Politicians Playing Chicken with Ratings Agencies - Two to buy and One to Sell

by , 21 September 2017
Politicians Playing Chicken with Ratings Agencies - Two to buy and One to Sell
The Rand continued its slide last week as news emerged that Nationalising the Reserve Bank was discussed at the ANC conference.

Investors are not amused by the uncertainty the ruling party are creating, which is a recipe for further downgrades. And as mentioned in prior weeks, if our local currency and debt are downgraded we could see sustained Rand weakness. Bond yields would also spike as investors will demand a higher return for the high risk.

The weaker Rand propped up the ALSI until Thursday when it started to sell off. It's currently trading near the 200-day moving average, which should provide strong support in the short term.

Last week's movers and shakers…

• Best Performers: Transhex 19%, Hulamin 12.8%, Billiton 7.3%, Bidcorp 6.6% and Nepi 6.4%.

• Worst Performers: Northam -5.7%, Capitec -4.3%, B-Africa -3.1%, Harmony -2.8%, Naspers -2.8%.
 
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The “IPO conundrum”
 
 
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Flash Crash in Silver weighing on Metals
 
At around 01h00 on Friday we saw Silver fall over 10% in a flash crash believed to be caused by a “Fat Finger”. Over 25 million ounces traded within a minute. Silver ended the week down 3.6% with Gold, Platinum, Palladium and Copper all down more than 1%.
 
US employment data has buoyed the market, as non-farm payrolls in the US came out at 222,000 the second largest print this year and ahead of consensus at 179,000.
 
The FED meeting minutes indicated a divided committee on when next to raise rates in the US. The market is currently pricing in a 53% probability of one interest rate hike before year end. If tighter monetary policy is met with Trumps proposed looser fiscal policy, US GDP growth will be sustained and bears will be turned into bulls.  
 
JP Morgan, Wells Fargo and Citigroup, three major US banks, are due to release second quarter results this Friday.
 
In the East Chinese PPI data come in flat for May. Marking the end of a steadily declining producer price index for most of this year. The sustained decline came on the back of oversupply in the steel sector and concerns about a weaker economy.
 
Two to Buy
 
Coronation – Moving into Buying Territory
 
CML has pulled back to attractive levels after a results induced bounce above R70. Investors like the juicy dividend it pays out, on a dividend yield of over 6.5%. After two tough years, we expect a steady improvement and look to the interim results later this year to confirm our view. Accumulate below R65
 
Invicta - delivering in a tough market
 
Results released from Invicta reflect 8,4% growth in Revenue, 25% growth in Profit and 37% growth in Heps. Pleasing results in a very tough domestic market. Currently on a PE of 12x and a Dividend Yield of 3%; in better market conditions, these metrics would improve sharply. This is a stock you should be adding to your long-term portfolio. Buy below R55.
 
One to Sell
 
Hyprop - feeling the squeeze
 
Take a walk through your local mall and you will probably notice a higher amount of vacant space and significant shop turnover. The current retail environment is tough, tougher than it has been in a very long time. Edgars recently had to restructure its debt again and Stuttaford’s announced some major store closures. The consumer is under pressure and internationally there has been a distinct switch to online shopping. That pressure will be felt back home and Hyprop, as the specialist retail focused REIT, must be a little worried. Sell at R120.  
  
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Update 
 
Glencore: Buy below R52.50.
 
DBXEU: Improving Sentiment in Europe. Accumulate below R52.50.
 
Wescoal: Long Term Buy. Add below R2.15.
 
Famous Brands: At support – add below R125.
 
Naspers: Selling pressure exhausted. Staging a bounce. Hold.
 
Tongaat: Carving out at bottom. Hold – Target R170.
 
PSG: Still bullish, hold. Target R260.
 
Sasol: Place a stop-loss at R360, to limit downside. Target R407.50.
 
Sibanye Gold: Support building above R14.50. Hold.
 
MediClinic: Buy below R130.
 
Richemont: Maintain Long Position at R108.
 
Massmart: Accumulate below R110.00.
 
Tiger Brands: Strong support building. Hold. 
 
(This article is an extract from Prodigy’s weekly Investor Digest. For more information contact Gavin McCarter on gavin@prodigyam.co.za.)
 
P.S. Need to Diversify Offshore? Ask us how…
 
Prodigy Asset Management’s global portfolio provides clients with direct access to offshore investment markets. A common theme this year has been the outperformance of companies with offshore operations and the US Tech Sector.  Allow us to use the current favourable exchange rates to invest your funds offshore.
 
Contact us to see how we can assist you.
 

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