Indholdsfortegnelse for 4/09/2021 i Finweek - English

In this edition of finweek, the dichotomy of South Africa’s economy is strongly brought to the fore. On the one hand we have ambitious business people (such as Sibanye-Stillwater’s CEO Neal Froneman and Thakadu’s Ruli Diseko) with an international view of business; and on the other hand, this ambition is hindered by insufficient electricity from Eskom and political uncertainty. Let alone the poor implementation of the government’s vaccination programme. Yet, despite all this, South Africans are a hopeful bunch. As a former editor of this publication once put it most succinctly, and I take the liberty to rewrite her words somewhat: “South Africans have the superhuman ability to step away from the edge of chaos when things are looking at their worst.” This was the case with the birth of…

— Federal Reserve chairman Jerome Powell indicated that he is not concerned about a recent rise in long-term bond yields, saying that they appear to reflect growing optimism about the economy’s prospects, during a televised hearing before the US Senate Banking Committee. Some economists and market participants have worried that a rapid or sustained climb in bonds yields could weigh on the economy by making it more expensive for consumers and businesses to borrow.…

Having taken a leap of faith in 2015, commodities entrepreneur Ruli Diseko is not going to be rushed into hasty decisions today. His Thakadu Group recently announced the commissioning of a $20m (R298m) nickel sulphate refinery, which is located on the premises of Sibanye-Stillwater’s Marikana platinum group metals (PGM) facilities, near Rustenburg in the North West province. Nickel sulphate is a refined form of the nickel metal that is of interest to manufacturers of electric car batteries. In fact, one of Diseko’s first calls after deciding to make the investment in 2016 was to Tesla, the US carmaker. The company liked what Thakadu was hoping to offer, and it provided an early signal to Diseko that he was on the right track. Soweto-born Diseko, a UCT commerce graduate, began working…

The private education provider ADvTECH* posted impressive lockdown results for the year ending 31 December 2020. Revenue grew by 8%; school revenue rose 4% and tertiary education by 9%. I was impressed with the revenue growth in schools as this is the area that has been struggling a bit while tertiary continued to perform well. ADvTECH managed bad debts well by targeting those in need rather than a general fee reduction. This boosted cash flows as indicated by a 20c full-year dividend, up from 15c in 2019 as they skipped dividends during 2020. Education is always a high-demand sector and usually resilient as families believe, correctly so, in the benefits thereof. One issue that was not repeated in 2020, was the loss of students due to emigration, mostly in the…

Recently a digital picture was sold on auction at Christie’s for $69m, making the artist, Beeple, one of the most successful living artists in terms of prices paid while alive. Interesting is that the transaction was concluded through a nonfungible token (NFT) and the art is digital. Yes, digital. I have already downloaded a perfect copy and have it as my wallpaper on my laptop. So, what the heck is going on here? NFTs are certainly the new rage. They are back-ending into the blockchain, thus essentially proving ownership of something. Currently that something is mostly digital art or gifs, but it has wider potential. The real benefit of the blockchain is that there is no third party required to verify the transaction. Think, for instance, about when you buy…

The buzzwords in the investment community over the past few months have been reflation and reflation trade. Reflation is the upswing of the economic cycle where growth and inflation accelerate, usually (but not always) after a deflationary period or recession. The Covid-19 pandemic is a classic case of deflation. Economic growth took a tumble over the cliff last year when economies worldwide closed (and of course, at the same time, stock markets fell). However, policymakers came to the rescue with lower interest rate policies, large liquidity injections and major fiscal stimulus packages. The scale of this is the largest we have experienced in our history. The road to economic recovery began late last year. The removal of the uncertainty surrounding the US presidential election was an important turning point and…

Low-equity multi-asset portfolios aim to provide investors with capital growth by delivering inflation-beating returns, while balancing the need for capital preservation. Unfortunately, only a few specialist managers have been able to deliver on these objectives over the last five years and investors are now losing faith in the sector. In addition to relative underperformance, the large drawdowns experienced across the multi-asset sector during the Covid-19 crisis has led many to question the ability of these funds to deliver on their objectives to preserve capital following the market collapse in March 2020. It is understandable that investors have been losing faith as the average fund in the low-equity category has underperformed cash over the last one, three and five years. This has not been the case for a limited number of…

