Indholdsfortegnelse for 5/28/2021 i Finweek - English

the Post Office’s recent attempt to drag itself out of obscurity back into being relative, will dumbfound even its die-hard supporters. To recap: The Post Office (where you wait up to three weeks for a letter to arrive in Johannesburg from Cape Town) sued Postnet and the industry organisation representing couriers. The Post Office, in its quixotic self-conviction, wants to enforce one or other outdated and anti-competitive law giving it the sole right to deliver parcels weighing less than 1kg. Thus, if this piece of legislative antiquity is enforced, we will in a hypothetical environment be waiting months (if you take increased volumes through postal distribution centres into account) for the delivery of anything from urgent legal documentation to our takeaway orders. This line of reasoning by the Post Office…

“THE RISKS TO THE ECONOMY OF REPEATING PAST MISTAKES ARE NOW CLEAR AND WELL KNOWN.”– Busi Mavuso, CEO of Business Leadership South Africa (BLSA), warned against hard curfews and shutdowns amid a looming third wave of Covid-19 infections in the country. In a weekly newsletter, she lamented how certain segments of the economy (especially the tourism, hospitality, alcohol and tobacco industries) have suffered unbearable costs, running into billions of rand, because of stringent restrictions. She called for “sense to prevail as we consider policies to limit the impact of the third wave” and said businesses have invested to be able to operate safely. “Market sell-offs are a good time for people to buy into tech.”– Salman Baig, multi-asset investment manager at Swiss fund manager Unigestion, told The Wall Street Journal…

Famous Brands, a holding company and one of Africa’s largest quick-service and casual dining restaurant franchisors, is expecting a full-year loss due to a huge absence in foot traffic because of the Covid-19 restrictions and the intermittent bans on the sale of alcohol. In addition, the company admitted their poor investment decision of Gourmet Burger Kitchen in the UK in 2016. The restaurant chain is anticipating HEPS to plummet by up to 97%. Though the group said it resumed trading straight after the easing of restrictions in both SA and the UK, its supply chain division, which consists of manufacturing and logistics, was hit the hardest by the trading constraints. The group impaired their Gourmet Burger Kitchen restaurant business in the UK and Ireland in full at R1.3bn, net of…

over the last year we have seen dividend payments becoming erratic as many listed companies cut their payouts or cancelled them. Some, such as banks, were initially prevented from paying dividends by the Reserve Bank’s Prudential Authority (also see story on pg.15).This restriction was subsequently lifted. Dividends are an important part of a share’s return and for some investors they are used to cover general living expenses in retirement. It is important for investors to understand the dividend policy of the company or sector they invest in, in order to have some insight into the risks of dividends and insights on how the company is preforming. Firstly, we have real estate investment trusts (Reits). These are property companies listed on the stock exchange that meet the bourse’s Reit requirements. One…

my first exposure to a risk profile questionnaire was 20 years ago, when as a young and naïve financial adviser, I was required to ensure that I completed one for every client I met. I recall spending quite some time on the risk profile questionnaire with a client, as the company I worked for at the time placed a heavy reliance on this document. I even recall having to “assist” clients with answering some of the questions as these did not resonate with them and they had no idea which “option” to choose, almost as if they were afraid of giving the wrong answer. Of course, my assistance nullified the exercise and instead of an objective client-centric view of their risk profile, it ironically became a “group answer” and hence…

in his book The Most Important Thing – Uncommon Sense for the Thoughtful Investor, Howard Marks argues that investing is all about making decisions today about the future. Unfortunately, nobody has perfect foresight of the future. Therefore, the investment decisions we make today carry the risk that the future may not pan out as expected. Since investing is essentially a process of balancing expected risk and expected returns; proper estimation of risk is therefore just as important as estimating returns for anyone wanting to harvest returns in financial markets. The critical question is therefore: Is there a universally accepted measure of risk? In trying to find a universal quantifiable risk measure, academic theory has settled on volatility as the basis for modern portfolio theory, introduced by Harry Markowitz in 1952.…

risk has always been a primary consideration for fund managers and their clients. However, what each party has in mind when thinking about risk and how to manage it can be quite divergent. Clear and thorough communication around risk is therefore an integral part of the arrangement between clients and fund managers to align the two perspectives as much as possible. One of the main determinants of risk from the client’s perspective is the investment benchmark. In the case of a typical retail client, this could simply entail making a conscious decision around the desired return over the investment horizon, accompanied by an awareness of the potential variability in returns that will likely occur over that horizon. In the case of an institutional client, the particulars around the type of…

