Simon Shares

Trading

• Trading in the Zone – Mark Douglas (detailed review)
• Trend Following – Michael Covel (detailed review)
• Reminiscences of a Stock Operator – Edwin Lefevre
• Market Wizards - Jack Schwager
• The Complete Turtle Trader: How 23 Novice Investors Became Overnight Millionaires - Michael Covel

Investing

• The Little Book of Common Sense Investing - John C. Bogle
• One up on Wall Street – Peter Lynch (detailed review)
• Common Stocks and Uncommon Profits – Phil Fisher (detailed review)
• Effective Investor – Franco Busetti
• The Little Book that Beats the Market - Joel Greenblatt

General

• Thinking, Fast and Slow - Daniel Kahneman
• Fooled by Randomness - Nassim Taleb

Simon Shares

• Anthony Clark on small caps
• Purity baby powder products were recalled by TigerBrands (JSE code: TBS) due to traces of asbestos.
• PSG (JSE code: PSG) unbundling effective at close on Tuesday. Holders at the close will receive
  • 3.87 PSG Konsult (JSE code: KST)
  • 1.82 Curro (JSE code: COH)
  • 0.12 Kaap Agri (JSE code: KAL)
  • 1.04 CA Sales (JSE code: CAA)
  • 1.02 Stadio (JSE code: SDO)

The bear and bull case for investing in Shoprite

Shoprite* (JSE code: SHP) results saw the stock down 7.5%. Let's dig into what the market maybe didn't like.

• Only 10% earnings growth?
  • With one week less and the 2021 riots in the numbers, decent albeit not knock the lights out.
• Only 600c dividend for the full year?
  • Very much in line with the average.
• Expensive on PE of over 20x?
  • Always is, but mid-range is about 15% lower. So yes, maybe a little more than usual?
• Opening 275 new stores?
  • Cost and are they cannibalising their other stores?
• RSA operating margin 6.8%?
  • The top end of the long-term range, worries that it may move lower?

But Shoprite remains one of the best food retailers globally and a core holding in my portfolio. I have bids in the market at around R170 which would put it on a PE closer to the mid-range from the last decade.

Sixty60 grew 150% and remains the absolute market leader in the grocery delivery space.

Checkers Xtra Savings has 24.7m members and it turning into a bank account.

* I hold ungeared positions.

• Sold my Murray & Roberts (JSE code: MUR)

Murray & Roberts weekly chart

Not a lekker chart, I've held for a while, but am now out #JSE pic.twitter.com/BKKP4HOLhr

— Simon Brown (@SimonPB) September 4, 2022

Simon Shares

• Save R500k with a deposit.
• ETF closing prices are an absolute mess.
• Cashbuild (JSE code: CSB) results see them coming back to earth after a pandemic boost.
• Education stocks all published results. ADvTECH* (JSE code: ADH) is my pick, but all showing student growth and cash generation.
• Shoprite* (JSE code: SHP) gets permission to turn their money market account into a bank account. Grindrod (JSE code: GND) currently runs the service for Shoprite and African Bank is buying Grindrod Bank.
• Walmart (NYSE code: WMT) is set to make an offer to the Massmart (JSE code: MSM) minorities for the remaining 47% at 6800c.
• Netflix (Nasdaq code: NFLX) plans to price its ad-supported plan at $7-to-$9 per month with about 4 minutes of adverts per hour.
• Purple Group* (JSE code: PPE) back at 203c, always be very careful of casing a news story (the Asia deal announced last week with very few details).
• Tsogo Sun Hotels (JSE code: TGO) changes its name on 7 September. They will become Southern Sun Limited (JSE code: SSU).
• UK inflation, Goldman Sachs now saying 22% is possible next year.
• Sun International* (JSE code: SUI) strong results. Consumers under pressure shouldn't hurt too much as they mostly target higher LSMs and they paid the first dividend (88c) since 2016. Currently, ±3200c is resistance.

