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.
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Day 139 of lockdown and Covid-19, new cases definitely on the decline.
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.
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JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
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Day 132 of lockdown and Covid-19, new cases definitely on the decline.
City Lodge market cap this morning cR600m, add in R1.2bn from rights issue, take out R800m for costs and BBE deal = R1billion (very rough numbers) ..
'Property͕ plant and equipment' (excluding furniture/equipment) = R2.4billion less R660m debt = R1.74billion— Simon Brown (@SimonPB) August 5, 2020
JSE – The JSE is a registered trademark of the JSE Limited.
JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
Offshore
/ US 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
Day 126 of lockdown and Covid-19, cases may be moderating?
EasyEquities users got all heated last week on Twitter as EE put T&Cs about script lending into their new mandate. I not commenting on the EE offer as they've withdrawn it. But many have asked about script lending as a concept.
If I want to go short (make money from a falling stock) I need to sell shares and naked shorting is not allowed by the JSE (or most exchanges). So I need to borrow stock from somebody.
Usually, you borrow from a large institutional investor who has plenty, you pay a fee and will also be liable to pay the lender any entitlements such as dividends.
This process happens in the background when you're shorting via derivatives and why some shares are not sortable, no script to borrow.
The script lender earns a fee, but there is risk so default.
Maybe they can't afford to close out the position. remember they sold to buy back lower, but what if an offer arrives and the stock jumps say 50%?
It certainly can and some income to a portfolio but the risk needs to be managed and the income is fairly modest. That said I've never lent out my script but I have borrowed script in recent years for some shorting (Aveng and Lonmin).
JSE – The JSE is a registered trademark of the JSE Limited.
JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
Offshore
/ 1.42 million Americans applied for unemployment benefits in the week ending July 18, up from 1.3 million a week earlier
/ Gold through $1,900
/ EU leaders have agreed to a €750b ($857b) stimulus package (US is in talks for their next round of support)
/ Tesla into sp500
/ Results; Microsoft msft & Intel intc
Local
/ MPC rate cut
/ IMF loan to be announced tonight, R70billion
/ MTN update Vodacom
/ Datatec update
/ Sasol update
Day 119 of lockdown and Covid-19, cases may be moderating? Monday is 4 months of lockdown.
From @keithmclachlan on Datatec valuations
Westcon at $600m x R16.50 = R9bn + Logicalis x 10 PE x R16.50 = R5bn = R14bn..
Less 10% head office = R12.6bn equity value against R5bn current market cap..
Listen ==>> https://t.co/HeaMQxTCYK@Moneyweb #MoneywebNOW— Simon Brown (@SimonPB) July 22, 2020
I have never been a gold bull, in fact, the phrase I most used for gold stocks was that the only time you buy a gold stock was when you closed a short.
But golds time has arrived and the miners are going wild even with a vaccine at some point this trend is likely to continue.
The stimulus in the US and EU is massive and while stock markets are doing great, and maybe they can be propped up forever (certainly it worked post 2008/9 crisis) the underlying economies are not doing so great.
Gold ETFs are an easy way to get exposure but they have no leverage, so less risk and less reward. Gold miners offer that leverage so will do way better, but also bring a bunch of risk.
The Rand also brings risk as it strengthens.
JSE – The JSE is a registered trademark of the JSE Limited.
JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
Offshore
/ US jobless claims remain at around 1.3million
/ Netflix drops 9% on weak Q3 guidance.
/ Jamie Dimon’s warning for the U.S. economy — nobody knows what comes next
/ Amazon stock had its worst week since February
/ Fiscal Cliffs Threaten Fragile U.S. Recovery as stimulus expires late July
/ Qantas has removed all of its international flights until March of 2021
Local
/ Tsogo Sun Hotels sells Maia resort for wild price
/ CPI May 2.1%, lowest since Sep2004
/ astral enters the quantum fray and price still flying
/ Diamond sales collapse and Richemont update
/ Rights issues announced, TFG R3.95 billion (40 per 100 shares, 40% discount), SUI R1.2billion (93 per 100 shares, 25% discount)
/ Spur CEO resigns
Day 112 of lockdown and Covid-19 cases are still spiking in South Africa and no drink again.
