entirely new ones will spring up ”

The report predicts that total able real estate in Sub-Saharan Africa would rise by a staggering 90% to $0.7tr

invest-by 2020, from a 2012 total of $0.4tr.

BECOME A

MEMBER TODAY!

FOR ONLY R29.50

PER WEEK

Fin-week Club for only R1 470 per year All members will be entitled to unrivalled discounts

maga-zine (print or digital), discounts to various products and services and invites to only events Some of the discounts include 20% off tailored suits at Frank Bespoke, 12% off all online Hertz bookings, member-only discounts on premium South African wines from

ex-clusive access to stock data through the McGregor BFA app and Apple iStore discounts.

IN PARTNERSHIP WITH

Terms and conditions

Subscribers will qualify to become a member of the Finweek Club once the annual membership fee has been paid in full Members who qualify for the tailored suit will go into a draw and one

win-ner will be drawn at random The judges’ decision is final and no correspondence will be entered into As one of our valued customers, you’ll receive Finweek for the full year of your membership

Members will not be allowed to cancel their subscription, due to benefits being redeemable upon activation of subscription The price of membership includes delivery costs of Finweek magazine

The delivery costs for discounts redeemed are not included in the annual membership fee RSA residents only.

F R A N K

BESPOKE

Finweek delivered to your door every week;

20% off tailored suits;

Discounts on premium wines;

12% off car rental services;

Discounts on great apps.

STAND A CHANCE TO WIN A TAILORED SUIT

WORTH

R 8 000

BY FRANK BESPOKE

1

D 2

F

South Africa’s listed

prop-erty sector is now in

con-solidation mode following

a f lood of new entrants

from 2010 through to 2013 Since

2010 some 17 new property players

listed on the JSE’s main board and

the AltX The sector’s market

capi-talisation grew to R188bn at the end

of 2013 from R117bn at the end of

2010 Currently the sector is valued

at around R181bn

The trouble now, however, is that many of the listed players are small and therefore carry with them an element

of concentration risk either on a ticular tenant or node There are also other issues at play, making it hard for these funds to make a significant impact on the market

par-Keillen Ndlovu, head of listed property funds at Stanlib, says that market dynamics have changed over the last eight months or so, making the environment more challenging for

smaller property funds This presents

an opportunity for the large players to acquire the smaller players and in the process diversify while bringing on board new exposure. 

Nesi Chetty, head of property at Momentum Asset Management, says that consolidation is a key theme for the sector this year This will likely result in an improvement in liquidity

in the sector, and inefficient companies will either be restructured or stripped

of assets

The price-to-book valuation of the sector has been expensive from 2012

BY TANDISIZWE MAHLUTSHANA

Rebosis & Delta Ascension Manco

Ascension B Units

8.86%

-R130m R290m Texton Consortium Vunani Property Investment Fund

Manco

Arrowhead Jika Properties

Vividend Income Fund (31,7%)

10%

10.8%

R406m R412m

Annuity Manco

8.5%

R103m

-PROPERTY SECTOR CONSOLIDATION HIGHLIGHTS

Source: Momentum Asset Management, Finweek

Nesi

Chetty

INVESTMENT

through to 2013, although the trend is

reversing at the moment

“When the price-to-book valuation

of the sector is at a premium, players

tend to go to the market to raise capital

as their shares trade at premiums to net

asset value (NAV) They get a higher

price on a per-share basis, therefore

they can raise more capital by issuing

less shares at a higher price to NAV,”

Chetty explains

That, however, has been a major

challenge for the smaller property

stocks because it is expensive for them

to raise capital from the debt capital

markets while bigger funds are able to

raise capital at lower borrowing costs

“The other challenge with smaller

funds is that their share prices have not

re-rated and therefore it makes it

diffi-cult for them to make yield-enhancing

acquisitions or to compete for assets

with bigger property companies who

have better ratings and bigger balance

sheets,” says Ndlovu

There have been various

trans-actions giving life to this consolidation

but one that seems to have caught many

investors’ eyes is the three-way merger

between Rebosis, Ascension and Delta

Ndlovu says the potential merged

entity will become the BEE fund of

choice or Government landlord of choice

in the listed property sector “Besides,

there can only be so many funds

focus-ing on Government as a tenant.”

