| Thursday 03 February 2022 Good morning Voornaam,
It was a quiet day on the JSE yesterday from a news perspective. Such is the joy of financial media that on some days we run out of space at InceConnect and on other days we have a gap to mention international stories as well!
Capitec has had its credit rating affirmed by S&P Global. The ratings agencies assess the credit quality of companies rather than their attractiveness to equity investors and this is an important distinction. Whilst a strong credit rating is a useful underpin for any equity investment, a company can have an improving credit rating and a decreasing share price. This is because debt investors target a fixed return based on a company being able to service its debt, whilst equity investors focus on growth.
Capitec's long-term issuer rating is BB-, the same as South Africa's sovereign rating. One would not expect to see a local bank having a credit rating that is higher than our government, even though our banks arguably have much stronger financial positions than our fiscus.
Anglo American has released the value of rough diamond sales by De Beers for the first sales cycle of 2022. Provisional sales of $660 million are almost identical to the first cycle of 2021. The CEO of De Beers commented that the Cycle 1 sales are driven by buyers needing to restock depleted inventories after the holiday season.
The biggest story internationally was a huge sell-off in PayPal. Just like Netflix did a few weeks ago, the company shed a quarter of its market cap in a single day. Mohammed Nalla and I covered Visa in Magic Markets Premium in December and the key learning was that Visa (and MasterCard) have almost unassailable moats in the world of payments. Almost every payment needs to touch their infrastructure at some point in the process of moving money from A to B.
PayPal investors have learnt that lesson the hard way. The company gave the market disappointing guidance for 2022 and has blamed everything from the eBay transition through to supply chain issues impacting cross-border payments. The bigger problem here in my view is that PayPal simply doesn't have a moat. There are multiple payment options out there and PayPal is just one of them.
Paypal was trading at a Price/Sales multiple of over 15x in mid-2021. That's a recipe for disaster unless a company has an exceptionally strong business. Since then, PayPal has lost nearly 60% of its value.
The US market can be incredibly rewarding if you get it right. It can be treacherous if you don't. With a new Magic Markets episode launching soon, be sure to listen to Episode 60 where we looked back at our conclusions from some of the earlier Magic Markets Premium shows on companies like Nike, Monster Beverages and Etsy. We specifically discussed how the share prices beha ved relative to our expectations, providing a critical feedback loop. Listen to the episode at this link.
Today's feature articles are on KAP's excellent earnings update and a solid update from Astral as well, which has managed to pass costs through to consumers more effectively in the latest period. The final article is on Glencore's production volumes for 2021.
Get out there and have some fun in the markets today!
The Finance Ghost
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Local and Offshore Market News |
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| | | A feather in its KAP KAP Industrial Holdings was the talk of the town yesterday with a strong trading update and a 13.4% share price jump. Read More |
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| | | Astral's earnings nugget Astral is putting in a strong financial recovery in its current reporting period, confirmed by a trading statement issued yesterday. Read More |
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