Overview:
In this episode of JSE Direct, Simon Brown breaks down the latest market updates, key stock analyses, and insights into the South African investment landscape. Episode highlights include discussions on property developers Calgro M3 and Balwin, Capitec’s strong performance, Purple Group’s rise, Afrimat’s challenging update, and Wilson Bailey’s long-term chart breakout. The show also covers upcoming events and Brown's views on Nvidia’s stock movement.
Property Developers: Calgro M3* vs. Balwin
- Calgro M3: Delivered a strong trading update, attributed to its flexibility in targeting lower-income segments. Calgro’s ability to adapt and scale down offerings positions it well, with potential for significant price appreciation. Trading at a low PE of 3.5, Brown argues that in a normal market, it should command a 10x PE, suggesting a fair value of around R9.
- Balwin: Struggling with higher entry price points in its developments. Despite weaker performance, there may still be value. If results improve in the future, Balwin could present a solid opportunity. Brown speculates that a delisting could be on the cards if the stock remains undervalued.
Calgro M3 weekly chart | Close 09 October 2024
Capitec: Expensive, but Resilient
- Capitec continues to outperform with robust growth, though it trades at a high PE of 27 and a price-to-book of 7.8. Despite concerns about its premium valuation, the company’s diverse ventures, from mobile services to expanding insurance offerings, make it a long-term core portfolio holding. Historical growth shows Capitec’s resilience and market leadership in the South African banking sector.
Purple Group*: A Breakout Stock
- After months of a consistent seller at 80 cents, Purple Group’s stock broke higher, reaching 98 cents before pulling back. Brown remains optimistic, particularly as trading volumes in the JSE pick up, benefiting Purple’s core business. Although trading at a high PE of 45, Brown is bullish about its prospects in a rising market.
Afrimat: A Tough Year, but Long-Term Potential
- Afrimat’s trading update indicated a sharp drop in earnings (down 75-85%), partly due to the acquisition of Lafarge, which is still loss-making. While the near-term outlook is challenging, Brown remains optimistic about Afrimat’s long-term potential, especially if South Africa enters a construction boom. He sees the stock as attractively priced for long-term investors.
Wilson Bayly Holmes-Ovcon (WBHO): A 16-Year Breakout
- Brown discusses WBHO’s impressive 17-year chart, finally breaking out after a long consolidation period. He suggests the stock could benefit from renewed local construction activity, while Afrimat remains his preferred pick in the sector due to its diversification into industrial metals.
A breakout after a 17-year consolidation is very bullish in TA.
Add the fundamental underpin.
I think this still has lots of room to run. pic.twitter.com/fBk5BCKtvk— Richard Thomason (@richytee) October 9, 2024
Nvidia: Breaking New Highs
- Nvidia, another stock Brown holds, is testing all-time highs after a series of consolidations. With Nvidia's historical pattern of doubling after breaking key resistance levels, Brown remains confident in the stock's potential for further growth despite its high valuation.
Nvidia weekly chart | Close 09 October 2024
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Chapters
00:00 Market Overview and Calgro M3 vs Balwin
07:11 Capitec's Performance and Future Outlook
12:43 Exploring Other Stocks: Purple Group and Afrimat
18:15 Long-term Trends: Wilson Bailey and Nvidia
China's Market Rebound
Stimulus Measures: The Chinese government has initiated a stimulus, which includes cutting reserve requirements and lowering interest rates. While spending has not picked up fully, the China 50 ETF (in US dollars) has wiped out losses dating back to July 2022. Hong Kong’s Hang Seng index shows a similar trend.
Market Sentiment: Short squeezes have played a role in pushing the prices of big Chinese companies like Alibaba and Tencent higher. Despite concerns about China's long-term investability (raised by experts like Viv Govender of Rand Swiss), Simon remains optimistic about continued growth in the medium term.
Shift in Hot Money: There's been a notable shift away from tech stocks like Apple and Nvidia, with more capital flowing towards China in recent days. Simon discusses the potential for short-term pullbacks, but he sees this as an opportunity.
South African ETFs Performance
Top Performers: Property ETFs have outperformed, with the CSPROP, Satrix Property, and 1nvest Property ETFs gaining between 30% and 31.7% over nine months ending in September 2023.
Underperformers: ETFs linked to palladium, platinum, and tech innovation (e.g., Sygnia’s Fourth Industrial Revolution ETF and Satrix Healthcare Innovation ETF) have shown negative returns.
Outlook for South African REITs
Simon expects further growth in the property sector but at a more moderate pace than this year’s 30% returns. He highlights the potential impact of upcoming interest rate cuts, consumer spending at malls, and the demand for yield as government bond rates decrease. Some REITs, particularly those in rural and township retail spaces, are performing exceptionally well.
The market tends to move ahead of the cuts based on expectations, but technically any cut is great for cheaper debt and more consumer spending at the underlying properties, plus a lower rate for the valuations which means a higher present value.
So yes, they can keep going.— The Finance Ghost (@FinanceGhost) October 2, 2024
The South African Rand and Global Markets
The Rand has seen fluctuations, dipping to as low as 17.02 against the US dollar and facing pressures from global events such as the Iranian attack on Israel and rising oil prices. Simon expects the Rand to strengthen and potentially break below 17, possibly reaching levels as low as 14.
Oil Prices: OPEC is grappling with maintaining production discipline. Oil prices are likely to hover around $70 per barrel, which is positive news for South African consumers in terms of petrol prices.
South African PMI and Vehicle Sales
PMI: South Africa’s PMI for September was positive, indicating slight economic expansion. The absence of load shedding and lower interest rates have contributed to the improved outlook.
