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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, 2020
Jun 29, 2020

Offshore

/ US existing home sales fell 9.7% the lowest level since October 2010. US jobless claims dropped to 1.48m

/ Wirecard into bankruptcy. EY never checked the bank account of the missing cash for 3 years.

/ HS Markit’s Eurozone PMI Composite Output Index rose to 47.5 in June,

/ Microsoft permanently shutting retail stores

/ Nike reports unexpected loss as sales tumble 38%

/ Boeing 737 MAX certification flight tests to begin today


Local

/ Supplementary budget & GDP tomorrow

/ Capital raises; City Lodge, Sun International, Pepkor, Harmony

/ Stor-Age* results

/ Telkom results, dividend cancelled to fund spectrum

/ Intu is not able to make a deal with lenders. Stock suspended on the JSE

/ Solid JSE trading update as volumes soared during the period

Jun 24, 2020

Simon Shares

  • Tencent hit a new all-time high on Tuesday and again on Wednesday pushing Naspers (JSE code: NPN) and Prosus (JSE code: PRX) higher and helping the JSE overall.
  • Gold seems to be breaking up out of the consolidation zone it has spent the last few months trading in.
  • Good German PMI data, still under 50, but only just again suggests that April was likely the worst month. Albeit the route back to normal is going to be long and rocky.
  • Mboweni budget;
    • No changes to taxes, but a rough budget. Some key points;
      • The South African economy is now expected to contract by 7.2% in 2020. This is the largest contraction in nearly 90 years.
      • Global GDP -5.2%, broadest collapse in per capita income since 1870
      • "A post‐lockdown future will require that we build high‐quality physical bridges, roads, railways, ports and other infrastructures.".
      • Some changes in the R200bn Covid loan scheme. Removed the R300m turnover limit.
      • South Africa will "shortly" fall into a sovereign debt crisis if it does not act urgently.
  • The ASHGEQ* ETF is changing and needs your vote. Kristia writes about it here, but, in short, we'll have a cheaper TER after the process. 
  • The delayed April CPI came in at 3%, lowest for 15 years and right at the bottom of the SARB inflation target range.
  • How likely are you to win the lotto?
  • Video: Investing globally, locally.

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Send money

The JSE is currently awash with capital raising. Some just because it makes sense to make their balance sheet stronger, others because they're in real trouble if they don't. The problem is that issuing new shares gives a permanent right to profits, loans are better, but right now bankers are not lending with abandon.

Some have been via a quick bookbuild

  • Stor-Age* (JSE code: SSS) ~ R250million
  • Transaction Capital JSE code: TCP) ~ R559.7million
  • Pepkor (JSE code: PPH) ~ R1.9billion

Many others will be via a traditional rights issue;

  • Curro (JSE code: COH) R1.5billon (non-renounceable)
  • City Lodge (JSE code: CLH) ~ R1.2billion
  • Sun International (JSE code: SUI) ~ R1.2billion
  • Sasol (JSE code: SOL) ~ not confirmed
  • Mr Price (JSE code: MRP) ~ R3.6billion (idea floated but not confirmed)
  • The Foschini Group (JSE code: TFG) ~ up to R3.95billion

This raises a real issue for many shareholders, do you send cash and follow your rights? If you don't you'll be severely diluted, especially with the bigger issues. So you need to decide which you'll follow, but also keep in mind that some of these raising capital may well be back again in the months ahead for more money, and then maybe even again. If you're worried about repeated capital raises, then exiting early may be better than not.

I would also add that we will most certainly see a lot more capital raises coming, heck the property stocks haven't even started aside from Stor-Age. So the requests for money will keep on coming and at the end of the day, it's going to be a lot of money requested.

* I hold ungeared positions.


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 22, 2020

/ Wirecard and the missing $2.1bn

/ Hertz decides NOT to issue shares while under chapter 11

/ Reports on Sunday that British Finance Minister Sunak plans emergency cut in value-added tax

/ Index rebalancing in the Russell indices sees nearly half of the stocks being promoted to the Russell 1000 from the Russell 2000 will be healthcare names.

