Hello Voornaam,
Welcome to another Ingham Analytics weekly research summary, highlighting pertinent local and international financial newsflow, recent notes that we have published, and what has been among some of the most read notes in the past few weeks or months.
There are various permutations of a well-known saying but Winston Churchill sums it up with "those who fail to learn from history are doomed to repeat it."
Remembrance of history is especially poignant 75 years on from VJ Day. On 15 August 1945 Imperial Japan initially surrendered, announced by Japanese Emperor Hirohito, and subsequently signed on 2 September.
Captured Allied POW's suffered appalling atrocities and deaths numbered in the many thousands.
Japan's Emperor Naruhito has expressed "deep remorse" over his country's actions during World War Two, on the 75th anniversary of its surrender, saying "I earnestly hope that the ravages of war will never again be repeated" whilst Prime Minister Shinzo Abe promised to "never repeat the tragedy."
In the United Kingdom, VJ was commemorated on Saturday at the National Memorial Arboretum in Staffordshire and equally commemorated in Commonwealth and other countries. The official US commemoration is 2 September.
For our tomorrow, numerous Allied combatants gave their today. Dame Vera Lynn, who recently passed at 103, was a proud recipient of the Burma Star. The "forces sweetheart" lifted spirits and as a civilian contributed selflessly, as did all those behind the theatre of war, to an indefatigable spirit.
Modern Japan is an exemplary nation and an example of a will and determination to move on, but not forget, and be a force for good.
On a more prosaic subject but one that affects our pockets, several sobering statements were issued by listed companies this week, joining a list of previous sobering figures.
Inter alia, ABSA six-month earnings will be effectively breakeven, Woolworths full-year adjusted earnings will halve, PPC requires an undisclosed quantum of recapitalisation, KAP annual headline earnings will be down by 70%, Anchor earnings for the six months will decrease by approximately 70%, and both Tongaat Hulett and Barloworld remain at loggerheads about an alleged material adverse change in respect of a corporate action.
ABSA (red), FirstRand (yellow), Standard Bank (blue) and Nedbank (green) based to 100 at the beginning of January 2020
Speaking about ABSA, things weren't quite as bad at Commonwealth Bank in Australia which reported a respectable annual result. Cash net profit after tax was down 11% on a doubling of loan impairment expenses. Capital adequacy is at 11.9% and compares favourably with peers internationally. The final dividend was 50% of statutory second half earnings.
Vukile confirmed the final dividend is expected to be 48.18672 cents per share (bringing the total dividend for F2020 to 129.02282 cents per share) and thus 75% of distributable earnings for the final dividend. Vukile, therefore, meets the minimum distribution requirements to maintain REIT status in terms of the JSE listings requirements.
Interestingly, on the topic of property, Simon Property, the largest mall owner in the US, has been in talks with Amazon to take over space in ailing department stores. Simon has been exploring with Amazon the possibility of turning some of the department stores into Amazon distribution hubs. The talks reflect the intersection of two trends that predate the COVID-19 pandemic but have been accelerated by it - a decline of malls and the boom in e-commerce.
The benefits of being an essential healthcare service provider is seen by the forthcoming Clicks results. The chemist has traded throughout COVID-19. Group turnover increased by 10% in the 49 weeks to 9 August and consequently earnings per share for the year ending 31 August will increase by around 12%.
Mining is one bright light among the domestic-facing gloom. Sibanye-Stillwater flagged materially improved interim revenue and earnings due to higher precious metals prices and a weaker exchange rate, leading to reduced debt. Despite the headwinds of lockdown, which has negatively impacted costs of production, Harmony Gold is looking at better annual results with the gold price increasing by 14% from $1,287/oz to $1,461/oz (25% higher in rand). However, as with several other companies due to COVID-19 Harmony has postponed release its results until mid-September. Exxaro reported an underlying improvement in profitability for the six months with EBITDA up 30% and earnings per share up 17%.
It is not a one-way street in mining. We issued a note on BHP this Tuesday called "Iron ore up, all else down" highlighting that the driver of the full-year result, due to be issued on 18 August, will be iron ore alone. We expect EBITDA of $22bn for the Group with iron ore contributing 64% of the total, up from 48% last year. Petroleum, copper, and coal will all be down by approximately 30%, 10%, and 60% respectively. Whilst we forecast Group EBITDA to be lower by $1bn or 4% than in F2019, if iron ore had performed in line with last year then all else equal Group EBITDA would be down by 20%. We have BHP has among our preferred mining stocks, but it is looking rather stretched and based on the Australian Stock Exchange price of AUD40 is 26% above our fair value.
Kumba is benefitting with 62% Fe Iron Ore Fines at $120/t. Kumba remains an important component of Anglo America too, currently at 5-year highs at R430 on the JSE. We forecast that iron ore assets will contribute 45% of Anglo Group EBITDA this year, up from 34% in 2019.
Commodities also featured in our note "Rolling in the Deep....." in which we cautioned that further disruption in the oil patch is not out of the question following the abnormal events of April 2020 in which West Texas Intermediate (WTI) May Futures traded at minus $40/bbl. At this point, it is more likely that Brent will get weaker in absolute terms whilst WTI is more likely to be range-bound around currently levels of approximately $40/bbl. Traders should be very wary.
Further afield, the buoyant price of iron ore is a positive for the Australian dollar, currently just below AUD1.395/$, whilst the rand has had zero benefit from a surprisingly upbeat commodity environment. Continued strong demand for iron ore out of China led by buoyant steel production and other economic indicators is a boost for the lucky country. But Australia also makes its own luck. There is joined up thinking on mining by government. You know where you stand and there is no corruption. This is the opposite of South Africa where policy incoherence, regulatory idiocy and labour militancy has hobbled what could still be a thriving industry rather than one in decline or at best treading water. With proper policies in place and good political governance there is no reason why mining could not be a sunrise industry.
Which brings us to the topic of Sasol. Never has such a dreadful trading statement been issued by what was once a stalwart of the JSE. Impairments will knock net asset value by 50% or R180 per share whilst an attributable loss of R90bn is likely. In "Going, going for a song" and other notes we have cautioned that impairments were inevitable but even our worse-case modelling hadn't banked on roughly half of shareholders' equity evaporating. Our sense now is that a dilutive rights issue is a distinct possibility. As results are due on Monday we'll probably know soon enough.
Thank you all for visiting us. |
|
|
| Latest research notes published this week |
| It seems an eternity since West Texas Intermediate (WTI) May Futures traded at minus $40/bbl. Today, a similar contract is plus $42/bbl. Incidences such as these... |
|
|
| | How high can BHP go? It is already a shade below AUD40 on the Australian exchange whilst on the JSE the stock is up 20% year... |
|
|
|
| Sasol is in the spotlight. In Going, going for a song Ingham Analytics say that if Sasol management keep flogging the shareholders silver as theyre attempting... |
|
|
| | Forget hyperinflation as the reason for gold nudging $2,000/oz. The answer lies in the US 10-year Treasury. Gold is rising at the same time as Treasury... |
|
|
|
| The Swiss franc has been appreciating against the US dollar and the US dollar index has been under pressure since a brief spike in... |
|
|
|
|
|
|
|
|
