SA Inc watch list.

Building a list of stocks that are cheap, very cheap, and could give good return n the next year or three. Criteria;

• Must be profitable, so positive PE ratio
• Must be cheap, so PE below 8x
• Small as in market cap under R8billion
• No REITs

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.

Simon Shares

• Local crypto exchange, Revix, suspends trade or withdrawals on 24% of client crypto assets as their South Korean partner has issues with a provider.
• Naspers (JSE code: NPN) & Prosus (JSE code: PRX) plan to remove the complex web of cross holdings to a simple structure whereby Naspers owns 47% of Prosus who owns the stake in Tencent (Hong Kong code: 700).
• Good Invicta (JSE code: IVT) results.
• Rand all over the place.
• Brent weak, surely suggesting the global economy is weak. But so far the promised 2023 recession has not arrived, remember the hard vs. soft landing debate of late 2022?

* I hold ungeared positions.

Simon Brown

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.

Simon Shares

• UK core inflation rises from 6.8% to 7.1% and CPI 8.7%. They are in trouble.
• Standard Bank (JSE code: SBK) trading update. Very much two parts, bad debts are ugly and profts are lookign great. They also expect a 0.25% rate increase in the second half of the year?
• Afrimat (JSE code: AFT) deal to buy Lafarge for ±R1billion. String vertical intergration and potential to boost profits to essentially be paying around a 3x PE. They also say that it looks lie constructions has bottomed in 2022.
• Omnia (JSE code: OMN) results. Agri struggling with margin pressure, ining booming while chemicals slips. But overall good and stock si cheap.
• Transaction Capital (JSE code: TCP) secures funding for Gomo. Securing the capital was a major market concern and now they have a bak using their balance sheet and they earn a margin. Good deal but market still selling.
• How to Diversify Your Commodity Exposure With the PICK ETF
• Dividend portfolio paying monthly

dd

Disappearing dividends

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.

Simon Shares

• US CPI for May 4.0%, lowest since March 2021.
• Latest IEA global oil market outlook: peak oil combustion by 2028?
  • Petrol demand to peak this year
  • Road transport oil demand peak 2025
  • All transport by 2026
  • Overall oil for combustion peak 2028
• ZAR 18.33

• Massive moves expected in Richemont (JSE code: CFR) on Thursday 15 June as the index rebalances. Could see ±R4billion of selling.

* I hold ungeared positions.

Simon Brown

Simon Shares

• SEC sues Binance and CEO for U.S. securities violations.
• SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency.
• First quarter GDP was 0.4% and we avoid a technical recession.
• Pepkor (JSE code: PPH) price slide.
• Tigerbrands (JSE code: TBS) horror results.
• Oceana (JSE code: OCE) results knock it out the park.

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.

1/n pic.twitter.com/29yaV2GP8b

— Simon Brown (@SimonPB) June 5, 2023

Buying SA Inc.

Not yet but building a watch list with the plan being to buy 10-15 stocks over the months ahead.

Why?

• Inflation comes down
• Rates decrease
• Load shedding ends (Renewable Energy Grid Survey points to 66 GW development pipeline in South Africa).
• Government finds a way out of the ICC Putin arrest warrant mess.
• Rand improves (already 100c better than the R20/US$ of last week)
• I hold ungeared positions.

Simon Brown