I think we have all been part of a conversation where the words, “they say”, popped up. Think about it for a minute … “They say” that the sequel of a particular film will be better than the original release. Or “they say” that the third wave of Covid-19 will be so much worse than the first two waves. It’s when these “they say” talks start to go around in the investment world, that my interest is piqued. There are two popular “they say” conversations currently doing the rounds. The first one is that the US constitutes 58% of the MSCI All Country World Index and, therefore, if the S&P 500 struggles, the FTSE/JSE All Share Index will also struggle. The second one holds that it doesn’t matter how attractive value…

the Nifty, or non-fungible token (NFT), is a new digital asset class that has caused a considerable stir in the art, fashion, and music worlds. Investors with a more traditional approach are fooling themselves if they believe this new asset class is a passing fad, says Nigel Green, CEO and founder of deVereGroup, an international financial advisory and fin-tech company. “They may be a novelty at the moment, but it makes sense with the blistering pace of the digitalisation of our world; digital assets will become increasingly valuable.” NTFs are verified through blockchain technology, giving buyers certificates of authenticity and ownership. They produce unique, non-interchangeable digital tokens, and can be bought and sold like any other asset, however not in a physical form. Digital artist Mike Winkelmann (Beeple) created quite…

i love books. My mother was a librarian, my father a teacher, and I was fortunate to grow up in a house of books. But the book is threatened – or so some say. Only a decade ago, the end of the book was predicted to be imminent, threatened by the arrival of the Kindle and other e-readers. Yet here we are, in the third decade of the 21st century, still mostly consuming books very much like those that Johannes Gutenberg first printed more than five centuries ago. Why, I ask Jeremy Boraine, publishing director of Jonathan Ball Publishers, has e-books not displaced printed ones yet? And is that likely to change in the next decade or two? “I guess there are two reasons why books have not disappeared. Readers still…

established in 1998, Curro is the largest private education provider in southern Africa. Curro develops, acquires and manages independent schools for learners. In 2019, Curro provided education to 42 000 learners in 175 schools in South Africa and Namibia. Share price history Since listing on the JSE in June 2011, when the share price was trading at 550c/share, Curro was a darling among retail investors. As parents grew more frustrated with the underresourced and over-crowded public schools, demand for private schools was on the rise. This saw Curro’s share price test an all-time high at 5 000c/share before losing ground in 2015. The reason for the pullback seemed baseless, considering the popularity and confidence that surrounded the company, but at the time Curro’s price-to-earnings ratio (P/E) was around an expensive140…

the future never turns out quite how we expect (or hope!) that it will. Events occur which lead us to feel like we are not achieving the progress that we expected to make. This experience is also a fundamental part of investing. Our portfolio values either fall, or grow more slowly than we hope they will, as our investment ideas do not play out in the way that we expected. This edition of Collective Insight is all about how both ordinary people and investment managers view and manage this problem. In this edition we have grouped the contributions around the perspectives on risk from these two groups of people. What is interesting is that when you compare them you might think you were talking to inhabitants of two totally different…

risk appetite, risk tolerance, risk capacity, risk required. What on earth do all these terms mean, both to investors and to financial advisers? Or has the jargon become so over-used that it simply confuses even seasoned investors? Misperceptions about what risk means are common, and they are in fact downright dangerous. They are — excuse the obvious old-school reference —risky business (except that Tom Cruise doesn’t feature). A comparative scenario can aid our understanding. Let’s suppose 45-year-old Katy is looking at buying a car. She visits a dealership and takes a Ferrari for a spin. Katy’s appetite is for the red-hot Ferrari. Not only would this be “tolerable” to Katy, but it would also be a dream come true. The dealer’s preference is to sell her the Ferrari, but he…

