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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: 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.


 

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.


 

Apr 24, 2019

Simon Shares

  • So Christo Wiese wants to sell his non economic but voting Shoprite* (JSE code: SHP) shares back to the company for some R3.6billion? I thinks not, albeit seems I am in a minority here.
  • Afrimat (JSE code: AFT) has made a non-binding offer to buy a Universal Coal (an Australian company mining in SA). The deal is about half their market cap and at a price some 10% better than the next best offer that I knew about. They really are the masters of deals, paying a good price and making them work. But this one is a biggie and risks are much higher than the other smaller deals the've done.
  • The latest SPIVA for South Africa is out and always it makes for bleak reading

* I hold ungeared positions.


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Unlisted shares

Unlisted shares, those not listed and trading on a recognised exchange such as the JSE.

There two ways we get unlisted shares;

  1. We buy them hoping they will eventually list and become the next Uber (albeit Uber may be a bad example longer-term).
  2. We hold a listed share that delists and we keep ownership.

Now if you're buying ahead of a possible listing you're most likely some form of venture or angel funding - fun, but the majority end in tears and even fewer actually ever get to list.

If you've held onto a delisted share it's likely because you think it's a great stock with great potential and this may well be true. Most stocks that are delisted are because they offer such great value that somebody ants to own the entire company not just a slice if it.

However unlisted bings its own problems;

  • You have no JSE over sight. All are covered by the companies act but the JSE adds an extra layer of protection. For example director dealings, results within three months etc. Without this you're on your own, and sure you have rights as a shareholder and these rights are enshrined in the Companies Act, Act no. 71 of 2008 (well worth a read). But you'll have to enforce those rights yourself if required and lawyers will likely have to get involved.
  • Often times communications is scant, late or frankly in some cases - never. Again you have rights, but now you need to enforce your rights at a cost.
  • Serious lack of liquidity and price discovery. A lack of an exchange means how do you value the shares and how do you find a buyer when you want to sell them? This lack of liquidity generally means lower valuations as well.
  • Very little or no media exposure and expert opinions on the stock and its prospects.

Personally I have never owned an unlisted company (except my own) and I never would. Sure there is potential for great profits, but the truth is most often what you end up with is hassles, legal fees and ultimately losses.


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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.


 

Apr 17, 2019

Simon Shares

What's the net asset value?

  • Net asset value (NAV) is from the balance sheet and is asset less liabilities. The break up value of the company. A share will typically trade above this value as we're buying future profits, not break up value.
  • Tangible NAV (TNAV) is better as this excludes things such as goodwill, so is a real number of actual assets. Goodwill is when you buy a business and pay more than the NAV for the business, rest is goodwill. When things are going well and booming goodwill is not an issue. But when things turn, well it is messy and we've seen lots of goodwill write downs in years past.

EOH (JSE code: EOH) states NAV of some R4.5billion. But R3.3billion is goodwill and so not really an asset and with EOH struggling for goodwill right now not really anything to write home about. So TNAV of some R1.1billion meaning EOH trading at more than double NAV while AdaptIT (JSE code: ADI) is trading below TNAV. So all the talk of EOH being below NAV and hence a great value is bogus.

Most recently Woolies* (JSE code: WHL) wrote off a third of the cost of the David Jones acquisition.

Now when goodwill is written down it hurts profits but the company will tell you this is not an issue as it is a non-cash charge. Correct, but of course it was cash (or script) when you paid for it.

As a rule, buying at or even below NAV (or even better TNAV) is a great strategy - except it is fraught with issues.

I was all over The Don Group as they traded below TNAV and that TNAV was buildings they owned in places like Sandton and Rosebank. But by the time they were done the TNAV had collapsed.

This is a critical point of any for of NAV.

  • How real is it? Who and when was it last valued and can the value be realised?
  • What is the market saying about this TNAV? A stock below TNAV is often the market saying TNAV is under threat, especially if it is cash.

ELB Group saw their TNAV collapse even as it was mostly cash, but a disaster of a contract saw them burn cash and now cash has gone and TNAV has collapsed as has the share price.

