Thursday 24 June 2021
Good morning Voornaam,
I often see the narrative on Twitter that debt is the root of all evil and must be avoided at all costs. While I understand where that sentiment comes from and I fully appreciate the context of the shocking savings rate in South Africa, the reality is that this simply isn't true.
Some types of debt could be considered evil, while others are a normal part of life e.g. buying your first home.
In the corporate world, investors get annoyed by "lazy balance sheets" that aren't being put to good work. If there is no debt at all, especially in a highly cash-generative business, then return on equity simply isn't being maximised. If there's too much debt, then businesses can collapse.
Managing the balance sheet is just as important as running the operations, which is why trading updates from banks give us great insight into how corporate executives are thinking about growth and risk.
The lead story therefore goes to Nedbank, which continues to underperform vs. the cost of equity. For me, the most useful insights are the comments around demand for debt from corporates (low) vs. retail and business banking customers (high). People are spending with reckless abandon, while corporates deleverage and tuck money away for any further lockdowns.
Another important update was given to the market by Murray & Roberts, with extensive presentations available on the company's website (I've given you the links in the article this morning). The company is being driven by infrastructure spending in Australia, which is a topic that Mark Tobin touched on in Episode 30 of Magic Markets, where we focused on the nuances of the Australian market.
In other news, Long4Life updated the market on its plans to unlock value, based on a corporate finance review of the business by Investec. Also, Ascendis Health has given an update on a couple of disposal processes as well as overall progress on the debt restructure.
Finally, Gary Booysen of Rand Swiss weighs in on the Naspers/Prosus discussions, reminding the market that there is "value in the rump" and more to the group than just Tencent.
And if there's one thing we can learn from our government this week, be careful who you entrust with your iPad! You might not have it for the weekend and you might even inspire the next song from The Kiffness.
Happy Thursday!
The Finance Ghost
Local and Offshore Market News
Nedbank reports lacklustre demand for debt from corporates
Demand for debt has been stronger among retail and business banking clients, thanks to low rates, with corporate clients preferring to deleverage. Read More

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