Fitch says growth pressures in SA easing
Recent reductions in the frequency and severity of power cuts should ease downward pressures on South Africa’s supply-side potential growth, said Fitch Ratings in an emailed statement to Bloomberg. Estimates suggest load-shedding has reduced GDP growth by the equivalent of 0.6 percentage points annually over the past five years. “More reliable power will not transform South Africa’s supply-side performance over the medium term, although it should result in a significant reduction in supply-side constraints in the next couple of years”. Fitch projects South Africa’s potential growth rate at 1% over the next five years, “which is an improvement on the past few years, although still very low by emerging-market standards”
Consumer confidence on the up
Consumer confidence in South Africa continues to improve, with the Q3.24 FNB/BER consumer confidence (CCI) reading improving to -5 from -10 in Q2.24. Consumers have become markedly less depressed (by 20 points since Q2.23’s -25). The long-term average for the consumer confidence reading is 0. The Q3.24 CCI survey was conducted between 19-30 August 2024, occurring post-election, and just before the anticipated start of the interest rate cut cycle.
Moody’s expects bad loans at SA banks to peak this year
Moody’s Ratings (MCO-NASQ) expects South African bank asset quality to improve and non-performing loans to peak this year because of improving sentiment, said Constantinos Kypreos, senior vice president at the agency in a Bloomberg interview. Factors contributing to the better outlook include the formation of a multiparty government, slowing inflation, expectations that interest-rate cuts will start in September, and improved power supply.
Two-pot withdrawal frenzy
Two-pot retirement withdrawals, which came into effect in September, have exceeded Investec’s base case, with early estimates forecasting >R50 billion in withdrawals, a 50bps kick to GDP and an additional R10 billion in taxes. Subsequently, Alexforbes (AFH-JSE) reported R1.5 billion in withdrawals in the first week. Considering the company is only ~10% of total pension fund assets in SA, this suggests demand is bigger than expected, with an implied R15 billion of potential withdrawals likely and the initial number and value of claims likely to far exceed expectations.
AngloGold to buy Centamin
AngloGold (ANG-JSE) is looking at a takeover of Egyptian miner Centamin. While the deal looks expensive at a ~50% EV/EBITDA to Anglo’s own multiple, management will argue that this is the cost of solving for the all-in sustaining costs (AISC), which attracts a higher multiple, and possibly some life-of-mine considerations. The acquisition increases the proportion of Tier 1 production and lowers aggregate AISC as the asset is cUS$300/oz lower versus Anglo’s current AISC. There are also questions about the profit-sharing deal with the Egyptian government. The deal could potentially increase production by 200koz from FY27.
Sector focus: PGM
While demand is the strongest driver of commodity cycles, the level of recent asset impairments in the platinum group metals (PGM) sector is congruent with a commodity cycle that has bottomed. Investec has quantified significant pent-up demand in Europe and the US auto markets, which is substantiated by the elevated vehicle age. The sector looks poised for growth due to the pent-up demand, with PGM miners like Impala Platinum (IMP-JSE), Northam Platinum (NPH-JSE), Anglo American Platinum (AMS-JSE) and Sibanye Stillwater (SSW-JSE) looking like good buys.
Sector focus: Property
Growthpoint (GRT-JSE) results came in light and suggests the property sector has pushed too hard more broadly. While FY24 results were in line, growth expectations for FY25 remain muted, with negative Growthpoint guidance for FY25 of -2 to -5% representing a miss. In contrast, Attacq (ATT-JSE) jumped +6.3% after posting results with strong forward-looking growth guidance getting the market excited. Attacq stock is up 37.7% year-to-date and outperformed the SAPY of 23.9% and ALPI of 23.4% over the same period. Near-term growth of +20% is material, but this is priced in with medium-term earnings outperformance, which is expected to moderate going forward.