NAV, and especially TNAV is important, but it is not written in stone. So as with all numbers, we need to be careful of it. Discount to NAV/TNAV is not a buying reason. In fact no single metric is ever a reason for buying. We need a preponderance of evidence. https://justonelap.com/finding-long-term-investment-winners/

* I hold ungeared positions.


dd


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.


 

Apr 10, 2019

Simon Shares

Fear and loathing on the JSE

We're seeing a new trend on the JSE whereby stock prices are slaughtered after poor (or even just modest) results. Sure bad results have always hurt a share price, but it used to be that a 10% down day was a wildly bad day. Now however 10% is hardly even warming up with many stocks being hit way harder (think 30% down on Aspen results).

I think there are a bunch reasons for this new trend.

  • Firstly; the Steinhoff (JSE code: SNH) fear. After Steinhoff there is real fear in the market. Fear that a 'great' company may actually be smoke and mirrors and investors have no idea which is the next Steinhoff. So rather then be caught out they just sell, and sell. This fear is real. Steinhoff was generally considered to be a top quality company that we now know to be built on fraud and if an investor missed this - then what else could they miss. Of course many where not convinced by Steinhoff, but the majority who where are truthfully not doubting their own ability so selling is the easy option. This will in time fade. The next bull market will help make investors gunho again believing they can spot the fakes (which history assured us is harder than they think).
  • The second issue is the US effect. For a long time in the US a small miss on results, and I stress the small miss. Not an epic miss, sees stocks getting sold off aggressively and we're now seeing this locally. This is in large part to speed of news distribution coupled with the ease and cheapness of transacting. This trend is likely to remain into the future.
  • A third issue is the understand that few stocks are truly legendary and investor are less forgiving when the business model starts to unravel or dirt starts to show. Here fo example is EOH. It started with some rumours that the company quickly managed but investor where not convinced and just kept on selling. The news got worse and investors carried on selling and the stock is now off almost 90% from its highs of over R180.

As investors we need to get used to this trend. Be good sellers (see last weeks podcast) and expect that even quality will disappoint the market at times and that disappointment will hurt. We need to be smart about when the issue is real or when it is just a knee jerk and short-term reaction.

But the bottom line is, expect the ride to be bumpier than usual. We need to remember that investing is for the long-term and that long-term is never in a straight line. We also need to remember that any stock can turn out to be trash and if it does we need to sell it regardless of how we feel about it, the loss or the potential. Trash is best trashed.


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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.

Apr 3, 2019

Simon Shares

Up coming events;

Selling like a pro

We tend to focus on the buying, enteries and selling at profit. But what of selling at a loss? Far to often i hear people state it has fallen too much and so there's no point in selling - this is false. Ignore the loss you already have and focus on the loss ahead of you. A stock that has fallen 90 can fall another 90% and when people ask where's the bottom? The answer is zero, until then it can always fall more.

A good sell is as good as a good entry. I exited most of my Calgro M3 (JSE code: CGR) at around 2100c but kept some only to watch it fall to under 1000c. I then finally sold the balance and now it's under 600c. It is never too late to sell and we need to become as good at selling as we are at buying.

Sell the dogs (sorry dogs)

Know when to panic


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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.


 

Mar 20, 2019

Simon Shares

  • No Brexit deal with 8 days to go. A mess of epic proportions.
  • Load shedding is in full force (well only force 4 with more stages to go) and it's bad. Seems we can expect a 'stable' electrical grid sometime towards the end of the year, albeit stable may still include stage 1 load shedding according to experts I have spoken to. The reasons we know and frankly don't matter. It also doesn't matter who wins on 8 May, this is not a problem that goes away over night. For us individually it s a hassle, a real hassle. For business it is a major issue. Our expected modest GDP growth for 2019 is going to be even more modest while Moodys eyes us for junk status. Most exposed will be retail (extra costs) and property(lost sales and extra costs) while mining has largely managed to get off grid.
  • Metrofile* (JSE code: MFL) results were a horror show with the tax rate hitting 40%, up from 24%. Seems the two now fired CFOs messed up the Kenyan deal so that interest was not deductible as an expense. They out, new CFO will be able to fix and get the tax rate back to normal. Debt should be easy enough to pay off in 5-7 years. That all said it is currently my worst performing share in my portfolio and I continue to hold. Sure the pain has been plentiful, but the business model still stands, some issues (re tax rate) should be easy to fix and I wonder if a take over may not be on the cards?
  • Up coming events;

* I hold ungeared positions.