/ Apple will close 11 stores across Florida (2), North Carolina (2), South Carolina (2) and Arizona (6). This after re-opening 100 in May.

/ Fed Chair Jerome Powell warned millions of people will likely still be unemployed even as the economy is on the path of recovery.

/ The Federal Reserve started buying corporate bonds Tuesday as part of a $250 billion program funded by the CARES Act

Local

/ New level 3.something opens leisure and beauty (to a degree)

/ Marriott Group closing three hotels (Mount Grace, Protea Hotel by Marriott Hazyview and Protea Hotel by Marriott Durban Edward). The hotels are owned by Hospitality Property Fund.

/ Sasol update, lots of news but not on LCCP partial sale or rights issue.

/ Capital raising galore (COH, TCP, TFG, SUI, SOL, MRP)

/ Zero based national budget on Wednesday

/ New kinda wonder drug / Aspen Ascendis (latter Tanzania only)

/ Discovery putting aside R3.3billion for Covid-19 claims.

===

Jun 17, 2020

Simon Shares

  • Here's a gem from the Herenya Capital Advisors Twitter account, albeit Remedica is up for sale and we've had lots of early hype on drugs that quickly fizzled out.

 

  • That said, Aspen (JSE code: APN) issued a SENS stating "It is confirmed that Aspen owns rights to this product and distributes both injectables and/or tablets containing dexamethasone in a number of countries."
  • But most importantly, is it really a new wonder drug to treat Covid-19 (dexamethasone). Because ouch, you need to already be in ICU and then if you're on a ventilator it saves 1:8 (12.5%) and of those needing oxygen, it saves 1:25 (4%). Aren't those very modest numbers?
  • On MoneywebNOW yesterday I chatted with Easy Equities CEO, Charles Savage and he dropped some amazing stats. They're opening 1,500-2,000 new accounts a day against 12,000 in all of February. R1billion client money into Sasol at an average of 5500c and if half of those investors still hold Sasol they're sitting on almost R1billion profit!

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  • Massmart (JSE code: MSM) trading update is as bleak as expected. They secured an R4billion inter-company loan from Walmart to keep them going and expect HEPS to be at least 50% lower. Missed liquor sales for the months of April and May are estimated to be approximately R2.3 billion lower compared to the previous year.
  • Discovery* (JSE code: DSY) puts aside R3.3billion for Covid-19 hoping that it is enough money. Hits HEPS hard but they'll still make some R5.5billion of normalised HEPS. Chinese Ping An Health is, however, having a good Covid-19 as sales increase and the bank is doing well enough as it continues to grow clients and accounts.
  • MultiChoice (JSE code: MCG) came out as I was recording last week and they were solid. They paid their first dividend and announced a tie-up with Netflix and Amazon streaming. But long-term challenges persist and they still buy content in hard currency and sell in soft.
  • Very good results from Value Group that place the stock on a PE of around 5x and a dividend yield of just over 9% while they hold cash of almost 150c a share or over 35% of the share price.
  • Zeder (JSE code: ZED) sold its shares in Quantum Foods (JSE code: QFH) for over R300million. So now what for Zeder? They have just over 80c cash per share, some 30% of the share price? A PSG delisting? A buying spree, dividends or a share-buy-back?
  • Next Wednesday, 24 June, we get a revised budget from Minister Mboweni.
  • The US is considering doing a US$1trillion infrastructure package.

* I hold ungeared positions.

Upcoming events;


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 15, 2020

Offshore

/ China's PPI down 3.7% in May and factory output rises less than expected, retail sales continued to contract in May.

/ Fed kept interest rates flat and cautioned they expect conditions to remain tough into 2022. GDP 5% in 2021 and unemployment 5.5% in 2022

o S&P500 dropped -4.8% last week but remains +8.1% this month,
o Nasdaq dropped -2.3% last week but remains +6.4% this month,
o FTSE 100 dropped -5.9% last week but remains +5.3% this month,
o JSE Top 40 Index dropped -1.9% last week but remains +5.8% this month,

/ We’re starting to see the second Covid-19 wave in both the USA and China and this spooked markets. Detroit, Michigan is seeing new all-time case highs

/ Mnuchin says ‘we can’t shut down the economy again’

/ UK economy contracted by 20.4% in April, the largest monthly fall on record

/ Justeat-takeaway buys GrubHub

Local

/ The Rand hit 16.33 overnight on Wednesday but then came under serious pressure at 17.20 on Friday.

