Bulls n Bears Daily Market Commentary : 27 April 2023

Fri Apr 28 03:54:04 CAT 2023

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Bulls n Bears Daily Market Commentary : 27 April 2023

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ZSE commentary

Market maintains bullish momentum…

The ZSE maintained prior session gains in the penultimate session of the week as the All-Share Index advanced 3.79% to 40683.52pts. The Top 10 Index jumped 4.32% to 23479.34pts anchored by gains in Hippo, BAT, Ecocash and Econet. The ZSE agriculture Index put on 7.67% to close at 182.45pts as the

Mid-Cap Index rose by 2.45% to 88493.21pts. Packaging group Proplastics led the gainers of the day as it garnered 14.98% to $157.2972 trailed by Hippo that surged 14.39% to $795.0000.

BAT notched up 14.25% to end pegged at $6800.0000 while, Ecocash grew 13.63% to $56.7025 on resurgent demand. Telecoms giant Econet capped the top five winners list of the day with a 12.79% gain to $265.3203. Media group Zimpapers headlined today’s losers as it dropped 10.72% to $5.9817 as

retailer OKZIM parred 10.47% to $51.0354. Sugar processor Star Africa plunged 4.12% to $2.2526 as First Mutual Properties succumbed 2.78% to $17.5000. Turnall Holdings retreated 1.50% to $7.5000 as it fastened the top five worst performers of the day.

Activity aggregates traded mixed in the session as volumes traded declined 51.58% to 6.50m while, turnover surged 39.30% to $1.25 billion. OK Zimbabwe, Econet, Ecocash and Delta led the volume aggregates with respective contributions of 32.22%, 20.99%, 18.02% and 10.83%. Blue chips duo :Delta and Econet drove were the top value traded counters with a combined aggregate of 71.09%. Cumulatively the ETFs traded

766,085 units worth $1,378,573.12. Datvest and MIZ gained 2.53% and 4.25% to close at $1.7443 and $2.0642 respectively. On the contrary Cass Saddle trimmed 0.49% to close at $2.0400. The Tigere REIT dropped 0.03% to close the day at $50.4973 as 278,967 units exchanged hands. – efesecurities

Global Currencies & Equity Markets

 <https://www.cloverleaf.co.zw/> 

South Africa

Rand hedges rebound

JSE property stocks that generate 100% of their earnings offshore are back on the sector’s leader board, reversing some of the hefty losses recorded last year.

That’s despite concerns about tightening lending conditions and higher debt funding costs in the UK, Europe and US. The recent bank failures in the US have underscored this.

A look at the listed property sector’s top performers so far for 2023 shows that seven out of the 10 winners are rand hedge counters, all of which have notched up double digit returns in the year to April 18.

In contrast, the sector’s 10 worst performers are all South Africa-based stocks with total returns of between -7% and -23% (see table). That compares with the South African listed property index’s overall total return of about -3%.

The winners include UK-focused Industrials Reit, Hammerson and Shaftesbury Capital; German and UK business park owner Sirius Real Estate; and East European plays Nepi Rockcastle and MAS Real Estate .

The only three South Africa-focused stocks in the top 10 — Attacq, Fortress A and Indluplace Properties — were boosted by major deals and corporate action.

It’s not difficult to understand why local Reits are now lagging their offshore counterparts

It’s not difficult to understand why local real estate investment trusts (Reits) are now lagging their offshore counterparts.

In the latest issue of “The Navigator”, Anchor Capital’s quarterly asset allocation and strategy report, chief investment officer Peter Armitage points to a barrage of negative factors weighing on local investor and consumer sentiment.

These include higher inflation (particularly of food prices) and interest rates, extreme load-shedding, an increasingly tricky sociopolitical environment and a substantially weaker rand.

It all means economic growth is unlikely in 2023.

The report reads: “The prospects for South African property companies have worsened of late, with interest rates rising ahead of expectations and load-shedding increasing the costs of a tenancy. The challenged outlook is reflected in share prices trading at average discounts to book NAV of [about] 30%.”

Higher interest rates have also resulted in alternative income-yielding assets becoming relatively more attractive.

Anchor’s view is that a reasonable-quality diversified portfolio of South Africa-domiciled Reits should deliver low single digit growth for the next few years.