The proposed merger has received

publically declared support from

Stanlib, Momentum and Coronation

Chetty estimates that the market

capitalisation for the merged entity

could be around R11bn, with a

com-bined portfolio of R16bn

“That entity could potentially be

included in the MSCI Indices, which

would make it attract foreign

inter-est and enable it to do more deals,

and potentially also end up in the JSE

Top40,” he says

The transaction will also potentially

help Rebosis and Delta avoid losing

money in a protracted legal battle in

their fight over Ascension Ndlovu

adds that such fights are not good for

the sector as it could taint the image of BEE property funds

The transaction is currently in due diligence stages and when that process

is complete and final numbers or swap ratios have been put on the table and are pleasing to the market, the deal is likely to get a thumbs up

Another recently announced action sees Redefine, with a market capitalisation of R28bn, make an offer

trans-to acquire Annuity Properties in a share-for-share deal Annuity has a market capitalisation of R1.2bn

R edef i ne , wh ic h ha s a l ready received 79% of support from Annuity shareholders, would also acquire the Annuity management companies for a cash consideration of R103m ■

had much good news since it became apparent that the stellar returns that they’d been receiving from the sector

in 2011 and 2012 were now a thing of the past The sector has been hit by a series of economic variations, both locally and globally

The increasing global bond yields, as

a result of the US Federal Reserve’s decision last year to decrease by

$10bn a month – its quantitative ing stimulus plan for bond purchases – as well as the decision by the South African Reser ve Bank to increase interest rates, with further increases expected, have contributed to the negative investor sentiment towards listed property

eas-Ian Anderson, chief investment officer

at Grindrod Asset Management, says

that increases in local interest rates and global bond yields are perceived

by investors to be negative for the tor from a price perspective In reality, their impact on the companies is short term in nature “Listed property com- panies have proved that they are fun-

sec-d a m e nt a lly s tro n g by p ro sec-d u ci n g better-than-expected results We’re expecting the sector to grow distribu- tions 8% this year,” says Anderson The sector returned in excess of 8% in

2013, a poor return compared to 21% enjoyed by equity investors in the same period

Chetty, however, explains that listed property is a long-term performer as its returns over the past 10 years have clearly beaten those of equities Long- term investors always get rewarded handsomely by listed property

Asset class 1 Year 3 Year pa 5 year pa 10 Year pa

Inflation- linked bonds

PROPERTY LONGER-TERM PERFORMANCE

Source: Momentum Asset Management

STILL VALUE IN PROPERTY

Keillen Ndlovu

Petmin, a R1.15bn mid-tier

mining company, dabbled in

an international tion programme several years ago, buying into exploration ventures in Canada and Turkey It is now looking closer to home for growth

diversifica-The group recently announced plans

to externalise its shares in the North Atlantic Iron Corporation (NAIC) – likely to be 40% once it takes up options – by separately listing the asset in Toronto and Johannesburg and then unbundling to shareholders

Bradley Doig, business development executive at Petmin, says the company doesn’t want to sacrifice cash flow from its profitable anthracite mine in KwaZu-lu-Natal (Somkhele) to some far-flung North American venture that’s probably very cash hungry Although promising, NAIC hasn’t captured the imagination

of investors

According to former chairman Ian Cockerill, there’s no trace of recognition

of NAIC in Petmin’s share price at all

It’s therefore unlikely that Petmin will plough any more funds into Sivas, a cop-per development in Turkey, either

These investments were made at the end of the mining bull market when even development and junior players thought they were bulletproof The view now, however, is that the market will reward home-grown endeavours

Thus, Petmin has turned to the local thermal coal market

It already has some thermal coal production by means of a plant exten-sion at Somkhele that allows it to treat