Vehicle Sales: September saw better-than-average vehicle sales (44,000 units). Simon emphasizes the potential upside in companies like Combined Motor Holdings (CMH), which has started to perform after years of stagnation.
Investment Strategy in a Bull Market
September SA vehicle sales
Simon reiterates his bullish stance, noting that while there will be pullbacks (up to 10% corrections), the overall trend remains upward. He advises staying long in the market, especially in a bull phase.
Summary: In this episode of JSE Direct, Simon Brown delves into the latest developments in South African markets, focusing on the impact of China's major economic stimulus and the strengthening of the Rand. Key highlights include:
Rand Strength: The Rand has seen notable appreciation, reaching levels of R17.12 to the US dollar. Simon discusses the drivers behind this, particularly US dollar weakness and foreign purchases of South African bonds. He explores possible future movements, with a target of R16.80 and potential for further strengthening.
USDZAR | Weekly | 26 Sep 24
Global Stimulus: China's massive stimulus measures, including relaxed lending rules for banks and lower interest rates, are aimed at boosting consumer demand. This is the largest Chinese stimulus since 2008, with significant potential to impact global commodities and bolster the South African economy.
Commodities & Bull Market: The commodities market is seeing positive movement, with Chinese demand driving up prices for industrial metals like copper, iron ore, and coal. Simon notes how the previous commodity bull run in 2021 significantly strengthened the Rand and discusses the potential for a similar scenario if China's economy continues to gain momentum.
Market Performance: South Africa is outperforming other emerging markets, particularly Brazil and Mexico, over the past six months. Simon explains the drivers of this outperformance and highlights the continuing bull run in the JSE Top 40 and All-Share indices.
SA Equities: Our fortunes have changed significantly since the GNU was formed in June.
SA has dramatically outperformed (in US$) not only Emerging markets in general, but Brazil & Mexico. SA has tilted more centrist, with a focus on the economy. Brazil & Mexico both shifted left. pic.twitter.com/Zz6OOM4dCJ— Karin Richards (@Richards_Karin) September 23, 2024
Rate Cuts: South Africa and several other global economies, including the US and Europe, have entered a rate-cutting cycle. Simon emphasises the importance of this for markets, especially property stocks, which are benefiting from lower bond yields and improved investor sentiment.
JSE Index Changes: Anglo Platinum has been removed from the JSE Top 40 index, replaced by Pepkor. Simon discusses why Pepkor’s entry is significant, given its position as a retailer and its attractive valuation compared to competitors.
Key Discussion Points:
- Rand’s strengthening trajectory and foreign capital inflows.
- China's economic stimulus and its potential effects on global commodities.
- Outlook for South Africa’s bond and equity markets.
- Changes in the JSE Top 40 index with Pepkor replacing Anglo Platinum.
- Global rate-cutting trends and their impact on local property stocks.
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Episode Overview:
In this episode, Simon Brown dives into the current economic landscape with a focus on interest rates, inflation, and the state of the South African Rand (ZAR). He also explores asset-light businesses and why they make great investments, followed by a breakdown of the latest market activity and local company results.
Rate Cuts & Inflation Outlook:
- South African CPI (August): 4.4%.
- A possible drop to 3.5% in October discussed with Johan Els, Chief Economist at Old Mutual.
- The need for rate cuts to stimulate the economy, with experts debating between 0.25% and 0.5% cuts.
- Fed decision and its potential market impact.
SA Prime and CPI September 2024
ZAR Strength & Market Trends:
- Rand showing strength, potentially reaching sub-17 levels.
- Global market highs: S&P 500, NASDAQ, and JSE Top 40.
- Consumer confidence in the US and South Africa rising but still negative.
Platinum Group Metals (PGMs) & Palladium:
- A strong bounce in PGM stocks, driven by oversold positions and palladium production cuts.
- Palladium’s recent performance and its potential future breakouts.
Palladium weekly chart | 18 September 2024
Asset-Light Businesses & Their Investment Potential:
- Definition and benefits of asset-light businesses (e.g., Santova, Nvidia).
- Simon breaks down why businesses with fewer physical assets can provide higher returns on equity and efficiency.
- Comparison to asset-heavy businesses like banks and retailers.
- A deep dive into asset-light models like Shein, Temu, and logistics firms.
Company Updates & Local Results:
- Outsurance: Strong financial results and special dividends; analysis of the short-term insurance industry’s ability to reprice premiums annually.
- Altvest IPO: Simon discusses the upcoming Altvest IPO on the JSE and why he's not taking part in it, despite its interesting SME funding model.
- Finbond: A look at the excitement surrounding Finbond’s potential delisting and the company’s moves in the US market.
Noteworthy Quotes:
"Rate cuts are coming, and I think we'll see a short-term sell-off as markets react."
"Asset-light businesses like Santova and Shein are great investment opportunities because they don't carry the heavy burden of owning physical assets."
"Outsurance continues to impress with strong numbers and dividends, proving the strength of short-term insurers."
Chapters
00:00 Economic Landscape and Rate Decisions
03:09 Understanding Asset-Light Businesses
05:54 Market Psychology and Upcoming Events
09:11 Local Results and Investment Insights
11:52 Exploring New Investment Opportunities
15:10 Finbond and Market Speculations
17:59 Larry Ellison and Oracle's Rise
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Summary
In this episode of JSE Direct, Simon Brown discusses various topics including the troubles faced by Anglo Platinum, the performance of leisure stocks, Anglo Gold Ashanti's* acquisition of an Egyptian gold miner, and the impact of two pot withdrawals. He also touches on the future of PGMs, the growth of electric vehicles, and the psychology of markets.
