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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: July, 2020
Jul 29, 2020

Simon Shares

Day 126 of lockdown and Covid-19, cases may be moderating?

  • Sasol (JSE code: SOL) sells some assets for R8.5billion and the stock is up over 12%. The sale is SA gas operations at Secunda. A sale and leaseback as Sasol only customer. But gets Sasol cash to pay down debt so good news short term, less so long-term. Korean websites also reporting on a possible 50% sale of US Ethane Cracking Center for US$3.3billion, which cost +US$12billion to build (for the other bits as well). Trading update due next week will give more details about the LCCP right downs which will surely be massive, but as importantly also maybe on the possible rights issue?
  • Gold above US$1,900 and looking strong, albeit as I say that it'll now surely collapse in a heap as even I now own gold stocks?
  • South Africa gets a US$4.289billion loan from the IMF. It's a very small amount and at great terms of around a 1% interest rate, albeit currency risk has to be hedged out.

Upcoming events;



Script lending

EasyEquities users got all heated last week on Twitter as EE put T&Cs about script lending into their new mandate. I not commenting on the EE offer as they've withdrawn it. But many have asked about script lending as a concept.

If I want to go short (make money from a falling stock) I need to sell shares and naked shorting is not allowed by the JSE (or most exchanges). So I need to borrow stock from somebody.

Usually, you borrow from a large institutional investor who has plenty, you pay a fee and will also be liable to pay the lender any entitlements such as dividends.

This process happens in the background when you're shorting via derivatives and why some shares are not sortable, no script to borrow.

The script lender earns a fee, but there is risk so default.

  • Whoever you lent the script to may not be able to return the script.
  • Maybe they're just a crook?

Maybe they can't afford to close out the position. remember they sold to buy back lower, but what if an offer arrives and the stock jumps say 50%?

It certainly can and some income to a portfolio but the risk needs to be managed and the income is fairly modest. That said I've never lent out my script but I have borrowed script in recent years for some shorting (Aveng and Lonmin).


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.


 

Jul 27, 2020

Offshore

/ 1.42 million Americans applied for unemployment benefits in the week ending July 18, up from 1.3 million a week earlier

/ Gold through $1,900

/ EU leaders have agreed to a €750b ($857b) stimulus package (US is in talks for their next round of support)

/ Tesla into sp500

/ Results; Microsoft msft & Intel intc

Local

/ MPC rate cut

/ IMF loan to be announced tonight, R70billion

/ MTN update Vodacom

/ Datatec update

/ Sasol update

Jul 22, 2020

Simon Shares

Day 119 of lockdown and Covid-19, cases may be moderating? Monday is 4 months of lockdown.

  • Quantum Foods (JSE code: QFH) is coming back to earth after 1157c last Friday.
  • Tech stocks in the US are flying. Expensive? yes, but. They have solid earnings, a moat and lots of new products they can roll out.
  • Very solid Datatec (JSE code: DTC) update.

 

  • Long4Life* (JSE code: L4L) buying back 40million shares at 275c which is less than 50% of the last stated net asset value.
  • The PSG (JSE code:PSG) AGM talks about PSG 3.0.
  • The Zeder (JSE code: ZED) AGM was a mess as directors didn't take all the question that were asked via the virtual system
  • Best execution rule is coming to South Africa and this is a biggie in many ways.

* I hold ungeared positions.



Gold gets its wings on

I have never been a gold bull, in fact, the phrase I most used for gold stocks was that the only time you buy a gold stock was when you closed a short.

But golds time has arrived and the miners are going wild even with a vaccine at some point this trend is likely to continue.

The stimulus in the US and EU is massive and while stock markets are doing great, and maybe they can be propped up forever (certainly it worked post 2008/9 crisis) the underlying economies are not doing so great.

Gold ETFs are an easy way to get exposure but they have no leverage, so less risk and less reward. Gold miners offer that leverage so will do way better, but also bring a bunch of risk.

The Rand also brings risk as it strengthens.


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.


 

Jul 20, 2020

Offshore

/ US jobless claims remain at around 1.3million

/ Netflix drops 9% on weak Q3 guidance.

