Share buybacks are good right? The company uses their free cash to buyback shares which reduces the number of remaining shares such that each share has a higher claim over future profits which adds to their value.
Further they're tax efficient in that paying dividends results in dividend tax.
Locally we do see buybacks, but share issues are relatively small so the impact is less shares and more value per share.
Using IFRS accounting diluted HEPS uses the share count of all outstanding shares PLUS all promised shares not yet delivered. These are basically options that could become shares and gives a way better reflection of the profit, even thugh not yet issued they will potentially come to makret and be issued.
Apple (Nasdaq code: AAPL) has been buying back shares and as such over the last decade it's outstanding shares is down about 38%.
Meta (Nasdaq code: META) has also been buying back, but they also issue shares at such a pace that over the last decade shares outstanding is basically flat.
The problem with telcos
I have long said that telcos such as MTN (JSE code: MTN) and Vodacom (JSE code: VOD) is that they are essentially utilities and should be priced as such.
But actually that statement is wrong.
Sure voice (who still calls using voice?) and data are utilities like water and electricity.
BUT the telcos have a problem, capex.
Yes we're using more and more data but prices keep coming down, I recently bought an effective 80 GB for little over R400. And all that while capex is increasing. They're busy rolling out 5G but as soon as that's done it'll be tine for 6G. It's a never ending tread mill.
Updating minister Gordhan's portfolio
Public Enterprises Minister Pravin Gordhan has declared his holdings, we reviewed his portfolio last time in April and there are some interesting changes, he is fairly active in buying and selling. Most notable is the total value is up almost R2million?
Living small, an update
Back in 2017 Simon and his wife down scaled into a small (relative) apartment and also got rid of one of their cars again. As they now move again Simon updates in their experience of living small.
Renergen* (JSE code: REN), now what?
Late September the price started breaking down and end September a Tweeter started posting about them.
I'm not going to defend every point raised, that's the job of the company and after an initial poor response, Monday saw a more detailed SENS.
Ultimately all research is paid for. Sometimes it is paid for by the company and here the issue is disclosure.
I think the bigger issue is a complete lack of disclosure in our industry. By FinTwit or the fancy analysts, albeit assume the latter is always talking their book, which is fair.
I hold and continue to hold Renergen*. It was never going to be smooth sailing and the risks are real. Yes they have the gas and helium in the ground, phase one is half working but phase two is large, complex and expensive with real risks.
There are bold traders. here are old traders. There are no bold and old traders.Bold traders
What is a bold trader and why do they die out?
Famous Brands (JSE code: FBR) trading update, Spur (JSE code: SUR) really has taken the mantel of best QSR/restaurant business on the JSE.
Very strong US jobs and upward revisions from previous month. But wage inflation only 0.2%. So market was confused but ended happy. Tuesday also saw US 10-year yields moving lower which excited everybody. But I am sceptical, this is only one data point and I think the FOMC hikes at their 31 Oct/01 Nov FOMC meeting.
Water crisis. This is going to hurt and it not going away any tine soon. Which businesses get hurt most?
Bad news all round (unless you buying).
Almost 40% of US government debt expires in the next four years and will be re-issued at markedly higher rates, 9x higher in some cases.
Money flowing into US bonds for yield.
Hits valuations lower as higher rates makes cash worth less in the future, but so far the market has ignored this fact.
Spur and Calgro M3, two stocks I have been watching and both have seen their prices break higher.
Charts by Koyfin 15% discount for first 2 years
Chinese data keeps disappointing, every since the -7.5% export data from April. Expected was a strong rebound after they lifted zero-covid restrictions. But not happening.
Just this week;
Aspen (JSE code: APN) announces a acquisition in Latin America for US$290m on a price/sales of ±3x and PE of ±5x. This is a classic Stephen Saad sort of deal. Strong cash generation to pay down the debt.
After having gone quiet when the balance sheet case under serious pressure (with debt of ±R50billion) Aspen is back?
Chart looking good for a break higher.
Forward PE of ±12x is below 1 standard deviation over last twenty years and looking cheap.
Central bakers have very few tools to achieve their mandates around inflation (and in some cases also protecting a currency and aiding GDP growth). Interest rates have a blunt lagged effect and their only other tool is what they say and we need to understand this central banker speak.
