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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: August, 2018
Aug 29, 2018

The SAFcoin saga continues (my initial stay story here and the follow up with legal threats here), I hope this will be the last. Neil Ferreira finally offered to answer my concerns and I sent him a list of 43 questions Sunday afternoon and he returned them on Wednesday, you can find the questions and answers here.

The tl;dr version;

While SAFcoin did answer a lot of my questions and clear up some issues the key issues remain. So I continue to warn people to stay away.

PTXTEN, been a rough, very rough, period for this ETF.

Upcoming events



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.

Aug 22, 2018

Simon Shares

One possible correction is the source of the coins. I stated that Neil Ferreira had created them via cryptocoincreator.com and he Tweeted me a link to Etherscan.io for Safcoin. Not sure if that means it wasn’t created by cryptocoincreator.com but the new information does suggest there are NOT 222billion coins in supply. The Etherscan.io link shows 10million coins total supply rather than the 5million the website has been promoting, but I see Neil Ferreira updated his white paper on the day of my initial podcast to reflect this new 10million coins in supply (as well as a number of other changes to the white paper).

@SimonPB Here is a link for further assurance that we are deploying all token transactions to the Ethereum block and by the time of launch all token purchases will correspond to the token tracker https://t.co/Kg2mRKFOYz— SAFCOIN (@SAFCOIN1) August 3, 2018

  • Shoprite* (JSE code: SHP) results show a very tough environment hurt by a number of issues. One of these issues is low or negative product which hurts as base costs rise faster than products squeezing margins. But on that point the operating margin remained at 5.5%.
  • The market is hating the CellC and Blue Label (JSE code: BLU) results and the stock is off 8% on Tuesday and another 10% today (Wednesday). Many are saying that it is over done with some 120c of core HEPS making for a PE of around 5x. Maybe it is a bargain but we have also seen bargains become even more so and eventually go bust and CellC certainly wants lots more cash. For me, I do not like telco’s so am not interested either way.
  • Is Famous Brands* (JSE code: FBR) looking to exit their Gourmet Burger Kitchen misadventure in the UK? A SENS last week certainly seemed to indicate it and after promising to turn things around a trading update last week suggests it is still losing some R1.5millon a week. Exiting a bad investment is certainly something I support, but I also support people taking responsibility and the current CEO could claim he wasn’t he boss when this was done – but he was still a senior exec as COO. So any heads to roll? Truth is it is tricky because then a company may lose one or more high quality senior execs if we roll heads every time something goes wrong. But are they quality if they can err this large? Are there surely not other of equal quality who can replace them? Or is this a one off and something we should forgive them for? Truthfully it is a tricky question, but it needs to be transparently dealt with, not just swept under the carpet.
  • S&P500 has hit it’s longest bull market ever. 3,453 days without a 20% correction (since March 9 2009).

I hold ungeared positions.

Alternative investments

We’re getting a lot of questions about the Fed Group impact farming offering as well as buying cows as alternative forms of investments. The questions are always if this is a good idea and my answer is generally – why?

I think there perhaps are two main reasons. Firstly, novelty. Who doesn’t want to own a hive of bees or a slice of a cow (not to be confused with a steak – that you eat). Second is that the local market has delivered zero returns over the last many years so we seek out other ways to generate returns.

Now sure, but the real point is where do these sort of investments fit because make no mistake they are alternative investments, or as Kristia would say on The Fat Wallet Show, stuff you buy with your FU money.
Alternative investments is that small section of your portfolio (5%? maybe 10% if you wanna be wild) that are outside of traditional investments such as we buy on stock exchanges. In the olden days you’d by gold, carpets, art or wine. Heck for a while in the 80’s it was all about buying shipping containers. These days it seems to all be about crypto currencies and now bees.

The theory here is that as alternative investments they are not correlated to normal investments so may survive crashes better. But in truth they often crash as much (if not more) as a crash reduces liquidity so the alternatives get sold as people need cash and alternatives being typically less liquid can crash harder.

It is also important to understand the risks here. The biggest risk is the newness. These may be backed by real institutions but this is totally new territory for everybody and we’re simple not sure how they end up turning out. Further we get all sorts of regulatory protection from listed assets and lastly we are simple not experts on these alternative investments so we have to rely on other ‘experts’ for guidance. As a last point the issuers of these alternative investments make reference to potential returns, but as always there are no guarantees on the returns at all. What happens if somebody else eats your cow or the bees fly away?

