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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: February, 2020
Feb 26, 2020

I chaired a panel discussion on the 2020 budget by Minister Mboweni and have included the audio from that panel.

The biggie, which is not mentioned is that the annual tax-free allocation has been increased to R36k a year effective 2 March 2020.

On the panel with me was;

  • Elizabeth Fick ~ Tax and Fiduciary at Investec
  • Jacques Conradie ~ Managing Director at Peregrine Capital
  • Theunis (TJ) Strydom ~ Financial journalist and author
  • Albertus Marais ~ Director at AJM Tax

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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.


 

Feb 19, 2020

Simon Shares

  • I bought Sibanye Stillwater* (new JSE code: SSW) last week, average price 3950c. You want to own single commodity miners when price has already boomed and underlying commodities are flying. We have both here and if prices hold they'll print money for the rest of this financial year ending June. I'll add on the fifteen day EMA and hold for as long as it runs.
  • Metrofile* (JSE code: MFL) got nailed on Monday down at 230c while there's still a delisting on the table at 330c plus mid year dividend (likely to be at least 5c judging from last trading update). So is the deal off? Officially it is not and it seemed to me to be a fairly low risk deal. So a panicked seller who needed cash? No idea. But current offer is 280c and assuming the deal happens that's a potential 55c profit by mid year when I would expect the deal to conclude.
  • Coronavirus (COVID-19) continues to spread with over 75,000 confirmed cases and over 2,000 dead. But it still remains very much contained to China with 750million people on some sort of travel restriction. Apple has also announced production issues out of China albeit the rumoured low cost iPhone is apparently still on track for March.
  • More reports coming about a good maize crop locally this year, even after late rains and hence planting. But prices not as low as one would expect, seemingly Zimbabwe shortage is seeing them buying our maize and keeping it higher. That said, Astral (JSE code: ARL) still looks very cheap to me with better maize prices compared to previous years.
  • Upcoming events;

* I hold ungeared positions.


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Does COVID-19 just delay spending?

One of the issues surrounding the Coronavirus is lost revenue and hence lower profits. Apple is reporting supply constraints, Starbucks has closed the majority of their Chinese stores and so the list goes on.

But here's the question. Which purchases are simple deferred and which never happen?

Supposedly large ticket items such as an iPhone or white appliance will simple be bought later. So lost sales now come up later. But this is 100% true. Say your phone was lost. You need a new one now, not in a month so maybe instead of Apple you get a Samsung, or a cheaper Apple that is in stock.

With consumables the story is very different. If I don't have that coffee or lunch today, it doesn't get held over till tomorrow. That sale is lost. So Starbucks suffers more than Apple.

Another point is for example the Mobile World Conference in Barcelona has been cancelled and this is not deferred. The event supposedly brings in some Euro500million in spending over the three days. That money is gone, it'll be spent at home, so the city loses out.

But if you don't buy your consumable today and have left over lunch at home, where does the 'saved' money go? Do we still see a surge later, but maybe in big ticket items if we've saved enough from deferred lunch dates an coffees? Or does it get properly saved into a bank account?

What about hourly paid workers? No work = no pay. They will be hurt, albeit company will benefit as lower expenses while closed.

Point is, the money to be spent will surely be spent.

Maybe different timing and maybe different product or location. But that money doesn't disappear. So absent of the Coronavirus becoming a lot lot worse, any hit is merely short term and could be followed by an equally short burst of spending? Sure some spending will be lost, but not much?


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.


 

Feb 12, 2020

Simon Shares

  • Ecsponent (JSE code: ECS) have announced they will default on their March preference share dividends. This is a mess and preference shareholders are in a real bind. If you hold any, contact your lawyer.
  • AngloGold Ashanti (JSE code: ANG) confirms the sale of their Mponeng to Harmony (JSE code: HAR) for US$300million meaning it'll no longer operate in SA from June.
  • Coronavirus (COVID-19) continues to spread with almost 45,000 confirmed cases and over 1,100 dead. But it remains very much contained to China. Reports are it will already take 0.2% - 1% off global 2020 GDP.
  • Upcoming events;

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Don't shoot the messenger

Gina Schoeman, South Africa economist for the Citibank Global Economics team.

I attended a S&P Dow Jones Global event on Tuesday where Gina delivered the keynote and here are my notes on what she said. Any errors are mine, not hers.