Takeaways
- Anglo Platinum is facing challenges as Anglo American wants to get rid of their stake, causing a sell-off in the market.
-
Anglo Platinum weekly chart - The PGMs market is uncertain, with palladium and platinum prices experiencing fluctuations.
- The World Platinum Council projects a second year of meaningful platinum deficits, with jewelry demand expected to rise.
- The growth of electric vehicles is impacting the demand for PGMs, but the market is still uncertain.
- Investors should wait for positive price action before considering investments in PGMs.
- Anglo Gold Ashanti's acquisition of an Egyptian gold miner raises questions about the use of equity and the future of gold prices.
- Two pot withdrawals have resulted in over 4 billion rand being withdrawn from the market.
- Leisure stocks, such as City Lodge and Sun International, have mixed performance, with City Lodge experiencing lower occupancy rates.
- The growth of sports betting raises concerns about its impact on poorer individuals and the fairness of the industry.
Sound Bites
"Anglo Platinum has a problem which is perhaps a little more unique than just the PGMs."
"There is that initial overhang. A whole lot of people will get Anglo-Platinum shares and say, 'I don't want these' and sell it."
"The World Platinum Council is saying we're gonna have deficit again, that's the important point."
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Chapters
00:00 Challenges for Anglo Platinum and the PGMs Market
02:22 The Future of PGMs and the Impact of Electric Vehicles
07:54 The World Platinum Council's Projections
09:16 The Diminishing Role of Internal Combustion Engines
11:09 The Impact of Low Prices on Production
14:55 Anglo Gold Ashanti's Acquisition and the Use of Equity
17:56 Pot Withdrawals and their Effect on the Market
19:18 Performance of Leisure Stocks: City Lodge and Sun International
19:42 Concerns about Sports Betting and its Impact
20:10 Upcoming Events: Investment Goals and the Psychology of Markets
Episode Summary:
In this episode of JSE Direct, Simon Brown delves into the impact of anticipated interest rate cuts and how they may affect various sectors and stocks. He shares his thoughts on potential beneficiaries like consumer stocks, REITs, and companies with high levels of debt. The episode also covers key updates on Nvidia's earnings, Nike's stock valuation, and a new ETF listing by ETFSA.
Interest Rate Cuts and Market Impact:
- Jerome Powell's Jackson Hole Speech: The anticipation of rate cuts as early as September, with an expected reduction of around 75 basis points by the end of the year.
- Benefiting Sectors: Companies with significant debt, consumer stocks (Mr Price, Foschini, Shoprite), and REITs are likely to benefit from lower interest rates.
- Sector-Specific Insights:
- REITs: Discusses the potential for real estate investment trusts like Storage, Spear, and the concerns around office spaces with high vacancy rates.
- Consumer Stocks: Simon reiterates his positive outlook on consumer-focused companies and the strong performance of used and new car sales, highlighting stocks like CMH and Motus.
Stock Analysis:
- Nvidia: With results due, Simon highlights the market's expectations and the potential for significant movement based on the earnings report.
Nvidia | Close 27 aug 24 | Weekly chart- Nike: Simon discusses Nike’s current valuation, seeing it as a strong buy at its multi-decade support levels, despite its challenges.
Nike | Close 27 aug 24 | Weekly chart
ETF Updates:
- ETFSA's New Actively Managed ETF: Introduction of the Balanced Foundation ETF, which is actively managed due to the lack of a specific index and includes a mix of local and foreign equities, bonds, and property.
- Satrix Nasdaq ETF: The transition from a feeder fund to a standard fund, reducing total expense ratios and offering cost benefits to investors.
Housekeeping:
- No Show Next Week: Simon will be on vacation and the podcast will resume on 12 September.
- Money Summit: Scheduled for 10 September in Johannesburg with free tickets available using the code "MONEYWEBGEST" at MoneySummit.co.za.
ETFSA is listing an Actively Managed ETF, The ETFSA Balanced Foundation Prescient AMETF (JSE code: ETFSAB).
Simon spoke with Gareth Stobie from ETFSA about the ETF, the listing process, where it fits in a portfolio and what it will be holding.
- IPO opens: 26 August 2024
- Listing date: 02 September 2024
- JSE code: ETFSAB
- TER: 0.52%
ETFSAB
In this landmark 600th episode of JSE Direct, Simon Brown reflects on the podcast's journey from its beginnings as a radio show in 2008 to becoming a leading podcast for market insights. The episode covers a range of topics, from South Africa's local CPI and a strengthening Rand to the surprising twists in the gold market and a mixed bag of corporate earnings.
Local Inflation Data:
South Africa's CPI has come in better than expected at 4.6%, fueling speculation on whether the next rate cut by the MPC might be more aggressive than anticipated.
South Africa CPI | July 2024
Rand Strengthens:
The Rand has shown significant strength, dropping below 18 to the dollar, with Simon analyzing the contributing factors, including foreign investment in bonds and a weakening US dollar.
Bull Market Sentiment:
Simon reaffirms the current bull market, highlighting the JSE's all-time highs and advising listeners to stay invested while cautioning against the risks of sitting on the sidelines.
Top40 20 August 2024 | Weekly chart
Gold Market Rally:
Gold prices have surged above $2,500, driven by central banks' increased purchases and concerns about the US dollar's stability. Simon discusses the potential for further gains in the gold market.