‘middlings’ coal – a grade of fuel that’s neither export nor domestic coal qual-ity – which it sells to merchants who

Petmin now seeking

growth closer to home

of coal supply shortfall from 2018 to

2040, so it’s desperate for supply.Doig says the company has been approached by SA institutions that are prepared to finance an acquisition with-out recourse to Petmin – the debt will be carried by the asset – on the basis that Eskom is prepared to pay a premium for coal obtained through a BEE supplier This is in terms of the Department of Public Enterprises’ insistence that new coal suppliers to Eskom must be 50% plus one share empowered

“We would look for something at the 3m ton a year mark,” says Doig

of a potential acquisition “Something

we can manage and understand, or is

a brownfields expansion that needs some assistance with restructuring and capital.” ■

BY DAVID MCKAY

Bradley Doig

There’s an ongoing debate in

financial circles about the

merits and demerits of active

versus passive investment

strategies As the name implies, an active

investment strategy involves making use

of an investment vehicle that is overseen

by an asset manager who tries to

outper-form the market, usually by measuring

his or her performance against a

bench-mark index of stocks, bonds or other asset

classes A perfect example of this would

be a unit trust fund, as covered in last

week’s article (What are unit trusts?)

Those in favour of active

invest-ment strategies argue that asset

man-agers with the appropriate expertise

and access to research are able to use

fluctuations in market values to earn

their clients extra money through the

purchase and sale of assets at opportune

times For example, an asset manager

who managed to sniff out some new

information on an impending

calam-ity facing a particular stock before any

rival investor caught wind of it would be able to sell out of that share ahead of the ensuing price decline That would ena-ble the asset manager to make money for the fund members

The biggest criticism of the active investment strategy is that it comes at

a cost “You’re effectively paying money out of your retirement savings so that some guy with CFA [Chartered Finan-cial Analyst] after his name can sit in a fancy office sipping lattes all day,” is how one particularly vociferous critic of this strategy puts it

In contrast, passive investment involves buying into an investment vehicle that merely aims to track a par-ticular index, such as the JSE All Share Index or Top40 Index, through the com-pilation of a portfolio that consists of the same shares in the same weightings or proportions as the shares that exist in that index A good local example would

be the various Satrix offerings, which in most guises attempt to track various sec-

Index-linked investments:

The art of passive punting

INVESTMENT

tors or components of the JSE

Those in favour of passive ment strategies argue that you don’t need a portfolio manager to oversee your money as very few of them actually man-age to outperform the market over time Moreover, they argue that the lower costs you pay on index-linked products more than compensate for not having someone managing your investment on a day-to-day basis Their argument against the cost of active investment gains even more credence when one considers the effect this can have on your retirement savings when those costs are compounded over several decades

invest-Of course, the counter argument is that having your money in an investment product that is overseen by a fund man-ager effectively allows non-performing stocks to be dumped from your portfolio, thereby helping you to separate the dogs from the diamonds in times of market strife A good example would be African Bank Investments Limited (Abil), which

BY GARTH THEUNISSEN

26 FINWEEK 20 MARCH 2014

INVESTMENT

of this online platform, which gives you access to 29 international bourses, need

a minimum start-up investment of just

$1 000 Nevertheless, the product is probably more suited to slightly more experienced investors as the minimum trading amount for some of the prod-ucts listed on the platform may exceed the minimum $1 000 investment Still, the fact that it offers people wanting to sample the world of index-linked invest-ment the option of registering for a free 20-day trial account seeded with a simu-lated $100 000 means it’s a great way to gain some experience before shelling out any cash

THE CRUCIAL QUESTION

TO ASK YOURSELF:

Are you happy with investing in a uct that merely aims to replicate the per-formance of a particular index, rather than aiming to actively outperform it?

prod-I N D E X - L prod-I N K E D P R O D U C T ADVANTAGES:Low cost

DISADVANTAGES:The biggest advantage of passive investment is that the performance of your fund is entirely dictated by the performance of whatever index you’ve chosen to track There is no asset manager to sell out of underper-forming stocks or increase exposure to the next big thing in an effort to outper-form the market

dis-suffered a massive 50% share price drop

last year thanks to the non-performing

loans related to its unsecured lending

activities Why would you want to keep

buying into an index that potentially

still retained a weighting of such a stock,

albeit a potentially small one?

