Monthly Archives: October 2019

The Balwin Bargain


Private investors are always looking for a “sure thing”. This is an investment where there is plenty of upside potential, but limited downside – and they want that at a very good price. Balwin properties comes very close to that ideal. It is a small property developer that focuses on developing, either for sale or for rent, secure properties mainly in the major centres.

The three years that it has been listed have been among the worst ever recorded for property shares in South Africa – especially 2018 when the JSE property index (JSE-SAPY) fell a whopping 25%. This was mainly the fault of the Resilient Group of companies which were the subject of several negative reports which suggested that they were involved in share manipulation arising from their cross-shareholdings and directorships. Most of those allegations have now been shown to be untrue, but the rumours and negativity associated with them have combined with a very difficult property market to cause property shares to be severely re-rated downwards.

And this situation has now created an opportunity for private investors, because some property shares are now trading at ridiculously low levels – well below the value of the properties which they own. Balwin is now trading for 322c per share and has a recently updated net asset value (NAV) of 567c – which means that it is trading at a 43% discount. Among other things, this makes it a potential take-over target. And what is nice about property shares is that the NAV represents tangible properties which have been independently valued. Read More

BHP Billiton – Oversold?


If you accept the fact that the world economy is in a growth phase, which is being led by strong growth in America, then it makes sense that commodity prices would be strong. And they have been, ever since the beginning of 2016. It also makes sense for private investors to look at commodity shares in light of this – especially the diversified, multi-national mining houses that operate all over the world. These enormous conglomerates are protected from the volatility of commodities by the fact that they operate in diverse geographies and mine a wide range of minerals.

Perhaps the best example of such a share is BHP Billiton. This is the largest of all the mining houses and it has its headquarters in Melbourne in Australia. It processes a wide variety of minerals as well as oil and gas. It has 62000 employees, mostly in the Americas and Australia. It produces copper, iron, coal, oil, gas and a variety of other base and precious metals.

Among its most valuable assets are:

  • 57,5% of the Escondida mine in Chile which is one of the world’s largest copper producers and also produces some gold and silver.
  • 33,75% of Antamina in Peru which produces copper and zinc.
  • 100% of Pampa Norte which produces copper cathode in the Atacama Desert in Northern Chile.
  • 50% of Samarco in Brazil which produces iron ore and a one third interest in Cerrejon in Colombia which produces coal from an open-cut coal mine.
  • Mineral rights in Saskatchewan in Canada which contains one of the world’s largest unexploited potash deposits.
  • Olympic Dam in Australia which is one of the world’s largest copper, uranium and gold ore bodies.
  • Western Australia Iron Ore which is a system of five mines connected by more than 1000km of railway lines.
  • Queensland Coal which comprises the Mitsubishi Alliance and Mitsui Coal.
  • The Mt. Arthur open-pit coal mine in New South Wales.
  • Nickel West which is a nickel mine with smelters, concentrators and a refinery.
  • In the petroleum field it owns high quality resources in the Gulf of Mexico, Australia, Trinidad and Tobago.

Read More

Altron


On 31 October 2017, we published our usual monthly Confidential Report and in it we drew your attention to Altron. What we said was:

“For the two years between 2014 and 2016, Altron did badly, but since then the share has executed a long slow “saucer bottom” and now appears to be mounting something of a comeback. The newly appointed CEO, Mteto Nyati, is at the front of this new optimism.

Consider the chart:

Altron (AEL) August to October 2017 – Chart by ShareFriend Pro

Read More

Volatility


During a strong bull trend 80% of investors are bullish and 20% are bearish – which is why the market rises quickly. The opposite is true of a bear trend. But during both bear and bull trends there is far less uncertainty among investors as to what will happen next. Uncertainty usually expresses itself in sideways markets. During a sideways market (sometimes called a period of “consolidation”) opinion about the future direction of the market is evenly balanced between bulls and bears.

From a technical perspective, the further that a chart departs from its average, the more volatile it becomes and the less certain the future becomes. The most predictable chart is a straight line – the further a chart departs from that, the less predictable it becomes. At the same time, the more volatile a share becomes, the more opportunity there is for capital gain. So, we can reduce this discussion to three words:

Volatility = Unpredictability = Risk

And risk is not necessarily a bad thing because it brings with it the opportunity for profit.

For the private investor it is important to be able to gauge the level of volatility in the market. One of the best ways to do this is by using Bollinger Bands. Read More

The Confidential Report – October 2019


United States

The Federal Reserve Bank of America (Fed) has cut rates again by a further 0,25% which indicates that the monetary policy committee (MPC) is still concerned about the possibility of the US economy sliding into recession.  At the same time Europe has resumed its quantitative easing program also because of fears of a recession. Some of this is certainly due to the trade war between America and China. Nobody is quite sure how that will play out in the world economy and the primary result has been a shift towards “risk-off”. This risk-off sentiment has had an impact on the S&P500 index and also on the South African rand. Consider the chart of the S&P500 since April 2019:

S&P500 Index April to October 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

This shows the previous cycle low at 2744 made on 3rd June followed by the rise to the all-time record high at 3025 on 26th July. After that, Trump managed to invoke the next correction with his China trade war taking the S&P down to support at around 2840. A period of sideways movement followed, generating a “flag formation” which we predicted on 4th September would break to the upside. That upside break has occurred, but a new record has not yet been set. The index is currently falling back towards the resistance line of the flag formation – which is at around 2932. That resistance has now become a support level.

In our view, we expect that the index will move upwards from current levels and break above the all-time record high – probably sometime in the next month. That will signal a resumption of the great bull market which has been in progress for over ten years since March 2009. Read More