WHEEL­INGS AND DEAL­INGS

Finweek English Edition - - SIMON SAYS -

Re­cent head­lines have been around Vedanta Re­sources from In­dia putting almost $800m into build­ing a zinc mine in the North­ern Cape, but where does it plan to get elec­tric­ity? One of the big­gest is­sues with the Esko­min­duced lack of elec­tric­ity is a lack of de­vel­op­ment of pow­er­hun­gry projects, as se­cu­rity of sup­ply is not pos­si­ble. But the re­ports state that Eskom has reached a sup­ply agree­ment with Vedanta for 40MW of power start­ing early next year. To put this into per­spec­tive, re­cent load-shed­ding had to re­duce us­age by around 1 300MW, so 40MW is rel­a­tively lit­tle. But one does won­der what prom­ises Eskom has made and what this may mean for the rest of the coun­try. HEPS growth should be higher than a stock ’s P/ E (mak­ing for a P/ E to growth ra­tio be­low 1 and of­fer­ing value – the lower the PEG ra­tio, the more the stock may be un­der­val­ued given its earn­ings per­for­mance), and we’re a long way from that. Even if share prices go nowhere for the next year, the mar­ket is pric­ing in earn­ings growth of around 20% in f inan­cial year end­ing 2016 and I am far from sure we’ll see that. So while I con­tinue to hold my re­tail stocks, I am not chas­ing them at th­ese lev­els – I think we’ll be able to pick them up for much cheaper in 2015.

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