/ Solid Multichoice results and first dividend payment as sports starts to resume.

/ Tsogo Sun Gaming results show debt of over R11billion. Casino industry wants to re-open ASAP

/ Solid Sygnia results


/ Sasol Draws Multiple Bids for Stake in U.S. Chemical Site

/ Hyprop update shows good recovery after the hard lockdown of April. Still opens below 100%, but looking better
Hyde Park Corner 67%
Rosebank Mall 76%
Canal Walk 85%
The Glen 85%
Woodlands Mall 85%
Clearwater Mall 88%
Capegate 89%
Somerset Mall 92%
Atterbury Value Mart 97%

Foot count at Hyprop’s malls:
March 2020 Down 24%
April 2020 Down 71%
May 2020 Down 39%
June 2020 (seven days) Down 24%

/ JSE Index balancing this Friday, Redefine is exiting both the Top40 and Fini15 to be replaced by Exxaro and Quilter respectively.

======
British Airways is auctioning off art worth millions as pandemic weighs on earnings

Jun 10, 2020

Simon Shares

  • Bankruptcy stocks are the new excitement in the US. Hertz in chapter 11 saw its stock price back at the levels from when it announced Chapter 11.
  • Tsogo Sun Gaming (JSE code: TSG) results to end-March show debt at R11.2billion, more than double the market cap.
  • EOH (JSE code: EOH) update says debt is being paid off quicker than planned. But it remains a long road for the company.
  • British American Tobacco (JSE code: BTI) update sows solid DM demand but reduced EM demand.
  • Hyprop JSE code: HYP) update details foot traffic and open rates with their malls between 67% (Hyde Park Corner) and 97% (Atterbury Value Mart). In large part, the number depends on the number of sit down restaurants. Foot traffic was down 71% in April and in the first seven days of June is now only down 24%. Again this shows that April was very likely the worst point and that things are improving, but the last stretch of improvement is going to be the hardest.
  • China's PPI down 3.7% in May. China is opening but exports are struggling as much of the rest of the world remains in lockdown with reduced demand.

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The US goes back to work with 13.3% unemployment

US unemployment came in at 13.3% (from 14.7% in April) as the US added jobs in pretty much all sectors. The expectation had been for further job losses and an unemployment rate closer to 19%. Perhaps the biggest miss ever.

Now sure some funnies in the number, but they existed n the April numbers as well so net-net the miss would have happened.

But what is important is that it shows the US economy opening up and bouncing back strongly, but perspective is still needed.

Current US unemployment remains the worst numbers since the great depression with the 2008/9 financial crisis peaked at 10%.
It is a long way back to single-digit unemployment and even longer to the sub 4% from the beginning of the year.

The driver here will remain the pandemic and what we need to watch remains the rate of infections in the US with 14 states still reporting growing numbers. This could slow or even reverse the positive jobs data we saw.

My thinking is that we will likely see the US unemployment rate improve further over the next few months with 10% possible by the end of their summer (August / September). My logic here is that lockdown saw millions at home and the lifting of lockdown saw many return to work. But what we don't know is how many businesses are still in business because a bankrupt business doesn't employ anybody. So while 10% is very possible getting below that number may be a lot harder and could take years.

That all said the key point is that while nobody truly expected an improving US job situation this quickly it did happen and there is no point denying it. Instead, we adjust our expectations as expected data reveals itself. As important is to remember that while this was a massive positive number, it stills remains a massive number that shows an economy under severe pressure.


