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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: 2020
Aug 31, 2020

Offshore
/ Tesla and Apple stock split today

/ Changes to the dow Jones; Salesforce.com will replace Exxon Mobil, Amgen will replace Pfizer and Honeywell International will replace Raytheon Technologies

/ Reports that Walmart and Microsoft liked up to buy TicTok

/ ADP Employment Report on Wednesday

/ New Zealand exchange closes three times last week after cyber attacks

/ CNBC reports that U.S. tech stocks are now worth more than the entire European stock market


Local
/ Discovery updated update spooks markets

/ Famous Brands sells Tashas back to founder

/ Nedbank results (we now have 3 of the big 4)

/ Italtile results (still spending R800m on capex a year)

/ Northam results, great albeit 60% of their PGM basket is platinum. Buying back Zambezi pref shares.

/ Murray and Roberts results. Was a tough year but doing alright before the pandemic hit in March.

Aug 26, 2020

Simon Shares

Day 153 of lockdown and Covid-19.

Upcoming events;



  • Master Drilling (JSE code: MDI), strong and monster cash generation which shows the cash output when they're not spending on new rigs.
  • Absa (JSE code: ABG) profits disappeared and bad debts hit 2.77%, but they say they expect bad debt levels to improve in the second half.
  • Itatile (JSE code: ITE) everything down around 20% and they're still spending on capex at R600million a year.
  • Adcock Ingram (JSE code: AIP), very solid. But does the lack of a flu season hurt thier over the counter drugs?
  • Bidcorp (JSE code: BID) negative operational leverage (Revenue R121,1 billion, down 6,3%; Trading Profit R4,2 billion, down 37,6%; HEPS 741,3 cents, down 48,6%)
  • Nedbank (JSE code: NED) HEPS down 69.2% and bad debts at 1.9%. Forecasting in the current environment is complex and estimates are subject to a much higher level of forecast risk than usual.
  • Lewis (JSE code: LEW) bad debts and closures mean HEPS off 30.8% but they're buying back up to 10% of their shares.
  • Imperial (JSE code: IPL) shocker but logistics is a GDP play and there is no GDP.
  • ARB Holdings (JSE code: ARH) great little business with R151.9million in cash but comment "the board believes that it will take at least two to three years to revert to the level of activity prior to the lockdown".
  • Stadio (JSE code: SDO) good numbers and good cash, which they need for the new campuses. So likely a rights issue not on the cards.

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.


 

Aug 24, 2020

Offshore
/ New highs for the S&P500 (and Nasdaq)
/ Between the market high on Feb. 19 and new high on Aug. 18, 38% of stocks in the index made gains while the remaining 62% posted losses

/ Apple hits US$2trillion and gets into a fight with Fortnight

/ Ryanair cuts September, October capacity by 20% on weak bookings

/ Japan’s economy shrank by nearly 28% in the second quarter & consumer spending declined 8.2% in the period

/ Gold struggling to hold onto $2,000

Local
/ Standard Bank kicks off banking earning season

/ Afrimat buys Coza iron ore for R300m

/ Tigerbrands sells value-added meat products business 7 HEPS 35%-40% lower.

/ Curro results & ADvTech update

/ PSG unbundles Capitec at close on Tuesday. 14 for every 100 PSG shares.

/ Goldfields HEPS up 4x as Nick Holland quits as CEO.

Aug 19, 2020

Simon Shares

Day 146 of lockdown and Covid-19, new cases definitely on the decline and hence we're now in level 2.

  • S&P500 closed Tuesday at all-time highs.
  • Sasol (JSE code: SOL) after liking the update the market does not like the results.
  • Truworths (JSE code: TRU) has now written down GBP231million of the GBP256million they paid for Office in 2015.
  • Afrimat (JSE code: AFT) buys Coza iron ore for R300m.
  • Tigerbrands (JSE code: TBS) sells value-added meat products business.
  • PSG shareholders holding the share at the close on Tuesday will receive 14 Capitec* (JSE code: CPI) shares for every 100 PSG shares.
  • City Lodge (JSE code: CLH) rights have ceased trading and the share is off almost 30% as many sell their new shares they paid 212c for via the rights issue.
  • Curro (JSE code: COH) results were okay but Keith McLachlan notes that their older schools are losing students at an alarming rate.

 

  • Anthony Clark then tweeted this which to my mind is damming. Sure 50/50, but that's a long way from 100/0.

 

* I hold ungeared positions.

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Buy the rumour, sell the fact

Last week all the talk was about a move down to level 2 lockdown and a lifting of the ban on alcohol and tobacco.

There was an NCC meeting on Wednesday, the state of disaster expired on Saturday and the roar against the alcohol ban was deafening.

Against this backdrop, we saw the leisure and alcohol stocks running last week.

Then on Saturday night, the president made the announcement, level 2. We can travel between provinces, buy alcohol and tobacco and visit friends and family.

Yet Monday saw the stocks that had run hard all start giving back their gains and most are back at where they started last week.

This is not surprising, a common saying in the market is "buy the rumour, sell the fact". This applies to results, mergers, takeovers and now also lockdown restrictions.

The logic is that everybody thinks they're clever having spotted the potential news before anybody else and positioning themselves ahead of the news. But they're to the only ones spotting it as the price action tells us. Then when the news happens the reality is that

it's actually a long road and those early buyers take their profits.