Avoiding the next Steinhoff

Up front let me state you're unlikely to be an investor in individual stocks and over a life time of investing never invest in what turns out to be a fraud. So far I have been lucky in that my only fraud was way back in the mid 90's (I can't even remember the name of the company) when the CEO suddenly rushed off to Australia and my loss was fairly modest (as I was poor), albeit I did make the horrid mistake of doubling up when the price had halved.

Back to Steinhoff, the PWC report is finally out. Three thousand pages and four thousand attachments, albeit we only got a ten page summary that detailed over R100billion in fraud over the 2009-2017 period. Profits for this period were only some R60billion and while the fraud number may include some double counting, it basically means Steinhoff (JSE code: SNH) was a ponzi from day one.
So how do we avoid being suckered into a ponzi scheme?

  • Avoid the cult of the personality. Far too many people said that they didn't fully understand the business, but were happy to follow (and trust) Markus Jooste. Big mistake. I remember somebody on twitter saying if accounting was an olympic sport Markus Jooste would be a gold medal winner every time. To which I responded that hopefully he wasn't a drug cheat - turns out he was. I am not saying that every great person is a crook, but being great is not an investment case. Sure management is important, but we need more.
  • Other red flags on the cult of personality is when they attack critics. Sell reports on Steinhoff were meet with rage from Markus Jooste and demands that they be retracted and the person involved be fired. Remember the recent Investec report on the Tongaat (JSE code: TON) CEO that got the company all upset and complaining to the Investec bosses? That was in June 2018, the share was over 8000c, now under 2000c.
  • Avoid complexity. As humans we believe in complexity. We think complex is great, complex is best. It's not. In large part we believe in complexity because it is easier to do so. It helps explain why our portfolio growth is modest, why we're not hitting it out of the park with our trading. Truth is luck plays more of a role than complexity (read Fooled by Randomness by Nassim Taleb). The other issue with complexity is that it is easy to hide the fraud and diss naysayers. The reason I avoided Steinhoff is because I couldn't get the balance sheet to balance nor the debt to reconcile to the balance sheet. I am no CA nor a rocket scientist, so I go for the easy and these two should be easy. But I couldn't get them working so I just walked away. (Disclaimer, I did trade Steinhoff a few times, mostly in my momentum portfolio and can't remember if I made money or not).
    • As an aside, I hold a complex stock ~ Discovery (JSE code: DSY) and when Viceroy was threatening to come after a second JSE stock last year, I ran my eye down my list of stocks and figured Discovery was a potential candidate. Point is I hold the stock knowing it is complex. Knowing its accounts are beyond my ability. Knowing that maybe it'll all collapse one day. I have built this understanding into my risk tolerance in that to is the only complex stock I hold and I cap the percentage weighting.
  • Debt, always watch debt especially when paying top dollar for assets, such as the 100% premium offered for Mattress Firm. As Buffett said, debt is like Russian roulette. It's fine until it's not and then it is fatal. Know the debt ratios, watch them and compare to previous periods and their peers.
  • Watch governance. Independent execs, are they really independent? Do we have a strongman CEO who has been there forever? Again a double edge sword, some such as Gore and Saad are important to the business. But so was Asher Bohbot to EOH, and now he's gone. They're great till they're not. What we then need is a strong, diverse and truly independent board. Can a non-exec really be independent after ten years on the board?
  • Denial is another issue that we should largely ignore. We've had two execs at parliament saying, no not us. Yet both are named in the report. Ask yourself, how many guilty people confess when first accused? How many ever confess even when finally convicted? Remember the chairman, Christo Wiese on the radio flatly denying concerns. Now he claims he didn't know (and he is not named in the report), but then why the flat denial?
    • Another aside. Why did the so smart Wiese sell his Pepkor holdings into the ponzi scheme in return for Steinhoff shares? Maybe as a rushed and easy way to offshore his money?
  • Avoid falling darlings. We have lots of examples locally of once high flying darling stocks under severe price pressure. We missed them on the way up but now that they're lower we're buying, but they keep on falling. EOH R180 to under 2000c. Aspen (JSE code: APN) was over R400 now under R100. This is tough because sometimes the sell off does offer a great entry, but we need to be extra sure that the sell off is not the start of a collapse. Best way to do this is on a valuation and full understanding of the business. Aspen is maturing so the +30 PE levels were not reasonable and the price needed to come down while EOH was always built on using script as currency and that uravels as the price falls.