Corporate Earnings Recap:
- Coronation Fund Managers: Special dividend announced but falls short of expectations.
- CMH*: Despite low liquidity, the stock continues to climb, reflecting the breadth of the bull market.
- Sasol: Disappointing results with no dividend payout, a situation Simon had previously predicted.
- Spur Corporation: Strong earnings, signaling improving economic conditions.
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Sasol's Struggles:
Simon revisits Sasol's recent production and trading updates. Despite some positive news, the company's financials remain grim due to significant write-downs and a challenging pricing environment, especially in the chemical complex. With a forward PE ratio hovering around 3, Simon questions the actual value in Sasol and advises caution, emphasising the importance of waiting for a stock to show signs of recovery before investing.
Sasol weekly chart | 13 August 2024
ADvTech's* Solid Performance:
Simon provides insights into ADvTech's latest trading update. Despite a voluntary update (not mandated by a 20% variance), the company shows strong growth in earnings per share. He discusses the stock's valuation, historical performance, and why he remains optimistic about its future prospects, even as it trades at a PE ratio of around 15.
ADvTech weekly chart | 13 August 2024
Combined Motor Holdings* (CMH):
Simon shares his thoughts on CMH, a stock he has held for years. Despite a stagnant price movement over the past three years, the stock offers a solid dividend yield. He discusses the broader consumer environment, the potential impact of reduced interest rates, and why he continues to favour CMH over competitors like Motus.
CMH weekly chart | 13 August 2024
Renegen's* Milestone:
After a year and a half of delays, Renergen finally starts producing helium. While the stock has seen a recent uptick, Simon highlights the challenges that still lie ahead, including scaling up production and the company's upcoming NASDAQ listing. He also reflects on the broader sentiment in the junior mining sector.
Coronation's Active ETFs:
Coronation has launched six actively managed ETFs on the JSE, a significant development in the local ETF market. Simon explains the concept of actively managed ETFs and why this move could be a game-changer for both Coronation and the JSE, even if he personally isn't planning to invest in them. Find details here.
US Inflation Update:
The latest US CPI data shows a slight decrease to 2.9% for July, but core inflation remains elevated. Simon discusses the implications for future interest rate cuts by the Federal Reserve and the potential impact on South African monetary policy.
Tribute to Brett Duncan:
Simon pays tribute to Brett Duncan, a former stockbroker and warrants market leader at Standard Bank, who recently passed away. Brett was a key figure in Simon's early career and played a significant role in the South African warrants market. His passing is a significant loss.
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Apple's Financial Performance and Buffett's Decision:
- Apple's recent financial results showed steady revenue growth across various segments including iPhone, MacBooks, and iPads.
- Warren Buffett's Berkshire Hathaway reduced its stake in Apple by half, sparking market speculation.
- The implications of Apple's valuation and Buffett's strategy in maintaining a significant yet reduced position in Apple were discussed.
Market Movements in Japan:
- The dramatic drop in Japan's Nikkei 225 index, which fell nearly 27% from its recent highs, was analyzed.
- Possible reasons behind the sell-off included the unwinding of the Japanese carry trade and broader market concerns about global economic stability.
- The role of low liquidity in exacerbating the market decline was highlighted.
Nikkei 225
Nedbank's Financial Results:
- Nedbank reported solid financial results with HEP's up 11% and a near 15% return on equity.
- Improvements in impairments and concerns over the cost-to-income ratio were noted.
- The banking index's performance and its implications for Nedbank's stock were discussed.
Anglogold Ashanti's* Performance:
- Anglogold Ashanti's strong production and profitability metrics were reviewed.
- The importance of holding gold miners and gold ETFs in the current market environment was emphasized.
Launch of Ethereum ETFs:
- The approval of Ethereum ETFs by the US SEC was announced, with eight new ETFs available for trading in New York.
- The differences between Ethereum's proof-of-stake blockchain and Bitcoin's proof-of-work blockchain were explained.
- Potential implications for investors and the broader crypto market were discussed.
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Jerome Powell's Statement:
- Rates left unchanged in the US.
- Possible rate cuts on the table for September.
- US MPC meeting on 19 September.
- Data needed: improving inflation and higher unemployment.
Oil and Gold Market Update:
- Brent Crude:
- Under pressure, signaling weak global demand.
- Lower highs trend since June 2022.
- Support at $72.50 and resistance around $88.
-
Brent Oil | 01 August 2024 - Gold:
- Trading near all-time highs.
- Strong central bank buying.
- Uncertain targets, but bullish sentiment persists.
Gold | 01 August 2024
Potential JSE Delistings:
- Criteria: Dividend yield > 0, market cap < 5 billion ZAR, NAV price > 100, P/E < 10, and profitable.
- Initial search yielded 53 stocks, refined criteria (dividend yield > 5%) narrowed it down to 25.
- Top candidates: African Media Entertainment, Argent, Combined Motor Holdings*, eMedia, Frontier Transport, Home Choice, Mustek, PrimeServe, Transpaco.
Shoprite*:
- Trading at all-time highs.
- 12% revenue increase, 6.3% like-for-like growth, 5.8% inflation.
- Successful new store formats (PetScience, Checkers Outdoor, UNIQ Clothing, Little Me).
Woolies:
- Disappointing trading statement.
- Comparable store sales up 6.9%, inflation at 7%, volume decline.
- Heps down 14-19%, market expectation miss.
RSA Retail Bonds Update:
- New Rates: Two-year at 8.75%, three-year at 9%, five-year at 10.25%.
- Rates have been declining since June.