Personally I have no alternative investments. I don’t see how they’ll improve my portfolio and they add risks I am not an expert on.

Arrested Development is starting a Bee business.

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.

Aug 15, 2018
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Simon Shares

  • ZAR almost 15.50 early Monday morning on Lira rout. Improve to around 14.10 but now back at 14.60.
  • Chart of the Top40 shows our market been moving sideways since February between 49,000 and 52,000. fairly small range that has made ALSI futures trend trading hard, very hard.

When to buy more

 

I run a few portfolios.

  • ETF only, I buy monthly and every March I full up my tax-free and buy in one block. No timing considered.
  • Lazy ETF, weekly charts trading ETFs using technical analysis. Sign up here.
  • Long-term till death do us part portfolio. I use historic PE over last seven years buying when forward PE is below seven year average PE. Details here.
  • Second tier portfolio. This is designed for small and mid cap stocks and this is where I want to focus today.

Firstly I find the stock. Quality is important as is growth prospects and I am not looking for 'hot' stocks or sectors. Boring with great potential and low current valuations with a potential holding period of a year to a decade.

Using Santova* (JSE code: SNV) as my example.

Non-asset based logistics company with their own software based in Durban. Always been very well run as witnessed by results and strong steady growth, both organic and by acquisition.

When I fist found it the stock was trading on a PE of around 5x with HEPS for the latest financial year being around 18c (price was 90c) and dividend of 2.5c.

I ask myself how easy to double that HEPS in 3-5 years? That requires growth in HEPS of some 15%-25% growth a year. For Santova, very easy.

Then I ask what a fair PE should be for this sort of stock? In the case of a logistics company I feel around 13x is fair with wild being 20x.
So if HEPS doubles (share price doubles) and PE moves to 13x from current 5x share price goes up another 160%. This takes a 90c stock to around 335c in 3-5 years.

Maths all adds up and I buy and wait. Often a very long wait hence I like a dividend to pay me while waiting.

HEPS growth comes in and slowly the PE starts to improve and HEPS is 44c for 2018 financial year while PE is now 9.7x and share price is 435c.

Do I add more? Well I do the same math again. Can earnings double in next 3-5 years (I think it can, meaning HEPS of 90c).

Has PE got space to expand? Yes I still think a 13x PE is fair which targets a share price of some 1170c.

Now a few extra thoughts.

  • Firstly a fair PE here is 13x, but a wildly crazy PE is possible and could be 20x (50% of fair target PE). That would add another 50% potential price growth (share then 1755c). But I would only be adding to the position with the current PE well below the fair target (13x) in this case, ideally current PE at least a third below my fair PE, so around 9x.
  • As important is the question about the actual business. Has it delivered? Does it continue to offer great promise? In other words, does the story from when I initially entered remain in force?

As the story and price continue to keep playing out I keep on holding and adding.

A last point. What will trigger the stock to move and rerate higher? Sure HEPS increases helps but the PE can stay stuck forever and I need both HEPS and PE to increase. hence I especially like stocks that pay a dividend as this pays me while holding and waiting.

* I hold ungeared positions.


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.

Aug 8, 2018
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Simon Shares

  • Fidelity in the US is no offering two of its index funds at zero fee. They do this partly perhaps as a loss leader but also they can generate revenue via script lending. I think we'll see negative fee funds (they'll pay you to hold) in time and even locally in South Africa zero fee funds are possible in time.
  • Local July tractor sales came in at 525 units vs. 508 in July 2017.
  • MTN (JSE code: MTN) results looked bleak. Even if you add all the 'one off issues' back into HEPS it's only 280c. As Ian Stiglingh pointed out on Twitter, we knew it would be a large miss as expectations (consensus) was for a large increase in HEPS and anything above 20% requires a trading update. So no update meant a miss.
  • Apple (NYSE code: AAPL) is now worth $1trillion having listed in 1980 with a $1billion valuation and since then done almost 20% a year annualised return excluding dividends. On a PE of some 18x it is not even expensive compared to others such as Amazon on a PE some 5 times higher. I know Apples and Amazons, not really comparable and Apple has had it's ups and downs along the way.
  • Wealth for three generations in one tax-free account
  • 23 August ~ JSE Power Hour: Three Ramaphosa Rally Recovery Stocks
  • 30 August ~ JSE Power Hour: Practical trading setups and rules
  • 06 September ~ JSE Power Hour: Structuring your investment portfolio

Is it a buy?

