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Why I won't trade multichoice - Yet!

by , 11 March 2019
Why I won't trade multichoice - Yet!
On Wednesday 27 February we watched and heard the 'Kudu Horn' blow, as we witnessed MultiChoice Group (JSE: MCG) listing on the JSE at just R95 per share.

We knew this was coming as parent company, Naspers announced the unbundling of MultiChoice in September 2018.

MultiChoice has come a long way. With its subsidiaries including, Showmax, MultiChoice Botswana and MultiChoice Namibia to name a few.

As of today, MultiChoice serves over 14 million customers across 50 African markets.

The future prospects are looking fantastic (for investors that is).

But for a trader, it's still very dangerous to get in right now.

Here's why I won't trade MultiChoice…yet.
 
 
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Naspers split and it's great for Investors
 
Naspers board of directors mentioned that due to both companies diverging, there wasn't any longer a rationale strategy to keep both business lines together. 
 
And so, the new listed JSE: MCG stock was added to the "broadcasting and entertainment" sector of the Johannesburg Stock Exchange.
 
MultiChoice mentioned its excitement about the long-term growth opportunity it saw ahead in something called "Africa’s century"
 
"We have the benefit of continental scale, with strong local capabilities, Strong cash generation and an encouraging growth trajectory. All this sets us up well to deliver excellent returns to shareholders over time." Multichoice replied to an email from Fin24.
 
Even CEO of MultiChoice group said, "We are Africa’s best entertainment platform. We have the opportunity to grow this business into the future.”
 
The financial reports are looking great, there are strong prospects for the future and the share price is affordable. I'm sure for an excited new investor, this kind of listed share could be a dream come true to add it to their portfolio.
 
But for a trader, it's still early times and it is dangerous to speculate for trades.
 
Here's why I won't trade MultiChoice yet...
 
1. Right now it's impossible to trade MultiChoice
 
It's difficult enough to analyse the technical and fundamentals of any established market.
 
It's pretty much impossible to chart a stock (make a price prediction) on a share that has just been listed. This is because the stock has virtually no historical information and reference points to base your analysis on.

 
If you look at the daily chart, you'll see that there are only a few bars of information to base whether the market will go up or down.  We will need to wait a couple of weeks before we get an idea on where MultiChoice Group is more likely to head. 
 
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2. Whether you buy or sell - prepare to lose
 
When a stock lists on a market for the first time, you can expect huge up and down swings in price. Every buyer and every seller, believes that the intrinsic value of the share is higher or lower than what the market price listed at. 
 
No matter whether you buy or sell, there is a good chance you’ll take one loss after another. This will continue until the market, eventually, comes to some kind of equilibrium and it establishes a trend direction.
 
3. Prepare to be flipped
 
As the liquidity (buying and selling volume) is lower as the market warms up to the new listing, we can expect ‘flipping’ to take over.
 
Flipping is the practise of, normally institutional investors, reselling a newly listed stock in the first few days, to earn a quick profit. 
 
This practice can cause huge volatility (jumpiness) with the share, which can also stop you out for an unnecessary loss.
 
What to do with MultiChoice Group
 
Right now, you should wait for the MultiChoice Group share price to establish some kind of trend and for the market’s price to stabilise.
 
 
“Wisdom yields Wealth”
Timon Rossolimos,
Analyst, Red Hot Storm Trader


Why I won't trade multichoice - Yet!
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