Monthly Archives: January 2020

The Corona Correction


One of the enduring characteristics of markets is that they over-react. The size of their over-reaction depends on exactly where they are in the cycle and whether sentiment at the time is generally negative or positive. The S&P made a new all-time record high on the day before Martin Luther King Jr Day (20th January 2020) – after a consistent run which has lasted since the beginning of October 2019 – almost four months. Clearly, the market is now looking for a reason to correct. And since Donald Trump has been preoccupied with his Impeachment trial, he has been leaving the Chinese and the rest of the world in peace. Read More

Kumba


Kumba Iron Ore (KIO) is a separately listed 70% subsidiary of Anglo American. It is by far the largest producer of iron ore in South Africa and it exports 94% of the ore which it produces. This makes it substantially a rand-hedge share which is hardly impacted by developments in the South African economy. The main drivers for this share are the international price of iron and the rand.

What makes this share interesting is the fact that it trades on a very low P:E ratio of 7,26 and a historical dividend yield (DY) of nearly 10%. In the current financial year (to 31st December 2019) the company has already paid a dividend of R30.79 per share and it is expected to pay a further R20 per share as a final dividend – making a total of R50.79 per share. This should be compared to the current share price of around R381. This puts it on a forward DY of 13,3% – not a bad return. Read More

Is Old Mutual Cheap?


Old Mutual (OMU), the remaining piece of a much larger company which split apart recently to release shareholder value, must be seen as a high-quality blue-chip share. In its most recent results for the six months to 30th June 2019, the company reported adjusted headline earnings per share (HEPS) up 10%. It is a well-diversified, well established company in the financial services industry with a high-quality management team and a solid balance sheet.

But its shares have been taking a hammering – mostly because of the messy business of getting rid of its previous CEO, Peter Moyo. The Appeal court has finally ruled that OMU’s decision to terminate Moyo 8 months ago was legal – and this clears the way for OMU to appoint a new CEO. The interim CEO, Iain Williamson has been doing a great job and clearly has confidence in the future of the company since he bought R2m worth of OMU shares on 19th January 2020. Read More

The Discount to Tencent


It is commonplace for investment holding companies to trade at a discount to the value of their underlying assets. This discount is usually around 20% to 30% depending on the assets held. Efforts are often made to “unlock” this value into the hands of shareholders by “unbundling” the assets directly into the hands of those shareholders. Private investors can sometimes score a windfall by buying into an investment holding company which is trading at a significant discount and then benefiting from their efforts to release or unlock the value.

Naspers (NPN) has been increasingly undervalued in terms of its underlying assets for many years. For example, it has been recently estimated that the company’s shares are now trading at a 42% discount to the value of its indirect 31% holding of Tencent – the Chinese internet and social media giant. That discount has widened sharply in recent months as the Tencent share price on the Shenzhen stock exchange in China has risen by almost 30%. Read More

2020 Prediction


Predicting what will happen on the JSE in 2020 is immensely difficult. There are many variables, each of which is complex in its own right. However, some things appear reasonably clear to us. They are:

  • The dominant prediction for 2020 is that Wall Street will continue on its upward journey with the S&P500 breaking a series of new highs during the year. In this process it will go through at least one major correction – which is already probably overdue – and that will represent a buying opportunity. This prediction is based on our perception that the US economy will continue to grow strongly and with it the world economy. This growth is driven by the massive quantitative easing and monetary policy stimulation of the past decade. We do not see any significant recession occurring in the US or elsewhere during 2020. If anything, the pace of economic growth will probably become more widespread and stronger. The great bull market, now in its tenth year, is showing no signs of slowing down. Bearish commentators are consistently being proven wrong to the point where few are willing to stake their reputation on calling the top.

S&P500 Index 2009 to 2020 – Chart by ShareFriend Pro

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