COVID-19: Anchor Capital’s outlook for SA companies

Amid the unprecedented economic challenges posed by the global pandemic, companies worldwide are facing tough decisions to ensure their survival and sustainability. South African businesses are no exception as they navigate through this turbulent period. Anchor Capital's Fund Manager, Stephán Engelbrecht, sheds light on the strategies and outlook for SA companies in a recent interview with CNBC Africa. The conversation delves into key themes such as capital preservation, cash management, and the importance of strong balance sheets. Engelbrecht emphasizes the need for companies to hunker down, cut unnecessary expenses, and prioritize cash flow amidst the crisis. As the world grapples with uncertainties, fund managers like Engelbrecht are closely monitoring which companies exhibit resilience and strategic foresight to weather the storm. In this article, we dissect the insights shared by Engelbrecht and explore the implications for investors and businesses alike. One of the primary strategies highlighted by Engelbrecht is the significance of maintaining a robust cash balance to navigate through potential rights issues and capital raises. Companies are expected to come forth seeking additional funds to bolster their operations. However, Engelbrecht stresses the importance of scrutinizing the reasons behind these cash calls. While some firms may opt for defensive measures like debt repayment, others, like Shoprite, are leveraging capital raises to capitalize on emerging opportunities. Engelbrecht urges investors to evaluate the motives behind such actions and align their decisions with companies demonstrating strategic vision and growth potential. When asked about the conditions for following rights issues, Engelbrecht underscores the need for a balanced approach. Portfolio managers must assess the impact of additional capital injections on their overall portfolio composition. Moreover, the rationale behind a company's decision to raise funds plays a pivotal role in determining investors' responses. Engelbrecht advocates for a cautious stance, emphasizing the alignment of shareholder interests with companies pursuing growth-oriented strategies. On the contentious issue of dividend payments during the crisis, Engelbrecht adopts a nuanced perspective. While acknowledging the importance of cash flows for investors, he cautions against companies that pay dividends without assessing their financial health adequately. Maintaining dividend payments amidst economic uncertainties can be perceived as a red flag, indicating potential mismanagement or lack of foresight. Engelbrecht commends South African companies for exhibiting prudence by withholding dividends when necessary, prioritizing long-term sustainability over short-term gains. However, he acknowledges the adverse impact on investors relying on dividend income for their financial stability. In such circumstances, investors may have to reconsider their investment strategies and explore alternative sources of income. The evolving economic landscape calls for adaptability and strategic decision-making from both companies and investors. As businesses navigate through unprecedented challenges, the guidance provided by seasoned fund managers like Engelbrecht offers valuable insights into effective portfolio management and investment strategies. By focusing on capital preservation, prudent risk assessment, and strategic investments, companies can enhance their resilience and emerge stronger from the current crisis. The road ahead may be fraught with uncertainties, but with careful planning and foresight, South African businesses can navigate through these turbulent times and position themselves for long-term success.