LET’S SAY ‘PROBABILITY’ Risk profiling of clients was created for the right reason. Aligning a client’s portfolio to their personality and character, thereby improving the probability that they will stick to their investment plan is a noble concept. Has it worked? Has it improved client outcomes? What if we changed the language from “risk-based advice” to “probability-based advice”? To increase the probability of achieving investment goals, there are options. Investors can increase monthly savings; save for longer or adjust their goal expectation. Alternatively, clients can accept (and importantly with help, endure) a larger possibility of a drawdown over the short term in return for higher expected returns over the long term. The principle is to co-create a portfolio and investment strategy that the client is comfortable with. Studies have shown…

our little mammalian brains are fantastically evolved to deal with risk. That’s how every one of your and my ancestors survived long enough for us to be here. But they didn’t manage risk numerically. As hunter gatherers, nobody knew the chances of being eaten by a lion. However, we know there is risk and find ways to act in the face of it. We comprehend risk as narrative. There is no shortage of examples showing how poorly we perceive risks and probabilities, as these are commonly presented. Let’s consider just one for now. Richard Thaler, a behavioural economist and Nobel winner, has an example that shows our dubious ability to deal with risk-return. Thaler asked university students to imagine they had just won $30 and were then offered the chance…

this week I was asked to teach a workshop on “risk” to a group of graduate students in portfolio management. I was probably right to be concerned. I was about to walk into their classroom and blow apart everything that their highly-rated textbook (and lecturer) had been trying to impress on them. To be fair, Modern Portfolio Theory – the portfolio theory that underpins most conventional asset management practices (and regulator strictures for anyone managing pooled assets) – is not exactly wrong. But it is incomplete. Worse, if we follow its thesis on diversification as the risk mitigator of volatility, we can exacerbate market risk even further. This was the point that international contributors to this edition echoed. These were superb articles, but highly technical. We felt it worth summarizing…

ASTRAL Maize prices impacting margins Astral’s results for the six months ending March saw revenue up 7% but headline earnings per share (HEPS) was off 37%. They did reinstate a dividend of 300c per share, but high input prices for maize erode margins. The stock has run a bit this year but remains well off the almost R350 level from early 2018. For investors it’s waiting for local maize prices to move lower to the ideal zone just above R2 000 per tonne. At that point Astral prints money, but I don’t see maize falling significantly for this season, so we’ll have to wait for the next planting season. PICK N PAY Pharmacy deal good for profits The announcement that Pick n Pay will sell their 25 in-store pharmacies to…

The warmth of love This issue’s isiZulu word is uthando. It means love. Oh, what a beautiful, wonderous and intoxicating thing uthando is. We all deserve uthando. And guess what, we are about to receive heaps of it. Oh, yeah, it’s election season and political party campaigners are about to love us so hard. We are going to be loved to death. If your life has been void of uthando, fear no more – lovers in colourful T-shirts are coming to lurve you, baby. You’re gonna have to beat them with a stick to keep them away from you. Please do beat them. “Hey, Solly.” They are gonna hug you (watch out for Covid), serve you, wipe your tears, feed you and do so much more to win you over,…

deep in the rural Eastern Cape, on the banks of the Tsomo River, lies the town of Ncora, home to one of many irrigation schemes in the province that has suffered from years of under-investment after the fall of apartheid in 1994. Ncora’s land is so fertile and blessed with vast water resources that it could easily be South Africa’s breadbasket. However, the area is unlikely to become one of our country’s main sources of food unless a serious effort is made to attract private investors to steer it towards its full potential. In the ongoing debate about land reform, places like Ncora rarely feature in the discussion despite possessing the ability to bring poor rural communities into the mainstream of agricultural production. These places represent a wasted opportunity akin…

prieska is a small town of 20 000 people on the banks of the Orange River in the Northern Cape province. Iscor, the former steelmaker, used to operate there, but mining was last seriously seen in the place more than a generation ago. Today, it is agriculture that helps sustain the local economy. Lately, however, Prieska has become a hotspot – literally, it would seem – for several privately-backed solar energy projects and some high profile ones by French energy firm, Total, as well as Australian firm, Orion Minerals as part of its plans to breathe new life into the old Iscor copper-and-zinc mine, which is exciting investors again. The fresh interest, however, has brought frustration to people in Prieska. According to Orion CEO Errol Smart, the Prieska community has…

