Time to stash my cash under the pillow?
DID YOU SELL IN MAY AND GO away? I did … and I didn’t — a tactic informed by the, I suppose, inevitable retreat in the rand. There is, of course, the urge to run for the safety of the large rand hedges — and didn’t Richemont underline its status as an unshakeable fortress! But I really can’t get my mind around heady earnings multiples of some of the offshore giants (Textainer, covered in this issue, aside) when I know some of the JSE’s most redoubtable SA Inc stocks are trading at multiples that are anticipating an apocalypse. We’ll get through this dark impasse, won’t we?
Still, at certain points in the day — and probably when I have tortured myself with another long scan of the dour narratives on Twitter — there is a despondency that sets in around SA Inc stocks. It does look awfully ugly out there, and even the best management teams are finding it difficult to deal with the structural headwinds buffeting the country. I’m afraid the going is not going to get any easier in the short term — which will either delight deep value punters or scare the living scrip out of growth inclined punters.
At the time of writing KAP Industrial, which could easily be seen as a proxy for SA industry, warned of a considerable buckling in profits — worse than what the market had pencilled in. Load-shedding alone fizzled the prospects for a good number of KAP’s businesses — which span chemicals, transport, bedding, automotive components and timber. But there are still bright spots … rare, I grant you. For instance, diversified technology group Reunert — which has a few points plugged snugly into SA’s energy crisis — advised of a marked surge in profits. The group’s renewable energy offering must be having a tough time keeping up with demand.
Interestingly KAP’s share price really fizzled and was looking vulnerable around 265c when I was penning this note. Reunert chugged up, but not terribly convincingly considering I’d reckon fullyear earnings could be around 630c a share for the full year. KAP is now on a low single digit forward earnings multiple, and Reunert on a roughly 10 times forward multiple.
Yup, this is a market that mutes enthusiasm for good news stories and exaggerates its displeasure for bad news — even if events are driven by factors well out of management’s control.
Quite honestly, if I did a Rip van Winkle the next seven months I would prefer keep the cash under my pillow rather than snooze on an equity portfolio. Uhm ... maybe I would keep Caxton. Argent too. Possibly Sabvest. But mostly cash. Yes, mostly cash.
Sleep on that.