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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: May, 2019
May 29, 2019

Simon Shares

  • Rough month. We're ending May (well Wednesday mid morning, so 2.5 trading days still to go) up 3.5% for the year, but we started May up 11.8%. No don't quote me rhymes.
  • Astral Foods (JSE code: ARL) issued a SENS detailing issues with municipal water and the cost to the group. They've also spoken about issues with electricity supply. The question is, are they the only ones being impacted? The answer must be no, but they are the only ones being very vocal about the issues. I wonder who else is experiencing same?
  • Famous Bands* (JSE code: FBR) results are decent if you remove the UK indigestion. The second half was tougher than the first but really that UK deal is busy undoing a lot of otherwise great effort by the company, that said the second half was better (and still better post yearend) for GBK but it still losses money. Signature brands are struggling and this isn't a huge surprise as they're more expensive sit down experiences. They're also exiting the Coega Concentrate tomato paste plant, I remember all the excitement when they bought the business, saving jobs etc. Except maybe not. But we did get a dividend, only 100c, but the first since mid 2017 when they went offshore.
  • Naspers (JSE code: NPN) has confirmed their intention to list their non SA assets in Amsterdam and are now seeking shareholder approval. The theory is this will unlock value opening the group to more shareholders in Europe who will only get exposure to their global tech brands.
  • Aspen (JSE code: APN) has confirmed the sale of the Nutritionals Business is happening this Friday and they'll get the Eur740million ASAP and be able to pay down debt.
  • The Rand has been getting killed, out at 14.88 as I speak. Many are saying it's because DD is going to be deputy president. But that's lazy, real lazy, thinking. Nobody actually expected otherwise, he is ANC deputy president and except for a short period when Mbeki fired Zuma the AND DP is always the government DP. Sure there was a Twitter storm of hope when he postponed his swearing in as an MP, but current ZAR weakness is in line with most emerging market currency weakness.
  • Latest maize crop forecast from the Crop Estimate Committee was again revised upwards. Good news for food producers and more supply should equal lower prices, but it could still go wrong; early frost, storm damage etc.
  • Understanding the DCCUSD
  • Upcoming events;

* I hold ungeared positions.

Boiler room scams

I'm getting the calls again, two different scams but same as they're trying to rob you of your hard earned money.

The first is local offering you super smart trading software for a crazy high price that'll generate amazing returns (usually 30%-50% every six months).

The software also comes with great training, but if it's so great why isn't the call center agent trading up a storm instead of cold calling me?

Importantly, software is often free or very cheap from your online stock broker. Or buy AmiBroker.com and get your data from InvestorData.co.za

Education is no longer something we should be paying for, there is a ton of high quality for free on the Internet, starting with Just One Lap, your stock broker, YouTube and so the list goes on.

The second is a call from offshore - you can tell immediately because of the lag when they speak.

Here they have a great stock for you to buy, an opportunity to get in early and reap huge returns.

Sometimes the scam here is to get you to open an account with some fly-by-night bucket shop that will disappear over night, taking your cash with them.

Mostly this scam is that have excess stock they need to off load. Maybe they under wrote a rights issue and ended up having to take a bunch. Or the stock is so illiquid they can't sell it in the market so they need to boiler room sell it.

Either way the question to ask is simple. If this is such a great deal why do they need to cold call half way across the world to sell it?

Surely such a great opportunity should have people queuing up outside their boiler room keen to buy?

In both cases, just put the phone down and move on. There is no money to be made here.


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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.