Arno Lawrenz, who recently succeeded Philip Bradford as Sasfin’s chief investment officer (CIO), is impressed with his new fund house’s investment processes and does not consider his role to be a reinventor of the wheel. “Under my watch things will not necessarily be different,” he told Fund Focus. “My brief has not been to enter a struggling concern and fix it up. That is not the case. Quite the opposite. My role is to enhance ownership, ensure a continuation of the robust risk style, grow wealth-generation capacity, and establish sustainability. Sasfin’s leadership, in turn, has committed to providing the necessary resources to accomplish these goals.” Lawrenz (55) was appointed to his new post at end-November, was engaged in a crossover period during December and took over the reins at Sasfin…

I have for some time been trying to figure out how to measure my portfolio’s success (or failure) using a metric other than just the price. Sure, price is what we can sell for and as such a useful metric, and higher prices are what we strive for and it makes me feel smart when it realises. I also measure my portfolio’s return against the overall market. But price is manic and more a reflection of the market’s mood and not actually any reflection of value of my portfolio. Reading the latest annual letter to shareholders from Warren Buffett in which he refers to real earnings got me thinking about using real earnings. In South Africa’s case, earnings would be the headline earnings per share (HEPS). This is an IFRS…

When brothers Brett and Mark Levy, the joint CEOs of Blue Label Telecoms, started a technology company that provides telecommunications, technical support, data and analytics services, prepaid products, and transactional services to markets in South Africa and abroad in 2007, after years of dabbling in other successful entrepreneurial endeavours, people thought that they were mad. “When we started out, we said that every single person on earth deserves to have all the products that everyone in the urban areas have,” says Brett Levy. The company provided secure electronic tokens of value to the unbanked and poorly-banked people of the world at the time, and still does. Since the 2000s, the Levys had rightly predicted that all business in the predominantly rural market will eventually go the prepaid route and have…

I give up! This issue’s isiZulu phrase is angisazi ngeni. Directly translated, it is “I am no longer involving myself”; or simply put: “I quit/give up”. Have you ever had a day that had you thinking angisazi ngeni? I recently did. My car’s licence disc recently expired so I had to renew it, but before doing that I decided to replace the cracked windscreen. The guys that replaced the windscreen took the cracked one, and with it, the expired disc. Not great. I drove to the Post Office, filled in the form and gave it to the cashier but was told I needed to bring my company registration documents because the car is registered under a company. I was rather confused because the car is definitely mine, so I asked…

Agriculture is not what it used to be. My grandfather was an ostrich farmer in the Klein-Karoo, with a small dairy on the side to make ends meet. He raised seven children and supported a handful of farm workers on a small plot of land that was more likely to deliver soil erosion than bumper crops. From what I remember he had a tractor and a combine harvester and a lot of grit. And that is still largely my mental picture of agriculture today: the lonely farmer toiling away on his tractor, praying for rain. That view, though, is utterly outdated. Agriculture, as Forbes magazine noted in February, is one of the most innovative industries at present. Investment in artificial intelligence (AI) agricultural technology is skyrocketing. PwC predicts that Internet-of-Things-enabled…

— Mr Price CEO Mark Blair announced that the retailer has entered into an agreement to purchase Yuppiechef, a privately-owned SA omni-channel retail business primarily focused on kitchenware. Mr Price said the purchase consideration, which represents approximately 1% of market capitalisation, will be settled in cash. The group had a market capitalisation of about R47bn at the time of the announcement, which translates to a purchase price of approximately R470m.…

