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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, 2019
Jun 26, 2019

Simon Shares

  • The Top40 is up almost 20% since the lows of November and over 12% year-to-date. But instead it feels all gloom and doom.
    Wescoal (JSE code: WSL) results look horrid, but they had strike issues when they employed a new contractor and that hit production and the leverage impact seriously hit HEPS. But they remain a high quality junior coal miner.
  • Omnia (JSE code: OMN) results were ugly, but not as ugly as the market expected. Apparently during the results presentation they blamed the media for their 23 April SENS stating no rights issue, which they then changed their mind on earlier this month?
  • Gold is running and the perma gold bulls are thrilled - albeit surprisingly quiet? However, a number of people are asking if they should buy gold and the answer is usually no, buy a gold miner and benefit from the leverage impact.
  • Bitcoin* is also going wild, now above $12,000. Here the perma BTC bulls are all over my time line. Question is how high will it go? Answer is no idea, in a perfect world it needs to make a new all time high above $20,000. But as with gold, don't sell too quickly, but do have an exit strategy that gets you out in time. Unless of course you're a hodler.
  • Surviving the trade wars, G20 meeting is Friday / Saturday.
  • My first investment
  • Upcoming events;

* I hold geared and ungeared positions.


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Naspers or Prosus?

This deal has been delayed due to a bungling of documents and the Annual General Meeting (AGM) will now be in late August with the unbundling happening in September.

Holders of Naspers have two options;

  1. Keep you Naspers shares and get an extra 0.36986 Naspers shares at zero cost. This will reduce your overall cost per share as the new ones are 'free' and will have a tax impact when you sell.
  2. The default is to receive new Prosus shares in exchange for each Naspers share you have. This will trigger an immediate tax as your Naspers will be deemed to have been sold.

Remember that Naspers will hold some 73% of Prosus with the latter holding all non SA assets and being inward listed on the JSE.

The idea is that this will unlock value as local asset managers are unable to hold Naspers at full weighting, or even close to full weighting. So with Prosus being listed in Amsterdam we'll see more buying and hence the price will move higher and Naspers should also track higher but Prosus may move more and we may see a discount open between Prosus and Naspers, much as we see with TenCent and Naspers.

Which will do better?

In a perfect market they'll largely track each other, but the current +20% weighting of Naspers has limited asset managers to how much they can buy. So Naspers may close that discount gap. But the flip side is being listed on Amsterdam would see the gap stay wide with Porsus doing better. Net-net the value of the two should increase.

As a side note, if the net increase of the two is say 20% that could add as much as 4% to the Top40.

Prosus will immediately go into the same indices as Naspers and if the market cap is enough, will stay in the indices.


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

JSE Direct 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 19, 2019

Simon Shares

  • Old Mutual (JSE code: OMU) has fired suspended CEO Peter Moyo and detailed what went wrong. The short version is that the company Moyo founded (NMT group), was CEO of and chair since taking up CEO at Old Mutual paid two dividends when they should in the first instance paid Old Mutual as a preference shareholder a dividend and in the second instance they paid when they should have first paid off the preference shareholder - Old Mutual. Moyo has fired back with a lawyers letter stating that Old Mutual is wrong and in fact their representative on the board voted in favour of both dividends. Who's right? I have no idea and ultimately the courts will decide, or more likely the parties will settle. So for now it is about money and how much Moyo gets. The good news for Old Mutual shareholders is that this is not an operational issue, but they do now need a new CEO.
  • Metrofile* (JSE code: MFL) have restructured their debt that cost two CFOs their jobs. The new debt will see the tax rate revert back to the normal 28% instead of the crazy 40% in the last results. The new debt is at about the same rate, but this will decrease in time as the debt reduces. The impact won't be felt much in the current results due for end June, but the full impact for FY 2020 could boost HEPS by as much as 15%.
  • Facebook launches their stablecoin ~ Libra. Lots of excitement as the theory is that it'll remove fees for money transactions. But it won't, sure it may reduce them but Facebook is doing this because they want a slice of the global multi-billion dollar movement of money, especially remittances home.
  • San Francisco has become the first city to ban e-cigarettes, and nobody should be surprised. The tobacco industry was losing ground in the major developed markets, regulators were happy and the industry was content as they upped prices (and hence margins) and moved demand eastwards to less regulated markets. But then e-cigarettes arrived and the industry thought they have their savior and jumped on the bus and right into the regulators hands. Smoking started to increase, especially amongst teens and now the regulators are coming for big tobacco again. Banning e-cigarettes, likely banning flavoured cigarettes (such as the biggest seller, menthol). In short the tobacco industry has shot themselves in the foot and should have kept their head down instead they now in trouble again. A last point here is not about whether e-cigarettes are safer or not. They are a tobacco delivery system and a potential gateway to normal cigarettes and regulators want neither of these.
  • USA ETFs
  • Upcoming events;

* I hold ungeared positions.


