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Blood on the JSE floor

Executive departures, forced share sales, cost overruns and weakening retail prospects have hammered selected stocks.

Last week was a shocker for corporate news. Peter Moyo was suspended as CEO of Old Mutual after barely over a year in the job over an apparent conflict of interest relating to his side project, NMT Group, in which Old Mutual was a substantial shareholder. The news spooked the share price, driving it down 12%.

Old Mutual chairman Trevor Manuel explained the suspension as a result of “a material break in trust and confidence” over Moyo’s apparent conflict of interest relating to his role as CEO of Old Mutual and his interest in NMT. Moyo told Reuters there was no wrongdoing on his part, but it is unlikely at this point that he will return to his former position. Chief operating officer Iain Williamson has been named as acting CEO. Manuel has been a stickler for greater accountability and transparency, so he could not be seen to be brushing this one under the carpet, notwithstanding the hit on Old Mutual’s market valuation.

Sasol also took a 27% pummelling last week after announcing a roughly $1 billion cost escalation on its Lake Charles Chemicals Project in the US, which is intended to diversify its sales mix and geographical footprint. The project cost is now nearly 50% more than the original budget. An element of investor fatigue over the ongoing mismanagement and cost overruns at the project are blamed for the sharp drop in share price, which is now at its lowest level in five years.

Netcare’s share price is down 23% after CEO Richard Friedland was forced to sell 10.4 million shares in the group, worth about R200 million, to cover finance costs incurred in their acquisition. The JSE has called for more transparency where directors use their shares as collateral for financial commitments. Netcare is having a rough time with sub-inflation growth in revenue and earnings, and the weak share price performance of the last two years seems to have pushed Friedland into a forced sale to cover his debt.

Tiger Brands is another share taking strain over the last month. The price dropped 18% in May after it was announced that a class action suit had been served on the company over the listeriosis outbreak in 2017 that claimed more than 200 lives. The case for the claimants is being led by class action specialist Richard Spoor, who successfully fought a previous class action suit on behalf of gold miners afflicted by silicosis or tuberculosis. Several mining houses last year conceded defeat and agreed to cough up roughly R5 billion on behalf of several thousand miners.

Tiger Brands informed investors that no specific damages were being sought at this stage. The first part of the case deals with the company’s liability, for which it has product liability insurance “appropriate for a group of its scale”. However, coverage is subject to the terms and limits of the policy, and it remains to be seen whether this will fully cover what may be a massive claim.

Tiger Brands announced last week that its unbundling of Oceana should bump up earnings by more than 20% for the current financial year ending in September. This appears to have done little to entice investors back to the shares, which are worth less than half of what they were at the start of 2018.

All the above share price drops are related to specific events. What is perhaps more worrying is the overall slide in stock values:

  • the Top 40 Tradeable Index is down 8.5% since the beginning of May 2019
  • the Health Care Equipment and Services Index is down 53% since 2016
  • the Health Care Index is down 63% since 2016
  • the Forestry and Paper Index is down 31% since October 2018
  • the Food Producers Index is down 41% since the beginning of 2018

In the platinum sector, Implats and Amplats are down 17% and 22% respectively in the last month after a sharp run-up in platinum group metal prices over the last year. Given the strength of this run, a breather is perhaps overdue.

Implats posted basic earnings of R2.3 billion for the six months to December 2018, reversing a loss of R163 million for the previous period. “While the near-term outlook for platinum remains suppressed, the medium-term outlook has improved. The current strength in both palladium and rhodium fundamentals are expected to persist for the foreseeable future,” said the company in a note accompanying its results.

Aspen and Life Healthcare are two companies taking a beating in what was, until a few years ago, a shining star on the JSE. Life Healthcare is down 17.7% over the last month. The company says its margins have been squeezed by new growth initiatives in SA and abroad, and costs incurred in driving efficiency programmes that will bear fruit later.

Aspen is down 75% since 2016, and recently announced it was reviewing its European and SA pharmaceuticals businesses. It will split the SA business into two units to optimise efficiencies. The future focus will be on emerging markets, and it expects quick results from the launch of women’s health products in the US.

Two other shares taking strain are Mr Price, down 18% in May, and Massmart, down more than 40% since January this year, the result of ongoing attrition in the retail sector. Massmart recently announced operating profit after restructure costs, non-trading items, foreign exchange movements and interest paid may be 60% below the prior period (June 2018: R271m).

Sappi is down 20% over the last month after it announced profits would fall for the year to September due to weak demand and over-supply of stable-fibres supplied by the group to the paper market.

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Quite right. Over the past 5 years it has been a right real shambles. Look over the top 40 shares and ask yourself what percentage is worth investing in. is it 50:50? Can get the same odd’s at the casino on black or red. Is it worse that 50:50? Well?? Will you be rewarded for the risk investing in SA Inc? MTN under investigation AGAIN??