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 8, 2020

Global

/ US May unemployment rate seriously strong at 13.3%

/ PMI bounces from April lows but still below 50

/ China May exports slip back into contraction, imports worst in four years

/ Opec extend cuts by another month

/ AstraZeneca Approaches Gilead About Potential Merger

local

/ Apple mobility and Yoco transaction data shows about 65% economic activity in week 1 of level 3

/ JSE allows share issues without shareholder approval

/ Rand below 17 as foreigners buy our bonds and equity

/ Reserve Bank takes up R10.2bn in government bonds in May

/ More banking updates

/ Bidvest update gives insight to Comair and Adcock Ingram

/ Capital Appreciation solid results and increased dividend as they operate in payment terminals and cloud services (there are always some winner)

====


Levi opening stores and they say “everybody has a new size, a larger size”

Jun 3, 2020

Upcoming events;


Simon Shares

  • Day 70 of lockdown, week 1 of level 3 and I got drink (still no smokes) but court locks down lockdown?
  • Markets are surging, taken off flying and chasing the stars. Overall value is decent but not spectacular. Coupled with the ZAR at 17 we likely have a risk on trade and some epic sort squeezes. The general view for the currency is at least 16 in the short-term maybe stronger but as always, be careful because this can turn on a dime.
  • Of course, my crash puts are getting slaughtered in this run, but that's the plan. if my cash puts are losing then my portfolio is winning.
  • WTI and Brent both having a good week with the latter back above US$40. Sasol (JSE code: SOL) the easy winner here, likely based on higher oil and short squeezes. Will it close the gap at R160? Certainly, the possible rights issue is much less likely with Brent oil back above US$40.

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  • The Bidvest (JSE code: BVT) saw them write down their Comiar (JSE code: COM) stake to zero as the business is in business rescue. But they had good things to say about Adcock Ingram (JSE code: AIP) and that boost Adcock, but caution as they sell a lot of over the counter drugs that may struggle under a stressed consumer.
  • Last week I was dissing MTI on Twitter, they've reached out to me asking why. I sent them a list of questions on Tuesday and will publish the answers when I receive them. Key point apart from paying referral fees is an absolute lack of compliance process and no FSCA registration.
  • Locally and globally PMI data bounced back in May compared to the horror April numbers. This is in part statistical, but also that April was hard lockdown in much of the world and importantly aside from China all PMI numbers were still below 50 and hence contracting.
  • Speaking of China, they're cracking down on Hong Kong coupled with Trump blaming them for their COVID-19 response and let us not forget we still have the trade wars on-going. Make no mistake they are using the cover of a pandemic and Trumps increasing isolation as a world leader to flex their muscle and increase their influence. This is not surprising but will lead to even greater tensions between the US and China and this must leave Tencent in somewhat of a bind and at risk of sanctions aimed either directly at them or China more generally? That, of course, could then play out to Naspers (JSE code: NPN) and Prosus (JSE code; PRX). But for now, they both doing alright, remember they are still some 20% of the Top40.
  • Remgro (JSE code: REM) has spun out their holding in RMH and PSG have announced the terms of their Capitec* (JSE code: CPI) unbundling, 14 Capitec shares per 100 PSG shares leaving PSG with some 4%. My view is unbundling already listed shares makes absolute sense. There is no point in me essentially buying a holding company if all they own is listed. Now if the held unlisted shares then t's a different story, so maybe we'll see more in the months and years ahead?

* I hold ungeared positions.


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 1, 2020

Global

/ US past 40million initial claims and Q1 GDP updated to -5.0% from -4.8%

/ Personal saving rate 33% in April

/ Germany’s Business Climate Index rose to 79.5 in May as the country reopens

/ Reuters ~ China's May factory activity returns to growth but demand remains weak

/ China US tensions increasing

/ Bill Ackman's Pershing Square Capital Management announced it had sold off its entire stake in Berkshire Hathaway. BH has $133.3 billion hoards of cash vs S450 market cap (third of assets are lazy and not been deployed).

Local

/ PSG announced CPI unbundling details (14 CPI for every 100 PSG)

/ Woolies update, spending AU$100million on Australia

/ TigerBrands results as branded goods come under further pressure.

/ Famous Brands very pessimistic on casual dining recovery

/ Stats SA delayed April CPI by a month due to difficulty collecting data

/ PIC talking about converting Eskom debt to equity

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