“No matter,” say those in favour of

passive investing Their argument is that

if a certain share were to suffer a

mas-sive sell-off for whatever reason, so too

would its weighting in the index decline

That means that you’d be buying

propor-tionately less of that share each month if

you were making monthly contributions

to an index-linked product Of course,

the argument holds somewhat less water

for investors who may have made a large

lump-sum investment into a particular

index-linked product prior to the share

price carnage of one of its component

stocks

Nevertheless, the cost benefits of a

passive investment are truly

compel-ling The total expense ratios for most

Satrix products are around 0.45% That

compares to about 1.7% for the majority

of unit trust funds That cost

differen-tial can amount to a pretty penny when

compounded over time

Another attribute of index-linked

funds that makes them fairly attractive

is that in many ways they aren’t actually

all that passive in terms of their

invest-ment methodology Take the example of

the Satrix Divi exchange-traded fund

(ETF), which aims to invest in listed stocks that are expected to pay the greatest dividends in the year ahead

JSE-That allows you to steer clear of stocks that are likely to disappoint over time

Other products also allow you to favour particular sectors such as industrials (Satrix Indi), financials (Satrix Fini) or the resource sector (Satrix Resi), which enables you to tilt your exposure towards segments of the market that you feel may

be better suited to the prevailing nomic conditions instead of just buying into the overall index

eco-Of course, the world of passive ing doesn’t end with Satrix Thanks to the advent of technology and web-based investment platforms, South African investors can now invest in a host of exchange traded products that give you access to asset classes right across the globe The etfSA website is as good

invest-a plinvest-ace invest-as invest-any to explore the world of index-linked investment vehicles This particular platform comprises of a host

of index-linked vehicles, which track everything from gold and platinum to Japanese and European stock markets

As with Satrix, you’re able to access these for as little as R300 per month, or alternatively through a single lump sum

of R1 000 or more

Standard Bank’s Webtrader platform

is another way for local retail investors to access a range of exchange traded funds and exchange traded commodities Users

FINWEEK’S PICK OF THE BUNCH:

The Satrix Rafi ETF is arguably one of the best examples of an investment vehicle that offers the best of both worlds, the low cost of an index-track- ing fund while at the same time exhibit- ing some of the features of an actively managed fund by using measures to separate the wheat from the chaff Although not actively managed per

se, Satrix Rafi uses a variety of cial ratios to adjust the proportions

finan-of shares making up the index based

on measures such as their cash flow, revenue, price-to-earnings ratio and expected dividends It’s a value-based methodology that essentially separates the dogs from the diamonds, allowing investors to channel their funds only to stocks that are likely to deliver the best returns ■

Franklin Resources, Inc is a global investment management organization operating as Franklin Templeton Investments This material does not constitute investment advice or an invitation to apply for securities Investors should seek professional fi nancial advice and obtain a full explanation of any proposed investment before making a decision to invest Investments involve risks The values of investments can go down as well as up, and investors may not get back the full amount invested.

© 2014 Franklin Templeton Investments All rights reserved.

GLOBAL PERSPECTIVE.

LOCAL EXPERTISE.

There’s a world of investment opportunity out there,

if you know where to look With over 600 investment

professionals and offices in more than 30 countries,

Franklin Templeton offers investors a unique perspective

on the increasingly important and complex world of

global investing today.

To put our 65 years of global investment experience to

work for you, visit franklintempleton.co.za or contact

your fi nancial advisor.