Greylisting

Financial Action Task Force (FATF)

• Cracking down on money laundering and funding terrorism.
• Greylisting can reduce a country's capital flows by as much as 7.6%, according to an IMF working paper.
• Cabinet has approved a raft of new amendment bills but leaving it late, very late.

Our deadline is September/October after being put on the watch list last year.

The important questions;

• Will we get greylisted?
• What happens if we do?
• If greylisted, how do we get off the list?

* I hold ungeared positions.

Simon Shares

• Nasdaq (650 points), S&P500 (80 points) & Euro Stoxx50 (22 points) trades all closed. FTSE100 still going currently +100 points.
• Old Mutual BEE deal, will go into details, but it only closes in late October so no rush.
• Spur (JSE code: SUR) looking very good.
  • PE ±15x and DY ±5%
  • From the Spur earnings call "And we know that only 18% of the South African adult population represents 80% of economically viable consumer segment."
    • Revenue at record with space to get margins back to pre-pandemic levels. Net income margin was ±5%, historically over 20%.

• [caption id="attachment_36416" align="aligncenter" width="849"] Spur; revenue, net income, NI margin[/caption]Afrimat (JSE code: AFT) Gravenhage manganese mine deal failing due to the Water Use License being materially different. They raised ±R650million last month.
• Purple Group* (JSE code: PPE) does a deal in Asia.
• Kap Industrials (JSE code: KAP) good results and great insights into other industries.
• Citi now says UK inflation to hit 18% early next year (last week they said 15%).
• Sasol (JSE code: SOL) pays a dividend, 1470c.

Sasol: To answer a separate Q:
The EBIT profit split is:
•Energy: 58%
•Chemicals: 42%
(Despite the high chemicals contribution, it is amazing to see how closely Sasol’s profit still conforms to the old back-of-a-matchbox calc of 5% of the Rand oil price.)

— Karin Richards (@Richards_Karin) August 23, 2022

* I hold ungeared positions.

Simon Shares

• BHP Group* (JSE code: BHG) results, have we peaked?
• Absa (JSE code: ABG) results, but maybe the ore important point of the results is their expectation that prime will hit 11% early in 2023.
• Chip shortage seems to be easing.
• Nasdaq is in a bull market, +20% off mid-June lows.
• Brent oil falling.
  • Current petrol price reduction is 260c for September.
• UK inflation is 10.1% for July.
• Charles Savage tells us his fav ETFs
• Rochelle Writes, pay down debt or save more with high rates.

Thungela resources (JSE code: TGA) still a buy?

R60 dividend, 40% forward DY

HEPS 6723c, forward PE 2.5x

Mis-priced at listing, unbundling often cause this to happen.

Ukraine's war gave it new legs.

Risks

• Coal price
• Rand strength
• Ukraine war
• Transnet

* I hold ungeared positions.

Simon Shares

• Renergen* (JSE code: REN) the Central Energy Fund has successfully completed their due diligence on the R1billion, final approval is still required.
• Mpact (JSE code: MPT) results.
• US jobs data and unemployment continue to belie the recession talk.
• US inflation for July was 8.5%, a good number.
• A gallon of gas has fallen below $4 in the U.S. for the first time since March.
• Credit Suisse has lowered its 2023 UK GDP forecast to -0.6% from 0.5%; expects the UK to enter a recession from Q4 2022 until Q3 2023.
• Elon Musk sold $6.9-billion (R14.5-billion) of his shares in Tesla (Nasdaq code: TSLA) – his largest sale yet – saying he may need the cash if he has to buy Twitter (NYSE code: TWTR).

Embrace the risk

• Investing is about risk
• Without risk, there is no reward
• Without risk, you are saving
• But the risk needs to be reasonable and the returns realistic

* I hold ungeared positions.