I lived in Pietermaritzburg in 1994/5 and it was the time of the great pie wars as the price for pies kept on falling. It was great for me as a pie eater, but a horror for the pie makers, of which there were many. The many in part why there were pie price wars, everybody dropping prices to try and push others out. In the end, I suppose it worked for some, but at the time of dropping prices, profit was out the window.
The point is that if your only edge is the price, you're in trouble because somebody will just make it cheaper.
Now sure, quality matters as does the ability to supply. Cheap pies in Pietermaritzburg didn't help people living in Durban never mind Johannesburg.
We've seen this in construction when back in the 70s/80s ability was really important. I remember the firm my father worked for hiring a German engineer to help with a project and it was a big deal to have the skills be brought to the business. Finding him and getting hin to South Africa was a challenge. But now that sort of skill is a click away on LinkedIn so what is your edge?
If it is the price you're in deep trouble. Hence we've seen a number of construction companies locally and globally move away from traditional construction while the specialist construction companies (think roads) are under pressure as everybody becomes a road builder.
So when investing always be considering what is the edge and is it defendable?
JSE – The JSE is a registered trademark of the JSE Limited.
JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
Offshore
/ Germany saves. Total retail deposits rose by €22.4bn in Apr and hit fresh All-time high at €2.46tn. The volume of retail bank deposits has doubled within 18 years.
/ German production and export data disappoints as they have nobody to sell to in a lockdown world.
/ Warren Buffett’s Berkshire buys Dominion Energy natural gas assets in $10 billion deal
/ Uber buying Postmates
/ Tesla still storming higher (as is Nasdaq)
/ Gold strong
Local
/ SARB bought only R5.1billion bonds in June
/ Load shedding is back
/ Everybody wants Quantum Foods
/ Omnia results
/ Updates from Liberty 2 degrees and Growthpoint
/ Steinhoff sells Conforama
/ TFG buying JET for R480m and is looking to raise R3.95 billion in a rights offer.
“This week’s episode of JSE Direct is courtesy of IG.com, our preferred supplier in trading products.”
JSE – The JSE is a registered trademark of the JSE Limited.
JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
Offshore
/ US unemployment 11.1%
/ Tesla now largest motor company in the world
/ Advertisers bailing on facebook
/ Goldman Lowers U.S. GDP Forecast, Sees 4.6% Contraction in 2020 (was 4.2%)
/ Fitch has downgraded a record number of sovereign ratings due to the coronavirus. 33 downgrades, 40 negative watch
/ Brexit talks started up again
Local
/ Q1 GDP at -2%
/ Barloworld results
/ Capitec update
/ 1Nvest ETNs expiring 11 August (gold, silver, platinum & palladium)
/ Redefine sells R7.7billion of assets to reduce LTV
/ Steinhoff still muddling along and publishing results
“This week’s episode of JSE Direct is courtesy of OUTvest, our preferred supplier in retirement products.”
Avis and Budget Rent a Car Southern Africa (owned by Barloworld):
🚗 Will retrench 50-60% of staff.
🚗 Close at least 26 of its 90 branches (1 in 3). Already down from 150.
🚗 Rental fleet already cut from 27,000 to 22,000. Will remove another 10,000 vehicles by February.— Hilton Tarrant (@hiltontarrant) July 1, 2020
Redefine (JSE code: RDF) has sold assets worth R7.7billion to pay down debt. This improves their LTV (loan-to-value) to around 40.6%, but the risk remains as the V part of LTV is also a moving target and will likely be moving lower when their yearend comes around in August.
LTV is a very important data point in listed property and bank loan covenants will be based on this figure.
Listed property revalues their assets on a rolling three-year review. Every year a third of properties have a full revaluation. Somebody checks the lifts etc. Also important is occupancy levels and rental payment rates and increases in rentals.
The other two-thirds of the properties are adjusted in the year they're not having a hard revaluation.
Helping is that lower rates will boost valuations and debt may also in part be floating.
But we can expect valuations to be 10%-20% lower and this will spike the LTV levels really hurting the LTVs.
That said, bankers are not likely to be calling in the loans as they don't want to be landlords but remember my podcast of earlier in the year about maintaining REIT status, this is a sector under serious pressure. https://justonelap.com/podcast-property-losing-reit-status/
Lastly, adding to the woes is that the debt is often debt notes that will need to be rolled, who's going to be buying listed property debt in this market?
