Day 126 of lockdown and Covid-19, cases may be moderating?
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 I not commenting on the EE offer as they've withdrawn it.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.
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).
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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
Day 119 of lockdown and Covid-19, cases may be moderating? Monday is 4 months of lockdown.
From @keithmclachlan on Datatec valuations
Westcon at $600m x R16.50 = R9bn + Logicalis x 10 PE x R16.50 = R5bn = R14bn..
Less 10% head office = R12.6bn equity value against R5bn current market cap..
Listen ==>> https://t.co/HeaMQxTCYK@Moneyweb #MoneywebNOW— Simon Brown (@SimonPB) July 22, 2020
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.
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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.
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
Day 112 of lockdown and Covid-19 cases are still spiking in South Africa and no drink again.
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.
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.
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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.
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
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Avis and Budget Rent a Car Southern Africa (owned by Barloworld):
🚗 Will retrench 50-60% of staff.
🚗 Close at least 26 of its 90 branches (1 in 3). Already down from 150.
🚗 Rental fleet already cut from 27,000 to 22,000. Will remove another 10,000 vehicles by February.— Hilton Tarrant (@hiltontarrant) July 1, 2020
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.