Last week it was the South African Reserve Bank MPC rate announcement that left prime unchanged for the first time since November 2021. The vote was close and the governor spent a lot of time saying they had not finished hiking, this was just a pause.
The Federal Reserve FOMC has been saying the same about pausing before more hikes.
But any hikes will surely be data dependent which is what they always say. So the threat of more hikes is central bak speak for don't get too excited.
As expected Local CPI for June came in at 5.4%, lowest in twenty months and well within the 3%-6% target range from the South African Reserve Bank. Yes base effect as June last year was the first +7% inflation print of this cycle.
When do we start talking rate cuts? Truthfully not yet, a pause would be nice eve as the gov always targets 4.5% not the range.
Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla are the magnificent seven. They account for 55% of the index.
A phrase coined in the late 1990s for Microsoft, Intel, Cisco Systems and Dell Computer as they stormed higher in the dot com craze.
All had horrid collapses and took o a decade plus to recover their dot com levels and Cisco and Intel have been modest investments at best with Dell delisting.
Are we seeing the same with the magnificent seven?
Yes, no, maybe.
It is different this time, they all have real tech and make real profits. But have they gone wild on the AI bonanza? Absolutely. Now sure, AI will only get better and all seven have a real chance of be the real leaders in the space (in different ways). But valuations are stretched and this current earnings season is important as are the next few as well.
Two-pot system is confirmed, here all the details
Building a list of stocks that are cheap, very cheap, and could give good return n the next year or three. Criteria;
Using Koyfin I get 46 stocks including REITs and detail them in the podcast. I'll create a watchlist on Google docs and share that link in time.
What about just the mid cap ETF from FNB? FNBMID. Sixty stocks but problem is the top holdings are; Sibanye-Stillwater*, Discovery*, Nedbank, Bidvest and Remgro. That's already ±25% of the ETF and none really for my requirements as above.
Local CPI 6.3% for May (lowest since April 2022) from 6.8% in April and vs expected 6.5%. A very good number and we should see June below 6% as June last year was the first +7% in this cycle at 7.4%. Simple base effect should put some serious pressure on inflation over the next few months.
So is inflation largely over locally? Probably.
Can we start talking about when the MPC starts cutting rates? The next MPC rate announcement is July, the day after we get June inflation and we'll see that the governor says. But cuts are maybe fourth quarter fo this year, at soonest. Standard Bank thinks another 0.25% hike later this year and consensus is cuts only starting next year.
Just this week Spar (JSE code: SPP), MultiChoice (JSE code: MCG) and Telkom (JSE code:TKG) have all cut dividend to zero.
We had big dividend payer Coronation (JSE code: CML) drop theirs to provision for the SARS fine and historically good dividend payer Pick n Pay (JSE code: PIK) reduce theirs.
This shows the pain that companies are experiencing, not all, but certainly some, It perhaps also shows quality, for example Shoprite* (JSE code: SHP) increased their dividend.
The problem is we love dividends for cash flow and they tend to grow ahead of inflation, sometimes well ahead of inflation. They're also taxed better than traditional income from bonds or cash (albeit not as low as CGT). But the downside is that any dividend can disappear at any time.
For investors such as myself, reduced dividend is not a big problem. I like the cash flow but don't need the income for expenses. For those living on dividends the pain is real. If the income is required you need a good amount of bond and cash investments and REITs that aside from the pandemic pay consistently, albeit REITs reduced over the last 5 or 6 years.
Another option is something like dividend aristocrats (we have a local and offshore ETF for these). Here we have companies with decade long track record of paying dividends, but remember Steinhoff (JSE code: SNH) was in the local dividend aristocrat ETF, so even this is not guaranteed. But a basket or ETF works well.
Sun City visit. Excellent resort, but very quiet which many commentators suggest is because it's a random weekend in June?
I sent this past weekend at Sun City, vacation club. Some thoughts.
The resort is world class, well maintained with a ton to do for kids and adults.
— Simon Brown (@SimonPB) June 5, 2023
Not yet but building a watch list with the plan being to buy 10-15 stocks over the months ahead.