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JSE Direct with Simon Brown

Weekly podcast hosted by Simon Brown covering the JSE and listed companies.
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Now displaying: June, 2018
Jun 27, 2018
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Simon Shares

  • Markets have been falling, and the world has not been ending.
  • Long4Life* (JSE code: L4L) has announced a purchase of Rage for R3.915billion with EBITDA of R360million. That's expensive and as they're issuing new shares for much of the payment also a chunky dilution. Management say the deal is not yet a done deal.
  • Steinhoff (JSE code: SNH) results are due on Friday. They may not arrive and if they do they're going to create all sorts of excitement. But don't get sucked in, SNH remains a trading stock and nothing more. Reports I am hearing from VBE is that they consider the company bankrupt, and that's before the billions VBE hope to secure for shareholders.
  • The Tekkie Town sellers continue their fight with Steinhoff Retail Africa (JSE code: SRR) and it's messy and it also suggests that maybe Markus Jooste wasn't the only problem at Steinhoff?
  • BusinessDay is reporting that Christo Wiese has sold another chunk of his Shoprite* (JSE code: SHP) shares. This time via a book build to institutions, not via open market and leaving him with about 14% of the company.
  • OUTstanding money: Getting rich takes time, not money
  • Year-to-date going nowhere
  • Debt in high-income households
  • When to sell long-term investments
  • Upcoming events;

* I hold ungeared positions.

Pricing power

Some industries have zero pricing power such as the mining industry who are price takers - a horrid space to be as your costs rise and you have zero control over income. Sure you can increase production to try manage income, but that often impacts supply driving prices lower as we see in the platinum industry.

Construction also has very little pricing power when building something is now pretty much just a commodity with stiff competition all competing for the same contract with price being the only key difference.

Telcos have little real pricing power as data is data so they are trying to make it all about the added extras.

I like to invest in industries that can determine their own prices to varying degrees.

Luxury cars are priced more on what the market will bear rather then actual cost of manufacturing. This is great for margins and profits but tough to sustain.

Luxury jewelry is the same, price is more about status and looks then cost to produce.

Burgers for example have pricing power but it is limited by two factors. What the customer can pay and what the other burger seller is charging. But you do have a fair degree of power ~ just be careful of UK gourmet burgers:).

Retail also has fair pricing power albeit to different degrees. Luxury certainly has more power than consumer staples, but the later has power in that they are staples.


JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited

Jun 20, 2018
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Simon Shares

  • Basil Read (JSE code: BSR) has filed for business rescue and nobody should be surprised. Blaming government and labour is also weak, construction is a weak industry and only really boomed in the lead up to the world cup in 2010 (not forgetting the price fixing). Of concern was that the stock was not suspended until Monday lunch time and it turns out it a settlement issue. Apparently "Someone bought BSR at 1c in on Friday now it turns out the seller does not have the stock. JSE trying to reverse."
  • Liberty (JSE code: LBH) got hacked. Exact details are scarce as I record, the company is saying it was "largely emails and possible attachments" and that no clients have lost money. Well maybe not yet. But you email all sorts of personally stuff to a long-term insurer; bank details, residential address, medical, etc. That frankly puts clients at risk. Bigger picture is that our future unfortunately includes us being hacked sooner or later.
  • PPC (JSE code: PPC) results were not exciting and they have challenges. Local is weak, DRC is having issues already. Not a stock I would want to be holding.
  • I honestly am not sure what the deal is with trade wars. Not in the sense of if Trump is serious or when they'll happen nor to who or what. But if they do happen they are bad - end of story.
  • The Rand is under all sorts of pressure and the hysteria is out in force. So to clear some of it. We're not at risk of an emergency rate hike. This is not because of local protests, land expropriation, it is a general Emerging Market (EM) rout right now. But it is looking ugly for EMs with currencies and markets under pressure as investors flee. Will this get worse, a little or a lot? No idea. So as always here's what we do; as a trader - obey your stops. As an investor - don't panic and buy quality and great prices, but no rush.
  • A question on investment club tax
  • OUTstanding money: What is investing?
  • Tech ETFs by a tech guru
  • Upcoming events;

The smart money myth

I hear it all the time - the smart money which typically seems to translate into somebody with lots of money. A big trade goes through the market and everybody is talking about smart money? There is no smart money. Money does not talk and having lots of it doesn't make somebody smarter than anybody with less.

So why did Christo Wieses money warn him?

Also witness Steinhoff (JSE code: SNH). Including preference shares total value was some R300billion now a few million and the smart money all owned it up at the lofty levels. When the story broke Coronation (JSE code: CML) wrote a long letter saying they were holding on as all will be fine. Yet news last week is that they have bailed. They did the same with African Bank (JSE code: bankrupt)

Read Fooled by Randomness by Nassim Taleb. We ascribe behaviours to money and people with lots of it that is simple seldom true.

There is no smart money, just money. You can of course make smart money decisions and that would include not blindly following anybody.


JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited

Jun 13, 2018

Simon Shares

Stor-age (JSE code: SSS) results were totally solid and in a very niche property space that is doing very well. When they listed a few people recommended them to me and I wasn't convinced. Well I was wrong.

Sasol* (JSE code: SOL) was one of the first stocks I ever bought and my longest holding in my 'til death do us part' portfolio having first bought it around 1994. A few years ago I gave serious thought to exiting, but held on albeit deciding not to add any more to my portfolio. But I have been thinking and digging and frankly it is a change company and looking good. The Lake Charles project has been a mess in terms of cost over runs, but it is now nearing completion and that means two important points. Firstly, no more spend on the development and secondly in a few years the profits will start to flow from the project (even if they're not as great as promised). So I am starting to buy again, however my usual pricing methodology doesn't work here for two reasons. Massively cyclical always breaks my method and Lake Charles changes things. So asking around the view seems to be that HEPS of some R60 is possible for 2021 and if we apply the average PE of 9.3 that equals a price of R558, so that's my fair value and I am happy to buy at the current R488.