The construction sector had a lost decade with many of its listed entities entering business rescue – never to return. This is because very little construction work took place in South Africa after the 2010 World Cup boom. Those companies left are benefiting from renewed tender activity. Raubex CEO, Rudolf Fourie, said that he sees more tenders issued now than at any stage in his 30-year career. Raubex’s recent financial results showed a strong second half with headline earnings per share (HEPS) at 110c compared with a loss in the first half. As activity picks up, Raubex could easily reach HEPS of 300c for the 2022 financial year, maybe even 350c. The reason for this is that in the roads sector, they are last on site to pour the bitumen.…

even though banking stocks have seen gains of around 60% since their eight-year low in May 2020 – with some analysts predicting that their share prices could rally even further – the market does not appear to be particularly bullish about them. Many reasons present themselves for this, not least of which is continued uncertainty, sluggish economic growth and political volatility in South Africa. Local banks were hard hit by the Covid-19-induced lockdowns because of debt payment holidays and increased bad debt provisions which had a negative impact on headline earnings and knocked their share prices. Standard Bank, the largest lender in the country in terms of total assets, lost nearly a quarter of its value last year. FirstRand and Absa were down nearly 20%. Capitec, SA’s third largest bank,…

finweek publishes Collective Insight quarterly on behalf of the South African investment community. The views expressed herein do not necessarily reflect those of the publisher. All rights reserved. No part of this publication may be reproduced or transmitted in any form without prior permission of the publisher. CONVENOR Anne Cabot-Alletzhauser Practice Director of the Responsible Finance Initiative at GIBS  EDITORIAL ADVISORY COMMITTEE  Jonathan Brummer Investment Consultant at RisCura Kelly de Kock Chief Operating Officer at Old Mutual Wealth Trust Company Lindelwa Farisani Head of Equity Sales South Africa at UBS Investment Bank Professor Evan Gilbert Associate Professor at Stellenbosch University and strategist at Momentum Investments Delphine Govender Chief Investment Officer at Perpetua Investment Managers Craig Gradidge Executive Director at Gradidge-Mahura Investments David Kop Executive Director at the Financial Planning Institute of…

life and financial planning would be much easier if we each carried a label around that summed us up as neatly as Snow White’s famed seven-person entourage. Measuring a “risk profile” for an investor in a financial planning context has been something that has proved equally challenging and leaves much to be desired in terms of the quality of our financial advice as a result. For the purposes of this discussion, we consider an investor’s risk profile as two sides of a coin. “Heads” relates to the person’s characteristics and “tails” to their desired outcome or investment goal. The level of investment risk required to reach their desired investment goal (the “tail”) is critical, but it remains an essentially quantitative exercise that is outsourced to investment professionals. The devil from…

more than two decades into our democracy and it appears that the savings culture for the bulk of South Africans defies academic ideals for a nation of our size and income. There has been no shortage of ideas and initiatives to change the narrative, but poverty persists with nearly half of adult South Africans living in poverty before the Covid-19 pandemic struck. This reality continues to undermine our greatest efforts to move the needle that would see South Africa leap into true emerging market and middle-income country status. Having studied economics and later specialising in matters related to retirement funds, their members and consumer financial education, I thought of myself to be well-versed in these issues. However, I soon uncovered the gaps in my understanding, and it was ultimately my…

environmental, social and governance (ESG) is a selective selection process through which investors analyse companies and base their investment decisions on assessing how these companies consider ESG factors, alongside financial factors, when making business decisions. Environmental measures address the way an organisation responds to issues such as climate change, greenhouse gas emissions, water conservation and the sustainable use of natural resources. Social benchmarks focus on business relationships and how the company meets the challenges on issues such as data privacy, health and safety, stakeholder interests, employee treatment and diversity. Governance criteria refer to how businesses deal with transparency in their communications and financial reporting, company incentives and key performance indicators. Why does ESG matter? The number of corporate failures of late has given rise to a growing realisation of the…

wealthy Americans have predictably reacted negatively to President Joe Biden’s plan to increase taxes, notably higher capital gains tax on investment growth. Biden’s proposals are quite extensive compared with previous tax hikes, the last of which was in the early 1990s. It entails effectively doubling the capital gains percentage levied on market gains if income rises above $1m. The corporate tax rate is also set to climb to 28% from 21%. This double whammy for the fiscus could potentially squeeze markets. Bitcoin was seemingly already an early casualty, dropping below $50 000 after hitting a high of $64 000 on 14 April, before recovering somewhat. Up to now, equity markets have mostly adopted a wait-and see approach. Some studies indicate equity markets shrugged off tax hikes in the past. But…