The first half of the year drew to a close yesterday with the not unexpected news that the economy remains in a recession. GDP shrank by 2% in the first quarter of the year following contractions of 1.4% and 0.8% over the two previous quarters. The impact of Covid-19 and the national lockdown since then will result in a further decline for the three months to end-June.

The dire economic situation is at odds with what we've seen on the JSE. The market has bounced back from March's sharp decline and is now just 5.2% down for the year - although in dollar terms it remains a lot weaker. While gold shares have provided some support, the market has been cushioned by strong rises in the share prices of Naspers and subsidiary Prosus.

Property companies have had a pretty torrid time, particularly those most exposed to the retail sector. Vukile Property Fund shed 60% of its value in the first half of the year - taking account of yesterday's 6.8% recovery after it reported solid results for the year to end-March. It's still being cautious, however, and has held off on a final dividend due to the market uncertainty.

Attacq won't be paying a final distribution either - or any more dividends this year as a condition of the relaxation of its debt covenants with its lenders. Resilient made no mention of a dividend in a pre-close update but said last month that its payout policy remained intact. That may change by the time it releases its year-end results.

Also today, Barloworld aims to cut up to a quarter of its workforce as it adjusts to the reality of Covid-19 and Distell has raised a glass to the easing of alcohol restrictions.

I hope you have a good day.

Stephen Gunnion

Managing Editor, InceConnect

The latest from Ingham Analytics - Prosus

Prosus and Naspers reported annual results on Monday. Ingham Analytics say it may as well have been a Tencent result - with a sideshow of loss making and cash absorbing assets that Prosus management are responsible for.

Prosus has a 31.2% shareholding in Tencent. Consolidated on that basis Ingham Analytics say that Tencent accounted for 122% of Prosus trading profit (up from 116%) and 112% of core earnings (up from 107%). Core earnings, excluding non-cash adjustments, increased by 11% in US dollars, driven by Tencent. The other assets lost a collective $440 million (an 88% increase from $234 million). EPS grew by only 9% - hardly the stuff of a supposed tech group seeking a premium rating.

Ingham Analytics reiterate that Prosus continues to not only lose money but also haemorrhage cash. Net cash used in operating activities before dividends received (from Tencent) was $591 million - up 21% from $487 million. Thanks to dividends received of $383 million the net cash outflow was reduced to $209 million, but still up from $145 million.

Ingham Analytics have several notes on the Prosus/Naspers/Tencent theme with the most recent issued yesterday. "iQIYI - a s(c) or (t)reaming deal for Tencent?" deals with the speculation that Tencent is in talks with Baidu to take a majority shareholding in iQIYI. Ingham Analytics caution that the see-through discount that Prosus and Naspers have to the stake in Tencent has risen in the past month.