Simon’s stock tips
Founder and director of investment website JustOneLap.com, Simon Brown, is finweek’s resident expert on the stock markets. In this column, he provides insight into the week’s main market news.
Astoria* published its results to the year ending December 2015, but since it is a relatively new holding company, there wasn’t much to see. Astoria will hold US dollar assets investing in US-listed stocks and the like, but now there’s a three-month wait for the details on what it holds and the net asset value (NAV) of the fund. At launch the fund’s NAV per share was $1 and will fluctuate in line with the assets it holds. It should be easy enough for the company to issue a brief NAV update within a week or two of the end of the period, keeping investors in the loop as to what it holds and the current NAV. A three-monthold NAV is not of much use.
Not bad, but not awesome
The Holdsport update indicated good HEPS growth although this was in part due to gains in foreign exchange movements. The stock shot higher on the update and is some 20% up over the last month. But I am still not excited – as I always say, there are some 500 listed stocks on the JSE and I only want to own a few of the outstanding ones. Holdsport does not meet my criteria for outstanding. Of course, this doesn’t mean that it is a bad company or that it won’t make profits and see the share price moving higher. It just means I don’t want to own it, along with the 488-odd other companies I also don’t want to own as I only want around a dozen in my portfolio.
Still looking good
Capitec* shares have been running hard as it trades just below the all-time high, a share price that is justified by the recent results. The two numbers I always check first are the cost-to-income ratio and impairments. Cost-to-income is sitting at 34% − it’s down and an improvement from the previous year’s 35%, and comfortably better than the mid-50s we’re seeing from the big banks. Capitec’s figure will slip and likely settle in the mid-40s, which still puts it significantly ahead of the competition and making it a much better generator of profits. This low cost-to-income ratio is in part because of its business model but also because it is a new bank that was built from the ground up using technology. Taking a closer look at impairments, with a particular focus on the arrears coverage ratio, it is sitting at 223% − in other words, more than double what its risk models suggests. This is why even when things get tough, as they are right now, Capitec is able to manage the process as it is very aggressive in managing risk and potential bad debts.
I write about Master Drilling in House View on p. 20. One additional comment is that I wish it would actually include some commentary in the results. It supplies the absolute bare minimum, and shareholders deserve a lot more detail on the company when results are published.
What could have been…
Ipsa is a sad story of how even when a company is in exactly the right space, at the right time, it may not end up being successful. It listed in 2006 and is now suspended as a cash shell. Within two years of listing load-shedding started, and since it’s an electricity-generating business you’d think the company had it made. But a series of problems – not all the company’s fault – saw Ipsa barely solvent after it sold its last remaining asset, the Newcastle Cogeneration business. A lot of what went wrong was as a result of the crisis of 2008/09 but the lesson remains: even if the right company is in the right space at the right time, its success is not guaranteed.
Taking a closer look at impairments, with a particular focus on the arrears coverage ratio, it is sitting at 223% − in other words, more than double what its risk models suggests.
CEO of Master Drilling