Hello Voornaam,
Welcome to another Ingham Analytics weekly research summary, highlighting what has been recently published and what has been among some of the most read notes in the past few weeks or months.
A week since the latest interest rate cuts and bank stocks remain under pressure - year-to-date, ABSA has fallen by 45%, Nedbank by 54%, Standard Bank by 40%, and FirstRand down the least at 35%.
Even before the COVID-19 lockdown and subsequent economic fallout we were advising in several notes against exposure to the big four banking stocks. Up until late February, it was principally the poor fiscal situation, a beaten-down economy and internal cost pressures but as March unfolded COVID-19 added insult to injury. Impairments were already rising before lockdown and this will now escalate but is unquantifiable at this time.
Forecasting bank earnings at this fluid and uncertain time in relation to COVID-19 is impossible. Balance sheet management is of immediate priority. We warned in March that our previous earnings forecasts had been suspended and should not be relied on.
Because of potential systemic risk to the financial system, we'll continue to regularly keep you up to date on banking and related topics, locally and abroad. The most recent notes in this regard in the past week or so are "Say buddy, can you spare a dime?" and "South African Reserve Bank monetary policy emasculated."
One of our most popular financials notes so far this year is "Saxo's electrifying message" which was issued on 7 January and remains as relevant today. We concluded with the comment that Saxo's inclusion of South Africa in its annual "outrageous predictions" is another timely reminder to bond investors, to investors in local banks, and to the foreign exchange market to heed warning signals. Look where we are now, in a shocking state. Related to this, "Say buddy, can you spare a dime?" examines several metrics and factors that customers of banks, shareholders, and concerned citizens should be cognizant of. It's not nice be we think this is need to know stuff.
Staying alert to rapidly moving events, anticipating what could be, and giving a common sense take on market developments is what we strive to achieve as we have skin in the game too.
We always have a call to action recommendation - buy, sell, avoid, or stay with a stock. Our Trader notes are punchier and tend to be orientated, as the name suggests, to short term opportunistic punts or exploiting arbitrage gaps. The Trader complements our two other products, a Searchlight, and an Insight.
We don't seek favouritism either, calling things as we see them. Sometimes companies have taken exception to what we say if it brings things into question. So be it. We may not always be right be we do our homework and don't take things at face value. It is this approach that meant we stayed clear of Steinhoff and Brait, two of several companies that didn't measure up on our slide rule.
This philosophy is evident in our long-held views on Naspers and lately Prosus - these are corporate structures that have been and are undermining value. In 2012, the market capitalisation of Naspers was over 130% of its share of Tencent or put another way Naspers traded at a more than 30% premium to the see-through-value of the Tencent stake, normalised to US dollar for both stocks. This suggested that the market priced in value to Naspers over and above its investment in Tencent. That changed.
Before Prosus listed on Amsterdam Euronext in September 2019, Naspers measured in USD was trading at a 25% to 30% discount on average to the see-through value of its Tencent holding having fallen from a 25% to 30% premium several years earlier. That is a huge reversal. It means that anything other than Tencent is ascribed a negative worth. We were highly sceptical that this discount would be shrunk let alone erased or converted to a premium over Tencent by Prosus listing in Amsterdam.
This has proved the case.
This week we issued our latest analysis on Prosus, Naspers and Tencent entitled "Illusory value". As Prosus is the largest stock on the JSE by market cap it features in almost every pension fund or investor portfolio or unit trust, even if that holding is capped below what the overall weight would be on the JSE. In "Illusory value" we have updated our call on Prosus/Naspers and Tencent and revised our forecast and valuation on Tencent.
Other recent notes you may find of interest and which have been popular are "Iron ore and steel defies COVID-19 macro gloom", "Lower for longer on rates?", "A raw state" (on Sasol), "Why do central banks do what they do?", "Poseidon and the other banking gods", "Fixed income leads the way for equities", "South African economic and financial fragility", "Eurozone Stress Fractures - Dj vu all over again", "Whose telling fibs, equity or credit?" and "A negative endowment".
Thank you all for visiting us.
