Simon’s weekly wrap: Finding value

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I chatted with Schalk Louw from PSG Old Oak earlier in the week around overall valuations on the JSE. Using the CAPE/Shiller PE method our market is trading some 10% below the long-term average, while US markets are almost 60% above their long-term average. This puts pressure on the current US earnings season to justify the valuations and of course the rioting locally may be why we’re at a discount.

Pan African Resources is our best gold miner, to my mind, and its production update certainly shows the quality. I spoke with CEO Cobus Loots about its recent production update. Debt has almost been halved and production increased ahead of its guidance, while it now also has a 15-hectare blueberry plantation in support of its local community.

Knowing how an executive earns their bonus is an important part of the investment research process. I spoke with Keith McLachlan from Integral Asset Management, and he points out that the bonus structure is where executives will focus their time as that’s how they’ll get rewarded. So, knowing what that scheme is helps you know how the company will be attempting to deliver improved profits, or alternatively how it could cheat the system to benefit bonuses but not shareholders.

News that Standard Bank is making an offer for the Liberty Holding shares it doesn’t own sent Liberty up over 20% on Thursday. But even after that jump Liberty was trading at 1994 levels. Kokkie Kooyman of Denker Capital comments that Liberty has been a poor investment and that while bancassurance was all the rage in the late 1990s and early part of this century, it really hasn’t worked.

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