/ Jamie Dimon’s warning for the U.S. economy — nobody knows what comes next

/ Amazon stock had its worst week since February

/ Fiscal Cliffs Threaten Fragile U.S. Recovery as stimulus expires late July

/ Qantas has removed all of its international flights until March of 2021

Local

/ Tsogo Sun Hotels sells Maia resort for wild price

/ CPI May 2.1%, lowest since Sep2004

/ astral enters the quantum fray and price still flying

/ Diamond sales collapse and Richemont update

/ Rights issues announced, TFG R3.95 billion (40 per 100 shares, 40% discount), SUI R1.2billion (93 per 100 shares, 25% discount)

/ Spur CEO resigns

Jul 15, 2020

Simon Shares

Day 112 of lockdown and Covid-19 cases are still spiking in South Africa and no drink again.

  • Load shedding. An economy on its knees now without power.
  • Quantum Foods (JSE code: QFH) still booming as Astral (JSE code: ARL) buys a 6.42% stake to protect their broiler supply.
  • Bell Equipment (JSE code: BEL) trading update says HEPS to least 80% lower.
  • CPI for May 2.1%, (3.0% in April and 4.1% in March) below the target range albeit helped a lot by petrol that has since increased.
  • The Foschini Group (JSE code: TFG) buys Jet for R480million.
  • Tsogo Sun Hotels (JSE code: TSG) sells its 50% interest in Seychelles Resort for $27.8million.
  • The UK economy shrinks 19% in three months to May.
  • The US CARES act expires on 25 July. Currently, this gives extra support ($600/week) to unemployed Americans. If it is not extended past the 25 July deadline when the last cheques will be sent, then things will get real bad real quick. Currently, the average US households get over 6% of their household income from unemployment benefits. Pre-Covid19 this was around 0.2%. So either the CARES Act is extended or there will be a massive hit.
  • We've also seen in the results of Citi, JP Morgan and Wells Fargo make a significant increase in provisions for bad debts. From a collective total of some $4billon six months ago, it is now almost $30billion. The problem is that the actions put in place back in March assumed a much better scenario in July then the US is currently seeing with 40 states still reporting increasing Covid-19 cases.

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The pie price wars

I lived in Pietermaritzburg in 1994/5 and it was the time of the great pie wars as the price for pies kept on falling. It was great for me as a pie eater, but a horror for the pie makers, of which there were many. The many in part why there were pie price wars, everybody dropping prices to try and push others out. In the end, I suppose it worked for some, but at the time of dropping prices, profit was out the window.

The point is that if your only edge is the price, you're in trouble because somebody will just make it cheaper.

Now sure, quality matters as does the ability to supply. Cheap pies in Pietermaritzburg didn't help people living in Durban never mind Johannesburg.

We've seen this in construction when back in the 70s/80s ability was really important. I remember the firm my father worked for hiring a German engineer to help with a project and it was a big deal to have the skills be brought to the business. Finding him and getting hin to South Africa was a challenge. But now that sort of skill is a click away on LinkedIn so what is your edge?

If it is the price you're in deep trouble. Hence we've seen a number of construction companies locally and globally move away from traditional construction while the specialist construction companies (think roads) are under pressure as everybody becomes a road builder.

So when investing always be considering what is the edge and is it defendable?


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.


 

Jul 13, 2020

Offshore

/ Germany saves. Total retail deposits rose by €22.4bn in Apr and hit fresh All-time high at €2.46tn. The volume of retail bank deposits has doubled within 18 years.

/ German production and export data disappoints as they have nobody to sell to in a lockdown world.

/ Warren Buffett’s Berkshire buys Dominion Energy natural gas assets in $10 billion deal

/ Uber buying Postmates

/ Tesla still storming higher (as is Nasdaq)

/ Gold strong

Local

/ SARB bought only R5.1billion bonds in June

/ Load shedding is back

/ Everybody wants Quantum Foods

/ Omnia results

/ Updates from Liberty 2 degrees and Growthpoint

/ Steinhoff sells Conforama

/ TFG buying JET for R480m and is looking to raise R3.95 billion in a rights offer.

Jul 8, 2020

“This week’s episode of JSE Direct is courtesy of IG.com, our preferred supplier in trading products.”