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Presidential Vision for Infrastructure Development:
The South African President's recent speech emphasised making the country a hub of construction and infrastructure development.
The potential for public-private partnerships and the types of infrastructure that might be developed, including roads, energy transmission, and public buildings.
Stocks That Could Benefit:
- Construction Stocks: A detailed look at various construction-related companies and their potential to benefit from the President's infrastructure plans.
- PPC: Potential benefits from increased construction activity.
- Murray & Roberts: Despite historical losses, they have a division in infrastructure and renewable power that might benefit.
- Stefanutti Stocks: Focus on their claim against Eskom, which is crucial for their future.
- Wilson Bayly Holmes (WBHO): Expected growth, though a significant portion of their revenue comes from Australia.
- Raubex: Strong performance and solid management, with significant involvement in road construction through Sanral.
- Afrimat: Supplier of construction materials, benefiting from Sanral and Transnet orders.
- Reunert: Involvement in industrial cabling and commercial battery storage, critical for new power facilities.
Market Insights:
- Mr Price* Update: Gaining market share and performing well post-elections and during a late-arriving winter.
- Sasol Production Update: Management's effective handling of controllable factors and slight improvements in Transnet's performance.
- Kumba Iron Ore: Confirmation of slight improvements in Transnet, echoing Sasol's observations.
JSE Listed Construction Stocks | 1 year return | close 23 July 2024
International Market Movements:
- CrowdStrike* Incident: A significant security update issue affected numerous systems, impacting the stock but not signalling an end for the company.
- US Small Cap Stocks: Rotation into small caps like those in the Russell 2000 index, offering a cheaper alternative to large-cap tech stocks.
Simon Brown wraps up the episode by emphasizing the importance of infrastructure development for South Africa's economy and reiterates his top stock picks to benefit from potential future construction projects: Raubex, Afrimat, and Reunert. He also touches on the potential 3% GDP growth for 2025 and the broader market implications.
SA GDP Growth Prospects
- IMF's projection: 0.9% GDP for South Africa this year.
- Potential factors for growth next year:
- Reduced load shedding could add 1% to GDP.
- Two-pot system introduction, expected to inject around 40 billion rand into the economy.
- Potential rate cuts: half a percent by the end of the year, possibly 1% by mid-next year.
- Inflation targeting at 4.5%.
- Optimistic outlook with a 60-70% probability of achieving 3% GDP in 2025.
South Africa GDP
Delistings and Market Movements
- Bell and Sasfin delisting announcements.
- Other potential delisting candidates in the small-cap space.
- Importance of constructing a portfolio that can benefit from economic growth and potential takeouts.
Bell weekly chart
Pick n Pay Rights Issue
- Explanation of the rights issue and its implications.
- Instructions for shareholders on handling nil paid letters.
- Simon's perspective on waiting for dust to settle before considering Pick n Pay shares.
Today is the last day to trade before Pick n Pay rights issue kicks in.
° If you hold at close tonight you will receive 51.11 rights per 100 PIK shares, code will be PIKN
° You can sell then in market
° Or pay 1596c per each to get a new PIK share
° HAVE to do so by 30 July— Simon Brown (@SimonPB) July 16, 2024
Property Stocks and Income ETFs
- Analysis of South African property stocks and their recent performance.
- Attractive yields in local and international income ETFs.
- Recommendation to explore defensive income stocks and ETFs for potential investments.
- Find local ETFs here.
Interest Rate Outlook
- MPC and FOMC meetings' impact on interest rates.
- Simon's forecast on rate cuts in South Africa and the US.
Load Shedding Update
- Milestone: 100 days of no load shedding by Friday.
- Factors: New capacity online, Kusile unit 5 (800 MW), upcoming additions from Medupi and Koeberg.
Impact:
- Reduced GDP loss (previously 1.8% of GDP due to load shedding).
- Positive effect on inflation and economic stability.
Winners:
- Retailers: Shoprite*, Pick n Pay, Spar (less expenditure on diesel).
- Manufacturers: Invicta, Hudaco (benefit from increased customer stability).
- Real Estate: REITs with shopping centers, reduced generator use.
Interest Rates
- Jerome Powell's Speech: Potential for a single rate cut in November.
- Impact on Markets: Minimal immediate impact, with expectations already priced in.
- Local MPC Meetings: Predictions for rate changes on 19 September and 21 November.
Market Insights
- Mr Price*: Ex-dividend yet the stock price increased, indicating strong sector performance.
Tesla Analysis
- Market Share: Decline in second-quarter sales but maintains a significant market share (~50%).
Challenges:
- Increased competition from other EV manufacturers.
- Need for cheaper models.
- Significant share dilution over the years.
- Stock Performance: Historical highs and current rebound to 231.
- Future Prospects: Continued relevance in the EV market despite competition.
[caption id="attachment_42560" align="aligncenter" width="849"]
Tesla weekly chart | 02 July 2024[/caption]
SARS Tax-Free Changes
RSA Retail Savings Bonds
- Rate Change: Significant drop in 5-year bond rate from 11.5% to 10.5%.
- Action Required: Reset by the 20th for current holders. The form is here.
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Key Takeaways
- MultiChoice Trading Opportunity: Potential for profit if the Canal+ deal goes through, despite current low stock prices.
- Futures Trading: Importance of understanding margin, liquidity, and strategy when trading ALSI and ALMI futures.
- Market Conditions: Current cheap valuation of SA Inc stocks presents opportunities, pending political stability and cabinet announcements.
MultiChoice Mis-pricing:
- Discussion on the 125 Rand mandatory offer from Canal+ for MultiChoice.