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The Rand blame game

I have a watch list of EM currencies, and they move. They move a lot. Some times in sync with each other, at other times just crazy all over the place.

But you will notice every time the Rand weakens the local politicians get blamed. Well what about when it strengthens? Tuesday saw it as the best preforming EM currency as it gained some 2% to 1450c. The truth is politicians have a lot less influence on the currency than they like to believe and then we give them credit for. The Rand moves and is also the preferred EM currency to trade due to its liquidity.

Sure when Ace Magashule talks about 'quantity easing' that's easy to pin the sudden Rand weakness on him. But for the vast majority of the time nobody actually has a clue and blaming the general grouping of politicians is easy - but lazy. Especially if we're not offering credit to them when it strengthens.

I also wonder about our countries obsession with the currency. I do think it's fair enough as it is, over the longer-term, a kind of vote on the country in that it tells us if money is flowing in or out. It also directly hits our pocket in the form of the petrol price. But do other EM countries have the same level of obsession? Anybody have any experience from traveling abroad?

But most often when the Rand moves nobody really has any idea as to why. So I asked Twitter and the range of responses shows that really nobody knows.

 


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 12, 2019

Simon Shares

Suspended

  • Tongaat (JSE code: TON) suspended.
  • Choppies (JSE code: CHP) suspended.
  • Group5 (JSE code: GRF) suspended.
  • Rockwell Diamonds (JSE code: RDI) suspended.
  • Basil Read (JSE code: BSR) suspended.
  • Esor (JSE code: ESR) suspended.
  • Firestone Energy (JSE code: FSE) suspended.
  • Freedom Property Fund (JSE code: FDP) suspended.

I'll stop there because you get the picture, I want to talk of the warnings signs, why they get suspended and what hope is there for the future.

The why?

  • Business rescue
  • Breach f JSE listing rules, such as late results
  • Request from the company
  • Sensitive information leaked into the market

Now what?

Depends on the why, many do eventually come back but battered and bruised. For now you're unable to sell (or buy) any shares and will have to wait for the listing to resume.

How long?

Usually way longer than management promise. If it's business rescue then it's probably forever. late results eventually they get it together, but it takes time, lots of it. Sensitive information is usually fairly quick to return to the market.

How to avoid holding a suspended share?

Watch for those late results. The JSE gives three months but then always gives an extra month, so effectively four. If a stock can't publish results within four months then why do you own it?

What about derivative traders with open positions?

You're in a heap of pain. Either long or short you now can't get out and the best advice is to avoid trading stocks due to single event risk such as a share being suspended.

Steinhoff?

Why isn't Steinhoff (JSE code: SNH) suspended? Because they also trade on the German exchange and they have seriously lax rules, so they don't suspend. Suspending Steinhoff locally when it still trades in Europe would prejudice local shareholders.


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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.

Jun 5, 2019

Simon Shares

  • US Fed has now promised a rate cut. This boomed markets but under lying the statement is the acceptance that trade wars are hurting the US economy.
  • Horror Q1 GDP number at -3.2%. We knew it would be bad, thanks to aggressive load shedding during the period. But nobody expected this bad. The good news (sorta) is that no load shedding in Q2 should help boost that number. Also Agriculture was down 13.2% and is lumpy and should bounce back helping. But GDP for the year is going to struggle to get above 1%, and we're now almost certain to get a rate cut next month when the MPC meets.
  • ANC / Ace wants "quantity easing". Assuming he means quantitive easing, I still don't understand what the plan is? So we print extra money to boost inflation (not that our inflation is low enough to be a problem) and then I suppose we use that money to buy local government debt, maybe Eskom debt. Then what? Do the lights now magically stay on? Also if we look at QE in the US, who benefitted the most? The rich, not the poor, not the students and it did not reduce inequality.
  • As for the statements around the SARB and their mandate. Currently it is price stability, but adding growth is not a bad thing.
  • Tongaat (JSE code: TON). It just keeps on getting uglier and that's not going to change any time soon. Best advice, stay away.
  • Shoprite* (JSE code: SHP) says 15% of shareholders wrote to them apposing the Wiese deal, so it's not happening and that's a good thing. As a shareholder, why should I be bailing him out? Remember if his normal equity stake drops below 10% the special voting shares lapse, so his problem is he can't sell many more shares to raise cash. Again I ask, how's that my problem?
  • Hard Questions. Better Answers.
  • Upcoming events;

* 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.


 

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