As a result, Anchor is now underweight local listed property with a projected 12-month total return of 8% (in rand). That compares with a 10% and 11% total return forecast for bonds and general equities.

The listed property sector’s forward distribution yield is close to 11%, so Anchor’s 8% total return implies flat to slightly negative share price growth over the next year.  

Anchor is slightly more bullish about global Reits, with a forecast total return of 6% (in US dollars) vs 4% and 8% for bonds and general equities.

The report notes that profit growth in Eastern Europe, which dominates the JSE’s foreign real estate jurisdictions, still looks “reasonable”.

However, the impact of the Russia-Ukraine war remains uncertain despite the positive effect on neighbouring countries, Poland  in particular, that have benefited from millions of people flowing over the border from Ukraine.

Naeem Tilly, portfolio manager and head of research at Sesfikile Capital, echoes Anchor’s view.

“We expect the trend of outperformance among the offshore counters, as well as local defensive counters, to continue over the next six months,” he says.

Meanwhile, load-shedding and its effect on local companies’ operating costs and the financial health of their tenants will remain top of mind for investors.

In terms of offshore stock picks, Tilly says that at current share price levels Sesfikile likes MAS, Nepi Rockcastle and Shaftesbury. He believes MAS and Nepi Rockcastle will both benefit from strong organic growth still coming out of Central and Eastern Europe. 

“Disposable income in the region is being supported by wage inflation, which in turn is driven by very low unemployment levels,” he says.

Tilly adds that indexation (inflation-linked rental escalations) will be a major contributor to earnings growth for MAS and Nepi Rockcastle in the short term.

Despite a strong share price uptick in central London-focused Shaftesbury (formerly Capital & Counties Properties), Tilly believes the company still offers upside.

He notes that the return of tourists from Asia and the Middle East to London has driven a strong recovery in spending in Shaftesbury’s West End portfolio, which includes iconic work, live, shop and play precincts such as Covent Garden, Carnaby Street and Chinatown.

“While higher bond yields pose a risk to valuations, rentals are about 10% below pre-Covid levels and will support valuations, in our view,” he says.

Sirius is another rand hedge property stock that’s back on investor radars after the share price crashed by almost 50% in 2022.

The company, which is listed on both the LSE and the JSE, owns and operates 140 branded business and industrial parks worth €2bn, split 75/25 between Germany and the UK. 

The company provides conventional office, warehouse and manufacturing space on long-term leases to larger blue chips, as well as smaller, flexible work and storage spaces let for shorter periods to SMEs and one-man bands.

Last week the company released a solid trading update for the year to end-March. Despite the more challenging economic backdrop amid higher debt funding costs, Sirius achieved an overall 8.1% increase in its rent roll (7.7% on a like-for-like basis).

Brendon Hubbard, portfolio manager at ClucasGray Investment Management, says it’s the ninth consecutive year that management has been able to grow rentals more than 5%. 

He believes Sirius is heavily undervalued at current levels of just more than  R17. Though the share price is up 30% from its end-September 2022 lows of R13, it’s still way below end-2021 peaks of R30, and places the stock at a 20% discount to NAV.

Sirius’s operating platform offers to the property letting market what booking.com and Airbnb offer to the travel industry

Brendon Hubbard 

Hubbard says Sirius should in fact be trading at a 20% premium to NAV. Apart from higher rates hitting Europe-focused real estate companies especially hard, he ascribes Sirius’s large discount to the company’s operating platform not being included in NAV calculations.

He says the latter is Sirius’s most important asset and key to why it’s so successful in sweating assets and continuously growing rental income.

“Sirius’s operating platform offers to the property letting market what booking.com and Airbnb offer to the travel industry. So it doesn’t make sense not to include it in the valuation,’’ he says.

Hubbard expects Sirius to deliver earnings growth of about 20% for the year to March, which places it on an attractive forward earnings yield of 9.6% (in euro).

London-based Panmure Gordon Securities last week confirmed a buy recommendation on Sirius, highlighting management’s debt refinancing successes and active capital recycling strategy as major positives. 

An investor note says that though Sirius’s cost of debt is up slightly over the past year it’s still low at an average 1.9%. In addition, 90% of the group’s debt has a maturity of more than three years.  

