Tag: Equities

The Confidential Report – August 2019


The Rand

For most of June and July this year, the rand was strengthening as international investors became more confident of the reforms which the Ramaphosa administration was implementing. Now the battle between Ramaphosa and the Public Protector has become sufficiently aggressive and dangerous to unnerve international investors – causing some of them to withdraw their funds from our government bonds with the result that the rand has fallen 7,5% in the last two weeks.

The yield on our R186 long bond has increased by 6,3% to 8,46%. Overseas investors are now willing to forgo this relatively high return because of the increased political risk in the country. Clearly, this trend is not good for South Africa or private investors. The fight within the ANC comes on top of the problems of financing Eskom and lower tax collections to indicate that the government deficit is probably going to widen substantially. Moody’s is under mounting pressure to follow the other ratings agencies and downgrade us to sub-investment.

Unfortunately, it is very difficult to ascertain exactly what is happening behind closed doors. We can only watch the markets, especially the rand and the yield on the  R186 for clues – and right now the news on that front is not good. The markets are communicating that there is a chance that Ramaphosa might lose his position of power in the ANC – and if that happens then the economy and the stock market will be in dire straits.

A new concern has arisen with RMB’s John Cairn’s saying that there is a high probability (47%) that the rand will fall by as much as 30% or more once the US begins a new cycle of reducing rates over the next year – simply because it always does that when interest rates are falling in the US. Against this, it seems that the recent cut in rates in the US is just a “mid-term adjustment” and not the beginning of a new trend of lower rates. Read More

Anheuser-Busch


Anheuser-Bausch, or AB-Inbev (ANH), is the world’s largest brewer of beer, operating in both first world countries and emerging markets. On 10th October 2016, AB-Inbev bought out SABMillar for $107bn. This massive acquisition (a world record) left ANH with over $104bn in debt – a burden which it is only now beginning to eliminate. It expects to bring that debt down in the second half of 2019.

AB Inbev trades on the JSE as ANH, the Brussels Stock Exchange as ABI and the New York Stock Exchange (NYSE) as BUD. It announced its intention to list its Asia-Pacific arm on the Hong Kong stock exchange to raise approximately $10bn. The cash will be used to reduce its debt.

The company has brands like Budwieser, Stella Artois, Castle, Beck’s and Corona. After the acquisition of SA Breweries, AB Inbev is four times the size of the next largest brewer – Heineken – so there is very limited potential for further meaningful acquisitions. Growth from here on must be organic. Read More

Omnia


Omnia (OMN) is at an interesting point. The share price has been falling since its peak of R242 made in September of 2014. It is currently trading below R30. This should be seen in the context of its net asset value (NAV) which was R105 on 31st March 2019.

The question that private investors should be asking is, “Does this represent an opportunity?” On the face of it, this is a massive blue chip company which has fallen on hard times. But it has dominant positions in the three major markets which it serves throughout Africa:

  1. Agriculture – where it supplies fertilisers and related products.
  2. Explosives – where it supplies the mining industry with all elements of their blasting requirements.
  3. Chemicals – Where it supplies industry with a variety of chemicals and polymers.

All of these industries require substantial capital investment and have the usual problems of working capital management. So Omnia’s business is not an easy one (such as the service industries which require almost no working capital) and requires a high quality of management. From a private investor’s perspective, this is a negative, but it also means that the share is much cheaper. Read More

Your Stop Loss Strategy – Example of Capitec


It has been well said that the secret of success in the share market is to cut your losers and keep your winners. And that implies some sort of stop-loss strategy (if you are not familiar with the concept of a stop-loss strategy, please read module 12 of the PDSnet Online Investment Course). We all tend to get emotionally involved with the shares that we buy and those emotions interfere with our objectivity, no matter how careful we are.

The logic of having a stop is contained in the question, “How much am I prepared to lose?” Shares are a risk investment and so you should have a clear idea of how much you are prepared to risk. Most investors do not want to lose more than 10% to 15% of an investment. Certainly no one wants to lose 50% – because then you have to make 100% just to get back to where you started! And, if you are unwilling to lose 50% or more of an investment, then you have to have a stop-loss strategy. It’s as simple as that.

The great benefit of a stop-loss strategy is that it eliminates emotion with a series of hard and fast rules which are there to prevent you from losing your shirt when you make a bad decision. The problem with stop-loss is that those rules have to be established before you invest, because otherwise you will be tempted to constantly adjust them as the market and the price of your share changes. Read More

The Confidential Report – July 2019


US Economy

The US economy has been expanding for 121 months – a new all-time record. This persistent growth over such a long period of time has seen the unemployment rate drop to just 3,6% – its lowest level since the 1960’s. And that growth is being followed by a strong bull trend on the S&P500 which is now in its 11th year (it started in March 2009). Economists in America are asking questions:

  • How long can this go on?
  • With unemployment so low, why is inflation below 2% (it was 1,8% in May)?

Economic theory says that once the economy reaches “full employment”, usually defined as somewhere when the unemployment rate drops to between 4% and 5%, then wages will begin to rise leading to inflation. But the average wage in America is remaining stubbornly low. Economists are at a loss to explain. Read More