Woolies, Anglo, Sappi stock in demand

By Edward West Time of article published Jul 15, 2019

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Woolworths Holdings' (Woolies') share price gained a solid 12.8 percent last week after it announced a turnaround at its fashion, beauty and home business this year. The group, one of many local retailers to struggle in Australia and which also trades in 11 countries in sub-Saharan Africa, still relies on its home market for 71 percent of operating profit.

Late last week the group said that sales for the comparable 52 weeks to end-June 2019 increased 3.9 percent, and by 5.9 percent in the 53-week period, while food sales grew 7.7 percent. Sales in its fashion, beauty and home business in the 52 weeks increased by 1.5 percent.

Chief executive Ian Moir said early this year that the high-end retail store chain would get back to “beautiful basic” items to appeal to its customers, who traditionally do not buy items that are either too fashionable or too youthful. The sales figures reveal sluggish growth in South Africa, sales in Australia are lagging, but the business overall was boosted by strong food sales.

The year-end results to be published on August 29 should provide better clarity on the outlook, but shareholders will be pleased with their gains over the past week, even if it is still some way from the more than R100 per share that it traded at in 2016.

Another share price likely flickering across most trader's screens this week is diversified minerals mining group Anglo American.

Its share price increased more than 2 percent to trade at R379.53 on Friday, and although this represented a 6 percent decline over a week, it is nevertheless up 8.5 percent over two months.

Given that Anglo is often among the most heavily-traded shares on the JSE in terms of volumes, its recent gains will have made a significant impact on the portfolios of many institutional shareholders. Its price earnings ratio of around 13 doesn't seem demanding, but it may be close to being fairly valued.

Adding to the global miner's lustre for its share investors no doubt, is a growing expectation among analysts that interest rates in major economies will track lower for the foreseeable future, which could help drive demand for its minerals.

The rising share may also indicate that investors anticipate a stronger second quarter production report from Anglo, which is expected to be released on Thursday, when compared with the overall 6 percent decline reported in the first quarter.

I'm betting that at least platinum and to a lesser extent manganese and diamond sales will improve for the group. This is even though platinum prices are still about a fifth below the prices they were in the first quarter of 2018.

The share price of global diversified wood fibre group Sappi fell 1.85 percent to R50 on Friday, bringing its decline over a week to 5.8 percent, and to 15 percent over a month. Admittedly, price wobbles like this are common enough for resources stocks.

Sappi declared $0.13 (R1.81) earnings per share in the second quarter to March 30, 2019, versus $0.17 in the same period in 2018, and management predicted continued weakness in the global economy, which broadly drives demand for its products.

The World Bank noted last month that global economic growth is forecast to ease to a weaker-than-expected 2.6 percent in 2019.

Vivo Energy, the company behind the Shell brand in Africa with a network of over 2100 service stations in 23 countries, saw its share price tank 8.4 percent to R21.08 on Friday. This brought the infrequently traded share price on the JSE down 10 percent over a week.

In June, Vivo said it had entered into a joint venture with Kuku Foods East Africa to open KFC restaurants in Rwanda, Kenya and Uganda which, considering the success of KFC all over the world, should be good for Vivo.

Last week, however, Vivo featured in media reports in connection with the Moroccan competition authorities’ investigation into the fuel retailing industry not so good for the share price.

Vivo Morocco is a dominant player in that market, with a 330-service station network. The Moroccan operation contributes about 22 percent of group earnings before interest, tax, depreciation and amortisation.

Looking longer term, however, service stations are likely to remain essential infrastructure in most countries, and with its trailing price-earnings ratio of zero, might make a good long-term investment.

Nedbank Group’s share was down 2.7 percent on Friday, and by 9 percent in a month, in line with a broad decline in the share prices of the big banks over the period.

Moody’s and Fitch have warned that prospects for these banks in their home market are likely to remain subdued this year, and have suggested that faster earnings growth from their expanding banking operations in other African countries might be the main earnings drivers for South African banks this year.

Nedbank’s last annual 14.5 percent rise in headline earnings was driven mostly by its business outside of the country.

But the big banks also face tough competition, such as from digital TymeBank, which has been adding new customers at a rate of 100000 per month for five months.

Economists predict a small interest rate cut this week, which should be good for bank share prices, but will it be enough to give consumer demand a badly needed boost. I wonder?


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