So what next? Well Steinhoff is bust, 100% bust. Sue they have some assets (such as c70% in Pepkor and Conforama and bankrupt Mattress Firm in the US) but the claims against the company are in excess of R200billion and current shareholders are last in line. The process will take a while, maybe a decade, and by the end there is nothing left for shareholders. If you're holding or buying Steinhoff, understand you're trading because you can't invest in a share that's going to zero.


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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.

Mar 13, 2019

Simon Shares

  • Group5 (JSE code: GRF) goes into business rescue with "a slim chance for any realisation of value.". It seems the construction of a power station in Ghana was the final nail. Remember the +R1billion they were offered to their Eastern European toll operations? But in the end a lack of liquidity killed them. Be very careful of holding Aveng (JSE code: AEG), if nothing else check the bid/offer, price is heading to 1c.
  • No Brexit deal with 15 days to go. A mess of epic proportions.
  • Back in November 2017 I wrote in FinWeek that we'd get zero fee ETFs and eventually negative fee ETFs (they'll pay you to hold them). It has happened. MoneyWeb is reporting on a US ETF offering to pay investors to buy their ETF. Locally our much smaller market and hence much smaller ETFs means we're a long way from free, but I do think in time it'll happen locally and Satrix40* (JSE CODE: STX40) would probably the one able to do it.
  • Aspen (JSE code: APN) taught us some important important lessons. Debt is fine until it's not and then it can be fatal. Buffett talks about this in his latest shareholders letter. Secondly the market has become a lot more skittish and punishing since Steinhoff (JSE code: SNH). This is not likely to go away any time soon. The answer is simple, watch a companies debt and hold quality, real quality, only. Lastly, all growth stocks mature and that process of maturing is often painful.
  • 5 ways minimalism helps your finances
  • Searching for value the Benjamin Graham Way

* I hold ungeared positions.

Investment lessons from Boeing

We live in wild times made possible by the internet and powerful computers in our pockets. Much of it is good with a fair amount of bad as well (think Twitter trolls), but for large old school companies it can be especially bad.

    • Think Momentum refusing to pay out the life policy. They were correct as per the law and policy wording, but they showed a complete lack of compassion and eventually backed down.
    • Think Vodacom trying to scam us on the ICASA rules for rolling over data with crazy fees. They backed down and from a business profit motive they may have been right but they were a million miles away from the spirit of the law and ICASA may have blocked their fees anyways.
    • Think TigerBrands and their total lack of empathy as they responded with legal speak while South Africans were dying from listeriosis originating at their production facilities.
    • Think Boeing, standing firm after another of their new Boeing 737 Max8 crashed shortly after take off. In the olden pre Internet days Boeing would have been able to control the message with ease and insisted everything was fine, hoping like hell another plane didn't crash and quickly rolling out a software 'update' that may or may not fix the issue (from what I have read the issue is training, not software, here's a long NYT read on it). Boeing have failed to understand the new rules in which businesses operate.

