JSE Direct with Simon Brown

Now displaying: August, 2020

Market Standard 31 August 2020 0

Aug 31, 2020

Offshore
/ Tesla and Apple stock split today

/ Changes to the dow Jones; Salesforce.com will replace Exxon Mobil, Amgen will replace Pfizer and Honeywell International will replace Raytheon Technologies

/ Reports that Walmart and Microsoft liked up to buy TicTok

/ ADP Employment Report on Wednesday

/ New Zealand exchange closes three times last week after cyber attacks

/ CNBC reports that U.S. tech stocks are now worth more than the entire European stock market

Local
/ Discovery updated update spooks markets

/ Famous Brands sells Tashas back to founder

/ Nedbank results (we now have 3 of the big 4)

/ Italtile results (still spending R800m on capex a year)

/ Northam results, great albeit 60% of their PGM basket is platinum. Buying back Zambezi pref shares.

/ Murray and Roberts results. Was a tough year but doing alright before the pandemic hit in March.

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Results mania summary (#414) 0

Aug 26, 2020

Simon Shares

Day 153 of lockdown and Covid-19.

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03 September ~ JSE Power Hour: Under the hood of a passive robo advisor

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Master Drilling (JSE code: MDI), strong and monster cash generation which shows the cash output when they're not spending on new rigs.
Absa (JSE code: ABG) profits disappeared and bad debts hit 2.77%, but they say they expect bad debt levels to improve in the second half.
Itatile (JSE code: ITE) everything down around 20% and they're still spending on capex at R600million a year.
Adcock Ingram (JSE code: AIP), very solid. But does the lack of a flu season hurt thier over the counter drugs?
Bidcorp (JSE code: BID) negative operational leverage (Revenue R121,1 billion, down 6,3%; Trading Profit R4,2 billion, down 37,6%; HEPS 741,3 cents, down 48,6%)
Nedbank (JSE code: NED) HEPS down 69.2% and bad debts at 1.9%. Forecasting in the current environment is complex and estimates are subject to a much higher level of forecast risk than usual.
Lewis (JSE code: LEW) bad debts and closures mean HEPS off 30.8% but they're buying back up to 10% of their shares.
Imperial (JSE code: IPL) shocker but logistics is a GDP play and there is no GDP.
ARB Holdings (JSE code: ARH) great little business with R151.9million in cash but comment "the board believes that it will take at least two to three years to revert to the level of activity prior to the lockdown".
Stadio (JSE code: SDO) good numbers and good cash, which they need for the new campuses. So likely a rights issue not on the cards.

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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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Market Standard 24 August 2020 0

Aug 24, 2020

Offshore
/ New highs for the S&P500 (and Nasdaq)
/ Between the market high on Feb. 19 and new high on Aug. 18, 38% of stocks in the index made gains while the remaining 62% posted losses

/ Apple hits US$2trillion and gets into a fight with Fortnight

/ Ryanair cuts September, October capacity by 20% on weak bookings

/ Japan’s economy shrank by nearly 28% in the second quarter & consumer spending declined 8.2% in the period

/ Gold struggling to hold onto $2,000

Local
/ Standard Bank kicks off banking earning season

/ Afrimat buys Coza iron ore for R300m

/ Tigerbrands sells value-added meat products business 7 HEPS 35%-40% lower.

/ Curro results & ADvTech update

/ PSG unbundles Capitec at close on Tuesday. 14 for every 100 PSG shares.

/ Goldfields HEPS up 4x as Nick Holland quits as CEO.

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Buy the rumour, sell the fact (#413) 0

Aug 19, 2020

Simon Shares

Day 146 of lockdown and Covid-19, new cases definitely on the decline and hence we're now in level 2.

S&P500 closed Tuesday at all-time highs.
Sasol (JSE code: SOL) after liking the update the market does not like the results.
Truworths (JSE code: TRU) has now written down GBP231million of the GBP256million they paid for Office in 2015.
Afrimat (JSE code: AFT) buys Coza iron ore for R300m.
Tigerbrands (JSE code: TBS) sells value-added meat products business.
PSG shareholders holding the share at the close on Tuesday will receive 14 Capitec* (JSE code: CPI) shares for every 100 PSG shares.
City Lodge (JSE code: CLH) rights have ceased trading and the share is off almost 30% as many sell their new shares they paid 212c for via the rights issue.
Curro (JSE code: COH) results were okay but Keith McLachlan notes that their older schools are losing students at an alarming rate.

Curro puts out tough results.. The real worry? Have a look at the massive outflows of students from their mature schools. This does not imply wondrous things in the future for the newer schools... pic.twitter.com/uZSaL2VXtw

— Keith McLachlan (@keithmclachlan) August 19, 2020

Anthony Clark then tweeted this which to my mind is damming. Sure 50/50, but that's a long way from 100/0.

