Simon Shares

• So Christo Wiese wants to sell his non economic but voting Shoprite* (JSE code: SHP) shares back to the company for some R3.6billion? I thinks not, albeit seems I am in a minority here.
• Afrimat (JSE code: AFT) has made a non-binding offer to buy a Universal Coal (an Australian company mining in SA). The deal is about half their market cap and at a price some 10% better than the next best offer that I knew about. They really are the masters of deals, paying a good price and making them work. But this one is a biggie and risks are much higher than the other smaller deals the've done.
• The latest SPIVA for South Africa is out and always it makes for bleak reading. 

* I hold ungeared positions.

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Unlisted shares

Unlisted shares, those not listed and trading on a recognised exchange such as the JSE.

There two ways we get unlisted shares;

1. We buy them hoping they will eventually list and become the next Uber (albeit Uber may be a bad example longer-term).
2. We hold a listed share that delists and we keep ownership.

Now if you're buying ahead of a possible listing you're most likely some form of venture or angel funding - fun, but the majority end in tears and even fewer actually ever get to list.

If you've held onto a delisted share it's likely because you think it's a great stock with great potential and this may well be true. Most stocks that are delisted are because they offer such great value that somebody ants to own the entire company not just a slice if it.

However unlisted bings its own problems;

• You have no JSE over sight. All are covered by the companies act but the JSE adds an extra layer of protection. For example director dealings, results within three months etc. Without this you're on your own, and sure you have rights as a shareholder and these rights are enshrined in the Companies Act, Act no. 71 of 2008 (well worth a read). But you'll have to enforce those rights yourself if required and lawyers will likely have to get involved.
• Often times communications is scant, late or frankly in some cases - never. Again you have rights, but now you need to enforce your rights at a cost.
• Serious lack of liquidity and price discovery. A lack of an exchange means how do you value the shares and how do you find a buyer when you want to sell them? This lack of liquidity generally means lower valuations as well.
• Very little or no media exposure and expert opinions on the stock and its prospects.

Personally I have never owned an unlisted company (except my own) and I never would. Sure there is potential for great profits, but the truth is most often what you end up with is hassles, legal fees and ultimately losses.

JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect 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.

Simon Shares

• The Power Hour from last week by Nerina Visser on ETF fees is awesome and online.

What's the net asset value?

• Net asset value (NAV) is from the balance sheet and is asset less liabilities. The break up value of the company. A share will typically trade above this value as we're buying future profits, not break up value.
• Tangible NAV (TNAV) is better as this excludes things such as goodwill, so is a real number of actual assets. Goodwill is when you buy a business and pay more than the NAV for the business, rest is goodwill. When things are going well and booming goodwill is not an issue. But when things turn, well it is messy and we've seen lots of goodwill write downs in years past.

EOH (JSE code: EOH) states NAV of some R4.5billion. But R3.3billion is goodwill and so not really an asset and with EOH struggling for goodwill right now not really anything to write home about. So TNAV of some R1.1billion meaning EOH trading at more than double NAV while AdaptIT (JSE code: ADI) is trading below TNAV. So all the talk of EOH being below NAV and hence a great value is bogus.

Most recently Woolies* (JSE code: WHL) wrote off a third of the cost of the David Jones acquisition.

Now when goodwill is written down it hurts profits but the company will tell you this is not an issue as it is a non-cash charge. Correct, but of course it was cash (or script) when you paid for it.

As a rule, buying at or even below NAV (or even better TNAV) is a great strategy - except it is fraught with issues.

I was all over The Don Group as they traded below TNAV and that TNAV was buildings they owned in places like Sandton and Rosebank. But by the time they were done the TNAV had collapsed.

This is a critical point of any for of NAV.

• How real is it? Who and when was it last valued and can the value be realised?
• What is the market saying about this TNAV? A stock below TNAV is often the market saying TNAV is under threat, especially if it is cash.

ELB Group saw their TNAV collapse even as it was mostly cash, but a disaster of a contract saw them burn cash and now cash has gone and TNAV has collapsed as has the share price.

NAV, and especially TNAV is important, but it is not written in stone. So as with all numbers, we need to be careful of it. Discount to NAV/TNAV is not a buying reason. In fact no single metric is ever a reason for buying. We need a preponderance of evidence. https://justonelap.com/finding-long-term-investment-winners/

* I hold ungeared positions.

dd

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JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect 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.

Simon Shares

• A strong start to the year and so far it seems to be continuing (even as the Rand trdes belw R14) - long may it last. Important to remember that Rand strength is not always the end of the world for our market as it signals foreign buying.
• S&P500 ETFs.
• Up coming events;
  • 11 April ~ JSE Power Hour: Know your fees with Nerina Visser

Fear and loathing on the JSE

We're seeing a new trend on the JSE whereby stock prices are slaughtered after poor (or even just modest) results. Sure bad results have always hurt a share price, but it used to be that a 10% down day was a wildly bad day. Now however 10% is hardly even warming up with many stocks being hit way harder (think 30% down on Aspen results).

I think there are a bunch reasons for this new trend.

• Firstly; the Steinhoff (JSE code: SNH) fear. After Steinhoff there is real fear in the market. Fear that a 'great' company may actually be smoke and mirrors and investors have no idea which is the next Steinhoff. So rather then be caught out they just sell, and sell. This fear is real. Steinhoff was generally considered to be a top quality company that we now know to be built on fraud and if an investor missed this - then what else could they miss. Of course many where not convinced by Steinhoff, but the majority who where are truthfully not doubting their own ability so selling is the easy option. This will in time fade. The next bull market will help make investors gunho again believing they can spot the fakes (which history assured us is harder than they think).
• The second issue is the US effect. For a long time in the US a small miss on results, and I stress the small miss. Not an epic miss, sees stocks getting sold off aggressively and we're now seeing this locally. This is in large part to speed of news distribution coupled with the ease and cheapness of transacting. This trend is likely to remain into the future.
• A third issue is the understand that few stocks are truly legendary and investor are less forgiving when the business model starts to unravel or dirt starts to show. Here fo example is EOH. It started with some rumours that the company quickly managed but investor where not convinced and just kept on selling. The news got worse and investors carried on selling and the stock is now off almost 90% from its highs of over R180.

As investors we need to get used to this trend. Be good sellers (see last weeks podcast) and expect that even quality will disappoint the market at times and that disappointment will hurt. We need to be smart about when the issue is real or when it is just a knee jerk and short-term reaction.

But the bottom line is, expect the ride to be bumpier than usual. We need to remember that investing is for the long-term and that long-term is never in a straight line. We also need to remember that any stock can turn out to be trash and if it does we need to sell it regardless of how we feel about it, the loss or the potential. Trash is best trashed.

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JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect 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.

Simon Shares

Up coming events;

• 11 April ~ JSE Power Hour: Know your fees with Nerina Visser

Selling like a pro

We tend to focus on the buying, enteries and selling at profit. But what of selling at a loss? Far to often i hear people state it has fallen too much and so there's no point in selling - this is false. Ignore the loss you already have and focus on the loss ahead of you. A stock that has fallen 90 can fall another 90% and when people ask where's the bottom? The answer is zero, until then it can always fall more.

A good sell is as good as a good entry. I exited most of my Calgro M3 (JSE code: CGR) at around 2100c but kept some only to watch it fall to under 1000c. I then finally sold the balance and now it's under 600c. It is never too late to sell and we need to become as good at selling as we are at buying.

Sell the dogs (sorry dogs)

Know when to panic

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JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect 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.