- Current stock trading at 102 Rand due to poor financial results.
- Analysis of Canal+'s offer document, potential deal completion, and possible trading opportunities.
Index Futures - ALSI and ALMI:
- Detailed overview of trading ALSI (All Share Index) and ALMI (All Share Index Mini) futures.
- Explanation of points trading, margin requirements, and contract specifics.
- Tips on trading strategies, including liquidity considerations and handling overnight gaps.
- Trading as a side hustle, watch the video.
Market and Stock Updates:
- Cabinet Announcement Awaited: Market reactions and fluctuations in the Rand.
- Individual Stocks: Analysis of Mr. Price*, Foschini Group*, Nedbank, Spur, and CMH*.
- Banking Sector: Observations on price to book ratios and the overall market valuation of SA Inc stocks.
Simon Brown
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dd
Face-Ripping Rally on the JSE:
- Surge attributed to the formation of a coalition government involving ANC, DA, and IFP.
- Top 40 index rose 3.5%, a significant increase not seen since February 2018.
- The rally, likened to the start of a marathon, suggests potential long-term growth, despite possible volatility.
RAND and Resource Stocks:
- RAND trading under 18, affecting resources positively.
- Potential for RAND to strengthen further, possibly reaching 17.
Coalition Government and Market Impacts:
- The coalition’s stability is uncertain but critical for long-term market confidence.
- JP Morgan upgraded South Africa from underweight to overweight, signaling positive outlooks.
SA Inc Stocks and ETFs:
- Retailers like Shoprite*, Mr. Price*, Foschini Group*, and Truworths hitting 52-week highs.
- ETFs for local investors, focusing on SA Inc..
- Recommendations include avoiding heavy Rand Hedge dual-listed miners in a strong RAND environment.
RSA Retail Savings Bonds:
- Interest rates for RSA Retail Savings Bonds to drop in July.
- Current rates: 11.5% for a 5-year bond, expected to decrease to 10.75%.
- Opportunity to reset bonds before the rate change on the 20th of the month.
Inflation and Interest Rates:
- Local CPI stable at 5.2%, within the target band but aiming for 4.5%.
- US FOMC holds rates steady, hinting at a possible future rate cut.
- Prospects for lower local interest rates and their impact on retail stocks and disposable income.
Market Opportunities:
- Interest in retailers and brokers like Purple Group* and PSG Konsult, considering the potential increase in disposable income and trading volumes.
- Positive long-term outlook, but caution against immediate full investment.
Simon Brown
US Inflation:
- Core Inflation: Came in at 3.4%, lower than the expected 3.5% and previous 3.6%.
- Impact: Positive market reaction, with US Treasuries under pressure, Rand strengthening, and Dollar weakening.
- FOMC Outlook: Potential rate cuts anticipated towards the end of the year, possibly in November and December.
Company Results:
SPAR:
- Performance: Results were as expected, market responded positively.
- Issues: Challenges in Switzerland, discontinued operations in Poland, and ongoing SAP implementation issues.
Foschini Group:
- Performance: Strong results, market reacted favorably.
- Highlights: Good performance in their online platform Bash and general improvement across brands.
- Foschini Group and Clothing Retailers: Potential growth areas and resistance levels in stock prices.
Interesting Stock:
- Contemporary Amperex Technology Company Limited (CATL):
- Sector: Battery technology for EVs and corporate solutions.
- Market Performance: Positive analyst ratings, promising future prospects.
Renergen*:
- Helium Production: Helium is flowing, but further testing is required.
- Challenges: Significant delays and ongoing testing phases, but progress is being made.
Santova:
- Stock Movement: Changes in buyer and seller dynamics impacting stock price.
- Insights: Importance of identifying market movers in stock trading.
Political Developments:
- Coalition Talks: Ongoing with potential for an ANC, DA, IFP coalition.
- Rand Performance: Strengthening in response to political stability and positive US inflation data.
[caption id="attachment_42378" align="aligncenter" width="849"]
USDZAR | 12 June 2024[/caption]
Simon Brown
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New Two-Pot Pension System:
- Details on the implementation and implications for retirement savings.
- Kicks in 1 September 2024
- Can take up to R30k immediately, but this will be taxed.
- Thereafter 30% of contribution go into a savings pot your can take out, it will be taxed.
- Only use for an emergency, not holidays.
Rainbow's Return to JSE:
- Analysis of Rainbow's re-listing after 17 years.
- RCL Foods will be unbundling later in June
- One Rainbow share for every RCL Foods share
- But is Rainbow the best chicken stock on the JSE?
OPEC+ Impact on Oil Prices:
- Members agreed to cut voluntary production cuts
- Oil crashed
- As did Sasol
[caption id="attachment_42315" align="aligncenter" width="849"]
Brent oil | weekly | Koyfin
Q1 GDP Results:
- Negative Q1
- Q2 should be slightly better thanks to reduced load shedding
- But election will have worried investors.
Santova Stock Analysis:
- Buyer at 750c
- Seller at 760c
[caption id="attachment_42316" align="aligncenter" width="849"]
Santova daily | 06 May 2024 | Koyfin
Coalition Talks:
- ANC is talking with everybody
- They seem keen on a governmnt of national unity
- Rand volatile
Recent uploads onto Just One Lap
- Three new Global ETFs from FNB with low TERs
- The Power of Commodities with 1nvest: Navigating Trends and Unlocking Portfolio Diversity
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Election Results Impact on Markets
- Slow ballot counting with three ballots, 18.7% counted.
