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Wednesday, December 1, 2021

Piet Viljoen on undervalued JSE gems Lewis and Sabvest 

Counterpoint’s Piet Viljoen talks all local and international topical investment-related matters, with the value fund manager giving insight into some of his most-loved investments. Furniture retailer Lewis Group and investment holding company Sabvest are discussed; both in the news for all the right reasons. Lewis released a solid set of results, which sent its shares on a tear, as the retailer continues to gain market share among several other tailwinds. Sabvest, led by shrewd capital allocator Chris Seabrooke, announced it would buy back its own shares, a corporate action used to increase shareholder value. Clothing retailer Mr Price is also discussed at length, with all the clothing retailers emerging out of the pandemic stronger amid healthier than expected consumer demand. Justin Rowe-Roberts

Piet Viljoen on Lewis Group results:

Lewis is a very interesting company. It’s a well-run business that caters to a part of the market where there isn’t massive competition at this point. There used to be more competition but a lot of capital has withdrawn from that market. So, there is less competition around and they’re doing very well in terms of the merchandise they provide to their clients. On top of that, you can buy this well-managed business at a discount to its net current asset value. In other words, you are buying it at less than liquidation value. It’s one more South African company that is massively discounted and it offers very juicy prospects of long-term returns in whichever currency you want to measure. 

On Sabvest:

Sabvest is probably an even better story. Sabvest is run by a very good capital allocator, by the name of Chris Seabrook. He has a long-term track record of generating very high returns on capital. Net asset value per share has grown at a high rate. He bought some fantastic businesses over time and now he is buying back his own business. The business [he] knows best. Again, at a price that discounts the assets he owns significantly. It’s just more good capital allocation from Chris Seabrook and I think the shareholders are all enjoying the ride.

On Mr Price and the clothing retail industry:

Surprisingly, I think you’ll find clothing at the top of the list of many people’s budget (laughs). A well-run retail business is fantastic and a well-run clothing retail business is even better because it preys on people’s emotions. You know, people like wearing new and fancy clothes. I think it’s a fundamentally sound and good business model. If you can provide fashion at the price point Mr Price does, I think you are on a good wicket, as they’ve shown in the last 25 or 30 years. It’s a great business.

I know we had the pandemic last year and they were closed and you couldn’t shop there for a while, but in the background, a lot of clothing retailers’ results are good year on year because they’re coming off a low base in the prior corresponding period. Also, you must remember they’ve been feeding effectively off the carcass of Edgars, which has gone backwards. It used to be the biggest clothing retailer in the country. So, all the guys that have outperformed Edgars have been feeding off that and it has boosted the returns as well. 

On his approach to a possible fourth wave of Covid-19:

First of all, I believe lockdowns are not a good way of managing the crisis and make no difference at all. I think what does make a difference is your personal hygiene and keeping your distance from other people. You know – safe social distancing, which I quite like in any case – I haven’t got a problem with that. Just being sensible, I mean, illnesses have been with human beings through the eons and they will be with us in the future as well. For some reason, we’ve become very scared of this one. It has had a death rate higher than normal but there are a lot of other things that kill people, which we are much less scared of. So, I struggle to understand the fear around this. I think a lot of it is being driven by the media that wants to sell a story. 

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Kaylie Pferten
A pilot of submersible crafts in a former life, now married to my husband David and writing about investment advice.

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