No it is not. I have been asking and been asked this question for twenty-three years. Way back in the late 90's whenever somebody mentioned a stock on IRC or the email / user groups I belonged to I would ask if it was a buy. Mostly the answer was no, but even when it was yes - I never bought. So I totally understand the question.

These days when I Tweet about a stock I get the question and my answer is at best no. Even if it is a stock I am buying my answer would be "I am buying" (and my portfolio is online here). But that does not mean anybody else should be buying.

Here's why even shares I am buying are not always for anybody else.

  • What's my risk profile compared to yours?
  • What's my overall portfolio construct compared to yours?
  • Our respective ages and so the list goes on.

What's my expectation and valuation compared to yours?

But I understand where the question comes from, heck I have asked it often enough of people. The market is frankly large, scary and unknown for everybody, especially a newbie. As a newbie we want some certainty and the 'experts' can in theory give us that certainty. Unless of course it is all those experts telling you to buy Steinhoff before the fraud news broke out into the open, and even then many rated it a buy stating that the assets were worth at least 2500c a share.

An important point here, just because a stock has fallen does not mean it is a buy. Again witness Steinhoff. But even with MTN. I don't like the sector or the stock regardless of price, so for me it is never a buy. Of course I could be wrong about the sector and the stock - that's what makes a market, different views.

Of course even if the 'expert' says yes buy it, one doesn't rush out and buy because we discover that that does not reduce the fear, the fear of losing money.

So here's how to get in as a newbie.

  • Firstly get your tax-free account going. Buy some Exchange Traded Funds (ETFs) and forget about them.
  • Then get some free cash for buying individual shares. Decide on sectors you think will be good investments and start digging around the shares in those sectors.
  • Then when somebody says a stock is great (be it David Shapiro on BusinessDay TV, me on Twitter or whoever), you don't buy, but rather you use this as a trigger to do deeper research into that stock.
  • You're still not buying, but you're learning and you're also building a list of shares worth keeping an eye on. You're tracking their prices and their results - all the while your tax-free portfolio is working away in the background.

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.

Aug 1, 2018
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Simon Shares

  • Jacques Magliolo and Business Consultants International (BCI). Two people have recently emailed me about this gent and his company specifically about the FSB warning against him and the company in September 2017. One emailer has already lost money the other wanted to know if he should worry about this as he wanted to invest money. Simple answer is always do a Google search before invest and if you find a FSB (or FSCA as they're now called), be very worried and run away. 
  • Last week I warned to stay away from Safcoin and offered them the right to reply. I have heard nothing back from them so I assume they happy with what I said? Further Twitter has dug up a lot more making the whole Safcoin even more dodge.
  • Lots of panic about the Tuesday evening statement from President Ramaphosa regarding land restitution without compensation. My advice (and this always holds true). Before checking the screaming Twitter and media headlines read the actual statement and while you're at it also read the ANC statement from the 2017 elective conference at Nasrec.
  • I am getting a lot of questions about impact farming from, specifically the offering from the Fed Group. A few questions in return. Counter party risk is likely very low here, the Fed Group are legit but that doesn't mean the impact can't go bust - just that Fed Group unlikely to run away with your money. Bigger question is why do you want to start investing in alternative investments? The returns are more or less in line with long term JSE returns, but they have to be at a higher risk (less over sight, niche, new etc.). At best this really is for your FU money that you would otherwise use to invest into Whisky and then drink one dark night.
  • Ellies (JSE code: ELI) results show HEPS of some 8c while price is 32c - a historic PE of 4x. They looking good but aren't totally out of the woods and this is a risky punt.
  • Wealthy Maths: How to calculate VAT
  • The Fat Wallet Show - How to buy a house
  • Upcoming events

Keep winners. Sell losers

From time to time people ask me about their portfolio. In all cases they wanted to sell their winners and keep the losers.

I've been there. In the late 90's I was off on a holiday and needing some money figured I'd sell one of the two warrants I held. One was a winner and the other a loser, so I sold the winner. The emotional reason was simple. Sell the winner to lock in the emotional thrill of a winner and keep the loser in the hope it'll become a winner and I won't have to have the emotional hit of a loser.

Of course this logic was kinda like marrying your ex.

The wining position is what we should be keeping. It is winning which means we're on the right track and the loser is showing us we're wrong and we should get off that track.

My trick for selling losers is simple. Sell it, delete it off your watch list and never look at it again. Go so far that if I am talking about it here, jump ahead. If BusinessDay TV talks about it, mute the sound for a few minutes. Just get it out of your life. This we we have no FOMO.


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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