Firstly those rules are a lot more ethical. Consumers want to be treated fairly. Hey we always did, but we never really had any power. And that's the second and very important point, consumers now have power. That power comes via the Internet and very quickly a raging anger can over whelm any attempt to manage the message. Now sure often the raging anger is actually just a lynch mob and this is very much the dark downside of the Internet. But the upside is that consumers have power and they'll exercise that power. Sometimes for good and sometimes for bad.

A business needs to understand this. I remember attending a presentation on generational theory a decade back where the message was that millennials wanted ethical companies and would pay more to these companies. The flip is that they'll boycott a business they consider to be unethical. Now this is way more than just millennials, the issue is that millennials were given the power to firstly know a companies ethics and secondly do something about it.

Companies that are going to survive and thrive in this new world will have fairness and ethics at their core, and that's hard. It's easy to put that into a mission statement, but living it is something else entirely and often a company messes up. For example the news that a company will phase out plastic straws by 2022. Nice, but why so long? Simple because they're trying to protect profits. Fair enough but the ethical demanding consumer doesn't care about your corporate greed, they care about the planet.

The even harder issue is how do we manage this as an investor? Truth is we need a crisis to see how a business manages it and that is late in the process. But we can see glimmers of it via other means, such as the plastic straw example mentioned earlier. If a company is not putting the customer and ethics front and center they will eventually be in trouble.

Lastly as investor we need to not chase profits at any cost. We need to invest ethically as well, this means fair fees we're charged by providers. It also means exiting dodge companies even if we think there is money to be made. We also need to focus on ESG (environmental, social and governance) issues.

A very last point. Will Boeing survive? Of course. Will this hurt? Absolutely. Will it be a great investment going forward? No chance.


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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.

Feb 28, 2019

Simon Shares

  • Greenest start to a year since the 1960's, Top40 is 6.9% up year-to-date.
  • MultiChoice (JSE code: MCG) has unbundled out of Naspers (JSE code: NPN) with MultiChoice closing at R106 and Naspers off R125 on the back of Tencent weakness over night in Hong Kong. So no value unlock and with fair values for MutliChoice being between 8500c - R150. Most people I speak to say at current prices if you received MultiChoice shares you should hold them at this price. Also MultiChoice will remain in the Top40 index with Truworths (JSE code: TRU) exits Top40 Friday morning. Those saying MultiChoice is dead, well maybe in time. But nothing is that linear and be careful of taking a dislike for DStv pricing out on the share - they're different beasts. They could get bought by a telco (we're seeing that in the US), they could get the subscriber growth they're targeting in the rest of Africa, Showmax could take off of they could muddle along or they could go broke. Lots of options.
    • Below are the index changes effective at open 1 March 2019.
      • Top40; MCG stays TRU exits
      • Indi25; MCG stays MTH exits
      • Findi30; MCG stays NTC exits
  • Shoprite* (JSE code: SHP) results were not as bad as I expected with operating margin down 1% at 4.4% but much better than I expected and still about twice that of Pick n Pay (JSE code: PIK). Lots went wrong, probably half managements fault (strikes and IT upgrade issues) and half just what happens some times (Angolan hyper inflation and zero food inflation). At current prices the stock is attractive. Interesting is that Wiesse wants to sell his voting control shares that have no economic rights but some 32.3% votes. They've been valued at some R4billion when Star listed but they're hard to value and I'll wait and see what the plan is here.
  • Tomorrow, Friday 1 March, the annual tax-free limit resets. Find the JSE Power Hour video we did here.
  • Great comparison between the locally listed global property ETFs from Sygnia and Core Shares.
  • Up coming 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.

Feb 20, 2019

Making the CSEW40 SMART

The CoreShares Equal Weight Top40 ETF (JSE code: CSEW40) has long been a favourite of mine, but now CoreShares want to change the ETF to a multi factor ETF under the code SMART.

Those factors are;

  1. Value (portfolios of cheap shares outperform portfolios of expensive shares)
  2. Momentum (portfolios of recent share winners continue to win in the near term)
  3. Size (portfolios of small companies outperform portfolios of large companies) e.g. Equal weight
  4. Quality (portfolios high quality shares outperform poor quality shares)
  5. Low Volatility (portfolios of low risk shares outperform high risk shares)

I chatted to Chris Rule of CoreShares asking why the changes? What will the new methodology be and what's its attraction? Lastly how will the process work - including voting by existing holders of the ETF.