Help, I've lost money!

OUTstanding Money: Types of savings

* I hold ungeared positions.

I don't own offshore

In the last few weeks a number of people have asked me about what offshore shares I own. The answer is simple, none. I do own a small holding in VOO which I bought in 2002 with some offshore money I earned, but that's it.

Here's the thing, I know a lot about the local market and a little about even the smallest shares on the JSE. I have spent literally decades investing and trading on the JSE and hence decades building my knowledge of our market. Further it certainly helps that it is a small market, so it makes life easier and let's not forget that watching and studying the JSE is in part my job.

But as soon as I step offshore the size and complexity of the market is frankly over whelming. The NYSE has three times more ETFs then the JSE has stocks. Globally there are some 100,000 stocks. How does one select which are the best of the best? This is more than a full time job, this is a full time job for a full sized team.

Chatting to somebody recently they mentioned they wanted to buy Honda. I have no idea if it is a good stock or not. But what of the other US motor companies (Fiat Chrysler, Ford, General Motors, Tesla, Toyota) and then what of those listed in Europe where there are even more listed? Does Japan have any listed? Suddenly you have to be an expert on dozens of motor stocks to decide if the one you want is the out and out global winner.

Now I know the response. In the above example we don't have a single motor company we can invest in. Our Tech stocks are frankly wildly boring and disappointing, Naspers (JSE code: NPN) the exception, a lucky exception. Our market is small in more than just number of stocks, it is also small in terms of industries. But we can buy a tech ETF, and yes we can't buy a motor company ETF. But I am comfortable with that because frankly the risk is I buy the wrong motor company anyway.

Am I being lazy? Maybe. Or maybe I am being realistic abut my abilities and time available to become an expert.

These days I get offshore exposure via dual listed and global companies and locally listed offshore ETFs, keeping it nice and simple.

Another issue with offshore is costs, it is a lot cheaper investing offshore then it has ever been for South Africans. But it is still not cheap and with offshore assets you now also need a second will in the country in which those assets are held. More costs and more complexity.

Here's a random stat to show how little we know. Google (Alphabet) and Dominos Pizza both listed in 2004. Which has a better return since listing?

 


 

Jun 7, 2018

123


Simon Shares

  • Wildest story of the year. Imbalie (JSE code: ILE) is ditching beauty to become a miner via a reverse listing!
    Local GDP for Q1 2018 was a shocker at -2.2%. Expected was -0.5% and the number is usually shifted higher over time, but wowzer.
  • That all said, this was mostly driven by agriculture and frankly turning a country around is a slow process.
  • Delta Properties (JSE code: DLT) has me perplexed. On a dividend yield of around 15% and trading at around 30% discount to net asset value (NAV) it seems a screaming buy - but that assumes the market is wrong and I never want to be the one telling the market that. They mostly have government as a tenant and a lot of their leases are on a month-to-month basis. But government isn't going to suddenly move out but they may put pressure on rent increases. The company says there is a process recently put in place by government to start signing leases and this should reduce the month-to-month leases and lower lending costs. Am I missing a trick or is the market, as always, right?
  • Anthony Clark was at the Curro (JSE code: COH) annual general meeting (AGM) and tweeted that the company said with utilisation of 90% from the current +/-53% HEPS would be around 201c. So we have a marker for future earnings albeit no time line. That said even at 201c HEPS and a current price of 3000c that would put the stock on a PE of around 15x which to my mind is a fair valuation.

 

Stale bulls

In a recent Fat Wallet podcast Kristia commented again how her investments have done pretty much nothing over the last few years.

Now there is only one reason we buy any share, ETF or even derivative - too make money. But what happens if we don't make money or worse the price falls and we're losing money.

Now it depends in part what we bought. A derivative trader will stop out and indidiual share buyer may hold as they consider it quality and in time it will start moving while an ETF should in theory not worry about the short term and just continue holding. That's the theory.

But we get a phenomenon called stake bulls, especially with individual shares.

Lets take Aspen (JSE code: APN) as an example. It hit a price of almost R450 in January 2015 after trading at R100 for the first time just three years earlier and 1000c was hit for the first time in 2003. If you missed the initial run from 2003 you'd have felt aggrieved at missing out and you may have jumped in at R100. But many would have said no they'll wait for the pull back, a pull back that never really happened. Then after a price of almost R450 there is a serious pull back to almost R250 and many jumped in during that pull back. That was followed by another rally but only to R350 and now we're back at R250.

So having watched Aspen be one of the best stocks on the JSE you're now holding it and your price is under water. You're not happy and frankly you want shot of the share - but ideally at as small a loss as possible - you're a stale bull.

So now every time it rallies the stale bulls are ready to sell essentially capping the price.
We see this with a number of local shares and to a lesser degree with ETFs (lesser here as we're too small to really influence an entire index).

So what do we do?

  • Firstly, recognise yourself as a stale bull if you are one, set your exit price and act accordingly. The new bulls are not your problem.
  • Secondly, understand that if you are a new bull to a stock there may well be a lot of stake bulls lurking and this will make the rise higher a slow drawn out affair. That's fine, investing is about the long-term and if you hold quality it will in time preform.
  • If you're trading the share understand the going may be slow and sticky as stale bulls keep exiting.
  • Lastly if you're holding ETFs don't stress it. Sure over the last 3-5 years money in the bank has potentially beaten your ETF return. But again this is a long-term game and given time you'll make handsome profits.

JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

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