May 22, 2019

Simon Says

  • Upcoming events;
  • Coronation* (JSE code; CML) results about as expected and it looks like they're already moving up off the bottom of the down trend. I hold and like. People asking if passive doesn't kill Coronation and the answer is no. We're a very long way from passive being larger than active in South Africa, and even when that happens the real threat is initially the smaller asset managers. In time small active will be the winner, but we're talking a long time into the future.
  • A few people asked me why I don't like Balwin (JSE code: BWN) and Calgro M3 (JSE code: CGR). They great operations but they sell houses and right now the housing market is depressed (or distressed, your pick). Costs are not going down but prices are also not holding so a squeeze. Calgro M3 has an advantage in that they can build at vastly different price points, but then they have other issues. Both will be great investments in time, just not right now.
  • Barloworld* (JSE code: BAW) results were solid, very solid and I continue to like and hold this stock. Here's the value video I did earlier in the year that offered Barloworld as the best buy on the JSE.
  • Khula Sizwe: innovative and promising.
  • Choppies (JSE code: CHP) was always an opportunistic listing that frankly never impressed me. Their results for June 2018 are still outstanding and the share has been suspended since November 2018 and now they've suspended their CEO.
  • Richemont* (JSE code: CFR) results were boosted by their new online retail which operates at lower margins but is now a significant profit center. The risk for them is trade wars and a slower GDP growth out of China. The issue is how many of the new rich in China get hurt by GDP slowing? Short answer is not sure, but I certainly suspect many will, you're suddenly rich so you buy a fancy watch then a bump comes along and you're no longer rich so no more fancy watches.
  • Pioneer Food Group (JSE code: JSE) results show the pressure on branded food products. We've seen this trend with TigerBrands and AVI and it is likely to continue. The question is for how long? Consumers are shopping down to store brands and while they're often made by these same companies, the margins are much lower. Buffett (at the Berkshire Hathaway AGM) was commenting that this tension between retailer and producer is always in force and right now the retailer is winning. He says that the trend will reverse in time. But when and will it fully reverse or do some customers stay in the cheaper store brand product? I think they do and as such companies like Pioneer and co. will have a lower rating.
  • Sasol* (JSE code: SOL), more cost over runs on their Lake Charles project.
  • CoreShares changing their two property ETFs, PTXTEN* and PTXSPY. An again the 'market' (or at least some Twitterers) are moaning.
    • Both ETFs are from 2010 when the SAPY index couldn't even get 20 stocks and was dominated by the two large stocks being over 50%. The equal weight then made perfect sense for an investor.
    • But the SAPY index is messy with Nepi Rockcastle (JSE code: NRP) included while Capco (JSE code: CCO) and Intu (JSE code: ITU) are not. The JSE did an index review recently but rather than change the index they added new indices.
      CoreShares are hence merging their two property ETFs and changing the methodology.
    • New methodology will be 75% focused on three years of yield history and 25% on market cap with an initial liquidity filter to determine potential stocks for inclusion.
    • Result is more stocks in the ETF (26) with 24 of them driving returns, so great balance. Also a better yield as this is one of the key reasons for buying property.
    • There will be a ballot for existing holders. 25% need to vote and majority wins, if vote is below 25% a second vote is held with no minimum turnout required.
    • I will vote in favour.

* I hold ungeared positions.


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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.

May 15, 2019

Simon Shares

* I hold ungeared positions.


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Trade wars

Can we call it? Trades wars are here and nobody wins.


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.

May 8, 2019

Simon Shares

  • Steinhoff (JSE code: SNH) results for September 2017 are out and they're a mess. All they really have is a c70% stake in Pepkor.
  • Trade wars have again spooked the market with the orange trumpet going on a Twitter rampage on Sunday, but as I record US markets are green again.
  • Upcoming events;

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Elections and markets

Recording this on Wednesday afternoon, so voting is still on-going and I have no idea what the results will be. But some thoughts.

As a country fairly new to democracy we're really good at it and this is something to be very proud of, many countries (including supposed developed ones) are not nearly as good at democracy as we are. The IEC is world class and we accept the results. The majority party loses provinces, metros and the world doesn't end, we all just carry on. Sure there will be some messes in some places, but pretty much our voting is reflective of the will of the people.

On this point, if your party loses you don't get to call the winner voters idiots. People vote how they do for their own reasons. We don't all vote the same. That's democracy, if you don't like it there are plenty countries without democracy. I am already seeing some Tweets calling out voters of one or another party idiots. This smacks of immaturity and doesn't sit within democracy.

