Podcast: Stock and thoughts

Simon BrownJSE Direct, Latest

Simon Says

  • Upcoming events;
  • Coronation* (JSE code; CML) results about as expected and it looks like they’re already moving up off the bottom of the down trend. I hold and like. People asking if passive doesn’t kill Coronation and the answer is no. We’re a very long way from passive being larger than active in South Africa, and even when that happens the real threat is initially the smaller asset managers. In time small active will be the winner, but we’re talking a long time into the future.
  • A few people asked me why I don’t like Balwin (JSE code: BWN) and Calgro M3 (JSE code: CGR). They great operations but they sell houses and right now the housing market is depressed (or distressed, your pick). Costs are not going down but prices are also not holding so a squeeze. Calgro M3 has an advantage in that they can build at vastly different price points, but then they have other issues. Both will be great investments in time, just not right now.
  • Barloworld* (JSE code: BAW) results were solid, very solid and I continue to like and hold this stock. Here’s the value video I did earlier in the year that offered Barloworld as the best buy on the JSE.
  • Khula Sizwe: innovative and promising.
  • Choppies (JSE code: CHP) was always an opportunistic listing that frankly never impressed me. Their results for June 2018 are still outstanding and the share has been suspended since November 2018 and now they’ve suspended their CEO.
  • Richemont* (JSE code: CFR) results were boosted by their new online retail which operates at lower margins but is now a significant profit center. The risk for them is trade wars and a slower GDP growth out of China. The issue is how many of the new rich in China get hurt by GDP slowing? Short answer is not sure, but I certainly suspect many will, you’re suddenly rich so you buy a fancy watch then a bump comes along and you’re no longer rich so no more fancy watches.
  • Pioneer Food Group (JSE code: JSE) results show the pressure on branded food products. We’ve seen this trend with TigerBrands and AVI and it is likely to continue. The question is for how long? Consumers are shopping down to store brands and while they’re often made by these same companies, the margins are much lower. Buffett (at the Berkshire Hathaway AGM) was commenting that this tension between retailer and producer is always in force and right now the retailer is winning. He says that the trend will reverse in time. But when and will it fully reverse or do some customers stay in the cheaper store brand product? I think they do and as such companies like Pioneer and co. will have a lower rating.
  • Sasol* (JSE code: SOL), more cost over runs on their Lake Charles project.
  • CoreShares changing their two property ETFs, PTXTEN* and PTXSPY. An again the ‘market’ (or at least some Twitterers) are moaning.
    • Both ETFs are from 2010 when the SAPY index couldn’t even get 20 stocks and was dominated by the two large stocks being over 50%. The equal weight then made perfect sense for an investor.
    • But the SAPY index is messy with Nepi Rockcastle (JSE code: NRP) included while Capco (JSE code: CCO) and Intu (JSE code: ITU) are not. The JSE did an index review recently but rather than change the index they added new indices.
      CoreShares are hence merging their two property ETFs and changing the methodology.
    • New methodology will be 75% focused on three years of yield history and 25% on market cap with an initial liquidity filter to determine potential stocks for inclusion.
    • Result is more stocks in the ETF (26) with 24 of them driving returns, so great balance. Also a better yield as this is one of the key reasons for buying property.
    • There will be a ballot for existing holders. 25% need to vote and majority wins, if vote is below 25% a second vote is held with no minimum turnout required.
    • I will vote in favour.

* I hold ungeared positions.

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JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

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