Indholdsfortegnelse for 6/4/2020 i Finweek - English

on Sunday 24 May, The New York Times dedicated its front page to victims of Covid-19. Nearly 1000 names were published, along with their age and a personal detail. Tombstone engravings etched in ink that represent roughly 1% of the total reported US death toll. The US president’s response to the pandemic continues to serve as an exemplary example of how dangerous poor leadership can be in this crisis. When The New York Times published this front page, the US death toll was nearing 100 000 and it was memorial weekend in the US, reserved for honouring the country’s war dead. Trump chose to spend this sombre weekend golfing, tweeting and re-tweeting insults to female politicians. Back here in South Africa our president was getting ready to address us about…

“BLACK ECONOMIC EMPOWERMENT HAS NOT ADDED ANY VALUE TO THE SOUTH AFRICAN ECONOMY AND SHOULD BE SCRAPPED AND REPLACED WITH A MORE INTEGRATED BUSINESS DEVELOPMENT POLICY.” – Political economist Moeletsi Mbeki said, “BEE, in my view, has been a disservice to the economy of SA,” during a dialogue on broad-based black economic empowerment (B-BBEE) hosted by transformation consultancy BEEnovation, reported Fin24. The Covid-19 pandemic has revived debate around the legitimacy of the legislation, including a failed legal bid by trade union Solidarity and its associate, AfriForum, challenging the application of B-BBEE provisions in the distribution of R200m in relief funding for tourism companies. (Also read Andile Ntingi’s analysis of black business representation on p.6.) “Here’s what I don’t remember: the pandemic of 1968-1969. And yet there was one. It was…

Assore may have brought the curtain down on 70 years of trading on the JSE this month, but there’s still much on offer in terms of the iron ore market exposure it brought investors: African Rainbow Minerals, Exxaro, Kumba Iron Ore and Anglo American all reflect what’s currently going on for the steel-making ingredient. Iron ore is an interesting mineral in mining’s universe because of its close correlation to industrial activity and infrastructural spend. For instance, the current sky-high valuation of Kumba Iron Ore is reflective of how China – which comprises more than half of iron ore consumption – has emerged from its Covid-19 lockdown. China’s recovery and the relatively locked-down state of the rest of the supply-side of the economy in Brazil, Australia and SA – the major…

Distell is a producer and marketer of spirits, fine wines, ciders and ready-to-drink beverages. It produces brands such as Hunter’s Dry, Nederburg, JC le Roux and Klipdrift, among others. At the start of the ban on alcohol sales during the lockdown, Distell warned shareholders that its profits were likely to plunge by 80%. Mid-May the company announced on a much lighter note that the easing of agricultural export regulations under level 4 will allow it to process about R440m worth of open orders. On 24 May President Cyril Ramaphosa said he intended to lift the government’s controversial ban on the sale of liquor for home consumption from the beginning of June – Distell’s share price gained 6% on 25 May. Though the company mentioned in a trade update earlier in…

i’ve been re-reading a few of the columns I have written over the years, focusing on those that look at the older (more experienced) long-term investors in order to try and get an idea of how they handle a crisis filled with severe uncertainty. In the process I came across an old quote by Warren Buffett in a 1996 annual letter. “What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” This piece of advice from Buffett apparently originated from a comment…

in 2009, the US Federal Reserve (Fed) in effect saved the world by embarking on a massive programme of monetary stimulus, called quantitative easing (QE), and so – through its extended money-printing and-buying programme – prevented a global depression from taking hold. With the onset of the coronavirus pandemic in 2020, the Fed has embarked on precisely the same path, initiating an initial $700bn bond buyback, this time in conjunction with fiscal measures from the US Congress. More has been promised. In total, about $3tr has been pumped into the US economy at a time when the GDP could fall 30%, in the same way it did during the Great Depression of the 1930s, and as its unemployment has already ballooned to nearly 15% from below 4% at the beginning…

locally-listed banking counters have seen share prices correcting significantly in 2020, as markets try to asses how severe the impact of Covid-19 will be on the economy. Banks, whose fortunes are directly linked to the domestic economy, have already been dealing with a recessionary environment leading into the year. Current forecasts for (negative) growth suggest a contraction of no less than 6.1% in 2020. Dividend cover over the medium term is no longer a guarantee from these counters, and impairments from both retail and commercial clients are rising. However, the banking sector is well-capitalised and robust, suggesting that these counters can withstand a notable (expected) contraction in earnings. Markets are now assessing whether the risk to this sector is appropriately discounted into current share prices, or perhaps overcompensated therein. South…

Prices of new vehicles increased by 4% in the first quarter of 2020 against 2.3% for the comparative period in 2019, while the used car price increase declined from 1.8% to 1.4%, according to TransUnion. Unsurprisingly, sales of used cars have been outstripping those of new cars, in March reaching 2.31 to 1. As the health of the economy deteriorates and consumers’ wallets are hit by the effects of the pandemic, the pre-owned trend is likely to pick up pace. Desperate to free up cash or reduce monthly household costs because of job losses or salary cuts caused by the Covid-19 lockdown, motorists (including higher-income-level consumers) are looking to trade down their vehicles. “Searches for second-hand vehicles under R50 000 have increased by almost 300% versus normal pre-lockdown levels,” says…