INVESTMENT

OPPORTUNITiES

SPAN THE GLOBE

The events at the liquidated

West Rand gold mine,

Bly-vooruitzicht (Blyvoor), seem to

show that when mines die,

people die too

According to a Mail & Guardian

report published on 7 March, the

li-quidation of the operation has become

a shambles, similar in scope and severity

to Grootvlei This gold mine on the East

Rand was bought by Aurora

Empower-ment Systems in 2011 when put into

li-quidation by Pamodzi Gold

The Grootvlei situation resulted in an

infiltration of the mine by illegal miners,

fatal clashes with ‘security forces’ and the

stripping of the mine’s assets, allegedly by

Aurora itself That would also seem to be

the modus operandi at Blyvoor Goldrich,

the company chosen by the joint

provi-sional liquidators to operate Blyvoor, has

already applied for formal business

res-cue, amid allegations that it has begun

stripping the mine’s assets

It doesn’t help that Goldrich shares

two directors with Aurora

Bly voor was closed in 2013 by

Village Main Reef (VMR), the share

price of which is experiencing a bit of

a comeback: up 44% since end January

According to VMR CEO Ferdi

Dip-penaar, shareholders like the fact that

he has minimised the firm’s liabilities

to Blyvoor and another mothballed mine, Buffelsfontein

Said Dippenaar: “Investors like the fact we could extend the life of Tau Lekoa to 2020 or further.” Tau Lekoa

is VMR’s only remaining gold asset and

is situated in the Orkney region in the North West A complicating factor, however, is that it has been the subject

of two offers by Orkney businessman Anthony Tannous

Playing on the fears Tau Lekoa could end up like Grootvlei and Blyvoor, Tannous says that he will take over the mine and operate it for years to come

Dippenaar counters that a drilling programme at Tau Lekoa will prove the same for VMR In any event, VMR has twice rejected offers from Tannous for Tau Lekoa who has been public in his pursuit of the mine

Tannous even told the Department

of Mineral Resources (DMR) that VMR might close Tau Lekoa in less than two years In a follow-up meeting, Dippenaar was obliged to explain why Tau Lekoa would have a longer life

“DMR was more than happy with our response,” said Dippenaar

VMR shareholders appear to have confidence in Dippenaar Shareholders representing about 12% of VMR’s share

capital were contacted by Finweek They

said if Tannous was serious about taking over Tau Lekoa – until recently, he was offering more for the mine than VMR’s total market value – he should buy up VMR shares in the market They seem

to be available as another shareholder, DRDGold, which has a further 9% in VMR, is selling the company’s stake ■

Ferdi

Dippenaar

A LARGE SUM DISCOVERED

The big four banks have all issued their

results (FSR is for the six months to

end December, the other banks’ results

are all for year ending December) It’s

largely a decent set of numbers, with

FSR the leader and Barclays Africa

Group lagging behind But what

interested me was the Standard Bank*

results, with its very modest return on

equity (RoE) of only 14.1% The issue

here is that the more cash you hold

that is not ‘working’ and not earning

money, the lower a RoE, as the cash

sits as equity but makes no real profit

When Standard Bank announced the

sale of its London operations, I

com-mented that a special dividend would

be nice, and pulling apart these results the bank has to do something My rough calculations show that it could have as much as R15bn in free cash

Part of this is sitting in the Tier 1 tal adequacy ratio that is at 13.2% and

capi-up a full 2% since the previous year

This is more than what is required and, coupled with a bunch of cash stuck offshore and from the London sale, it has a mountain Seeing as this has not been returned to shareholders via a special dividend, what is the bank planning on buying? Most likely it won’t be a local deal but a large acqui-sition somewhere in the rest of Africa

As if further evidence was needed, the local retail stocks took another hit with Truworths dropping out of the Top40 index, being replaced by Reinet In the last year, we have had Massmart and Mr Price also drop out as retailer share prices trend

lower This broadly follows the trend of resource stocks dropping out, especially gold stocks, with only AngloGold Ashanti left in the Top40 while the MidCap Index now includes Gold Fields, Harmony and Sibanye ■

