Who’s selling? Who’s buying? And who can possibly still buy?

What a year 2020 has been so far. Most news this year was understandably negative, with words like COVID-19, pandemic, lockdown, market correction and economic recession everywhere. Locally, we also had a few bonus words thrown around, like junk status and foreigners as net sellers of local shares and bonds. Legendary popstar, Michael Jackson, said, “People write negative things, ‘cause they feel that’s what sells. Good news to them, doesn’t sell.” The question I’d like to address this week, considering the fact that foreigners have been net sellers of South African shares for 16 months in a row as at the end of October 2020, is if there are still any buyers of South African shares out there?

Gaph 1: Net offshore sales/purchases of SA shares (source: Iress & PSG Wealth Old Oak)

The short answer, is definitely. In fact, recent news about local companies have been very positive, and that may very well lead to more good news.  Let’s look at a few:

Adcock Ingram

In total, 99% of Adcock Ingram’s turnover is generated in Southern Africa. Earlier this year, they bought back 1.5% of their shares. Their largest shareholder, Bidvest, announced on the 23rd of October, however, that they have increased their shareholding in the company to 56.1%.

Afrox

American-German Linde, who owns 50.47% of Afrox, recently announced that they would like to buy the rest of the outstanding shareholding at R21.18 per share, which will result in the delisting of the company.

Barloworld

Zahid Tractor & Heavy Machinery Co. Limited increased their shareholding in Barloworld by a further 5% at the end of September, and they now own 15% of the company. This makes us wonder if we could expect a possible further increase in shareholding.

Bell Equipment

With John Deer discontinuing the distribution of Bell products, they were looking for a buyer for their Bell Equipment shareholding. IA Bell, however, is so positive about his own company, that he has bought their entire shareholding, and he now owns 38.7% of the company.

Impala Platinum

This may not be one of the most significant ones, but in September, Implats announced that they would be making an offer to buy back all shares from shareholders holding less than 100 shares. With their most recent results, it was revealed that the group has R13.33 billion in cash available, and with debt valued at only R8.85 billion, further buy-back offers are a real possibility.

Long4Life

Long4Life, which owns popular chains like Sportsmans Warehouse, Outdoor Warehouse and Sorbet, recently announced that they bought back 40 million shares (or 4.66% of the company). With the release of the company’s end-of-August-2020 results, they still had R821 million in cash on the balance sheet, making further buy-backs and/or other takeovers a real possibility.

Multichoice

This one definitely made big headlines during October 2020. French media company, Groupe Canal+, first featured in the news on the 5th of October when they announced their purchase of a 6.5% shareholding in Multichoice. Immediately questions arose as to whether they might increase this shareholding in the future, and it didn’t take long to get an answer. Three weeks later (28 October 2020), Groupe Canal+ announced that they now own a 12% shareholding in Multichoice. Should we anticipate more news in the near future? Only time will tell.

Naspers/Prosus

There is no way we can talk about the JSE and 2020, without mentioning our very own giant. One of the topics that enjoyed quite a bit of airtime during the year, was the widespread discount at which all of South Africa’s holding companies are currently trading. Should we consider this an opportunity or a warning? Well, on the 30th of October, Prosus attempted to answer this question with an announcement that they plan to buy back $1.37 billion (R22.2 billion) in Prosus shares, as well as $3.63 billion (R58.8 billion) in Naspers shares. They plan to move forward with these buy-backs after the release of their half-year results, which is expected to be available later this month (November).

Remgro

Speaking of a widespread discount, as at the 4th of November 2020, one of my favourite shares at the moment, Remgro, was trading at a discount of 45% to its intrinsic net asset value, and this after trading at an average discount of 15% over the past 10 years. With the release of their 30 June 2020 results, it became clear that Remgro has several options to their disposal due to the R9.2 billion in cash on their balance sheet. CEO, Jannie Durandt, mentioned in a recent interview that the group is well aware of the widespread discount, but that it definitely creates some opportunities. He also said that they “can reinvest into our underlying companies at a huge discount if [they] buy back our shares.”.

I would like to prompt investors to act cautiously. The bad news so far in 2020, is without a doubt still part of our lives. Don’t be reckless, and don’t base 100% of your decisions on the bad news in 2020, because it definitely wasn’t all bad news. To completely withdraw from the market based on bad news alone, carries its own risks.

 


The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. These opinions do not constitute advice.  This is intended as general information and does not form part of any financial, tax, legal or investment related advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for actions taken based on the information contained in this blog. Since individual needs and risk profiles differ, it is always advisable to consult a qualified financial adviser before taking action.

Schalk Louw

As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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