According to Ocean Basket CEO Grace Harding, The Restaurant Collective represents a category of about 13 000 sit-down restaurants. As per the Euromonitor Report 2017, the overall food service industry in South Africa “looks something like this”, says Harding: ▸ 141 000: Total outlets of which 11 000 are chains ▸ 14 500: Cafés/bars of which 1 000 are chains ▸ 13 200: Full-service restaurants of which 1 200 are chains ▸ 11 500: Fast-food of which 7 000 are chains ▸ 98 000: Street stalls/kiosks of which 300 are chains ▸ 3 000: Pizza consumer food service of which 1 400 are chains…

south Africa is one of the most unequal countries on earth. Statistics like the Gini coefficient only confirm what any tourist sees on arrival: Large disparities in living standards between those in the swanky suburbs of Sandton or Stellenbosch and those living precariously on the outskirts. Add to that the poverty of a third of South Africans still residing in former homelands, far away from most tourist eyes. How to narrow this gap has been at the centre of debate for the last 25 years. But there has been little progress. While the nature of income inequality has changed – inequality between black and white has declined while inequality within each group has increased – the overall level of inequality has remained largely constant. Economists have typically identified two things…

MTN, the largest locally-listed mobile operator by subscribers, announced increased service revenue and earnings before interest, tax, depreciation and amortisation (ebitda) for the quarter ending 31 March. The company saw its global subscriber base growing by 6.6m to 257.3m and its ebitda margin increasing from 41.1% to 43.2%, according to a Sens announcement. “The Covid-19 situation is an evolving one and will undoubtedly affect the year ahead,” group CEO Rob Shuter said. Outlook: In March this year MTN gapped through support at 6 905c/share – losing more than 50% of its value on the JSE for 2020 – triggered by the huge global market sell-off. It landed on a low at 2 625c/share, held there and has since recovered some of its losses. MTN’s share price has been range bound…

if Covid-19 has taught us anything, it’s that many of us tend to act impulsively and without getting the facts. The ridiculous rush to collect as much toilet paper as possible when things started to get to a boiling point in March is a typical example. Before then, toilet paper was just another item on your standard monthly shopping list, but certainly not the only thing. Pretty much the same can be said for offshore investments. Many people don’t even consider an offshore investment as part of their investment needs until the rand takes a nosedive, and then, without proper research or expert advice, they invest impulsively without giving any thought to the products and currencies they choose. Why should I invest offshore? The reality is that an offshore investment…

while the JSE’s All Share Index showed a recovery of more than 30% since reaching a low on 19 March, the latest tables showing the shares that are lying above their 200-day exponential moving averages (EMAs) tell a different, more sombre story. It’s mainly owing to the large international rand-hedge stocks, whose prices are determined elsewhere, and to the commodity groups, that the index appears so firm. Should these shares be eliminated from the 100 largest shares by market cap, the rest of the index looks sickly; only 6% lie above their 200-day EMAs compared with the 19% seen in the table. Turning to the list of weakest shares, the percentages of prices below their 200-day EMAs are exceptionally high. This probably reflects the anguish that investors and companies have…

In 2019, 2.2m electric vehicles (EV) were sold globally. But the number is expected to drop 43% to 1.3m by the end of 2020, according to global research and consultancy company Wood Mackenzie. EVs have constituted approximately 5% of all vehicle sales in China for the past two years. But sales of EVs there have been hard hit by the pandemic. In January sales were down 54%, with February expected to be down more than 90%. In contrast, EV sales in Europe rose 121% in January despite a 7% reduction in the overall market. The increasing EV adoption trend persisted into February, albeit lower. Traditional automakers entering the EV market have announced upcoming models that will be launched over the next several years rather than over the next 12 months,…

To support restaurants financially as they wait for the go-ahead to become fully operational, the Eat Out Restaurant Relief Fund was started in partnership with Community Chest. “We’ve had news of more restaurants and businesses in the food industry that may close their doors permanently due to the impact of the Covid-19 lockdown. With no form of income, they see no way to meet the expenses that are compounding each day,” says Tarryn Corlett, head of the Eat Out Restaurant Relief Fund. The fund has appealed to corporates and the public to donate in order to “at the very least, prevent more closures in the near future”. As at 26 May, the support was as follows: Total funds raised: R1 177 842.67 Total paid out or allocated to successful restaurants:…

a day before President Cyril Ramaphosa announced a national lockdown on 23 March, aimed at curbing the spread of the Covid-19 pandemic, the president met with business leaders at the Union Buildings to discuss mitigating the impact of the disease on the South African economy. Before the meeting, Ramaphosa, flanked by a high-level business delegation, held an impromptu media briefing to let the nation know that he was holding consultations with political, business, and labour leaders to formulate a powerful response to the deadly disease. Since then, the virus has claimed the lives of 348 322 people globally including 533 South Africans at the time of going to print. The business delegation constituted Martin Kingston, vice president of Business Unity South Africa (Busa); Sandile Zungu, president of the Black Business…

