SIMON BROWN: I’m chatting now with Wayne McCurrie, senior portfolio manager at FNB Wealth and Investment. Wayne, I appreciate the early morning time. We’re still getting bunches of trading updates coming through. Zeda – a new listing on the market. This is their quarter for the end of last year. Not a bad update. My sense is [it is] moving in the right direction, although [there is] still selling pressure – which I suspect is the overhang from the unbundling.
WAYNE McCURRIE: I think so, as well. Look, this is actually a good company. I’m very positive on car hire, the tourist business and car rental, etc, over probably the medium term because, certainly with the rand at R18.20/dollar foreigners can come here and have a fantastic holiday that costs them absolutely nothing. And when you go flying anywhere, the planes are full, the airports are full, the car parks are full. So I think the results reflect that.
SIMON BROWN: I’m in Cape Town at the moment and can’t hire a car – it’s too expensive. Cape Town is packed. The overhang is just [that] some folks get that Zeda share; they look at it and they’re not impressed. So we are seeing that selling out, which could continue for a while still.
WAYNE McCURRIE: Yes. But then maybe there’s an opportunity to buy. What’s interesting is they did say that the supply of new cars is all fine now because, when you look at their results obviously they’re good results, but their utilisation actually came down on a comparative basis because they’ve simply got more cars in.
SIMON BROWN: Yes. And that is good news for some of the other car companies. I’m thinking of Combined Motor Holdings potentially.
You mentioned the rand. Let’s quickly go down that rabbit hole. It’s trading at R18.21/dollar this morning. You always make the point that the rand trades above and below that sort of fair-value level. What is your fair value at this point?
WAYNE McCURRIE: It’s probably R16.50/dollar. That sounds outrageous, but that is still where the fair value is. This has happened so many times before, and every time it happens no one believes that it can go back to fair value. The rand is a junk currency. It does it every single time. It did it on the last two occasions. When Zuma fired Pravin Gordhan and when Covid hit it also weakened to more or less the same extent. It has always come back, and it will do so. In fact, on a five-year basis I’m reasonably bullish on the rand because I think we are in for a little commodity mini cycle.
SIMON BROWN: And of course commodities are export. You say R16.50/dollar. I’m looking at a chart. Just last year it was R14.50/dollar and the year before it was R13.50/dollar. We forget that the rand is volatile but can move markedly stronger.
WAYNE McCURRIE: I think it will.
SIMON BROWN: African Rainbow Minerals. I think a lot of folks forget – and coal’s actually not that big in their life. It’s about 10% of HEPS. But that was a decent looking update from them.
WAYNE McCURRIE: It was very good. Contrast that with South32. I know they’re very different companies, but it was a very, very good update. They’re doing well on almost all fronts as far as I could see. So this is the peak of [the] commodity cycle earnings in the shorter term. There’s no doubt about that. And I think maybe the budget will reflect a lower tax take from mining companies. But, as I mentioned earlier on, on a five-plus year basis I’m very bullish on commodities and commodity shares.
SIMON BROWN: Let’s quickly touch on inflation. We had a bunch [of numbers] out. We had the US at 6.4%. We had local at 6.9%. We had the UK at 10.1%. They were celebrating 10.1% because it is coming down, but it’s still a scary number.
WAYNE McCURRIE: Yes. It’s astonishing to think that the UK would have such high inflation. If [we] had said that two years ago, you would’ve scoffed, you’d have said ‘absolutely impossible’. But look, unfortunately these inflation numbers, including the US PPI yesterday, aren’t falling as quickly as I thought they were going to. The big fall only happens after April. So I initially thought we’d seen the end of interest-rate hikes. I think I’m wrong. I think there are going to be more, given these numbers and given the job numbers. It’s still early days. We’ll see what the job numbers say in two or three weeks’ time again. But unfortunately I think we may see more interest-rate increases overseas and domestically.
SIMON BROWN: Locally as well? Okay. A lot of folks are saying it has peaked. But I take your point that inflation has got a little stickier. I agree with you. I thought it would’ve fallen faster by now. There is certainly some stickiness in it. And I suspect part of that is, for example, if the petrol comes down – or ‘gas’ in the US – you’ve got that extra money. Certainly in the US you go and spend it with that crazily strong unemployment [number].
WAYNE McCURRIE: Look, I think inflation is going to still surprise on the downside in the second half of this year, but right now it’s proving to be a little sticky.
SIMON BROWN: We’ll leave that there. That’s Wayne McCurrie, senior portfolio manager at FNB Wealth and Investment. Wayne, I always appreciate the early morning insights.
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