No lack of hot tips to burn punters’ wallets

All investors overlook the adage: too“If often, it seems retail too good to be true, then it probably is too good to be true.”

Every now and then investment instruments offering impossibly generous returns come the way of investors in and around the JSE. There is no shortage of punters tempted by richer returns no matter how often they lead to wallet burns.

This week’s admission by investment company Ecsponent that it is unlikely to be able to pay dividends or redeem certain tranches of its high-yielding preference shares is likely to be another expensive lesson.

Ecsponent funded its growth ambitions for the past five years largely by issuing tranches of high-yielding preference shares, mainly to retail investors. The FM says the value of these issues could top R2bn, a hefty commitment to service with the dour economy not aiding cash flows.

Frankly, it does not look good for Ecsponent’s preference shareholders, especially those holding scrip imminently redeemable. One option, of course, is to convert the preference share obligations into ordinary shares, a suggestion likely to go down like a lead balloon considering the collapse in Ecsponent’s shares.

Sentiment won’t be helped by the resignations of two nonexecutive directors: Richard Connellan (long-serving nonexecutive chair, now on his way to the Takeover Regulation Panel), and activist Shaka Sisulu.

Nonexecutive director, Brandon Topham, who quit in January last year, was involved in compiling the forensic report on the Fidentia scandal. Topham is now divisional executive for investigations and enforcement at the Financial Sector Conduct Authority. He might soon be taking a closer look at Ecsponent.

BREAD

People always need to eat so investors needing lowerrisk growth choose safer stocks such as food stores instead of retailers selling highfashion clothing.

Bread is less profitable, but perhaps more reliable than high heels and handbags.

The latest Stats SA release showed retail sales grew only 1.25% in 2019, somewhat less than population growth. South Africans are buying less food, clothing and medication.

Generally, retail growth should grow with the population; more people mean more purchases of food, medicines and clothes, though some companies do better than others.

But SA retail is looking bleak with some analysts saying their funds barely go near it.

Even the busiest month was bad. Retail sales eased in December 0.4% year-on-year with general dealers who sell food down 0.8%. The drop from 2018 looks worse taking into account that Stats SA referred to December 2018 as “dismal” when releasing those figures.

Spar’s interim trading update out this week shows year-onyear growth over November and December was 0.4%, if one compares same stores and removes 4.25% price inflation. That’s less than the 0.7% in Ireland, which they blamed on Brexit unsettling consumers.

Woolworths did well with food up 7.8% in its Christmas trading update. But even this is not a safe bet for investors due to its disastrous Australian foray.

It remains to be seen what Pick n Pay and Dis-Chem results over the November and December period will look like, but it sure doesn’t look promising.