Bear in charge, weak trend wors­ens

Mar­ket play­ers plead with Naspers to un­lock value.

Finweek English Edition - - MARKETPLACE | TECHNICAL STUDY - Ed­i­to­rial@fin­ Lucas de Lange is a for­mer ed­i­tor of fin­week and an au­thor of two books on in­vest­ment. By Lucas de Lange

the in­ter­nal weak­en­ing that the JSE is cur­rently ex­pe­ri­enc­ing is wors­en­ing with just 28% of the top 100 shares, as mea­sured by their mar­ket cap­i­tal­i­sa­tions, be­ing above their 200-day ex­po­nen­tial mov­ing av­er­ages (EMAs) at the end of June. This com­pares to 38% early last month and 50% in the pre­ced­ing two months. The weak­en­ing trend is con­firmed by the 200-day EMAs of the Top40 In­dex as well as the All Share In­dex, which have turned south.

Those shares that lie above their EMAs evoke lit­tle en­thu­si­asm as Capitec, the best per­former, is just 16% above its EMA, fol­lowed by Clicks (11%) and Bid­corp (10%). Last month’s strong­est share, Naspers*, lost steam af­ter reach­ing new highs. There are many de­mands that the group un­lock value through cor­po­rate ac­tion, es­pe­cially with re­gard to its ma­jor in­vest­ment in Ten­cent. Com­men­ta­tors want it to sep­a­rate its in­ter­est of close on 34% in the highly suc­cess­ful Chi­nese group from its other in­vest­ments. Its shares are trad­ing at a lower level than only its in­ter­est in Ten­cent. All its other in­ter­ests (it op­er­ates in 130 coun­tries) are there­fore ig­nored in its share price.

Ten­cent is a ma­jor com­pany in China and should Naspers take steps to change its cur­rent re­la­tion­ship, which is based on an in­tri­cate struc­ture, it could lead to ques­tions be­ing raised by the au­thor­i­ties. A Swiss fund man­ager, Al­bert Sa­porta, says in an open let­ter to Naspers CEO Bob van Dijk that mil­lions in value for share­hold­ers are be­ing de­stroyed. Cy Ja­cobs of 36ONE As­set Man­age­ment sug­gests that value will be un­locked should Ten­cent buy out Naspers’s in­ter­est. He men­tions a fig­ure of R3 400/share, which rep­re­sents a healthy pre­mium at Naspers’s mar­ket price of R2 513 at the time of writ­ing on 4 July.

Naspers has thus far shunned de­mands that it should con­sider steps to un­lock value. In­vestors have in any case en­joyed a fan­tas­tic re­turn over the years – R100 000 in­vested in Naspers shares in 2000 is cur­rently worth R2.7m, ex­clud­ing div­i­dends. That the group is still heav­ily in­vested in tech­nol­ogy and e-me­dia is ev­i­dent from the fact that this year alone it will spend an es­ti­mated $600m (R7.9bn). In all the analy­ses of the com­pany it has been men­tioned that there is still enor­mous po­ten­tial for the group in th­ese ar­eas. In China alone, there are 731m in­ter­net users. No an­a­lyst sees Naspers as a sell, but 16 do see it as a buy.

Among the weak­est shares, Sibanye stands out. It’s ly­ing no less than 52% un­der its long-term EMA, al­though it may be pointed out that there are in­vestors who hold out ac­cept­able prospects for it given the over­sub­scrip­tion of its large rights is­sue to help pay for the pur­chase of plat­inum and pal­la­dium group Still­wa­ter Min­ing in the US. The share has dropped by al­most 80% since reach­ing its high of 7 248c in Au­gust last year. It’s note­wor­thy that John Bic­card of In­vestec, one of the well-known man­agers of value unit trusts, has pur­chased large tranches of the share in the quar­ter to end March.

As to be ex­pected dur­ing a weak mar­ket, lit­tle is hap­pen­ing among the shares that have bro­ken through. What is in­ter­est­ing is that com­pa­nies such as Sappi, Nam­pak, Bar­loworld and AVI are ex­pe­ri­enc­ing re­sis­tance around their 200-day EMAs. Th­ese shares are ap­par­ently ac­cu­mu­lated by strong buy­ers at this level. ■

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