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[TOP STORY] A strong start to the year

Nick Kunze of Sanlam Private Wealth looks at the JSE overall, Sasol and Aspen.

SIMON BROWN: I’m chatting now with Nick Kunze, who is, of course, a portfolio manager at Sanlam Private Wealth. Nick, good morning. We’ve seen a really, really strong start to the year on the JSE, in the US. We’ll take it with both hands, and we’ve got no problems with that. Your reading on it? Is it really just a case of most people probably weren’t at their desks last week, and therefore markets could pretty much run?

NICK KUNZE: Morning, Simon. I think there’s a little bit of that. Typically January is a good month; we normally get the inflows. People rejig portfolios and, as normally happens, equities certainly get a bit of a kicker in January. But I think what’s surprising for me was it was almost like a bit of an everything rally – look no further than Bitcoin last week. It’s obviously a different story this morning. But the likes of real risk-on assets with Tesla, your Robin Hooders all diving in last week. And the volume was intriguing too. 

We started Monday on the JSE at I think about R10 billion value trade. By the time we got to Friday, we were up at R18/19 billion. And I think this morning, with most people, as you said, back at their desks, maybe getting into the R20 billions. So I think we’ve more of an indication this week of where the real money is going. Thin markets last week. But, as you said, we’ll take it. A solid, solid start to 2021. 

SIMON BROWN: So we’ll take it. Even gold was one of those risk-on, up at $1960/oz, though well off this morning, kind of doing a bit of a Bitcoin on us. But the one that really struck me was oil. And I know Opec, Opec+ are talking nice and the like. But oil – Brent most notably, but West Texas as well – back at January levels from just a year ago. How much is Sasol still an oil play? Of course, Sasol has been doing fairly well. as well.

NICK KUNZE: I think most people look at Sasol as a pure oil play. Of course, those who know a little bit more about Sasol realise it’s not just pure oil. A lot of it is not chemicals; a lot of is a rand/dollar play too. I think you’ll be very careful with oil. It’s the most crowded trade. And the most hated trade in the world right now is probably the short US dollar. I’m a fan of it too, but nothing goes up or down in a straight line. Trade is very crowded. And if we’re seeing – like we’re seeing this morning – a little bit of dollar strength coming through, its a little bit long overdue. I think oil’s going to be a bit on the back foot and, as you said, it is quite playing that monopoly game with the likes of Saudi Arabia cutting one million barrels per day. It is a little bit of a game-changer but, with oil where it is now, I think it has run a little bit ahead of itself. I’d be careful being long Sasol after it’s had a nice bounce. 

SIMON BROWN: Fair enough. Another one we chatted around a couple of times last year – I know you were liking it – is Aspen. They seem stuck in the R120s, and that was a head-scratcher for me. They managed to break up, although Friday looked a little weak; it traded well off the highs. They’re a solid company. They’ve got the deal with Johnson & Johnson. That might not be profitable for them, but it’s utilisation. Is this a stock to look at on weakness?

NICK KUNZE: I think so. Traditionally, take the fact that we take the name away, just this sort of space in pharmaceuticals and the like – they are normally defensive plays. I thought it actually traded reasonably okay. I’m in your camp. I thought we’d get more of a kick. With Johnson & Johnson, although it’s not straight to the bottom line, I think perception is also worth a lot there too. I think it’s looking cheap. We are used to playing Aspen on 30-something, 40-something PEs back in the day. Obviously, it’s a very different share. It’s not the same company it was four or five years ago. Although, saying that, even down here single-digit PEs on a forward basis for something like this look too cheap to me. So yeah, I’m in your camp. I quite like it.  I think it’s got further upside.

SIMON BROWN: A much better stock when we were buying it on those 40 PEs, ladened with debt. It got rid of a number of assets, including some that they said were going to be their core. Be that as it may, that balance sheet is looking quite robust. And I heard Stephen Saad make the point that they’ve never gone to market to raise money. Everything they’ve funded internally. And kudos to him.

NICK KUNZE: I couldn’t agree with you more. We traders and brokers and asset managers are quite a fickle bunch. We were screaming from the rooftops a year ago that “You’ve got too much debt, your covenant is going to be breached,” and so forth. “You got to lay it off.” And so Stephen Saad and his team did, I guess, what the market was asking. Look, they did sell, I think, the crown jewels with the milk-formula business. But so be it. I’ve got the feeling that maybe there’s a bit of a gun to the head from the bankers, but they did what they needed to do. They’ve got a big chunk of stuff coming – R15 billion-something, or dollars whatever, numbers coming into the bottom line, closing that debt down. What does the market want? They’re doing exactly what they said they’d do, and I think it’s definitely worth a look.

SIMON BROWN: Nick, Kunze, portfolio manager at Sanlam Private Wealth, I really appreciate your early Monday morning.

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The double dip starts tomorrow

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