- CSIR prediction at 5%: ANC 42%, DA 22%, EFF 9%, MK 14%, Patrick Alliance 2%.
- Market concerns about ANC forming a coalition.
- Rand fluctuations: From 18.34 on Tuesday to 18.61 currently.
[caption id="attachment_42259" align="aligncenter" width="849"]
Rand | 1pm 30 May 2024[/caption]
Pepkor Results:
- 9.5% revenue growth.
- 24.5% growth in fintech, now 12% of the business.
- Pepkor sells 7 out of 10 smartphones in South Africa.
Woolies (Woolworths) Update:
- Earnings down 20% for the year ending June.
- Challenges in the clothing segment, further deterioration in footfall and discretionary spend.
- Food segment performing better, but overall market reaction negative.
Zeda Results:
- Revenue growth of 19%, HEPs up 12.5%, return on equity at 28.5%.
- Surprise 50 cents dividend despite previous year-end dividend expectations.
BHP Billiton and Anglo American Merger
- BHP walked away from the Anglo-American takeover proposal.
- Speculation about potential offers from Rio Tinto or Glencore.
- Anglo-American's disinvestment plans for De Beers and Anglo Platinum.
Market Insights
- Discussion on Metrofile's challenges with dividend yield falling and pressure on share price.
- SAB Cap Investments' exit from Metrofile.
- South African Reserve Bank MPC rate announcement: No rate changes expected.
- Upcoming central bank meetings: ECB, FOMC, Bank of England, Swiss National Bank.
- Potential for future rate cuts in South Africa if inflation targets are met.
Commodity webcast with Johann Erasmus available on Just One Lap.
- Insights into gold, PGMs, and copper.
- Mention of the cheaper gold ETF from 1nvest compared to Absa GLD.
Changes in 10X ETFs: Local Dividend Aristocrat and Smart Beta merging into a Top 50 ETF.
Nvidia's Financial Performance
- Nvidia's Q1 Results:
- Revenue up 262% year-on-year to $26 billion.
- Net income up 628% year-on-year to $14.9 billion.
- Gross margins at 78.9%.
- Stock Split: 10-for-1 stock split set for 7 June.
- Market Reaction: Stock traded over $1,000 in the aftermarket.
Anglo American and BHP Group
- BHP's Third Offer: Anglo American rejects BHP’s third offer.
- Deal Concerns: Issues with the price and risk of the deal.
- Next Steps: Extended deadline for BHP's offer to 29 May.
Richemont's* Results
- Richemont's Position: Holding steady in a tough luxury market.
- Earnings Growth: Expected around 10% over the next few years.
- Preferred Stock: Richemont favored over LVMH for its focused luxury product line.
Copper Market
- Copper Boom: Strong performance but cautious outlook due to potential price pullbacks.
- Investment Options: Local ETNs and offshore ETFs available for copper investment.
Structured Products
- Educational Video: Power Hour session on structured products by Kevin Swartz from Standard Bank.
- Features: Capital protection and enhanced upside.
Pick n Pay's Plan
- Sales Update: For 52 weeks ending 25 February, bleak results expected.
- Market Reaction: Stock closed 4.5% higher on news of a plan.
South African Economic Indicators
- CPI Inflation: 5.2% for April.
- Primary Surplus: Revenue exceeded expenditure (excluding interest).
Vehicle Sector Analysis
- Companies Covered: Combined Motor Holdings (CMH), WeBuyCars, Motus, and Zeda.
- WeBuyCars showed strong sales growth.
- Motus and CMH had high dividend yields.
- Zeda focuses on car rentals and mobility as a service.
- CMH preferred for its consistent performance and dividend yield.
Home Building Sector Analysis
- Companies Covered: Calgro M3* and Balwin.
- Balwin struggling with higher-priced units.
- Calgro M3's flexible pricing strategy favored in current market conditions.
[caption id="attachment_42201" align="aligncenter" width="849"]
Calgro M3 vs Balwin[/caption]
Santova Directors' Selling
- Director Sales: Recent director sales not seen as a significant concern.
- Market Impact: Director selling viewed as a neutral action.
Disclaimer
JSE Direct is an independent broadcast and is not endorsed or affiliated with JSE Limited. Views expressed are solely those of the presenter.
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Anglo-American vs. BHP Group
- Anglo-American rejects BHP Group's offer, unveils its own restructuring plan.
- Anglo-American to divest De Beers, Anglo-American Platinum, coking coal in Western Australia, and reduce spending on UK fertilizer businesses.
- Focus on high-quality iron ore and copper assets.
- Discusses shareholder likelihood of accepting Anglo-American's plan over BHP Group's offer.
- Discussion on lab-grown diamonds and potential impacts on the market.
Market Insights
- Tencent's positive results impact Naspers and Prosus.
- NASDAQ and S&P close at all-time highs.
- Analysis of South African market trends, influenced by gold stocks, Naspers, Prosus, Richemont, and Rand strength.
[caption id="attachment_42112" align="aligncenter" width="849"]
Top40 close 15 May 2024[/caption]
- Discussion on upcoming elections' market impact.
- NHI bill signed, causing sell-off in healthcare stocks.
- US imposing more tariffs on China, strategic implications discussed.
Company Highlights
- Positive financial results from Calgro M3* and Raubex.
- Calgro M3 reports good numbers, discusses share buybacks and future prospects.
[caption id="attachment_42113" align="aligncenter" width="849"]
Clagro M3 close 15 May 2024[/caption]
- Raubex impresses with strong financial performance, diversification strategies.
Preview of forthcoming corporate earnings announcements and economic data releases.
