Filling the gap on independent sectoral research

Several years ago Raymond Ndlovu and Kevin Swart decided to start a business aimed specifically at making a positive contribution to the rebirth and future prosperity of both South Africa and the broader African landscape.

The result, in 2003 in Johannesburg, was Noah Financial innovation, a stockbroking firm focused on equities trading for the Institutional asset management Industry on an agency-only basis.

Noah now services SA`s top 20 Institutional and pension fund managers and has comprehensive coverage of SA`s contractual savings pool.

Both Ndlovu and Swart had considerable experience In the financial services sector. Ndlovu had worked for Standard Charter in Zimbabwe, Metropolitan and Allan Gray and was a founder member of Prodigy Asset Management, swart, a civil engineer by training, had been a trader with Greenwich, RMB, First Derivatives and two stockbrokers, ending as director In charge of equities and proprietary book trading at Mettle.

“But Noah came at a higher price than we`d bargained for,” says Swart. “The timing wasn`t good. The broking market was overtraded, driven by greed, there were serious conflicts of interest and generally it had a bad reputation, once that dawned on us and we realised that sustalnablllty would be a concern we looked at the wall and asked: •What now`?

” However, Ndlovu, Swart and their colleagues made a success of it. The road they chose was to retain the trading function, the buslness`s engine, and engage In unbundled research that had shown a face In Europe and offered considerable potential in SA.

There, brokers had been increasingly pressed by clients on whether it was necessary for them to conduct research, whether it was independent, who was to pay for It and whether there were conflicts of interest, “we started with prominent economist Sandra Cordon, who had been around for some time,” Swart says. “We presented her to our existing and potential clients as an Independent economist, emphasising that she wasn`t talking our book and had no conflict of interests. She was free to say what she liked.”

Next move was to engage prominent British analyst Bob Hooke, of Research vision, followed by commissions to the likes of leading economist Azar jammine, political analyst Gary van Staden and Asia expert Martyn Davles. They produce annual and/or monthly reports for Noah`s clients, conduct special briefings and are generally on hand for consultations when required.

Swart says that Noah`s proposition Is “commercial” analysis as opposed to “financial” analysis. “We don`t compete against the likes of the Deutches and Merrlll Lynches – we regard ourselves as complementary to them. we felt there was a general lack of understanding of sectors and industries and decided to fill that gap. People were oblivious to trends and often failed to understand the underlying dynamics and personalities.

“we usually say to clients: `Decide In which sector or industry you wish to be In terms of our analyses, then go to the traditional financial research houses and see which stocks are best. we`ll tell you how various sectors are positioned for growth and what their likely prospects are`.

” The response has been excellent, initially, Noah had to establish Its credentials but the demand for Its research Is growing. Many clients needed to be assured that the firm wasn`t a one-off wonder Incapable of sustaining high quality work. work commissioned Includes generic medicine trends (In the pharmaceutical industry), mergers and acquisitions (beverage and tobacco Industries respectively), the impact of EU pricing regulations (sugar Industry) and China`s Involvement in Africa. Swart says there`s enormous potential in Africa and that It`s open for business. “The world Is flush with money and with the developed markets having matured, international Investors are looking for alpha (outperformance). They`ve seen the achievements In Asia in recent decades and are now looking to sub-Saharan Africa. The opportunities are here but you have to identify those promising a meaningful return.”

The problem currently, swart says, is that there aren`t all that many investlble portunities.     “True, the JSE has 400 plus stocks, but many of them aren`t liquid. Ghana Is a great country but with a small stock exchange, comprising just 32 stocks. Angola promises to be the powerhouse of Africa but is coming off a very low base. Nigeria Is on the fence.

” Noah has Fix-compliant connectivity with various execution partners based In London and New York and Is increasingly breaking into Africa”

Source: Finweek