ARTICLES

Hudaco

In the current environment investors should be looking for listed companies that have managed to weather the COVID-19 storm and emerged with strong growth. These companies would have had two important components before the pandemic began – a strong balance sheet and highly competent management. Hudaco had both.

Hudaco is a company with two primary divisions:

1. The automotive aftermarket, power tool and fasteners, data networking, security and communication equipment businesses which are affected by consumer spending.
2. The bearings and belting, electrical power transmission, diesel engine, hydraulics and pneumatics, specialised steel, thermoplastic fittings and filtration businesses supply engineering consumables mainly to mining and manufacturing customers.

Their results for the year to 30^th November 2020 show that the first half was bad with the extra costs and write downs made necessary by the pandemic. Goodwill and intangibles were written down by R348m – which resulted in a loss for the period. The second half showed a remarkable recovery with turnover rising 2,5% and headline earnings per share (HEPS) up 4%. Operating expenses were reduced by 0,4% which shows a strong focus on efficiency and working capital management.

Impressively, the company managed to reduce debt levels year-on-year by R365m – after conducting a share buy-back which cost R82m. In effect a share buy-back is a dividend and is treated as such by the Receiver of Revenue. The company buys its own shares back in the open market and then cancels them so reducing the number of shares which it has in issue. This makes the remaining shares more valuable.

Hudaco is a traditional business with all the working capital problems. Working capital management is vital. This means keeping its debtors' book under control, managing stock levels to avoid over-stocking and paying creditors as late as possible so that they help to fund the business. In the second half of the year Hudaco managed to generate a 24% return on equity.

Technically, the share has been in a long-term downward trend which ended on 27^th January 2021 when the price broke decisively up through its long-term downward trendline. Consider the chart:

You can see here the long-term downward trendline which has been in place since the share peaked at 16375c in March 2018. COVID-19 took the share down to lows around R55 in March 2020, but it has bounced back and now trades at 9900c. At that price it is on a multiple of 9,43 and a dividend yield of 3,31 which looks like good value.

By any measure this is a solid business that will benefit directly as the South African economy improves.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

The Confidential Report - April 2021

America
The S&P500 index closed above 4000 for the first time on Thursday 1^st April 2021 at 4019.

You can see the impact of the COVID-19 V-bottom, which we regard as an extraneous non-economic factor, and the subsequent acceleration of the S&P. Obviously, the

Hammerson

Hammerson has been listed on the London Stock Exchange since 1945. It is a real estate investment trust (REIT) and owns “flagship destinations and premium outlets in key cities across the UK and Europe”. Most of the company’s properties are shopping malls like Brent Cross in London, The Bullring in Birmingham and Dundrum Town Center in Dublin. Obviously,

Afrimat Revisited

On 25th May 2020, ten months ago, we published an article on Afrimat in which we said we liked what the company was doing and considered it to be undervalued. At the time Afrimat shares were trading in the market for R29. In the past ten months they have risen to R46 – a gain of 58,6%. Consider the chart:

You

Aspen

The relationship between technical analysis and fundamental analysis is the relationship between the reality and the perception of that reality in a company. The fundamentalist searches for the share’s real value by studying the company’s financials. The technician studies the impact of investors’ perceptions as they are reflected in the

OBV and Mpact

Joseph Granville, talking about the share market, famously said, “volume leads price”. By this he meant that the volume traded in a share tends to begin increasing before the price rises. He encapsulated this idea in his “On Balance Volume” technique (OBV). If you are not clear on OBV go back and re-read On

The Confidential Report - March 2021

America
The major change that has come about in America since the advent of the Biden administration has been a broad shift towards “risk-on”. The uncertainties associated with Trump are fading. American investors have welcomed the economic logic and sanity of the new administration with a desire to generate returns which are well above those offered by US Treasury

Naspers

Naspers is the largest share on the JSE with a market capitalisation of R1,67 trillion. Naspers was founded in 1915, as a printer and publisher of newspapers and magazines. It has since evolved into an international social media, entertainment and gaming company.

This share has the problem that it is undervalued in relation

Sibanye Vs Amplats

Right now, comparing Amplats with Sibanye is instructive for private investors – and made more interesting because:

1. They are both mining houses producing precious metals, mainly platinum group metals.(PGM's).
2. They have the same financial year-end (31^st December).
3. They have both recently produced trading statements for the 2020 financial

The Confidential Report - February 2021

America
The relatively calm installation of Joe Biden as president and the Democratic Party’s control of Congress were appreciated with relief by markets worldwide. The S&P has risen by almost 18% from its low of 3270 on 30^th October 2020 to its recent high of 3855 on 25^th January 2021. Biden has promised further substantial stimulation

Elimination of the Bears

As far back as January 2016, billionaire George Soros went short on the S&P500 index. This means that he thought the S&P500 was going to fall heavily and he took positions which would profit from a major fall in that index. Later in May 2017 he doubled up on those “short” positions and he has been taking more short positions ever since. As recently as final quarter of 2020 he bought