[TOP STORY] Resources still driving the JSE higher

Chantal Marx from FNB Wealth and Investments on local markets and why she’d have a finger hovering over the ‘sell’ button for Sasol.

SIMON BROWN: I’m chatting now with Chantal Marx, head of investment research at FNB Wealth and Investments. Chantal, I appreciate the time.

We had the production update from Sasol a couple of weeks ago. Yesterday we had a trading update from them. The stock has been an amazing story over the last couple of years. In 2020 we weren’t sure if it would survive or need a massive rights issue. It is surviving. The market is a little sanguine about this update – it didn’t do much with it. Your take on Sasol? It’s recovered well; it’s a fairly different business now in terms of some of the assets it had to sell off. Is there an investment case for it at these levels?

CHANTAL MARX: Whoa, you’re just diving right in there. I think that Sasol has recovered quite well. At one point there was the rights offer, at one point it was almost priced for bankruptcy. If you bought that thing around R30 you’d call yourself the trader of the century. I know that it’s been touted as the trade of the century from a South African perspective. But back then there was a real fear that things were going to go horribly wrong for Sasol. They had a load of debt on their balance sheets, they had that cracker in Louisiana not quite firing, with certain parts of it exploding when they turned it on. You had the oil price coming down because of Covid-19. and it was just the perfect storm for the company.

Thankfully they were able to sell some assets at decent prices that bolstered their balance sheets a little, and oil prices have been exceptionally supportive. I think that’s where the trick lies.

What are your oil price expectations? Because that’s going to determine how far this thing can still run?

Now oil prices are very elevated, but it’s very difficult to call when they’re going start turning, because there are a lot of dynamics that are super supportive of oil prices at the moment. So in my mind, given current oil-price forecasts from a market perspective and if you look at Sasol’s PE, it still offers reasonable value at these levels. But … I would have my finger on the ‘sell’ button.

SIMON BROWN: Standing close to the exit. I take your point on that. Oil is high and could be there for a while. But, as you say, there are a lot of dynamics about that.

Our Top 40 – it looked like we were going to get an all-time closing high [on Tuesday]. We were 60 points off. Certainly it looks like we might get it today. A fairly solid divergence is happening between our local market, the JSE and global markets – most notably the S&P. Frankly it’s nice to be on the winning side of that divergence for a change.

CHANTAL MARX: Yeah, isn’t it wonderful? Suddenly we are all very excited that we barely have any tech exposure on the JSE. It’s all about the miners. In 2016 you wouldn’t believe that people were actually quite excited about an index that’s so heavyweight into the miners, with very little tech exposure. But here we are. And the that’s exactly why I think that divergence is there.

We’re also seeing some decent support from SA Inc.

We’ve had some good returns coming through from the consumer discretionary space – that’s mainly clothing and retail. And the financials are finally starting to wake up to the fact that we’ve got interest-rate increases coming, which is inherently supportive of financials companies.

But yeah, the resources are really driving the JSE and the Top 40 higher. I’ve just pulled up the forward PE graph for the Top 40. It’s on an 11 times forward PE.

So it still looks like there could be more to come for this specific segment of the market, and I think for the JSE generally.

SIMON BROWN: Eleven is not onerous. I’m having a quick peak there. The Resi at 10, at all-time highs, and the mid-cap, which is very much an SA Inc index, is pretty much at all-time highs. It can move a little bit higher.

We’ll leave it there. Chantal Marx is the head of investment and research at  FNB Wealth and Investments, I  appreciate the early morning.

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