Half the South Africa fund in four stocks? Yep, that’s John Biccard

Last year, we spoke to John Biccard about his punt on South African shares, which paid off handsomely. But readers asked us to find out, in an upended world with Donald Trump rattling sabres on tariffs, whether the die-hard value investor has changed his strategy? We spoke to him.

The performance of your value fund has been striking. The total return over the quarter century has been 4,199%. Was that achieved by simply refusing to compromise on your value principles?

The fund actually just won the best 10-year [performance] at the recent awards, which is something I thought was really good because, in probably seven of the past 10 years, growth shares have outperformed value stocks. 

But it’s a very lumpy thing. Over the 25 years, there’s maybe only been five periods of outperformance – and some of them only lasted a year. The first was 2001 to about 2007, when South Africa was doing really well and the cheap shares became fairly valued. And then we made a lot of money in platinum about seven years ago and a lot of money, twice, in gold. And then last year [we] beat the benchmark by about 25%. 

It is [thanks to] sticking to our guns. [When it comes to] platinum, I had to wait four years for it to come right, but in the two years when platinum outperformed, we made so much money. It’s buying something that’s cheap, and doing all the work on it and then sticking to it and buying relentlessly down to reduce the average-in price so that you’ve got a massive position at the point that the thing inflects. But sometimes you wait a long time for that.  

Do you think it’s still worth going large on the JSE at this point? 

I’ve changed the fund a lot – 18 months prior to the election, all I did was buy domestic names and mainly in the mid-cap area, and that worked out between May and December, big time. From about October to December I sold two-thirds of the SA Inc [stocks] because the shares went up 60% and since then they’ve retraced quite a lot. 

[There is] still a South Africa trade – I’ve got a few mid-cap [shares] left that are still cheap, but I sold two-thirds of the South Africa industrial, retail and bank positions and put that into four shares: Exxaro, African Rainbow Minerals (ARM), Sasol and AECI. Those four positions are 9% each, so that’s 36% of the fund and remember 68% of the fund is in local equities. So half the South Africa position is in those four shares. 

That’s quite something…

The thinking behind that is: Sasol, Exxaro and ARM are not really a commodity play, but a South African commodity play. The most important thing that excites me about those shares is that they’re at relatively disastrous levels: while the rest of South Africa went up 60%, they went down 20%. 

The real exciting thing that I see is, let’s call it a second derivative of a better South Africa. The big benefit is not the commodity prices going up a lot; it’s more that the volumes exported out of South Africa should improve in coal and iron ore and manganese. The big catalyst to unlock the value in the shares is better export volumes through the railways and ports. So that’s the next positive I see happening in South Africa. 

The government has changed its position on outsourcing rail and ports – people are tendering for the contracts to operate the key railway lines. The volumes for coal are 40% lower than they were six years ago, and iron ore is down 15%. But in the next three or four years I see those volumes coming back. That’s a massive profit driver for those companies.

Sasol is an interesting pick because the investment hypothesis is very much in doubt…

I must just say, I haven’t held Sasol for about 20 years. The story of Sasol is a bit about the logistics, but Sasol is more a bottom-up pick; it’s just too cheap. Everyone’s worried about the debt, but I don’t think it’s that high. And the valuation relative to the rand oil price is absolutely crazy. 

It is still earning R27 per share even at this rand oil price, and the share is at R78 – so it’s basically on a p:e of three. 

And the very important thing that could be a catalyst to unlock value is they’ve announced they are reviewing their investment in offshore chemicals. There’s got to be a chance that they sell the other half of Lake Charles … maybe to the buyer who bought the first half. And that asset, even if they gave [it] away, would remove half the debt in one go. 

I can’t see the rand oil price going much lower. Though if the oil price did go to $40 a barrel Sasol could go bankrupt, but I don’t think it will. The share has gone from R500 to R80 – it’s one of the worst shares in the world.  

Are there any small- and mid-cap shares in South Africa that you especially like? 

I sold all [the fund’s] Reunert, Spar, Life Healthcare, Netcare and Altron [shares]. Those were in the top five [holdings]. And the ones that I’ve kept holding are because they went up but still were cheap enough. Datatec, which I’ve got 5% in, is on an eight p:e, but similar businesses in the world trade on more than double [that] valuation, so that’s a special situation. Italtile, I’ve got 4% in that. 

And then I bought a new mid cap – Tsogo Sun, which is about 4% of the fund. Tsogo’s [stock had fallen] and the worry is that it has missed this new wave in online gambling. They are now participating but they were the slowest of everyone. Basically, the share has dropped from R20 per share 12 years ago and it’s now at R8. But it has got good properties, the casino business is trundling along, the p:e is six and the dividend yield is nearly 9%.  

In your fund, 68% is in equities and most of that is local. What do you think of offshore opportunities? 

I’m still happy with that – I am aware that it is a general equity category and I’m competing with other funds that have 25% offshore, on average. Bear in mind I buy really strange things: there are no Amazons and Teslas, and it’s done pretty well – last year [the return] was 20% in dollars. I had a lot of gold shares and small caps in European, UK and emerging markets. 

At the moment offshore it’s quite interesting because I’ve changed that a lot in the past six months. I’ve got 30% of that in emerging markets right now, of which 15% is in China. And then the other big theme is alcohol shares – I’ve got a pile of beer and spirits shares [as] alcohol shares have been absolutely murdered. The narrative is that people don’t drink anymore, which is entirely made up. Actually, the statistics show that alcohol is still growing strongly in emerging markets and marginally in developed markets.

Most of the alcohol shares I bought are exposed to emerging markets, like Rémy Cointreau [where the stock has fallen from €220 to €45] and Campari. Spirits have had everything go wrong for them, because they had this huge growth spurt during Covid  because people stayed at home and drank more and they also stocked up more. They had a post-Covid hangover where people didn’t need to buy more spirits because their cupboards were full and everyone went back to work. And now you’ve got worries about American tariffs.

We’re all talking about how Trump has upended the world order and we’ve got tariff madness – but if you’re a value investor, does it mean you ignore the geopolitics? Has it always been like that?

That is correct. So, for instance, the trade now is sell tech and buy European defence shares; I don’t do anything like that. I mean, the doorman downstairs will ask you about European defence shares – you can’t make money doing that now. 

The things I buy need to be three standard deviations cheaper. It needs to be that when I buy something, people say “you are crazy”. That’s when it interests me. It can’t just be a bit cheap. People must have decided that this thing has no future. And then you really are protected for a lot of bad things to happen. I think [Trump’s tariffs] are a disaster for the US but it wouldn’t matter if [Joe] Biden or the Democrats were in charge – I wouldn’t be buying any of the large caps in the US because they are way overvalued. 

As it happens, I think the catalyst for the overvaluation to come down is Donald Trump – and it’s starting to happen, but I think it still has a way to go. It’s a weird situation because the US has been expensive for five years but nothing stopped it. This time around, you can see the catalyst because what he’s doing is going to hurt economic growth in the world and specifically the US. But if US shares were really cheap and Donald Trump was in charge, I wouldn’t really care.

• The writer owns units in the Ninety One value fund