TAKING ANOTHER KNOCK

RUMOURS ABOUND

A Sens announcement from Clover*

merely stating that the company is in

“negotiations” didn’t do anything for

the share price but it did get

specu-lations going The company could

be making an acquisition and, as a

shareholder, that is my hope Clover

has strong cash flow and

distribu-tion, and now needs to start buying

brands to plug into its distribution

network However, other theories

include the company being bought

by either Pioneer Foods or RCL

Foods (the old Rainbow which now

has Remgro as a 69.5% shareholder)

I have written before that RCL needs

some top brands and the fit would be

great for RCL That said, I never like

it when companies that I own and

admire are taken out Sure, I get a

quick spurt of upside, but then I lose

the holding and longer-term upside

do with Radiant? So assuming that

it continues to hold, Southern Ocean needs to get some serious fixing done

at Radiant

SOME SERIOUS FIXING NEEDED

RISING DESPITETHE PRESSURE

Another property development pany is coming to the JSE via the way

com-of a private placement Listing on AltX, Visual International plans to raise some R66m and should list with

a market cap of around R90m This makes it a micro cap and further feeds the property listing boom that has not slowed even as property stocks have been under pressure

Petmin on the rise

INVESTMENT

BY WARREN DICK

which has an operational

anthracite mine in Somkhele in

KwaZulu-Natal, and a

devel-opment project in the North Atlantic

Iron Corporation (NAIC) in Canada,

recently reported interim results for the

period ending December 2013

What’s clear is that management

is really ‘sweating the assets’ Bradley

Doig, business development executive

at Petmin, says Somkhele is running

at full power at the moment “This has

allowed us to cut costs, specifically the

mining cost.” This was borne out by

the financials – the ex-mine gate cost

dropped from R770/ton in the previous

corresponding period, to R697/ton over

the last six months There was also an

86% increase in metallurgical anthracite

production

Doig says Somkhele produces about

1.2m tons per annum of anthracite, 50%

of which goes to the domestic market

and 50% to the export market “We

Small Cap

cash-flow negative over the period The company owns 30% of NAIC and already enjoys joint management control of the project The company announced that it would aim to list this project jointly on the JSE and Toronto Stock Exchange (TSX) by the end of the 2014 calendar Petmin expects to increase its ownership stake to 40% for another $8m after the preliminary economic assessment is published, as is planned towards the end of March.Doig says: “We still have a further option for 9.9% of the project, which in total would give us 49.9%, and we are looking for a strategic partner for this project The plan is to sell the merchant pig iron from NAIC into the US mini-mill steel market So we will look to see

if we can’t engage with one of these types

of clients in the Great Lakes region to assist in raising the capital.” Shares in the separately listed vehicle will

be unbundled to Petmin holders ■

share-đŏŏ+)'$!(!Ě/ŏ/0.+*#ŏ,!."+.)*! needs to

continue Management have done a tastic job in getting the asset to perform

fan-in a difficult environment.

đŏŏ$!ŏ !+*+)%/ŏ +" the NAIC project

appear to be favourable This needs to

be validated by the preliminary economic assessment Assuming this is so, a suitable partner for the project needs to be found.

THREATS TO THE VALUATION

truck our anthracite to the dry bulk terminal at Richard’s Bay and export it from there The domestic ferrochrome producers who consume our anthracite, and who also export via Richards Bay, get their trucks to return with product from our mines,” says Doig This great-

ly reduces the cost of delivered goods for the mine

Somkhele is also producing strong cash flows Cash flows from operating activities amounted to R279m versus operating profit of R79m, during the period But as is so often the case with resource companies, most of the money being generated by operations is being spent on purchases of plant and equip-ment This meant that Petmin was announced tha

project jointly Stock Exchanthe 2014 calenincrease its owfor another $8economic assesplanned towardDoig says: “option for 9.9%

total would givlooking for a sproject The plpig iron from Nmill steel mark

if we can’t engag

of clients in thassist in raisinthe sepa

be unhold

p p p q pment This meant that Petmin was