Local Inflation Update
- Inflation at 3.8% - lowest since March 2021 (3.5 years ago)
- Well below SARB's target range midpoint of 4.5%
- Q3 year-on-year inflation at 4.3% (vs SARB's expected 4.4%)
SA CPI YonY September 2024
November MPC Meeting Outlook
- Rate cut expected, but size uncertain
- Possibility of 25bps vs 50bps cut
- Factors affecting decision:
- Rand weakness
- Rising oil prices
- Global economic conditions
Important titbit about today's SA headline CPI print. It meant that CPI rose by 4.3% y/y in Q3 2024. In Sept, SARB expected 4.4% for Q3, implying Sept print largely in line with their expectations. Therefore, today's number will not change SARB's thinking. Folks should calm down.
— Hugo Pienaar (@hugopien) October 23, 2024
Currency Markets
- US Dollar showing significant strength
- DXY moved from 100.42 to 104.33 (≈4% increase in one month)
- Strong capital flows into US
- Rand trading at R17.73
- Potential to move above R18
- Long-term targets of R16.80 and R15.50 looking less likely short-term
US Election Impact
- Potential implications of different outcomes
- Trump's proposed policies could be inflationary:
- Planned tariffs
- Immigration restrictions
- Impact on labor markets and prices
Famous Brands Results Analysis Using AI
- Demonstration of AI analysis using Google Notebook LM
- Key findings:
- Leading Brands: Operating margin >50%
- Signature Brands: Operating margin -6.7%
- Manufacturing: Improved margins due to diesel savings
- Geographic performance varies:
- South Africa: 1.8% margin
- UK operations showing significant decline
- Cash generation at R498 million (7% decrease)
- Plans for 89 new stores
Chapters
00:00 Local Inflation and Economic Outlook
06:01 Using AI for Investment Analysis
12:06 Famous Brands Results Analysis
18:05 Comparative Analysis with SPUR
Strong Retail Sales and the Two-Pot System:
- Retail sales show a positive trend, rising 3.2% in August, exceeding expectations of 2.1%.
- The Two-Pot System has already released R20 billion in six weeks, with the money used mainly for paying down debt, saving, and spending.
- Retail sales recovery, though from a low base, is a strong indicator of improved consumer health due to factors like slightly lower interest rates and inflation.
South African retail sales | YonY
Tribute to Tito Mboweni:
- Simon reflects on the passing of Tito Mboweni, former Finance Minister and Reserve Bank Governor.
- Mboweni’s contributions include institutionalising the Reserve Bank’s MPC meetings and implementing key labor reforms during his tenure as Labor Minister.
- His lasting impact on the country’s economy and financial sectors was highlighted, along with his personality as a Twitter chef and self-styled "Duke of Magoebaskloof."
Johnson & Johnson – A Smooth Dividend Play:
- Simon shares his reasons for holding Johnson & Johnson: consistent dividend growth (around 3% yield) and a steady 8% annual share price growth in US dollars.
- Despite some issues, the company offers reliable long-term returns in a competitive health and consumer space.
Johnson & Johnson quarterly dividend payments
Bytes Technology Group and Investment Opportunity:
- Bytes operates in the UK, offering hardware, software, and services. The stock showed mixed market reactions but has strong support around certain levels.
- With a forward P/E of 20 and a dividend yield of 3.6%, Simon sees it as an interesting opportunity for long-term investors in the tech space.
Quilter Trading Update:
- Quilter’s strong Q3 results follow a good first half of the year, with significant inflows supporting future earnings.
- A solid financial services player with a dividend yield near 4% and a forward P/E of 15, Quilter is performing well and trading at all-time highs since its 2018 listing.
Sasol – A Weak Chart:
- Simon discusses Sasol’s ongoing struggles, with a weak chart suggesting possible further declines.
- Investors should wait for technical indicators before making any moves.
Brent Oil Price and Rand Volatility:
- Brent crude oil hit highs recently but is now retreating to $70 per barrel, with potential for further declines due to global oversupply.
- The rand, affected by dollar strength, is volatile but could see a return to 16.80 against the dollar in the coming months.
Chapters
00:00 Retail Sales Recovery and Economic Outlook
04:29 Tribute to Tito Mboweni
08:32 Johnson & Johnson: A Steady Investment
09:52 Bytes Technology Group: Market Reactions
12:32 Quilter's Strong Performance
14:29 Cecil's Ongoing Struggles
15:56 Brent Oil Prices and Global Economy
17:48 Volatility of the Rand and Market Predictions
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
All charts by KoyFin | Get 10% off your order
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.