In this issue’s Simon Says (see p.18), I write about Aspen Pharmacare as a drug manufacturer offering value. But hospital groups are struggling during the coronavirus lockdown. “Bed nights” are down as elective surgeries are being delayed. These surgeries have typically been large drivers of bed nights. With high fixed costs, lower bed nights can quickly turn a profit into a loss-making situation. Furthermore, personal protective equipment requirements for staff and patients are adding to hospitals’ costs, especially as prices for these products have surged in recent months. Many hospital groups also have secondary businesses in the medical device industry and while this is a non-cyclical sector, orders are being cancelled as the industry goes into cautionary mode. Another risk is that as the pandemic spreads and beds fill up,…

GRAND PARADE INVESTMENTS Burger King deal uncertainty Grand Parade Investments said on 21 May that it is “renegotiating the terms and conditions” of the disposal of Burger King. In other words, they are probably talking about a lower selling price for the business. We’re going to see a lot more deals delayed or cancelled, especially in the leisure space, as revenue has collapsed due to the economic lockdown and questions remain about when it will return to pre-lockdown levels. TENCENT Gaming boost to local indices Tencent’s results for the first quarter of its 2020 financial year saw a 19% jump in gaming subscriptions, while overall group revenue was 26% higher. Hardly surprising as we’ve seen gaming boom during the lockdown. The move in Tencent pushed Prosus and Naspers* to all-time…

Specialised sector funds in the unit trust sphere are very old, with some of them being initiated in the 1960s. However, their prominence has faded over the years as more general equity and multi-asset funds started to offer larger differentiation and, in a sense, made retail investors’ decisions easier. These funds traditionally, and to this day, focus on the JSE’s resources, financial and industrial sectors. There are 15 of these funds remaining, with exchange-traded funds (through Satrix ETFs) a player in each sector. Their combined assets under management total R7.3bn with the bulk invested in the industrial sector (R3.9bn), followed by resources (R2.2bn) and financials (R1.2bn). (See table on p.30.) “What makes sector funds attractive is also what leads to their downfall,” says Marlo Scholtz, one of the managers of…

south Africa’s automotive industry can finally start its engine. Albeit still on idle, vehicle production is gradually beginning to ramp up and dealerships have at last been given the green light to trade. The automotive industry is vital to the economic health and welfare of SA and her citizens. The industry, both manufacturing and retail, contributed R500bn in revenue to the country last year (2018: R503bn) and 6.9% to GDP (4.4% manufacturing; 2.5% retail). It is also responsible for around 457 000 jobs. It is a manufacturing mainstay for SA’s economy, accounting for 30.1% of manufacturing output, with vehicle production last year rising to 631 983 units while exports of vehicles (387 125) and automotive components accounted for R201.7bn, according to the National Association of Automobile Manufacturers of South Africa…

south Africans waited with bated breath on 24 May to find out what the government had decided about the lockdown level we would be living under as of 1 June. And while many business owners would have breathed a collective sigh of relief, there are still a vast number of businesses that are not going to be permitted to operate at full tilt – or at all – come 1 June. Since the national lockdown was first implemented in March, the restaurant industry has been hard-hit. Wendy Alberts, CEO of the Restaurant Association of South Africa (Rasa), estimates that the lockdown has left close to 800 000 people in the industry without an income. This compares with the 430 000 employees in the country’s mines, according to Stats SA figures.…

returning to normal has never been so uncertain and abnormal. The gradual lifting of restrictions following the hard lockdown to prevent the spread of the coronavirus will bring with it many new challenges. Many companies have been able to open their doors and will gradually increase their work forces until the Covid-19 disease is no longer a threat. They will, however, have to consider the challenges of a continued remote workforce, safety measures for those returning, and operational issues relating to disciplinary hearings and potential retrenchments. The safety of people returning to work will be at the forefront, and companies will have to be well-prepared for this as they may face claims if they are found to be negligent in ensuring the safety of workers. Fiona Leppan, director at Cliffe…

Elizabeth Windsor @Queen_UK #Eurovision is cancelled this year, but thankfully the BBC is broadcasting a special programme to remind us all what an odd bunch of people the Europeans are. Tom Eaton @TomEatonSA Hearty congratulations to South Africa’s cigarette-smuggling gangs. Wonderful news, guys. Don’t spend it all in one place. RK Jackson | Atlanta @theerkj 2020 is what 2000 thought she was gonna be. Jared Yates Sexton @JYSexton The President of the United States of America, lone holder of the world’s largest arsenal of nuclear weapons, told the world he’s taking a drug that has among its side-effects a “feeling that other people are controlling your thoughts and actions”. IG: @quentin.quarantino Skype had 17 years for preparation and still was beaten by Zoom. G|M @georgemceachran I’m not an early bird…