I initially was too thrilled with the changes as I like the equal weight methodology. But one of the key points for me is how many stocks I effectively get exposure to and this is illustrated by the chart below. with a generic Top40 ETF 12 stocks drive returns. In an equal weight Top40 all 40 stocks drive returns. The new SMART ETF will see 41 out of the 52 stock driving the returns. So I end up with a wide diverse ETF which is exactly what I want.

Kristia also wrote a blog post on the changes here.

Contact Core Shares;


eee


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.


 

Feb 13, 2019

Simon Shares

  • Eskom is "technically insolvent" and load shedding is back, why are we surprised? This was promised us when we had some in December. Bottom line it's a mess, costly to the economy and fixing Eskom is critical and very difficult. Watch the budget next week.
  • EOH woes continue as the stock lost over 20% on Tuesday on the news that Microsoft had cancelled their partnership agreement. In a late SENS the company stated the revenue was not material, but investors have three questions they're asking themselves. 1// Can we trust EOH management ?? 2// How do you get a Microsoft partnership agreement cancelled ?? 3// Why is EOH management always so slow on shareholder communications ??
  • Curro (JSE code: COH) results are not bad, albeit HEPS +23% with a PE of some 40x is light and the stock is expensive. We are starting to see operational leverage as revenue is +19% and HEPS +23% and a 12c dividend. However debt has jumped almost 20%, but still manageable. Learner numbers increased 12% while Meridian has halved their losses.
  • Woolies* (JSE code: WHL) lose two non-exec board members with immediate effect. Pushed or jumped? Likely the latter.
  • Wilson Bayly (JSE code: WBO) has been one of the very few construction stocks holding it together, until now. A trading update suggests profits 80%-100% lower after making a mess of an Australian contract.
  • Wild and tax-free.
  • Upcoming events;

* I hold ungeared positions.

Managed funds

Managed funds are when you hand over your hard earned money to a third party to invest or trade on your behalf, supposedly with great returns in offer. Sure it works with the right processes in place, but it mostly carries huge risk.

Firstly let me state up front I have never heard of a FX or crypto managed fund making money. They've all been scams with the first indication is that you find them on Facebook offering huge returns. They have zero verifiable track record and zero regulation or audit processes.

Most trading managed fund accounts also end in tears.

So how do we find a managed fund? Well firstly a unit trust, hedge fund or ETF is a managed fund of sorts with tons or regulations protecting the investor. Why not use these? The issue is usually that we want a managed fund with grand returns, don't we all?

But seriously, some questions to ask;

  • Who are you registered with? FSCA as an absolute first port of call.
  • Audited track record.
  • Compliance and dispute process?
  • Fees. Here things get tricky as there is likely a managed fund fee and performance fees. But also transaction fees that can be excessively high.
  • Mandate. What are they transacting in and what are they trying to achieve? Income, growth, derivatives?
    Withdrawal process.

The short answer is that if you want a managed fund, buy a collective investment scheme. No you won't get rich in a hurry, but you'll also likely not get ripped off either.


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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.

Feb 6, 2019

Simon Shares

  • A green January with financials the winners but 2019 is going to be a wild ride, especially in the lead up to the elections expected in May.
  • Tax-free year end is end February, don't leave it for the last minute if you want money in this tax year ending 28 February. Budget on 20 February we'll see if we get any changes to the annual limits.
  • Clover (JSE code: CLR) is delisting at 2500c. A great price considering it was around 1500c last year. I held this stock for a number fo years as I considered it to have great promise, but it never delivered on that promised so I exited.
  • I have had some questions around two stocks I own, Santova* (JSE code: SNV) and Metro File (JSE code: MFL). Both are under share price pressure and both finding growth hard (latest results were OK, nothing special). The share price decline is a factor of liquidity and small stock sentiment. Right now if I was two sell my holdings in each the share price would fall about 10%, that is not normal. Add to that some large sellers (certainly in Metro File) and prices are under pressure. I am holding. Not selling as I happy with the companies nor buying because I don't see the prices rerating higher any time soon, if anything likely lower. More in the main body of the show.
  • Wild and tax-free.
  • Upcoming events

* I hold ungeared positions.