Simon Shares

• Massmart (JSE code: MSM) update, retail margins are being squeezed, the exception is clothing retail.
• Thungela Resources (JSE code: TGA) very strong trading update.
• JSE (JSE code: JSE) results, strong.
• Nancy Pelosi lands in Taiwan and markets don't really care and China will complain - but this is not leading to war.
• Uber (NYSE code: UBER) finally hits cash flow positive.
• OPEC+ 100,000 b/d output hike, expectations (hopes?) were for 4-5x that and the second smallest increase since 1986.
• Earn 11% with Retail Savings Bonds

What's the only thing we control in markets

• The price we pay
• Everything else is beyond our control
• So use your one power carefully

Simon Shares

• New energy rules for South Africa. Who wins?
• Silverleaf Investments on Easy Equities. Know what you're buying.
• Food retailer updates, Shoprite* (JSE code: SHP) winning. Pick n Pay (JSE code: PIK) bounding back and Woolies* (JSE code: WHL) struggling.
• Cashbuild (JSE code: CSB) and Mr Price (JSE code: MRP) updates show consumers under pressure
• IMF upgrades SA GDP growth for 2022 to 2.3% up from 1.9% they expected in April.
• Results from Kumba Iron Ore (JSE code: KIO) and Anglo Platinum (JSE code: AMS)
• US data Wednesday and Thursday.
• Omnia (JSE code: OMN) was ex-div 800c on Wednesday and is now back in the longer-term channel. If you've been waiting to buy, now's your chance.

* I hold ungeared positions.

Simon Shares

• Local June inflation, 7.4%, MPC tomorrow.
• BHP Group* (JSE code: BHG) update, they are worried.
  ArcelorMittal South Africa (JSE code: ACL) trading update says global growth and recessions fears "present challenges for the outlook of commodities and steel demand in the next 12 to 18 months.".
• China's holdings of U.S. debt fell below $1 trillion for the first time since 2010
• Alviva (JSE code: AVV) delisting at 2500c.
• Brent oil trade keeps on trucking, buy below $100 exit $113.

• Brent oil
• Nasdaq, triggered a buy, waiting for confirmation which is a close above 12,250 while 7 EMA remains above 21 EMA.
• Building resilient portfolios for tough markets
• Lithium & Battery Tech ETF
• Stats and data on 95 years of bear markets. How much longer? How much lower?

* I hold ungeared positions.

Simon Shares

• US June inflation 9.1%, and core inflation was also up a 5.7%!
• Still stage 4. Rand continues to weaken.
• Back backs between 4 July 2022 & 8 July 2022
  • Naspers JSE code: NPN) bought 659,095 shares at an average price of R2 648.3315/share for R1.745 billion (US$104.73 million).
  • Prosus (JSE code: PRX) bought 6,240,339 PRX shares at an average price of €67.1361/share for €418.95 million (US$428.59 million).
• SARB now considers cryptocurrencies as a financial asset and will create regulations around them. This means cryptocurrencies can be listed on SA exchange platforms but the process will take 12-18 months.

Dividends, love them but be careful.

• But we also need to remember a few important things about dividends.
• They can disappear as we saw in 2020. Even the most stable dividend payer can stop paying. REITs which have to pay them by law being a REIT structure) stopped paying because payment would see them fail their solvency tests.
• They are backwards-looking. A high dividend yield is certainly attractive, but is it because the price has been falling? Could this be a warning of a dividend cut?
• Cyclical stocks (think commodity stocks) pay massive dividends sometimes, then nothing for years.
• Boards can change the cover ratio. This is the percentage of HEPS they pay as dividends. In tough times they can cut them. As the company matures they pay more.
• Progressive dividends are the worst. The idea is that every year the dividend goes up a set percentage regardless of profits. A few local stocks have tried the idea, all have abandoned the idea.
• Cash dividend vs. script dividend. I'll usually take the script.

