THE G SPOT
GIULIETTA TALEVI: Listed companies taking flight
Nothing is ever as bad as it seems [even if] it’s not as good as you hoped, says Peregrine’s Robert Katz
In light of a spike in JSE de-listings, the FM caught up with Robert Katz, CEO of Peregrine, one of the companies mulling an offer to delist. Peregrine also happens to be sharply exposed to the shrinking JSE through its advisory business, Java Capital. At least Peregrine’s wealth business, Citadel, is booming, helping it report a 15% increase in interim headline earnings recently. Which suggests that the fear stalking local markets isn’t all bad?
Hundred percent. Citadel is an advice-led asset manager, very different to a long-only asset manager. We are finding — in this weak economic environment where there’s a lot of fear — that Citadel is proving to be somewhat countercyclical. We [have] record inflows and retention levels are better than ever before, and because of that clients are flocking to a safe-haven, wealth-led asset manager because they need advice on what to do.
It’s not just a case of investing and hoping for the best.
While the pessimism might be good for Citadel, what about Java Capital? How does it cope if the listings environment remains weak?
Java has two parts to it: corporate advisory on certain capital markets and [JSE] sponsorship. You definitely do see, as transactional activity of JSE-listed companies declines, that there’s a significant decline in the whole gamut of stuff around it: volume of circulars, announcements, corporate processing services and the like.
As all of that decreases, with nothing much happening, it affects Java directly. Also what affects Java is the lack of mergers & acquisition activity. But in terms of its positioning on a relative basis — on the dealmaker rankings — Java has maintained its position.
But is this still a business you want to remain invested in?
Absolutely. It’s a wider discussion question, but there’s no reason for us to be selling out of it.
It still makes money, it’s not loss-making, and if the economic tide turns it should make us a better return.
What do you make of the withdrawals recently of some of the large research houses from the SA market?
I think that question is answered in two parts.
First, a lot of the institutional houses that have left SA have downsized worldwide, not just in SA.
Second, as it relates to SA, it’s like a Java situation: as market activity diminishes, so does your activity as an adviser. But it will turn. Economic cycles turn.
Sometimes you get wok-shaped recoveries — we might not see a V-shaped recovery — but we may be in for quite a long period of recovery. There’s always going to be market activity, and to the extent that there is activity, you need advisers.
But over the past 10 years, some of the sell-side houses that once covered us, a lot of them aren’t around anymore. It’s just the way it is.
Do you think there’s a terminal problem for equity markets worldwide?
I think Keith McLachlan had a good point about tracker funds. [He said they target large companies, leading to small-and mid-cap companies being ignored.] But I think there has been a structural change in SA and … I think we are in for a long period of retraction.
Confidence will come back into SA and the capital markets when the world can see that there’s accountability and governance. And when that happens, investors will come back, because at the end of the day, money flows to yield on a risk-adjusted basis.
I do believe that the potential is there to fix our problems, but we do need to see short-term wins.
Nothing is ever as bad as it seems [even if] it’s not as good as you hoped. So while there is a lot of negativity in SA, I do believe there’s an opportunity to turn things around.
All things being equal, and ignoring for a minute this expression of interest that Peregrine has received, would you want to remain a JSE-listed company?
First, why would you want to remain listed?
Well, to raise capital …
That’s it. Within this current market environment, we’re not issuing scrip to raise capital, so the costs of being listed, indirectly and directly, are expensive.
I’ll give you an example: in terms of the Companies Act, you need three independent nonexecutive directors sitting on the board. Now, if you’re a much bigger large cap, you also need the same [number of directors], so there’s no stratification of a lot of the Companies Act/JSE listing requirements. The time spent dealing with the market, with existing and potential shareholders, is intense and very time-consuming.
The last time Peregrine issued shares to make an acquisition was for a small portion of the Java [deal].
That’s why, all things being equal in the current environment, a lot of CEOs have actually gone out and delisted.
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