Where's the liquidity?

In the past week I have seen three reports that all point to a drying up of liquidity on the JSE. Now sure some has likely moved to A2X, but not any significant amount. Bottom line liquidity has fallen fairly markedly and this has impacts, most notable on share price movements.

So where has it gone? Simple, investors are scared. Scared of elections. Sacred of EWC. Scared of an under pressure consumer. Scared of trades wars. Scared of no returns. Sacred of their shadow? So they are buying less leaving us with fewer buyers and sellers have mostly exited sitting on the sidelines with their cash.

This whole vanishing liquidity is markedly more acute in the mid and small cap space and it is hurting the stock prices. Even us small private investors hurt the stock as we exit and many are throwing in the towel and selling, pushing prices lower causing more to throw in the towel and sell.

This is typical in late stage bear markets (late stage bull markets see extreme high levels of liquidity).

So what do we do? Well we double our research and make sure we really do like the stock, and if we do - we hold. You can buy more but I think we're a long way from the end of the liquidity squeeze on the small and mid cap stocks. If you're wanting to buy into this low liquidity, be careful. Place bids in the market and wait to be hit, even cheeky bids lower down will potentially be hit. But don't expect liquidity to return tomorrow, it may - but it may take a while longer.

Further bad news for holders of small stocks is that when liquidity returns it'll come into the large cap Top40 stocks first, then eventually filter down to the mid and small. Point is it will return one day, we just don't know which day.

As an aside, this impacts JSE earnings as they make money from data, listings and trades. less trades is less income with a fair fixed cost base.

Last important point. Liquidity is NOT an issue with Exchange Traded Funds (ETFs) as they have a market maker. The market maker is (supposed) to be consistently in the market either side of fair value with their bids and offers. So we can always get what we want at close to fair value.


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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.

Jan 30, 2019

Simon Shares

  • Retailers, woe is worrid. Aside from Foschini (JSE code; TFG) and Lewis (JSE code: LEW) they have ranged from horrid to truly astoundingly horrid. Shoprite* (JSE code: SHP) has also put out a trading update to follow on from the so-so sales update and aside from some internal issues and Angolan hyperinflation the margins are also crumbling.
  • EOH caught in a SENS from Eskom late on Monday, but took them until Wednesday morning to respond - simple too slow as the stock fell almost 15% on Tuesday.
  • Ellies (JSE code: ELI) was a stock I was watching after they made almost 8c HEPS in the year ending April 2018. But now it seems they swung into a loss for the six months ending October and have a board that is falling apart.
  • Taste (JSE code: TAS) announce they need some R580million and +5 years to at best reach break even?
  • Minimalism: Can you eat it?
  • The perks of being exactly average.
  • Upcoming events

* I hold ungeared positions.

Where's Safcoin?

So Safcoin finally started trading in December and I thought I'd send a series of follow up questions to the founder, NeilFerreira about how it's all going, promises he'd made and some odd things I was seeing on their trading platform. I sent the questions early Monday asking for reply by Wednesday 10am, and he hasn't responded?

  • Find the questions I was asking this time here.
  • They threatened to sue me here.
  • They answered my first set of questions from August 2018 here.

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Jan 23, 2019

Simon Shares


Know your S12J

Simon chats with Dino Zuccollo & Jonti Osher from Westbrooke Alternative Asset Management to really get to understand S12J. 

The rules, risks, benefits, what to look out for and more.


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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.

Jan 16, 2019

Simon Shares


2019 predictions show

Every year March Ashton, Keith McLachlan and Simon Brown do a predictions show. Three wild and wooly predictions for the markets followed by a call on the Top40 and ZAR.

Every show starts with a review of the previous years predictions and you'll find them 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.

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