In the last couple of instalments, we've looked at some of Rand Swiss' longer-term equity ideas. As a broker with international access, we've looked at both local and offshore picks.
First, I discussed one of my favourite companies listed on the JSE today. It doesn't quite answer the question: “If you had to buy one company what would it be?”
But it's damn close!
We then hopped across the Atlantic and discussed the type of company that is just not available to South African investors. An innovative tech/gaming company with an incredibly bright future as the world's media content goes 3D.
Finally, before wrapping up with a niche long-term European property investment, I revealed some of the elements of our long-term investment methodology. But today I want to look at something very, VERY different. is not something I would usually put out in the public domain. So, before I do, I’m going to insist on a disclaimer.
I’ve personally been a broker to some of the most high-profile geared traders in South Africa. I’ve traded leveraged positions for banks, super HNWI, sports personalities, chart-topping musicians and more. In my career I’ve managed hedge-fund strategies and literally traded trillions of rand worth of JSE stocks.
Why am I telling you this? Because I want you to listen very, very carefully.
Geared instruments are not for everyone. These are incredibly powerful and dangerous tools, especially when left in inexperienced hands. Over the years, I’ve seen too many “self-traders” destroy their accounts. And too many online brokers hand these accounts out without consequence. It’s like watching a child being handed a loaded gun and their broker/parent warning them: “Just be careful there darling,” but doing nothing to stop the impending carnage.
Today’s idea is specifically for those who DO understand short-term trading.
Now, with that warning in place, I’m opting to pass this short-term geared trade idea on to you.
This idea was presented to me recently and it is certainly not an invitation to dump your whole portfolio into a short-trade. We use the short-trades in geared portfolios to manage risk and bring down net long exposure.
But if the shoe fits…
I believe I’ve uncovered a real potential short-term opportunity for you.
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Vodacom: Please don’t call me!
Vodacom’s full year results are due out on the 16th of May and I’ve taken a short position ahead of the announcement.
The loss of the 15-year-long “please call me” court battle has captured the public imagination but is of little concern to traders. What should be worrying market participants is the collapse of the potential Neotel deal, which was widely expected to increase its ability to roll out fibre. But even this is still not my greatest fear.
Of far more concern is the dramatic share price appreciation we’ve seen in the face of downwardly revised analyst expectations. Yet even as the sell-side community starts to back pedal on their forecasts, the final estimates going into results still look very elevated. Right now, the market is expecting HEPS to come in at R9.05 and revenue of R82.34 billion and a negative surprise could quite possibly be on the cards. The last time Vodacom reported a slight miss on expectations the counter collapsed 6.8% in the following week.
The stock currently has 15 heavyweight analysts covering it. As it stands, there are 3 buys, 8 holds and 4 sells on the counter, with the average 12 month price target set at only R150.38. This represents an 8.67% fall from current prices even if their estimates are correct.
Now in spite of recent downgrades, and the spate of negative news announcements, the stock has continued to rally. The company is up 12.57% year-to-date compared to a negative -4.26% performance from the All Share Index. No doubt, part of this movement is institutional portfolios switching out of MTN (following the Nigerian fine debacle) and increasing their telecoms exposure in the next best “lower risk”, JSE option.
But with the share price moving up so strongly it’s now trading at an 8.9x EV/EBITDA (its 5 year average is 6.8x) and that makes the company look very expensive.
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What are the technicians saying?
The Vodacom share price has re-rated 18% higher since retesting the 200 day moving average (DMA) in the first week of March. In the past, the 200 DMA has served as a key support level and each sharp movement higher has eventually fallen to retest this key support.
Looking at the popular momentum oscillators the RSI has already started falling, but both the SSD and MACD have just crossed triggering sell signals. Both indicate Vodacom is trading at extremely overbought levels. There is horizontal support around R162.00 and 154.00. Incline support kicks in at R160.00. Key support remains at the 200DMA which is currently sitting at R147.68.
How to trade this idea
As I said previously I have picked up a short position on Vodacom to balance trading accounts. With the market remaining volatile, big one way bets are a sure fire way of making sure you get into trouble quickly.
I’m looking for entry between R164.00 and R167.00. I’ll place my stop loss just outside the near term high of R170.55. If we can take a quick short-term profit at R154.50 just above horizontal support we would be happy, but as market conditions change, it might become viable to hold this position all the way down to the 200DMA.
If you would like to find out more about our trading options, please feel free to contact us on email@example.com
or give us a call on 011 781 4454 and ask to speak to a trader.
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