Some of the JSE’s top movers to keep an eye on

By Edward West Time of article published Apr 28, 2020

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CAPE TOWN - “It is certain that as a result of Covid-19 we will enter a level of recession that we have not seen before in modern times,” said Laser Group chief executive, Iain Johnson, in a letter to staff last week.

It was a letter to express his regret that there was no way to continue operating the 35-year old Pietermaritzburg-based national courier business, Time Freight, which had been operating as a division of DPD Laser Express Logistics since 2007.

Time Freight will be one of thousands of other businesses, formal and informal, that will close this month or in the next few months.

Next week’s partial lifting of the lockdown will see many companies get back into business, but the real question is about demand. No business can survive by paying salaries, rent and suppliers, with no sales.

Joblessness, lower incomes, badly shaken confidence in the future, rising debts, fears about the virus, about job security - these are the worries of most South African consumers at present, and they are not going to disappear on Friday or any time soon.

The government has stepped up to the plate, and President Cyril Ramaphosa’s R500billion fiscal stimulus plan will help to prop up the economy in the short term. The size of the package indicates that Ramaphosa has woken up to realities of having to balance livelihoods in a developing economy, with the dangers presented by the Covid-19 pandemic.

But it is not likely to be enough: government-backed relief packages never are. Much of the relief for businesses is in the form of debt on easier terms, which needs to be repaid.

Given how weak the economy was before the Covid-19 crisis, entrepreneurs will have to decide if it is feasible and prudent to take on debt to keep their operations afloat.

The Covid-19 crisis; the credit-rating downgrade to sub-investment grade and likelihood of further downgrades; the depreciation of the rand; and the global economy going into recession have created a quagmire for the country’s already fragile economy.

So, hypothetically, if one were investing in shares on the JSE for the first time this week for longer-term returns and given the volatility of the markets, one would not buy shares in companies that rely on discretionary consumer spending.

Perhaps this is why Clicks (-10.15percent); Mr Price (-4.42percent); Truworths (-4.53percent); and Foschini (-8.03percent) were among the 10 biggest share drops on the JSE on Friday.

One would also, conceivably, seek to invest in companies with a large and stable footprint, one that has sufficient financial reserves to see them through this tough period.

One company worth considering is Octodec Investments. The real estate investment trust owns properties that it leases to government departments, retail, industrial and residential properties, mainly in Joburg and Tshwane.

Its interim results to end February, released last week, showed distributable income slightly lower at 97cents a share, a resilient performance considering the environment.

But the results were prior to the lockdown. The government has committed to continue paying its rentals, so that side of Octodec’s operations is solid.

It is hard to tell how many of the group’s more than 14000 residential tenants lost their jobs through the lockdown, but these are South Africa’s two biggest cities and considering the housing shortage, one cannot imagine vacancies in Octodec’s residential units rising for very long.

Its retail, small and medium-sized tenants are being dealt with by management individually. Industrial properties have proved resilient through the lockdown. And the group has cash resources of about R600million, and recently secured an additional R450m loan facility.

While the company is unlikely to perform strongly in the current environment, it is not often an executive describes it as “bulletproof”.

The share price traded at R6.50 on Friday on a * :e of barely 4, well down from over R15 at the start of the year.

Another share rating among the top volume shares traded on Friday was insurance and investment group Old Mutual.

Its share price was trading 2.68percent lower at R12 a share on Friday on a lowly * :e of 5.1.

Old Mutual is financially solid, insurance groups have buffers for increased mortality from pandemics, but it will likely suffer a lower investment performance given the slump, and from lower new premium growth due to the weakening economy.

But it is likely to weather the storm, and once the negative press around its management changes blow over, the share should re-rate upwards in time to at least the same * :e ratio as the JSE average.

Also among the top volume movers on Friday was Sasol, which was trading 1 percent lower at R65.73 in the morning, once again on a lowly * :e of 4.9.

It is struggling with low demand for its chemicals and fuels, and its new Lake Charles Chemical project in the US now expects up to a $100million (R1.8bn) loss this year due to weak oil prices, compared with previous forecasts of a profit after the development costs almost doubled from initial projections at about $13bn.

Fuel and chemical demand from mining and industry will return after the Covid-19 crisis, and the group is protected from very low world oil prices through the state-operated fuel-pricing system.

Making a rare appearance as the top-gaining share on the JSE on Friday morning was PSG Konsult, the South Africa-focused financial services and advisory firm that has three arms: PSG Asset Management, PSG Wealth, which generates more than half its income, and PSG Insure.

The share price gained 6.3percent to R7.90 on a relatively high * :e of 16.42.

The group is cash-flush, debt-free and has no major capital expenditure commitments. It has produced reasonable investment returns and has maintained its dividend policy for 2020, while many other companies have said they will withhold dividends to protect balance sheets and liquidity. In my view, the share is likely to retain and slowly grow value, over time.


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