Re-Rate

Update on 29 March 2020 From the initially recommended levels:  MRP declined by 65% to it's recent low. MSM declined by 85% to it's recent low. _________________________________________________________________________________ If there’s one thing that is a constant in financial markets, is that emotions have and will always be a huge driver of prices. That being said, the patriarch of value investing, Ben Graham, once said, “In the short run the market is a voting machine, but in the long run it is a weighing machine.” While companies are run by management teams that are highly competent and businesses display quality characteristics, share prices are often bid up to levels that are unsustainable, creating significant downside risk to those who buy at lofty (sometimes very) levels. One sector of the South African equity market that I have managed to avoid and most importantly protect capital has been the JSE retail sector. During March 2018, at the p...

 Last Close of Salmar: NOK431.60 Tonight (15-January 2019), I decided to tune into the latest episode of Stockwatch, a business television programme that is aired Mondays to Thursdays here is South Africa. Basically, the program features prominent investment industry personalities that discuss the daily developments on the JSE and global markets. At the end of each episode, the professionals recommend 1 share that viewers could consider as a buy (or sell). This evening we had one of the absolute best and top performing hedge managers in SA , Jean-Pierre Verster (Fairtree Capital) recommending Norwegian-based Salmar as a BUY. Naturally I had a look at the share chart, upon which I made the following conclusions regarding the share's technical position. Since listing in 2013, the share has been in a strong upward trend, appreciating from the early NOK50s to it's recent high of NOK519, which was reached in November 2018. Since then the share has retraced in the form of a ...

Just as the ongoing debate rages between whether active or passive is a sound strategy, the tussle also remains between technical analysis & fundamental analysis. Like many market participants, I believe that a combination of the two strategies (among the strategies that exist) could add value when trying to achieve alpha and management risk. One such example is Dis-Chem Pharmacies, where in March 2018 I identified a 'triple top' pattern - this is considered bearish and warns of potential downside risk. At a p/e ratio of 40 times, the share was grossly expensive & could have been used to 'lighten up' on long positions. We then saw the share decline in price by 29% in the following three months. I also used TA to avoid the recent decline in Fedex shares. On 21 September($250) I warned of a 'three falling peaks' pattern. Since then we have seen the price decline sharply (also impacted by weaker results). The price now trades 32% lower at $170. My beli...

How does an individual who earns his or her living from financial services and/or the financial markets maintain complete humility when they feel they have done well or out-performed? When a plumber, doctor, dentist or IT professional expresses that he or she has the ability to do a good job the reaction expressed is somewhat different than the sometimes "who-does-he-or-she-think-he-is?" reaction a financial services professional receives.  It's on that note I start this brief piece called "Hits & Misses 2018" - an attempt to highlight ( through the calls made ) how my think and analysis has developed, why I believe 2018 was a very good year, as well as where I failed. If you are reading this we most likely follow each other on Twitter or are connected on Linkedin or you may have otherwise come across my post online. The ideas highlighted form part of my roll as an researcher/analyst at a Johannesburg-based retail stockbroker where I am responsible f...

Summary: At a PE Ratio of 14, Firstrand appears elevated. This is in relation to it's peers, in the context of a below average SA growth rate as well as the increasing market competition. Additionally, at current levels, the market may not be discounting the R20bn execution risk of UK-based Aldermore while technically, warning signs are starting to flash. At R66.77, this share is a Portfolio Sell .        I believe one has to consider  the valuation of SA Banks and whether they are indeed "value". Yes, we have the traditional metrics which is often cited such as the sector's "low" PE Ratios and very attractive, above average Dividend Yields. While these attributes are welcomed, the SA economic conditions have been relatively poor for years, so one would think that banks would trade at decade/multi-year lows. Not so. E.g. Although Absa is lower YTD, it trades near multi-year highs. Firstrand, with it's last close at R66.77, trades a mere 13.5% off i...

Summary: At $335.95, Boeing is a long term, technical SELL. Over the last decade, Boeing Inc has been one of the strongest stocks in Dow 30, surging 8-fold as the US economy recovery and the government's defense spending increased. In addition, geopolitical tensions as well as a growing global economy were strong catalysts for earnings and revenue growth over the last number years. As far as the stock price is concerned, the market appears to be discounting a perpetual high growth scenario, with the stock trading at all-time highs while earnings are also at a multi-year peak. From a fundamental valuation perspective, the share trades at 19 x earnings, while EV/EBITDA is at 15.3x (declining from the recent highs which was in line with a level last seen in January 2010) while hedge fund ownership is starting to roll over, reflecting growing selling pressure. In terms of the technical charting setup, the price trades at the overhead trend line resistance level going ba...

Sappi - having a look at the monthly/long term chart. Some readers may recall I had a note in Feb 2017 warning on "Sappi's Share Slowdown". At the time SAP was trading at R84.75 since then has traded in a range of between R78 and R104. While the early to mid R70s appear to be a "comfortable long", this is what I see on the Monthly Chart:  - Upward trend line going back to August 2013 has been breached. See the prior trend line breaks has provided great long term entry/exit signals.   - Has formed a medium term triple top (May 2017, Dec 2017 and September 2018).  - A key level is R85.25 - a level that, over the long term, the share has struggled to hold onto for extended periods of time. This goes back to 2001. - RSI appears vulnerable on support going back to the March 2009 incline support.  - Accumulation/Distribution Indicator is losing long term momentum, possibly reflecting buying fatigue and selling pressure.   Bottom Line : Is Sa...