Gauteng is 35% of SA GDP.

Service delivery protests show strength of democracy.

People are leaving small towns due to lack of services and this erodes tax base, making service delivery even harder.

SONA watch list;

  • Cosatu Eskom bailout plan.
  • SAA business rescue.
  • Public sector wage bill.
  • Reforms.
  • Cabinet reshuffle.

Watch the World Bank Ease of doing Business survey as good metric for Ramaphosa. We're 84th but where under 50 when Zuma took over.
SA union rate is 24% and dropping and will drop further.

Members are aging and youth are unemployed.

  • Secret strike ballot.
  • Manufacturing is very productive, second only to financial services and this offers an opportunity.

Household debt is 75%, down from 84% in 2010. But the nuance is in the data.

SA population growth is 1.5%. GDP growth has to exceed this for people to be getting richer.

Lack of rental inflation is a big driver of low inflation overall.

No VAT increase in the 2020 budget.

Moody downgrade is very likely, but don't worry about that. Worry about Fitch and Standard & Poor dropping us lower because it is now about the recovery.


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.

Feb 5, 2020

Simon Shares

  • Tesla (Nasdaq code: TSLA), epic short squeeze.
  • Steinhoff (JSE code: SNH), epic short squeeze.
  • Coronavirus continues to spread, fast, with almost 25,000 confirmed cases. People are recovering and we now have two deaths outside China.
  • Tongaat (JSE code: TON) results are out and the suspension has been lifted. The results were a horror show with debt of some R13billion and negative equity of almost R4billion. They need a rights issue of at least R4billion and the share lost over 50% when it resumed trading, currently at 488c after being suspended at 1321c.
  • No Sasol* (JSE code: SOL) that was not "a satisfactory set of operational results for the six months". Both financially and operationally the last six months (six years?) has been a horror show. I hold Sasol since 1994 and haven't added since the 2009 lows, but will be exiting.
  • Upcoming events;

* I hold ungeared positions.


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Law of large numbers

In a financial context, the law of large numbers indicates that a large entity which is growing rapidly cannot maintain that growth pace forever.

Simple that the bigger you get the harder it is to grow and ultimately the growth slows to modest inflation or GDP adjustments. We see many companies fearing this rush out and make bad acquisitions - but that's another story.

I want to focus on how this law can at times be broken when the underlying market fundamentally changes and the example is Microsoft (Nasdaq code: MSFT). On a PE of 30x it is expensive, but this US$1.37trillion company grew EPS by 40% making it cheap using a simple PEG ratio. It is up six fold in the last decade and in the decade before is was red.

How is a trillion dollar company able to grow earnings 40%? Broadly software as a service and cloud computing but the story is bigger, edge computing. Certainly the story is no longer Windows. Edge computing is the vast number of small devices that are invading our homes, offices and lives. Examples are; streaming music and movies, smart bulbs, security systems and virtual assistants. This is just a few examples, but they're fundamentally changing our lives and the demands on processes and data storage and importantly the data is close to the device to ensure speed, requiring data centers everywhere.

Add to this the amount of data we create and need to store. For the first time in my life I have data that only exists in the cloud, simple because I have so much data. Now I am paranoid, so I keep it on two clouds, and wildy encrypted.

Data storage or cloud computing was hardly even an idea a decade ago. All the talk was of slim clients with all processing and data in the cloud. Back then Google (Nasdaq code: GOOGL) was the leader, but it has exploded and Google now trails in third position and we never really got to slim clients (Chromebooks the exception and services like Stadio newly trying).

This has changed companies such as Amazon (Nasdaq code: AMZN) and Microsoft (Google oddly lags in cloud) who are the leaders in cloud computing.

The thing is one could have made a solid argument that even under new management Microsoft was largely ex-growth and a mature company.

But then business models came along, they grabbed them with both hands and now they're growing faster then they have in over two decades. This growth changes the game for Microsoft, Amazon and others. I have no idea where it ends but this trend can go on for a lot longer and they can grow revenue by a bunch more and then, hello two trillion dollar company.

What is noticeable that this is a tech issue and that traditional brick and mortar companies, miners and the like do not have this potential. They do hit the law of large numbers, but computing and the internet has changed the rules for tech stocks.

Of course eventually the law of large numbers will come into play again and growth will slow.


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.


 

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