Notable events include Richemont*, Palo Alto, Netcare, Astral, Famous Brands, Coronation, UK and US inflation data, FOMC minutes, and Nvidia results.
Simon Brown
Introduction:
- Simon Brown kicks off the episode discussing the current state of the Rand, noting its stability leading up to the elections despite fluctuations.
- Speculation around ANC's momentum in the polls and potential coalition scenarios.
- The impact of the dollar's weakness on the Rand's performance.
Structured Products:
- Simon delves into the concept of structured products, which offer capital guarantees and enhanced returns through strategic investment mechanisms like options and bonds.
- Announcement of an upcoming Power Hour with Standard Bank focusing on structured products.
- Brief overview of actively managed certificates, also at next weeks Standard Bank Power Hour.
FNB's New ETNs:
- FNB's introduction of new Exchange Traded Notes (ETNs), including a variety of indices and US-listed stocks.
- Explanation of Compo and Quanto variations, tailored to currency impacts.
- Highlights of recently launched ETNs, such as Nvidia, Booking Holdings, Eli Lilly, and Palo Alto Networks.
Amazon.co.za's Arrival:
- Simon provides insights into Amazon.co.za's debut in South Africa, discussing initial observations and comparisons with local competitors.
- Discussion on the potential impact of Amazon's entry on brick-and-mortar retailers and existing online platforms.
Exploring Small Caps:
- Simon poses the question of whether local small caps on the JSE offer value or pose as value traps.
- Definition and implications of value traps in investments, emphasising the importance of dividends and price appreciation.
- Insights from John Biccard of Investec on potential post-election performance in small caps.
- Examination of various small cap stocks, analysing dividend yields, price-to-book ratios, and earnings potential.
- Simon's perspective on the opportunities and challenges presented by small cap investments, urging caution and strategic analysis.
Rate Cuts and Economic Outlook
- Jerome Powell's statement from the FOMC meeting: "Inflation remains too high and the path forward is uncertain."
- No rate cut was announced at the FOMC meeting.
- Speculation on upcoming rate cut possibilities and their impact on the economy.
- Local economic outlook and potential changes due to the upcoming election.
BHP Group's Interest in Anglo-American
- BHP Group's* proposal to buy parts of Anglo-American, leading to market speculation.
- Complexities of the deal and potential impact on stock prices.
- Analysis of BHP Group's interest in Anglo-American's assets, particularly in copper
- Potential effects of the deal on the Johannesburg Stock Exchange (JSE) and overall market sentiment.
- Historical context of Anglo-American's significance in South Africa's mining industry.
Chinese Market and Economic Data
- Overview of China's economic challenges and recent data indicating resilience.
- Discussion on Chinese stock market performance and factors influencing consumer sentiment.
Oil Market Dynamics
- Analysis of recent fluctuations in oil prices and underlying supply-demand dynamics.
- Impact of US oil production and global economic conditions on oil prices.
- Implications for South African consumers and petrol prices.
Retail Bonds and Sygnia ETF Changes
- Update on retail bond rates for May and potential changes in June.
- Sygnia's planned changes to ETFs, including the Fourth Industrial Revolution and Fang AI funds.
Clicks Results and Market Analysis
Review of Clicks' financial results and market response.
- Analysis of Clicks' performance in the retail sector and future outlook.
- Discussion on Clicks' valuation and potential investment opportunities.
ff
Capitec Results:
- Simon analyzes Capitec's recent financial results, highlighting strong metrics such as return on equity, active clients, and app usage.
- However, he notes concerns about the bank's expensive valuation compared to its competitors.
SARB Monetary Policy Review:
Simon discusses the South African Reserve Bank's recent review, indicating a reluctance for rate cuts in the near future due to inflationary pressures and economic uncertainties.
Key takeaway from the bi-annual Monetary Policy Review of the @SAReserveBank:
Don’t bet on a domestic interest rate cut this year. https://t.co/mhRS5vKIFQ pic.twitter.com/sc5p9GPcf5
— Adrian Saville (@AdrianSaville) April 24, 2024
Sasol Woes:
- Simon discusses Sasol's poor performance following a production update, expressing skepticism about its future prospects despite its low stock price.
Other Market Updates:
Simon touches on Tencent's positive performance, gold and oil price movements, and the potential impact on global markets
UK and Local Inflation:
- UK inflation surprises at 3.2%, lowest in over two years.
- US Fed unlikely to cut rates soon, waiting for FOMC meetings.
- South Africa's CPI data for March at 5.3%, showing a positive trend.
- Potential for SA rate cuts, depending on US decisions.
[caption id="attachment_41866" align="aligncenter" width="849"]
SA Inflation 5.3% for March 2024[/caption]
China and Commodities:
- China's GDP surpasses expectations at 5.3%, amid concerns over Fitch downgrade.
- Export data reflects overstocking, driving prices down.
- Despite challenges, China's market appears interesting.
[caption id="attachment_41867" align="aligncenter" width="849"]
Chinese GDP YearONYear per quarter[/caption]
PGMs, oil, gold, and other commodities.
- Gold remains strong, targeting $2500.
- Recent attack on Israel by Iran affects oil prices.
WeBuyCars listing and potential market impact.
Transaction Capital analysis and investor considerations.
Purple Capital* Results:
- Purple Capital swings back to profit, surprising the market.
- Key financial highlights and insights into EasyEquities performance.
- Exploration of new products and their impact on revenue.
- Analysis of client cohort growth and its implications.
- Positive outlook on Purple Capital's performance.
- Expectations of potential price pullback.