And how many more times do we have to say, stay well clear of this stock market that makes up less than 1.5% of the world stage.

Investing in stocks on the JSE is much more than expecting a decent return – SA’s reputation as a functioning economy is intimately wound up in a stock market that has local participation.
Our reputation as a player on the world stage has slowly been diminishing as we disinvest in our own country…the sale of SAB, De Beers etc haven’t helped our case but a working Stock Exchange still keeps us in the loop. SA is Africa’s hope for the future in more ways than just providing resources for China. Africa is the birthplace of civilization ( isn’t that funny!) let’s not let it be the end of it. Maintaining and hopefully growing a reasonably stable economy will keep chaos from the door and a functioning exchange is very important window to the word in this regard. In my opinion.

Yep …. SA’s international reputation, certainly in international media like the Financial Times that I follow is dismal.

Local media constantly report highjacking, riots, looting, gratuitous violence, police corruption and political inefficiency. I’m thinking of not renewing my subscription to Noseweek because their superb in-depth reporting of local issues is so depressing. I won’t even mention the JSE results of retailers and industrial stocks. My son-in-law’s high end retail outlets are constantly burgled and staff were recently held up at gunpoint.

Yet driving around Cape Town industrial zones, factories are open, trucks delivering and Checkers is building a huge new branch in Constantia.Tens of thousands of people (millennials) come into the Cape Town city centre on First Thursdays and money gets spent. International entertainers like Ed Sheeren’s shows get sold out even at exorbitant ticket prices. High-rise apartments are still being built along the Atlantic seaboard and restaurants at niche venues like the Norval Gallery, the V&A Waterfront and Fransch Hoek are always full.

So the messages we get from media, government and observation on the ground are hugely confusing and certainly not encouraging cautious foreign investors.

As a retired 70+ year old, I personally I am in bonds and cash, not spending unless I have to and taking a lotto ticket when it gets to R20 million. A R5 million investment in Portugal or Malta residency appeals and SA would be a brief summer holiday return.

Beachcomber, I sympathise and also cancelled Noseweek, as it is too depressing even though it is full of excellent journalism. I never watch SABC except for Top Billing that gets recorded and I limit the amount of negative news otherwise it makes living in a decaying and unbelievably corrupt country like South Africa very difficult and distressing. This takes away our joie de vivre. A good swim, run, cycle or walk will help but I would suggest limiting the negative input. It is good to be aware but there are limits.

So since May 29th our exchange rate has weakened from 12.68 to + 14.60 – if only the politicians would consider the plight of the country rather than political point scoring.

An exchange of rubbish:
MTN, Aspen, Sasol, Mediclinic, Massmart, Steinhoff, Harmony, Liberty, Tiger, Tongaat, Woolworths, Brait, BRitish American Tobacco-all have huge negative 5 year returns. Couple this with low growth, volatile government and currency there appears no reason to take risk here.

We are fast becoming a country of losers!!

Luckily we have a caring government that limits foreign investment by pension funds to 30%. This is done not to expose pensioners to undue risk.

Indeed, Regulation 28 keeps our investments safe in low-risk(?) SA equity market at 75% cap. Better to steer clear of the so-called “evil & high-risk” offshore investments, regulation-28 warns us against 😉

According to Reg.28, the more we diversify abroad, the more risk we take 😉

Hence, rather play it safe within good ol’ SA Inc. we’re all familiar with:

Tongaat…dying
Aspen…painful
EOH…painful
Group Five…death
M&R….death
Massmart…painful
Tiger….toxic
Brait…terminal
Ascendis…near death
Rebosis…cancerous
….there’s more, but have run out of space.

To conclude from Regulation 28: local must be low risk.

The OM thing is weird. Years ago a finance minister, Trevor was deciding on changes to RA rules and he was lenient, now he’s a board member and looks out for them?

and, would you believe it, he once claimed to be a communist. Integrity runs deep with these people, ha ha.

Hyell, there is so much negativity here it is almost a signal to buy. Pity the market is still significantly over-rated.

Its quite weird isn’t it momo – in another world that would be a good risk to take but no one wants to catch this falling chainsaw! I know I don’t

It is not that bad. Look on the bright side. Only those companies that are exposed to the implosion of service delivery from a municipality, the redistributive tax regime, runaway electricity costs, criminal BEE contractors, crime in general, the Eskom monopoly that cannot produce, EE, militant labour unions and hopelessly inept politicians who are actually suffering financial hardship. O, but that includes every single local business….ok…that is bad, very bad.

But Goldman Sacs, Investec + pundits told us CR win would be bullish for equities and the Rand?

This is just the reality check of our deepening economic crisis rearing it’s ugly head again.

and now we will have the CEO’s standing up at investor roadshows showing off how they are fairing better than these atrocious results to create a smoke screen around there own poor performance – seen and listened this before.

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