Sappi is a global diversified wood fibre company that focuses on providing dissolving wood pulp, specialities and packaging paper, printing and writing paper, including biomaterials and biochemicals, to a direct and indirect customer base across more than 150 countries. Having abandoned its bear trend, Sappi’s share price has been rising and could be looking to resume its previous long-term bull trend, dated September 2019. Drowning in debt, Sappi has had to make an urgent shift from its former paper trail into the cellulose market, which has a significant number of Chinese producers. Sappi’s focus since the lockdown has been on liquidity and cash flow. It also halted its R2.7bn expansion project at its Saiccor mill in KwaZulu-Natal, which is currently 75% complete. To increase liquidity, Sappi was able to negotiate…

Just more than a year ago, South Africa moved into the Covid-19 lockdown. But it’s not just one year since the commencement of lockdown, it also marks the low point (reached on 19 March 2020) when the FTSE/JSE All Share Index (JSE) had declined by 39% from its previous peak in January 2018. This was also the lowest point at which the JSE had traded since April 2013. And little did we know at the time what a rollercoaster ride the next year would bring. When you look at the JSE from a historical perspective, you will see that it only contracted by 30% or more from its peak on five occasions since 1987. When you compare the returns for the 12 months that followed the four previous contractions (excluding…

Some would have you believe that investing in mutual funds has become more complex than ever, being currently compounded by the confused state of the domestic and world economies and related issues. For instance, if your intention is to diversify offshore, should you be investing into the current bull markets? In fact, they have been defined in some quarters by the fact that nothing can defy them. Also, the adage is let your winners ride and cut the losers short, but the losers could bounce back quicker than you think and hold up better should we have a correction from overvalued levels. Perhaps the most daunting challenge investors face, according to prominent US investment analyst David Beattie, is the sheer speed and volume of information. In the past, solid information…

Investment-related debates these days are incomplete without a discussion of holding company discounts. Locally, the poster child for this topic is Naspers*, with the discount to its underlying investments and the various opinions that investors have about how best to narrow this discount. Key drivers of holding company discounts Pinpointing the exact reasons for holding company discounts is difficult. Complicating matters is the fact that holding companies come in various forms and sizes. Nevertheless, there are several drivers of holding company discounts that may apply in each situation. Costs Costs incurred by an investment holding company detract from its value and should be considered by investors. No two holding companies are the same, and the costs of sustaining each therefore vary. There are different types of costs, including: Operating costs:…

— President Cyril Ramaphosa criticised SA banks for failing to manage and administer the R200bn loan guarantee scheme that was supposed to rescue small businesses affected by Covid-19 from collapse and job losses, during an address at a masterclass arranged by the National School of Government. Ramaphosa said the country’s financial sector is highly monopolised and highly profitable, but has failed to address challenges faced by struggling entrepreneurs during the pandemic. The big four banks previously said there hasn’t been much demand for additional financing after the government-backed plan was announced.…

Dis-Chem, founded by husband-and-wife duo Ivan and Lynette Saltzman, is South Africa’s second-biggest retail chain of pharmacies that specialises in beauty, health food, sport supplements and wellbeing. A year after listing on the JSE, the company reported an impressive R17.4bn turnover in its full financial year results for the year ending February 2017, giving it a R30.43bn market capitalisation. With a product range of more than 60 000, Dis-Chem has 165 stores in SA, four partner stores in Namibia and one in Botswana. The chain had a total revenue of R23.9bn in 2020. Share price history Dis-Chem’s share price started sliding shortly after testing a new high at 3 995c/share in December 2017. Not even a 13.7% growth in group turnover to R20.3bn reported in May 2018, boosted by the…

CHOPPIES Choppy shares Choppies’ financial results for the six months ending December was released on 17 March. In contrast to Shoprite’s performance, they were very disappointing. Choppies’ revenue was down 9% while headline earnings per share (HEPS) dropped 11%. The company reported that the decline in volumes sold was due to lockdowns; but Shoprite grew its earnings during lockdowns. Choppies has lots of issues and I have always suggested staying away and I still hold that view. MASTER DRILLING A longer-term play Master Drilling’s financial results for the year ending December, released on 23 March, saw dollar revenue down 17% to $123.1m and HEPS in rand slumping by 71.4% to 42.6c as the government lockdown prevented them from easily moving their equipment between markets as demand shifted. They operate in…