@smalltalkdaily has been a shareholder in $JSECOH since day 1. It has consistently been a core holding & I've followed EVERY rights issue

This current one at 807 cents & having seen H1 results & listened to presentation (frankly) I'm 50 : 50 if I'm putting another cent into #COH pic.twitter.com/t0roIL9a0G

— Smalltalkdaily Research (@smalltalkdaily) August 19, 2020

FSCA has warned against Mirror Trading International concluding "We recommend that clients request refunds into their own accounts as soon as possible.".

* I hold ungeared positions.

Upcoming events;

20 August ~ JSE Power Hour: Pro-active passive management
25 August ~ Investec USD S&P 500 Autocall

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Buy the rumour, sell the fact

Last week all the talk was about a move down to level 2 lockdown and a lifting of the ban on alcohol and tobacco.

There was an NCC meeting on Wednesday, the state of disaster expired on Saturday and the roar against the alcohol ban was deafening.

Against this backdrop, we saw the leisure and alcohol stocks running last week.

Then on Saturday night, the president made the announcement, level 2. We can travel between provinces, buy alcohol and tobacco and visit friends and family.

Yet Monday saw the stocks that had run hard all start giving back their gains and most are back at where they started last week.

This is not surprising, a common saying in the market is "buy the rumour, sell the fact". This applies to results, mergers, takeovers and now also lockdown restrictions.

The logic is that everybody thinks they're clever having spotted the potential news before anybody else and positioning themselves ahead of the news. But they're to the only ones spotting it as the price action tells us. Then when the news happens the reality is that

it's actually a long road and those early buyers take their profits.

For traders, the lesson is careful buying as the news breaks. Sure often the news will send a stock price still higher, but watch the price action and if the news starts to see weakness in the price, take your money and run. The other lesson is that to be early often pays, but careful of how early. Buying weeks or months ago on an eventual lifting of the ban will make a profit, but being that early means your profit is still some way off.

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Market Standard 17 August 2020 0

Aug 17, 2020

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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When bad news is good news (#412) 0

Aug 12, 2020

“This week’s episode of JSE Direct is courtesy of IG, our preferred supplier in trading products.”

Simon Shares

Day 139 of lockdown and Covid-19, new cases definitely on the decline.

Clicks (JSE code: CLS) trading update again shows that this company is a machine. Revenue +10% for the 49 weeks to 9 August 2020.
Residential property, at the lower end, doing really well.
Gold $2,044 last week, hit $2,080, then $1,860. Now $1,935.
US WeChat ban.
Tencent (Hong Kong share code: 0700) beats expectations. Revenue up 29% YoY. Profit surges as growth hits the fastest pace in two years.
Tesla (Nasdaq share code: TSLA) 5:1 split via a special dividend.

Upcoming events;

20 August ~ JSE Power Hour: Pro-active passive management

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When bad news is good news

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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Retail updates (#411) 0

Aug 5, 2020

“This week’s episode of JSE Direct is courtesy of Outvest, our preferred supplier in retirement products.”

Simon Shares

Day 132 of lockdown and Covid-19, new cases definitely on the decline.

Pick 'n Pay (JSE code: PIK) update was somewhat of a horror show, but I'm not sure what the market was expecting. It is for the period of lockdown and includes a voluntary retrenchment that cost the company.
The Shoprite* (JSE code: SHP) on the other hand was for a full year to end June, so only three months of lockdown. Solid update and they're exiting Nigeria.

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Gold $2,044.
Goldfields (JSE code: GFI) update says HEPS will almost double and this is for the six months ending June when gold was under $1,800.
Cashbuild (JSE code: CSB) buying TBC from some R1.1billion. Looks like a decent price and while they could write a cheque they'll use debt. So the question is can management execute on the merger?
Intu (JSE code: ITU) will be delisted from the JSE Intu has been suspended already as the company is in bankruptcy so the suspension of the listing is just a technicality.
City Lodge (JSE code: CLH) rights started trading yesterday. The stock lost 75% on perhaps the most dilutive rights issue I have ever seen, 13 new shares at 212c for every one held. Everybody asking me if the should take up their rights? Truthfully you have to or be diluted out of existence. Alternatively, sell the shares and the rights and walk away. The company has a solid balance sheet, aside from the BEE deal. But the lockdown is hurting and the question is if they'll need more money?

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

The US CARES act and specifically, the $600 payments has ended. Congress is in talks to extend but so far the two sides seem part apart. One wants to extend the $600 the other to reduce it to $200.
SAB, Consol Glass and Heineken all responding to the liquor ban by cancelling projects. But are the cancelled or delayed? Are they opex or capex? Is this just a ploy to put pressure on the government? Or is this perhaps a bigger concern about stricter liquor laws post lockdown / pandemic?