Polls leading up the election have mostly been in the same theme with the exception being the recent IRR polling data which has the ANC definitely losing Gauteng and likely losing nationally. But we fail to understand polling.

  • Voter turn out is very important in polling for an election as is the methodology of the sample you're polling.
  • Pollsters do a lot of post polling 'tweaking' so the potential for bias becomes very real.
  • But being wrong doesn't make the pollster and idiot or a fraud. Polling is not an exact science and in a two horse race the margin of error is usually at least 3.5% and the victory margin is generally less. So even the polls for Brexit and Trump were within that margin of error.

Markets have already run hard locally since the late 2018 lows but will likely like the results. Not as to who wins, more that we're good at democracy. The argument that a strong victory for the ANC will be good for markets is bogus and cooked up by people who simple do not understand the ANC process or constitution. Removing Ramaphosa before the next ANC elective conference in 2022 certainly is possible but it is exceedingly difficult and not likely to happen. Importantly the losers in an election always work against the winners, always. Nothing special there.

So markets will like the result, pretty much regardless how much the ANC wins by. But will they go much higher?

We're already up almost 11% year-to-date and sure we can end the year higher. Heck much higher. But turning around South Africa, jailing corruption, getting GDP going again. This will all take time, it can happen. It is already happening and has been since 14 February 2018.

  • The best place to be will be SA Inc. stocks, they'll benefit most from an improving economy locally. Offshore and US$ stocks will find it tougher as Rand strength is likely over the next few years.
  • My election stocks would be the likes of City Lodge* (JSE code: CLH), Coronation* (JSE code: CML), retailers (my pick is Shoprite* (JSE code: SHP)). Heck about half the JSE is local and been killed over the last five years.
  • Be careful with the truly beaten down, they will take longer to recover. They will eventually, but the market likes easy money so will initially move into those already responding. As always, buy the quality at good prices - nothing clever here.
  • The Exchange Traded Fund (ETF) is probably the MidCap ETF from Ashburton, ASHMID. The index is only +4.7% year-to-date and full of SA Inc. The chart looks ugly, but it will start to recover in time.

Of course the wheels fall off if the wheels fall off globally.

* 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.


 

May 2, 2019

Simon Shares

  • By this time net week we'll know the results of the 2019 elections. It's been a quieter election season than I'd expected - which is great.
  • Coronation* (JSE code: CML) update. Assets under management (AUM) flat and spot on what I expected but average AUM was 8% lower for the period. HEPS 20%-30% lower worse than the 15%-20% down I expected on the back of average AUM being 8% lower even though it was flat start to finish. I hold and am happy with some cheeky bids in lower if anybody wants to sell to me at discount?
  • I have been buying some Barloworld* (JSE code: BAW) in this pull back as per my Graham value webcast from a few weeks ago after missing my initial entry when it ran to +R130. Still have some bids in lower down.
  • Up coming events;

* I hold ungeared positions.


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Shares or cash for dividends?

A great question in my inbox, why do some companies issues shares instead of cash for dividends and which should we take?

The why is simple enough, the company wants to pay the dividend but also wants to hang onto cash, usually because they have debt to pay off or a large deal pending. Pay the dividend with shares keeps some cash while still 'paying' a dividend.

This is a potential warning sign worth digging into. Why the shares rather than cash? Is liquidity dying, do they have debt problems? Maybe not, but dig around anyway just in case.

The trick is that these shares now have a perpetual right on all future profits, so they are more 'expensive' than cash which is why they're firstly not a great idea for the company and why I will usually take them as it's not just this dividend I get, but all future dividends as well.

Further if not every share holder takes the shares, then your economic interest in the company increases. Example, you own 20 of 100 shares = 20%. They issue a 5% dividend, that's 5 shares dividend in total, 1 goes to you, 3 to others and 1 shareholder takes cash, only 4 new shares issued. Now you have 21 of 104 shares = 20.2%.

We also save on brokerage if we take shares and typically they'll be issued at a slight discount (around 5%) to the share price.

As a rule I will take the shares unless I think the share price is way over priced, but the important consideration is the future dividends so I pretty much always take the shares.


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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