It goes without saying that global stock market performance has been extraordinary during the past year. The S&P 500, for instance, is up 65% since its low last March and nearly 16% for the year. The Nasdaq, laden with technology stocks, is 44% higher for the year. Valuations are now trading at enormous premiums. The wider stock market is clearly being powered by expectations of strong growth after vaccines have been extensively distributed and the economy fully opens. One thing, arguably, the pandemic has underscored is that it is a forward-looking medium. But now it is probably more about future expectations than current conditions. We spoke to Coronation Fund Managers’ Neil Padoa about current trends. Head of global developed markets and portfolio manager there, he graduated with a Bachelor of…

Coronation Fund Managers’ global funds have persistently been leaders in the South African investing space and certainly deserve consideration by all those wishing to allocate a portion of their portfolio offshore. Three funds that we strongly recommend are the Global Equity Select Fund, Global Managed Fund and Global Capital Plus Fund. Though serving different needs and constituencies and being uniquely managed as such, they are all suited to investors who are overexposed to SA; seeking a broader opportunity set; and looking to diversify into well-constructed offshore portfolios. Each fund has different features, which we will discuss. Global Equity Select Fund Launched in 2015 and domiciled in Ireland, it aims to give investors access to the best opportunities in global equity markets. Managed by Neil Padoa and Humaira Surve with $335m…

The strong position of the JSE as measured by the percentage of the 100 shares with the biggest market caps of which the prices lie above their 200-day exponential moving averages, is still valid. Just like last month, it is an exceptionally high 87%. What is different, though, is that a platinum counter, Royal Bafokeng Platinum (RBPlat), has emerged as the strongest share on the JSE. As in the case of Impala Platinum, which also appears under the ten strongest stocks, it can be ascribed to RBPlat’s exceptionally high profits. It’s the golden rule in equity investing: Earnings growth pulls the price higher like a magnet. There is a general notion that a share market always tries to pre-empt the future. It is largely owing to the fact that analysts…

Froneman’s 31 years in SA mining began to take shape as director of Harmony Gold during the late 1990s. It was a period of fundamental change for the SA gold sector, which had been previously dominated by the major mining houses General Mining and Anglo American. The industry was highly centralised in such a way that the houses had investments in separately listed gold firms to which they offered technical services. The model was burst apart by the restructuring led by Randgold. It formed self-standing companies that were leaner and self-sufficient, such as Harmony Gold. The restructuring created a rare crop of high-achieving executives including Froneman; Mark Bristow, now CEO of Barrick Gold; Bernard Swanepoel, long-time CEO of Harmony; and Brett Kebble. Each, in their own way, was a maverick…

Africa is a continent rich with expansion opportunities that are often accompanied by poor returns. Expansion on the continent does, however, remain at the core of the strategies of some major South African companies, possibly because they have an established presence there and need to try to make it work; or possibly because they believe in Africa’s well-documented growth potential, despite the significant hurdles. Looking at the experience of companies such as MTN and Shoprite, this strategy is not without its risks, but it remains core to Sanlam’s strategy, which was reiterated when it reported results for the year to end-December 2020 in mid-March. Reflecting the full effect of the pandemic and lockdown, its net result from financial services declined by 13%, but would have been up 17% excluding the…

With interest rates at historic lows, a perennial oversupply of properties on the market, attractive pricing and more room for negotiation, the current housing landscape makes for an opportune time to consider either establishing or expanding one’s property portfolio. Inasmuch as global economic growth took a hard knock in the past year because of the coronavirus pandemic, Siphamandla Mkhwanazi, senior economist at FNB, says housing markets remained relatively unimpacted. The bank saw robust growth in buying activity and house prices continued climbing. Lower transfer duties and changing housing needs due to the pandemic also propelled the activity. However, it is worth noting that the strong levels of activity are driven mostly by first-time buyers with second-home buying activity remaining relatively unchanged in the past year. Mkhwanazi says the impact of…