Simon Shares

  • Day 105 of lockdown and Covid-19 cases are still spiking in South Africa.
  • Omnia (JSE code: OMN) results.
  • Suddenly everybody wants to own cyclical Quantum Foods (JSE code: QFH).
  • Standard Bank ETNs are expiring next month.
  • Gold stocks are flying and everybody is asking me if they've missed the boat? Likely not, especially as this pandemic is not just a 2020 event.
  • Dis-Chem (JSE code: DCP) fined R1.2m for its ‘exploitative’ behaviour. They will appeal.
  • Steinhoff JSE code: SNH) is selling its Conforama France for a nominal sum and some property for Euro70million. They paid Euro1.2billion for the business back in 2009.
  • The Reserve Bank bought only R5.1billion of local government bonds in the secondary market in June. This after R10billion in May and R20billion in April.
  • MultiChoice (JSE code: MCG) has launched a new streaming service, Showmax Pro, with live sport, music and news channels. Not yet in South Africa, it is likely to cost around R300 a month and will launch locally later in 2020.
  • Taste (JSE code: TAS) has announced a name change to Luxe holdings and a 100:1 consolidation. Always be short a consolidation, or at the very least don't be long.

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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.


 

Jul 6, 2020

Offshore

/ US unemployment 11.1%

/ Tesla now largest motor company in the world

/ Advertisers bailing on facebook

/ Goldman Lowers U.S. GDP Forecast, Sees 4.6% Contraction in 2020 (was 4.2%)

/ Fitch has downgraded a record number of sovereign ratings due to the coronavirus. 33 downgrades, 40 negative watch

/ Brexit talks started up again

Local

/ Q1 GDP at -2%

/ Barloworld results

/ Capitec update

/ 1Nvest ETNs expiring 11 August (gold, silver, platinum & palladium)

/ Redefine sells R7.7billion of assets to reduce LTV

/ Steinhoff still muddling along and publishing results

Jul 1, 2020

Simon Shares

“This week’s episode of JSE Direct is courtesy of OUTvest, our preferred supplier in retirement products.”

  • Day 98 of lockdown and Covid-19 cases are spiking in South Africa.
  • Local GDP for the first quarter came in at -2%, helped by agriculture +27.8%
  • For the first time since July 2019, PMI respondents expect conditions to improve in six months’ time. The index tracking expected business conditions rose to 51.2 in June. Overall PMI for June was 53.9 but remember this index records monthly changes in expectations so it is expected to improve as lockdown levels improve.
  • Barloworld (JSE code: BAW) results were a horror even as they were for the period ending March. The stock lost 11.5% on Tuesday and the headline news was Tweeted by Hilton Tarrant;

 

  • New Exchange Traded Fund (ETF) coming from Satrix and it covers China. It'll be the first China ETF for the JSE (there was a Deutsche Bank ETN that closed in January). The TER is pricy (0.63%), but that's often the case with an ETF like this and it is in IPO until 14 July and thereafter will trade on the JSE and will be eligible for tax-free accounts.
  • An update from the JSE (JSE code: JSE) was maybe a little lighter than I would have thought. But it is seeing improved revenue due to increased trade on the market and this does mostly drop to the bottom line, except for some increases in executive pay that took off some of the shine.
  • Intu (JSE code: ITU) finally it the wall as they couldn't get a standstill on debt last Friday. The stock is suspended with a market cap under R400million and some R100billion of debt. Shareholders are likely to get nothing from the ruins.
  • ADP was a slight miss, 2,369million new jobs vs expected 3million. Crunching the data, the US has lost 14million jobs during the pandemic and only 27% of the March-April job losses have returned. This translates to an unemployment rate of around 13%.

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Listed property, watch the V

Redefine (JSE code: RDF) has sold assets worth R7.7billion to pay down debt. This improves their LTV (loan-to-value) to around 40.6%, but the risk remains as the V part of LTV is also a moving target and will likely be moving lower when their yearend comes around in August.

LTV is a very important data point in listed property and bank loan covenants will be based on this figure.

Listed property revalues their assets on a rolling three-year review. Every year a third of properties have a full revaluation. Somebody checks the lifts etc. Also important is occupancy levels and rental payment rates and increases in rentals.

The other two-thirds of the properties are adjusted in the year they're not having a hard revaluation.

Helping is that lower rates will boost valuations and debt may also in part be floating.

But we can expect valuations to be 10%-20% lower and this will spike the LTV levels really hurting the LTVs.

That said, bankers are not likely to be calling in the loans as they don't want to be landlords but remember my podcast of earlier in the year about maintaining REIT status, this is a sector under serious pressure. https://justonelap.com/podcast-property-losing-reit-status/

Lastly, adding to the woes is that the debt is often debt notes that will need to be rolled, who's going to be buying listed property debt in this market?


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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