Panmure expects dividend payouts to increase by about 23% for the year to end-March. It has placed an LSE target price of 96p on Sirius, which represents a 26% increase on the 76p at which the stock was trading late last week. 

Zambia

Kwacha strengthening because of govt’s financial discipline – Kawana

MINISTRY of Information Media Director Thabo Kawana says the recent Kwacha appreciation can be attributed to government’s financial discipline. And Kawana has refuted claims that the government wants to neutralise the church. Addressing the media, Tuesday, Kawana said it was folly for some people to question the strengthening of the Kwacha. “We want to talk about the strengthening of the Kwacha that has been questioned by stakeholders and political parties. They are asking, why has the Kwacha strengthened? It is also surprising, the same people, when the Kwacha weakens, they ask, ‘why is the Kwacha weakening?’ As you know, the exchange rate has many factors or drivers, among them is the factor of sentiments. A negative sentiment results in a…...

Nigeria

Again, Naira strengthens against US dollar at official, black market 

For two straight days, the value of the Naira against the American Dollar has strengthened in the Investors and Exporters (I&E), and the parallel market sides of the forex market.

Data from FMDQ Securities Exchange showed that on Wednesday naira appreciated by N1.31 or 0.38 per cent to quote at N462.13/$1 compared to Tuesday’s value of N463.44/$1

This happened despite forex FX demand pressure which increased by $57.28 million or 91.4 per cent to $119.97 million from the $62.69 million recorded in the preceding session.

Read Also:Naira appreciates against US dollar at official, unofficial markets

Also in the black market, the Naira appreciated against the greenback yesterday by N2 to trade at N734/$1 compared with the previous day’s exchange rate of N736/$1.

But it was a different story at the peer-to-peer, as the Nigerian currency depreciated against its American counterpart by N2 to settle at N752/$1, in contrast to the N750/$1 it was exchanged on Tuesday.

At the interbank market, the CBN data showed the local currency was flat against the Pound Sterling and the Euro in the interbank segment of the forex market in the midweek session, closing at N572.99/£1 and N505.04/€1, respectively.

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold dips as rate hike bets hold despite weak data, dollar gains

Gold reversed course and fell on Thursday, as the dollar gained after weaker U.S. economic readings failed to upend expectations of another interest rate hike by the Federal Reserve next week amid stubborn inflation.

Spot gold was down 0.08% at $1,987.81 per ounce, while U.S. gold futures were up less than 0.06% to $1,997.1.

Data showed that the U.S. gross domestic product grew slower-than-expected last quarter, but markets focused on the above-forecast inflation number.

That drove investors to the dollar, making gold more expensive for those holding other currencies.

Although gold is a customary safe haven during economic uncertainties, stubborn inflation could prolong the Fed’s monetary tightening, dimming appeal for zero-yield bullion.

Markets saw an 88% chance of the U.S. Fed raising rates by 25 basis points on May 2-3. Investors now await the core Personal Consumption Expenditures (PCE) index data for March due on Friday.

“If we do get a hotter number on that PCE tomorrow, that’s going to be bearish for gold from a perspective of global demand for the metals markets”, given prospects of further rate hikes, said Jim Wyckoff, senior analyst at Kitco Metals.

Earlier in the day and in previous sessions, gold found support from concerns about the U.S. banking sector, with U.S. government officials so far unwilling to intervene in the First Republic Bank rescue process.

Also on the radar were deliberations surrounding the U.S. debt ceiling, lifting Treasury yields.

Although higher interest rates work against gold as it does not provide any yield, they can work in bullion’s favor because they raise the chance of another banking crisis, said independent analyst Ross Norman.

Bullion had scaled more than a year’s peak at $2,048.71 in mid-April as the banking crisis unfolded.

Silver inched up 0.03% to $24.8976 an ounce, platinum shed 0.93% to $1,079.9155, and palladium was down 1.19% at $1,494.2701.

INVESTORS DIARY 2023

Company

Event

Venue

Date & Time

Workers’ Day

May 1

Africa Day

May 25

Counters trading under cautionary

CBZH

TSL

Fidelity

Willdale

FMHL

ZBFH

GetBucks

Zimre

Seed Co

Invest Wisely!

Bulls n Bears 

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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