ARTICLES

The Cannabis Company

Until September last year, you could easily be forgiven for not paying much attention to the thinly traded penny stock, Labat. Styling itself as an “investment holding company” it seemed to have a diverse collection of businesses which did not hold much potential and lacked a clear focus.

In September 2019, however, it changed its focus and decided to become a “fully integrated cannabis business”. It was looking to cultivate, harvest, process and export cannabis from Lesotho for medicinal and pharmaceutical purposes.

It has acquired a collection of companies which make this new goal possible and give JSE investors the only listed company which is actively seeking to focus on and exploit the cannabis market.

On 14^th April 2020 the company acquired 70% of Biodata, an East London based company which is focused on cannabinoid healing for pain management and insomnia. The acquisition was made for shares.

Nobody quite knows what the cannabis market will be worth in South Africa but the export potential for high-quality cannabinoids appears to be almost limitless. It is estimated that here in South Africa the market is perhaps worth about R27bn.

On 5^th May 2020 the company issued a forecast of its future profits for the years ending 31^st August 2021 and 2022 which they had produced as part of their road-show to raise funds from institutional investors. In those forecasts, they predicted that they would generate headline earnings per share (HEPS) of 10,9c in 2021 and 29,9c in 2022 – which is very impressive when its share price is just 46c.

Clearly, somebody believes these forecasts because the share’s price has suddenly jumped from around 30c to 46c in the last few days on very strong volumes traded.

In technical analysis, a rising share price which is accompanied by sharp increases in volume is an indication of insiders buying up the share. The “weak hands” are being bought out by the “strong hands”. Consider the chart:

The top chart is a simple candlestick chart of the share’s daily price action, showing the sharp upward move. The middle chart shows it’s on balance volume (OBV) which is calculated by adding volumes to a running total on days when the share’s price rises and subtracting them on days when it falls. A sharp rise in the OBV is an indication that insiders are buying up all loosely held shares in the market. Finally, the bottom chart is a volume histogram which shows the daily volume of shares changing hands. This last chart shows how average volumes have increased sharply in the last week or so – and these volumes have been accompanied by a sharp rise in the share’s price.

All of this means that this share now represents an opportunity. Of course, there is risk, but there can be little doubt that cannabis is steadily becoming legalized throughout the world and the potential for its medicinal and leisure usage represents a huge opportunity. The increased volumes traded in the share now make it practical for private investors to buy.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Bell Equipment

We are often asked what prompts us to add a share to the Winning Shares List. The answer is that it is a variety of factors – but usually because the share appears to be very cheap in relation to its fundamentals. In other words, we expect it to be upwardly re-rated as its fundamental value becomes recognised by the institutional fund managers. A

JSE All Time Record High

On Friday last week, the 12th of July 2024, the JSE Overall index closed at 81686 – an all-time record high. Consider the chart:

The chart shows that the Overall

Construction

The entire construction industry was decimated by the 2008 sub-prime crisis, the ANC under Jaco Zuma’s presidency and then finally by the pandemic in 2020. Hundreds of thousands of jobs were lost and massive companies like M&R were reduced to penny stocks on the JSE.

The JSE Construction and Materials Index (JS5011)

Murray & Roberts

A company’s debt is critical in establishing the risk inherent when investing in its shares. High debt levels expose the company to high interest and capital payments and can swallow up a large part of whatever profits it makes. Low debt levels give the company the headroom to invest in further growth either organically

Mr Price

Mr Price is a well-known and focused retailer of clothing in South Africa. It is a quintessentially South African company, and its performance is a direct reflection of the state of the economy and the level of consumer spending. It is an extremely well-managed company in a very tough and competitive market. Clothing is sold by many dedicated outlets in South Africa and almost

Uncertainty = Risk = Volatility

We live in uncertain times. Among the sources of this uncertainty are the final outcome of the recent local elections (i.e. what the shape of our future government will take) and the prospect of the American elections on 5^th November 2024. In the background are the wars in Ukraine and the Middle East which constantly threaten to escalate.

The uncertainty

Winning Shares List

Investment in the share market is not about certainties – it is about probabilities.

Success comes from bending the odds in your favour, so that it becomes like playing a roulette table where you have a 60% or 70% chance of winning.

That, of course, means that you must fully expect to lose 30% or

Wall Street and the Rand

As South Africa edges closer to election day, the ANC has been desperately doing everything in its power to pass populist measures to bolster its waning support, especially with the country’s lower income groups. This includes the signing of the highly controversial National Health Insurance (NHI) bill into law by President Ramaphosa.

There

Pan African Resources

In our opinion, the gold price in US dollars should continue to perform well for the rest of 2024 with the potential for rising inflation and increasing political instability in various parts of the world. The upward trend will, of course, be marked by corrections, but the overall direction of the trend is clear. Consider the chart:

Market Overview

This week, the US Federal Reserve Bank’s monetary policy committee (MPC) held interest rates unchanged at their historically high levels and said that they intended to hold rates at these high levels for longer than previously expected. This information was followed by the April 2024 non-farm job creation number which came in at 175 000 – considerably