• Reg28, proposed a two-pot system
• Sam Beckbessinger: My fav ETFs

Simon Shares

• Still stage 6. Rand continues to weaken.
• Naspers (JSE code: NPN) and Prosus (JSE code: PRX) both are holding well after the hard run the previous Monday on results and buy-back news.
• Resources under pressure, all of them.
• Supply chains adjusting
  • • Just in time is now just in case
    • Higher inventories
    • Higher costs
    • More localisation

Upcoming events;

• 13 July ~ To short or not to short with Markets.com
• 14 July ~ JSE Power Hour: Building a resilient portfolio for tough markets

Simon Shares

• Episode #500. Huge thanks to all, I go into some background about the show. Where and how it started, lessons learnt and more.
• Stage 6, the Rand lost 30c.
• Sun International* (JSE code: SUI) update for five months to 31 May 2022 shows they are nearly back at pre-pandemic revenue and this while we still had some restrictions and fewer international travellers.
• Naspers (JSE code: NPN) / Prosus (JSE code: PRX) results. Tencent (Hong Kong code: 700) is 125% of profits. The other businesses are all loss-making and in tough markets. They plan to sell down Tencent and buy back Prosus shares, but the discount to NAV remains around 50%, even after a massive move on the announcement.
• Grindrod (JSE code: GND) good update and share has been flying. This remains a very cyclical business and right now the cycle is paying off.
• Invicta (JSE code: IVT) saw strong results albeit some accounting points improved them a bunch.
• JSE (JSE code: JSE) trading update is surprisingly strong with HEPS expected +24%-32% for six months ending June.

* I hold ungeared positions.

Simon Shares

• Thungela (JSE code: TGA). Coal prices doing great, production is good but rail is the problem but HEPS is expected at 5800c. If we double for the full year we can expect ±R116 and a dividend of ±R100?
• Stor-Age* (JSE code: SSS) results are not exciting but steady.
• Omnia (JSE code: OMN) results were really strong, another special dividend and good future prospects.
• Orion Minerals (JSE code: ORN) raises money to get their Prieska up and running. Expected to take some 19 months.
• Amazon prime coming to South Africa next year. It will seriously challenge Takealot, owned by Naspers (JSE code: NPN)).
• City Lodge* (JSE code: CLH) trading update show them cash flow positive with occupancies back in profit.

* I hold ungeared positions.

Crypto in trouble

Not an inflation hedge nor a store of value. Just another risk asset. The problem is as QE ends and rates rise, will it still see a strong inflow of money? I think not.

It's not the end crypto, but new highs could be some way off.

Simon Shares

• US May inflation, 8.6%. Federal Reserve announced rates last night and surely it was 0.75% for the first time in 28 years?
• Either we have continued high inflation or a recession, maybe even both?
• Time for a Paul Volcker and do a 1% raise?
• It's ugly, Nasdaq and S&P500 both closed at lows for 2022 and are both are now in a bear market. S&P500 draw down at close 13Jun22
• And failing a real test or liquidity and exchanges halt withdrawals.

Simon Shares

• Sygnia (JSE code: SYG) results and a forward dividend of maybe as high as 10%.
• Local GDP at 1.9% for Q1 2022. The economy has now recovered to its pre-pandemic levels.
• Consumer cracking? I interviewed Evan Walker 36One Asset Management.
• Inverse ETFs that go up as the market falls.

Upcoming events;

[events_list limit="3"]

ddd

Are Robinhood's troubles Purple concerns?

[caption id="attachment_34522" align="aligncenter" width="761"] Robinhood since listing vs. Purple Group[/caption]

Simon Shares

• The good news is the US had a green week last week, for the first time in 8 weeks
• Goldfields (JSE code: GFI) is down on news it paying a chunky 33.8% premium to acquire Canadian Yamana Gold in an all-share deal
• We finally got the petrol price increase and the 150c fuel levy reduction remains in force, for now.
• German inflation hits 7.9% for May. Highest since the 1950s. EU inflation for May 8.1%, the highest ever.
• EU agrees on a partial ban on Russian oil imports
• Monthly dividends in a JSE equity portfolio
• Offshore ETFs paying monthly dividends

Demand destruction in commodities

There comes a point at which a commodities price is simply too high and the price itself reduces demand. Depending on the commodity high prices often need to be high for protracted periods of time.