For traders, the lesson is careful buying as the news breaks. Sure often the news will send a stock price still higher, but watch the price action and if the news starts to see weakness in the price, take your money and run. The other lesson is that to be early often pays, but careful of how early. Buying weeks or months ago on an eventual lifting of the ban will make a profit, but being that early means your profit is still some way off.


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.


 

Aug 17, 2020

Offshore
US Retail sales disappoint - rise 1.2% in July vs 7.5% gain in June
But new unemployment claims finally drops below 1million, the first time in 21 weeks

UK GDP horror

Chinese retail sales dropped 1.1% YoY, for the 7th seventh month

US stimulus (trump EOs)

Tesla 5:1 split via a special dividend

Airbnb is filing for IPO this month with plans to go public by the end of the year.

Local
Sasol results (before open on Monday)

Level 2 here we come?

Capital Counties results

City Lodge new shares start trading, they need about 35% occupancy to break even.

Richemont ‘loyalty dividend’ a three-year warrant.

Aug 12, 2020

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

Simon Shares

Day 139 of lockdown and Covid-19, new cases definitely on the decline.

  • Clicks (JSE code: CLS) trading update again shows that this company is a machine. Revenue +10% for the 49 weeks to 9 August 2020.
  • Residential property, at the lower end, doing really well.
  • Gold $2,044 last week, hit $2,080, then $1,860. Now $1,935.
  • US WeChat ban.
  • Tencent (Hong Kong share code: 0700) beats expectations. Revenue up 29% YoY. Profit surges as growth hits the fastest pace in two years.
  • Tesla (Nasdaq share code: TSLA) 5:1 split via a special dividend.

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When bad news is good news

The Sasol (JSE code: SOL) trading update reports write-downs of R112billion while the market cap was R95billion and a loss per share (EPS) of around R140 while the share price was R155. Yet the stock rushed up over 4% by the close.

The important point is that data is relative to expectations. It may look like a horror show, it may even be a horror show. But if it better or worse than the market expected? If worse stock will fall and if better then it will rise.

Same applies to really good data, how was it relative to expectations?

In the case of Sasol they're writing down assets all over and this is a non-cash issue as they write it down. Now, of course, it was paid for with cash when they did the deal or built the project - but that cash is now gone.

Writing down is essentially saying that you paid to much and it is now worth less than the cost. The reason for the write-down is that it sits on your balance sheet as an asset and it will impact ratios such as Return on Equity (RoE). Buying writing down the asset to a lower price you depress the asset side of the balance sheet and at the same time the equity within the balance sheet (equity = assets - liabilities). So now a lower equity value and now your return relative to the equity looks better.

Sasol still has a ton of debt and a potential rights issue and results on Monday will hopefully resolve these outstanding issues, for better or worse.


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.


 

Aug 5, 2020

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

Simon Shares

Day 132 of lockdown and Covid-19, new cases definitely on the decline.

  • Pick 'n Pay (JSE code: PIK) update was somewhat of a horror show, but I'm not sure what the market was expecting. It is for the period of lockdown and includes a voluntary retrenchment that cost the company.
  • The Shoprite* (JSE code: SHP) on the other hand was for a full year to end June, so only three months of lockdown. Solid update and they're exiting Nigeria.

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  • Gold $2,044.
  • Goldfields (JSE code: GFI) update says HEPS will almost double and this is for the six months ending June when gold was under $1,800.
  • Cashbuild (JSE code: CSB) buying TBC from some R1.1billion. Looks like a decent price and while they could write a cheque they'll use debt. So the question is can management execute on the merger?
  • Intu (JSE code: ITU) will be delisted from the JSE Intu has been suspended already as the company is in bankruptcy so the suspension of the listing is just a technicality.
  • City Lodge (JSE code: CLH) rights started trading yesterday. The stock lost 75% on perhaps the most dilutive rights issue I have ever seen, 13 new shares at 212c for every one held. Everybody asking me if the should take up their rights? Truthfully you have to or be diluted out of existence. Alternatively, sell the shares and the rights and walk away. The company has a solid balance sheet, aside from the BEE deal. But the lockdown is hurting and the question is if they'll need more money?

 

  • The US CARES act and specifically, the $600 payments has ended. Congress is in talks to extend but so far the two sides seem part apart. One wants to extend the $600 the other to reduce it to $200.
  • SAB, Consol Glass and Heineken all responding to the liquor ban by cancelling projects. But are the cancelled or delayed? Are they opex or capex? Is this just a ploy to put pressure on the government? Or is this perhaps a bigger concern about stricter liquor laws post lockdown / pandemic?

Upcoming events;

* 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.


 

Aug 3, 2020

Offshore

/ US earnings season

/ Q2 GDP data is coming in at about -10%

/ US jobless claims remain stuck at around 1.4million and CARES has ended, albeit congress is in talks

/ Alphabet says WFH until summer 2021 & Zuckerberg says there’s ‘no end in sight’ for Facebook employees WFH

/ Big tech results (Amazon, FB, Alphabet & Apple) knock it out the park

/ Big tech breakup congressional hearings

Local

/ Steinhoff wants to settle claims

/ Europa Metals booms 16,000%, except it didn’t (500:1 consolidation)

/ ANG ceo quits

/ Vivo Energy results as fuel sales decline

/ GLD closes July at an all-time high

/ City Lodge rights issue 13:1

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.


 

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.


 

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