JSE – The JSE is a registered trademark of the JSE Limited.
JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
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
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
Many others will be via a traditional rights issue;
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.
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.
/ 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.
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Ascendis Healths subsidiary Remedica manufactures Dexamethasone which apparently helps combat severe cases and is being approved by the NHS. pic.twitter.com/XUw9VPHwdg
— Herenya Capital Advisors (@HerenyaCapital) June 17, 2020
JSE – The JSE is a registered trademark of the JSE Limited.
JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
Offshore
/ 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.
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British Airways is auctioning off art worth millions as pandemic weighs on earnings
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.
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)
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Levi opening stores and they say “everybody has a new size, a larger size”
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.
Global
/ US past 40million initial claims and Q1 GDP updated to -5.0% from -4.8%
/ Personal saving rate 33% in April
/ Germany’s Business Climate Index rose to 79.5 in May as the country reopens
/ Reuters ~ China's May factory activity returns to growth but demand remains weak
/ China US tensions increasing
/ Bill Ackman's Pershing Square Capital Management announced it had sold off its entire stake in Berkshire Hathaway. BH has $133.3 billion hoards of cash vs S450 market cap (third of assets are lazy and not been deployed).
Local
/ PSG announced CPI unbundling details (14 CPI for every 100 PSG)
/ Woolies update, spending AU$100million on Australia
/ TigerBrands results as branded goods come under further pressure.
/ Famous Brands very pessimistic on casual dining recovery
/ Stats SA delayed April CPI by a month due to difficulty collecting data
/ PIC talking about converting Eskom debt to equity
TOPSBZ is a put warrant that trades on the #JSE and can be bought in any normal stock broker account .. @SBGTraderZA
clients buying in a warrant account pay flat R50 brokerage taxes etc. https://t.co/LX0mZmplYo— Simon Brown (@SimonPB) May 23, 2020
Warrants were the first derivative I traded, starting in October 1997 as they were launched in South Africa. SAWarrants was also my first successful website that launched me into the financial services industry. Recently I've been trading some warrants again as have a few traders I know and a tweetstorm I did over the weekend got a lot of question about trading warrants.
The short answer is don't.
They're derivatives and hence risky If you're an ETF buyer or even just a straight equity buy and holder, stay away. If you're successfully trading other derivatives then they're worth a look. Certainly, they have some benefits over traditional derivatives, but also lots of complexity.
A warrant is really an option that gives the holder the right to buy or sell an underlying asset.
The fact that it is a right, not an obligation, means your loss is capped at what you paid.
Warrants trade on the JSE just like any other share or ETF with six-letter codes. First 3 letters denote the underlying asset. 4th letter is the issuer, 5th letter the style (B for normal, I for instalment and K for knockout - be very careful of knockout warrants). The last letter is as above denoting call or put.
But a lot of greeks that can trip you up that are outputted by the Black-Scholes formula (this formula won the writers a Nobel prize).
One major benefit is that with warrants you can only lose hat you paid, unlike with CFDs or futures you can lose more than you deposited.
The warrant issuers will also ensure there is a market maker buying and selling at fair value at all times. They will use a pricing matrix that can be found online.
If you trade warrants within a Standard Online Share Trading warrant account you pay flat brokerage of R50 +taxes.
And Standard Bank have a good website at warrants.co.za
And I will end where I started. Be very careful and do not jump into warrants unless you're a successful trader already, otherwise, the greeks will get you. The big challenge is that you may get the direction of the trade right (call or put) but pick the wrong warrant and lose money.
JSE – The JSE is a registered trademark of the JSE Limited.
JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
Offshore
/ Hertz bankruptcy
/ US initial jobless claims now over 38million (160m labour force), UK ver 10million (35million labour force)
/ This on the back of German Q1 GDP released this morning coming in at -2.2%
/ Moderna vaccine excitement, and then they raise capital on share price spike
/ Commodities having another good week.
/ Apple mobility data shows Europeana and US economy opening.
Local
/ 0.5% rate cut
/ Stor-age raises R250m in bookbuild.
/ Grand Parade Burger King sale being repriced?
/ Liberty 2 Degrees update, nice insights.
/ Nedbank update also offering solid insights.
/ Richemont raises Euro2billion debt as they strengthen their balance sheet
/ Online sales surging
Day 56 of lockdown
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.