Stock focus: Hyprop
Hyprop (HYP-JSE) results beat expectations with some relative value still on offer. Despite reporting a decline in distributable income per share (Dips), the figure was better than the revised guidance of a bigger decline at 1H24A. The company sold its sub-saharan African exposure to Lango, an unlisted Africa property fund, which is expected to be finalised in late 1H25E, reducing the risk of losses going forward. Hyprop reported domestic positive retail rental renewal growth (including new lets) of 3.3% (-9.3% for FY23A) consisting of renewals at -0.9% and new lets at +23.8%. Retail vacancies increased to 1.8% (1.2% for FY23A) but remained low. Tenant affordability was stable, reducing the risk of negative leasing outcomes going forward. Management guidance suggests clear upside and the guidance reflects the better-than-expected operational performance.
Trading Update : 19 September 2024
Global Updates
Microsoft announces massive share buyback
Microsoft (MSFT-NASQ) stock climbed after the company announced a massive $60 billion share buyback, matching its largest-ever repurchase authorisation, and hiked its quarterly dividend. The software firm announced a quarterly dividend of $0.83 per share, which is a 10% increase on the previous quarter. The dividend is payable to shareholders on 12 December.
Dollar weakness good for currencies, inflation
Currency risk associated with prolonged higher US interest rates has diminished as the FOMC begins to cut rates. This shift will enable emerging market central banks to lower real rates, which have been restrictive to safeguard their currencies against the impact of US rates staying higher for longer. This should support a stronger rand, a lower oil price and subdued food inflation, which are collectively driving down inflation expectations. It’s an opportunity to shore up your Clarity dollar-denominated accounts!
NII estimates a drag on banks
JP Morgan (JPM-NASQ) shares fell -5% and the broader banking sector fell -2% on the back of cautious management commentary at a Barclays financials conference, where JP Morgan President Daniel Pinto said that current analyst consensus estimate for the bank’s 2025 net interest income (NII) of $90 billion is “unrealistically high”. Goldman Sachs (GS-NASQ) management were also talking down trading revenues, which supported the sell-off.
Manufacturing production bounces back in July
Manufacturing production rose by 1.7% y/y at the start of the third quarter, following a notable -5.5% y/y (revised) slide in June. The reading was ahead of a Bloomberg consensus of a +0.9% y/y increase. The lift in output was primarily attributed to the food and beverages category, which makes up a substantial 21.44% of the manufacturing basket. It grew by +9.5% y/y, adding 2.0 percentage points to the top line reading. Specifically, the beverages component increased by +17.0% y/y. Moreover, the basic iron and steel, non-ferrous metal products, metal products and machinery grouping added a further 1.1 percentage points to the headline outcome, on the back of growth of +5.2% y/y. However, advance indications provided by August’s PMI suggest that manufacturing activity dipped last month. Both the business activity and new sales orders sub-indices plunged back into contractionary territory. In addition to subdued demand domestically, export sales declined in August. According to the results of the HCOB Eurozone Manufacturing PMI survey for August, manufacturing in the Eurozone, a key SA trading partner, remained in contractionary terrain in August. However, the index measuring expected business conditions in six months remained at an elevated 61.3 points, still pointing to “an improvement in business conditions going forward”.
Local Updates
Fitch says growth pressures in SA easing
Recent reductions in the frequency and severity of power cuts should ease downward pressures on South Africa’s supply-side potential growth, said Fitch Ratings in an emailed statement to Bloomberg. Estimates suggest load-shedding has reduced GDP growth by the equivalent of 0.6 percentage points annually over the past five years. “More reliable power will not transform South Africa’s supply-side performance over the medium term, although it should result in a significant reduction in supply-side constraints in the next couple of years”. Fitch projects South Africa’s potential growth rate at 1% over the next five years, “which is an improvement on the past few years, although still very low by emerging-market standards”
Consumer confidence on the up
Consumer confidence in South Africa continues to improve, with the Q3.24 FNB/BER consumer confidence (CCI) reading improving to -5 from -10 in Q2.24. Consumers have become markedly less depressed (by 20 points since Q2.23’s -25). The long-term average for the consumer confidence reading is 0. The Q3.24 CCI survey was conducted between 19-30 August 2024, occurring post-election, and just before the anticipated start of the interest rate cut cycle.
