Cyclical stocks aren't for weak stomachs, that's for sure.
In addition to supply-demand dynamics that are more volatile than Cape Town's weather, platinum group metals (PGM) miners face all the joys of operating in South Africa. Small impacts on production numbers can cause substantial moves in profitability, a phenomenon known as "operating leverage" - the extent of fixed costs in a company's cost structure. In the good times, these business print cash. In the bad times, you can barely give the shares away.
Impala Platinum is down more than 22% this year. Northam Platinum has lost nearly 28%. Anglo American Platinum has lost nearly 37% - ouch! Royal Bafokeng Platinum has lost only 11%, cushioned to some extent by the offer on the table from Impala Platinum. These stocks are more suitable for trading than for long-term positions in my opinion, with volatility that creates ongoing opportunities.
In Ghost Bites this morning, I covered the results from Impala Platinum (a pure-play PGM business) and African Rainbow Minerals (which also includes a ferrous segment and coal). Santam released results that showed the impact of the floods (R4.4 billion in flood claims out of R14.2 billion in total claims) and Sanlam released a trading statement. We also saw numbers from Truworths, Fortress REIT (a name that will change soon) and others. Be sure to read Ghost Bites to get up to speed!
Walmart makes it official
Walmart wasted very little time in moving from a "potential offer" to a firm offer to shareholders of Massmart. It will be structured as a scheme of arrangement with a standby general offer. I found this particularly interesting, as it means that Walmart is happy to increase its stake in Massmart even if the attempt to acquire all the shares and delist the company fails.
For the full details of the offer, refer to this article.
Learn more with DealMakers
In addition to the usual weekly summaries from the team (South African M&A, South African corporate finance activity and African M&A), DealMakers has treated us to two insightful articles.
The first is on exit readiness for private equity firms, which runs through the key considerations before selling a stake in a company. The second deals with a coordinated approach to ESG matters and how directors should think about these responsibilities.
Daily market wrap with TreasuryONE
ISM Manufacturing data for PMI and new orders came out better than expected, injecting fresh momentum into the US dollar. The US two-year treasury yield is quoted at 3.54%, its highest level since 2007. The rand found life difficult and threatened to break the R17.30 handle. With non-farm payroll data out later today, we could close this week at our weakest levels for the year.
With the markets pricing i n a 100% chance of a 75 basis points hike by the Fed in September, equities are under pressure and gold has fallen below $1,700. Brent Crude fell to just over $93.30 per barrel based on demand fears.
Podcasts for the weekend
- Episode 91 of Magic Markets was all about chasing the sun! Investing in solar has become particularly relevant for South Africans and Westbrooke never ignores an important trend. Ryan Rittoff and Saul Maserow joined us on the show to explain their approach to this asset class.
- On The Family Finance Show hosted by Diana Granoux, I was invited to speak to her about the realities of life as an entrepreneur. This is a raw, authentic account of my journey as a ghost and the financial impact of my decision to leave formal corporate employment. I highly recommend making time for this great podcast.
- Episode 3 of Ghost Stories was an insightful chat with Carel Nolte of EasyEquities about the insights from the data they have on investor behaviour, including things like popular stocks and the way investors use offshore accounts
Get outside and do something fun this weekend!
