Monthly Archives: November 2019

Remgro/RMB Unbundling

South Africa is the land of monopolies. Historically, under the National Party, South Africa was cut off from the rest of the world and isolated from international competition. This led to the development of massive local monopolies such as that of SA Breweries and Anglo American (which at one stage controlled more than 50% of the blue chip companies on the JSE). Many of those monopolies consisted of enormous conglomerates of companies tied into structures which usually left them trading at considerably lower prices than the value of the share which they owned.

In the new South Africa, there has been a trend towards breaking up those structures and releasing shareholder value. One of the most recent examples has been Naspers which first unbundled Multichoice into the hands of its shareholders and then restructured with the formation and listing of Prosus on the Euronext in Amsterdam.

It is a well-known fact that investment holding companies traditionally trade at a discount to the value of their underlying assets. This discount can be anything from 10% to 40% depending on the company. One of the ways to “unlock” this value is for the holding company to unbundle the shares of a subsidiary or a large holding into the hands of its own shareholders.

Thus, if company “A” owns a 40% interest in company “B” it can distribute that holding of company “B” shares to its own shareholders and then it steps out of the picture and the structure is simplified. This often has the effect of increasing the prices of both companies’ shares on the JSE. Read More

The Moment of Truth

It is becoming very evident that South Africa is now facing a “moment of truth”. Following the mini-budget of end-October, it is clear that the fiscus has exhausted most of the normal and politically acceptable methods of dealing with its growing debt problem. Taxes are at an all-time high and borrowings are rising steadily to untenable levels.

Various highly-respected experts have pointed to the fact that we are now entering a national debt-trap and that radical action must be taken. CEO of Sibanye, Neal Froneman recently pleaded for the government to adopt investor-friendly policies to attract investment. He pointed out that many aspects of South Africa – mostly within the government’s control – have the effect of scaring investment away. These are things like the interference in visa regulations, the third mining charter, the uncertainty around land redistribution policy and the high crime rate. At the same time the recent paper by Michael Sachs, formerly of the Treasury, calls for immediate action to avoid further debt – mainly through the reduction of the civil service and privatisation of various state owned enterprises. But the government is unwilling or unable to take these measures because of their fear of a union backlash. Read More

Looking for Quality

The JSE Overall index (J203) shows an average of most of the shares listed on the stock exchange. It used to be dominated by commodity shares involved in extracting South Africa’s vast mineral wealth and exporting it overseas. Today, those massive mining companies have shrunk to a fraction of their former glory and instead the index is dominated by massive international companies like Naspers and Anheuser Busch. A large proportion of the JSE’s market capitalisation represents businesses which are not in South Africa and which offer local investors a hedge against the weakness of the rand.

Over the past 34 years, the JSE Overall index has trended upwards, mainly because of the decline of the rand against hard currencies like the US dollar, the euro and the British pound. On average shares in the index have paid a dividend yield of approximately 3,5% per annum. Consider the semi-log chart:

JSE Overall Index (J203) Semi-Log Chart 1985 to 2019 – Chart by ShareFriend Pro

This shows that the JSE Overall index has been moving up steadily over this very long time period despite the 1987 crash, the dot-com bear trend in 1998 and the sub-prime crisis of 2008. Read More

The Confidential Report – November 2019


Whenever considering a chart of the S&P500, it is important to put it into its historical context. The situation that we are in now is the result of an extended history that actually goes back to 1929 and before. More recently, in the past ten years, the S&P has been in the process of the longest bull trend since its inception. Experts are confused by this unusually long bull trend because they have not studied the history of how the S&P arrived at this point. In the chart below you can see that the bull trend is marked by a clear upward channel going back to 2009:

S&P500 Index November 2008 to November 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

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