Moody’s expects bad loans at SA banks to peak this year
Moody’s Ratings (MCO-NASQ) expects South African bank asset quality to improve and non-performing loans to peak this year because of improving sentiment, said Constantinos Kypreos, senior vice president at the agency in a Bloomberg interview. Factors contributing to the better outlook include the formation of a multiparty government, slowing inflation, expectations that interest-rate cuts will start in September, and improved power supply.
Two-pot withdrawal frenzy
Two-pot retirement withdrawals, which came into effect in September, have exceeded Investec’s base case, with early estimates forecasting >R50 billion in withdrawals, a 50bps kick to GDP and an additional R10 billion in taxes. Subsequently, Alexforbes (AFH-JSE) reported R1.5 billion in withdrawals in the first week. Considering the company is only ~10% of total pension fund assets in SA, this suggests demand is bigger than expected, with an implied R15 billion of potential withdrawals likely and the initial number and value of claims likely to far exceed expectations.
AngloGold to buy Centamin
AngloGold (ANG-JSE) is looking at a takeover of Egyptian miner Centamin. While the deal looks expensive at a ~50% EV/EBITDA to Anglo’s own multiple, management will argue that this is the cost of solving for the all-in sustaining costs (AISC), which attracts a higher multiple, and possibly some life-of-mine considerations. The acquisition increases the proportion of Tier 1 production and lowers aggregate AISC as the asset is cUS$300/oz lower versus Anglo’s current AISC. There are also questions about the profit-sharing deal with the Egyptian government. The deal could potentially increase production by 200koz from FY27.
Sector focus: PGM
While demand is the strongest driver of commodity cycles, the level of recent asset impairments in the platinum group metals (PGM) sector is congruent with a commodity cycle that has bottomed. Investec has quantified significant pent-up demand in Europe and the US auto markets, which is substantiated by the elevated vehicle age. The sector looks poised for growth due to the pent-up demand, with PGM miners like Impala Platinum (IMP-JSE), Northam Platinum (NPH-JSE), Anglo American Platinum (AMS-JSE) and Sibanye Stillwater (SSW-JSE) looking like good buys.
Sector focus: Property
Growthpoint (GRT-JSE) results came in light and suggests the property sector has pushed too hard more broadly. While FY24 results were in line, growth expectations for FY25 remain muted, with negative Growthpoint guidance for FY25 of -2 to -5% representing a miss. In contrast, Attacq (ATT-JSE) jumped +6.3% after posting results with strong forward-looking growth guidance getting the market excited. Attacq stock is up 37.7% year-to-date and outperformed the SAPY of 23.9% and ALPI of 23.4% over the same period. Near-term growth of +20% is material, but this is priced in with medium-term earnings outperformance, which is expected to moderate going forward.
Stock focus: Hyprop
Hyprop (HYP-JSE) results beat expectations with some relative value still on offer. Despite reporting a decline in distributable income per share (Dips), the figure was better than the revised guidance of a bigger decline at 1H24A. The company sold its sub-saharan African exposure to Lango, an unlisted Africa property fund, which is expected to be finalised in late 1H25E, reducing the risk of losses going forward. Hyprop reported domestic positive retail rental renewal growth (including new lets) of 3.3% (-9.3% for FY23A) consisting of renewals at -0.9% and new lets at +23.8%. Retail vacancies increased to 1.8% (1.2% for FY23A) but remained low. Tenant affordability was stable, reducing the risk of negative leasing outcomes going forward. Management guidance suggests clear upside and the guidance reflects the better-than-expected operational performance.
Information correct at time of publishing. It is important to conduct thorough research and analysis using a combination of fundamental and technical analysis techniques to make informed trading decisions. Additionally, consider your risk tolerance, investment objectives, and time horizon when assessing company performance for trading.