Simon Shares

• Results are pouring in, food producers are struggling.
• Coronation (JSE code: CML) results with DY of over 10% and PE ±9X.
• Snap Inc (NYSE code: SNAP) profit warning. It now trades at half its listing price.
• Current under recovery in petrol price is 236c, + the 150c fuel levy suspension means we could see a 386c increase in June to over R25 a litre!
• What’s your fav ETF? We ask our readers, Rochelle is first up and likes an offshore ETF with a monthly dividend payment of almost 1%.
• Hello Eskom, best budget power banks.

Slightly better than average is enough

Investors and traders love big winners. That 10 bagger that happens in a matter of months or maybe a few years. But by consistently hunting for those big winners we're taking larger risks.

We're better off aiming for the modest winners.

Beating your benchmark by 2% a year sees you with almost 50% more after twenty years.

A recent Planet Money Podcast, Investing in mediocrity, talks about a fund manager who only ever aimed to be in the top third of all funds. After a decade of succeeding at that, they were the top fund over ten years.

Simon Shares

• 10X Investments buying CoreShares.
• MPC, 0.5% expected.
• Balwin (JSE code: BWN) results vs. Calgro M3 (JSE code: CGR).
• Pick n Pay (JSE code: PIK) results vs. Shoprite* (JSE code: SHP).

* I hold ungeared positions.

Simon Shares

• US April CPI 8.3%; Core CPI 6.2% (month-on-month core was +0.6%)
• FOMC
• Sibanye-Stillwater* (JSE code: SSW) update the market hated.
• Kaap Agri (JSE code: KAL) results
• Wandile Sihlobo on agri in SA.
• New Satrix global healthcare ETF.
• Thungela Resources (JSE code: TGA) could pay an R100 dividend this year, putting them on a +40% DY.

US Tech selloff continues

1-year FAANG returns

° Meta
° Apple
° Amazon
° Netflix
° Alphabet pic.twitter.com/VybsCoWDfh

— Simon Brown (@SimonPB) May 9, 2022

* I hold ungeared positions.

Simon Shares

• Combined Motor Holdings* (JSE code: CMH) results, Best ever.
• Renergen* (JSE code: REN) cold commissioning of phase 1 going well.
• New global healthcare ETF coming from Satrix. Currently in IPO and listing 26 May.
• EU unveils a proposal to ban Russian oil imports within 6 months, all refined oil products by the end of the year.
  • OPEC+ Sees Production From Non-Opec Participants in OPEC+ at 18.2 mln Bpd in May, 600,000 Bpd Lower Than Last Forecast
• Lyft (Nasdaq code: LYFT) shares fall 26% on disappointing forecast (earnings 75% below expectations) as they say they'll pay drivers more.
• Intel says chip storage till 2024 at least.

Stagflation

"Stagflation is most commonly referred to as the simultaneous experience of three separate negative economic phenomena: rising inflation, rising unemployment, and the declining demand for goods and services."

The best defence is generally commodities.

* I hold ungeared positions.

The world's oldest exchanges starting in India all the way through to Amsterdam.

Staring in Kimberly in 1881 through to the present Simon details the history of stock exchanges in South Africa.

Simon Shares

• US inflation 8.5%, UK 7.0%
• Capitec* (JSE code: CPI) results and a special dividend.
• Dave Segall asking about "Looming food and fertiliser shortages" and impact on local agriculture stocks.
• Purple Group* (JSE code: PPE) trading update (here are my previous expectations).

* I hold ungeared positions.

Simon Shares

• I have closed my Nasdaq long position. Still long FTSE100.
• Purple Group* (JSE code: PPE) trading update. Looks a little better than I expected.
• MTN (JSE code: MTN) more Nigerian woes.
• Reports that Woolies* (JSE code: WHL) may be selling David Jones.
• Elon Musk buys 9.2% of Twitter (NYSE code: TWTR).
• Moodys upgrades sovereign and banks from negative to stable.
• Deutsche Bank says: US recession in 2023 and stocks to fall 20% by summer 2023

The Rouble is almost back at pre-war levels against the US$.

20% interest rates, capital controls, no foreign selling on the Moscow Exchange, selling oil & gas in Roubles (maybe), reports of paying interest on debt with Roubles and of course traders in for a buck.