ARTICLES

Hulamin - Insider Trading

In our opinion on Hulamin, last updated on 3^rd September 2021, we noted “What is noteworthy about this share is that it has a net asset value (NAV) which is more than 3 times its current share price making it a possible takeover target”.

On Thursday last week the company issued a bland “cautionary” notice on the Stock Exchange News Service (SENS) advising investors to exercise caution when dealing in its shares. In order to minimise the effect of insider trading, the JSE requires listed companies to publish a cautionary if they know of an imminent event which may have a significant impact on the share price.

Often, a cautionary announcement like this indicates that the company has become involved in negotiations with a potential suitor. Obviously, this can have major implications for the share price.

But what is interesting about the Hulamin case is that its share price and volume traded spiked up 3 days before the cautionary was published. Consider the chart:

The top chart shows a candlestick chart of the share from the end of May 2021 to date. You can see the sharp rise in price and where the cautionary was issued on Thursday last week. The middle chart shows the on-balance-volume (OBV) indicator which gave a strong buy signal on Tuesday. The bottom chart shows the volume traded and the black line through the middle of it is a 30-day simple moving average of the volumes.

What is noteworthy is that the volume traded before last week showed an average of 484 000 shares changing hands each day. On Monday last week (11/10/21) the share traded 681 000 shares, a 40% increase on the average, and closed up 11% at 250c. On Tuesday the volume was just under 2 million shares traded and the price rose to 274c. On Wednesday when about 1,5 million shares changed hands it closed at 319c.

To us, this indicates quite clearly that some of the people who were privy to whatever is going on bought up large quantities of the share, directly or indirectly, before Thursday’s announcement. What else could possibly account for the sudden rise in volumes and prices just days before such an announcement?  

As you can see, on Thursday, once the announcement was made public, the share jumped almost R1 per share netting the insiders a tidy profit of about 30% in a couple of days. They probably sold out on Friday and put their profits in the bank.

Insider trading is illegal, but it is commonplace on the JSE. As a private investor you can see it happening, and even jump on the bandwagon, by watching the volumes traded and the movement of the closing prices. If you see radically increased volumes with slight increases in price then you may well be looking at insider trading prior to a public announcement, especially when a share has been trading at less than a third of its Net Asset Value (NAV).

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

Bitcoin's Collapse

We have said previously that cryptocurrencies like Bitcoin cannot be assessed using fundamental analysis – because they have no fundamentals. They have no balance sheet or income statement, and they generate no income for investors. For this reason, they can only be assessed technically - by looking at the charts.

Speculative Opportunity

PDSnet is mainly concerned with teaching private investors about investment and medium to long-term opportunities on the JSE. The foundation of this approach is that South African tax law treats any gain on a share held for longer than 3 years as a capital gain. In other words, holding a share for more than 3 years means that the investor will not be treated as

Scary Government Debt

Just like a household or an individual, a country’s government goes into debt because it spends more than it receives in taxes and other revenue. The important difference, of course, is that governments (unlike households or individuals) can actually create money out of nothing to finance their deficit if they choose to. This is known as quantitative easing (Q/E).

Correction

On the 10^th of July 2024, we tweeted (on “X”) that “...some sort of correction is looking more and more likely.” Four trading days later on the 16th of July 2024, The S&P500 index reached its highest point (5667.2) and began that correction. So far, the S&P has fallen 8,5%. Consider the chart:

WeBuyCars - Follow-up

WeBuyCars (WBC) was spun out of Transaction Capital (TCP) and separately listed on the JSE on 11^th April 2024 – just over three months ago. Before the listing we published an article on the 8th of April 2024, in which we suggested that the share would be a solid blue-chip

Bell Equipment

We are often asked what prompts us to add a share to the Winning Shares List. The answer is that it is a variety of factors – but usually because the share appears to be very cheap in relation to its fundamentals. In other words, we expect it to be upwardly re-rated as its fundamental value becomes recognised by the institutional fund managers. A

JSE All Time Record High

On Friday last week, the 12th of July 2024, the JSE Overall index closed at 81686 – an all-time record high. Consider the chart:

The chart shows that the Overall

Construction

The entire construction industry was decimated by the 2008 sub-prime crisis, the ANC under Jaco Zuma’s presidency and then finally by the pandemic in 2020. Hundreds of thousands of jobs were lost and massive companies like M&R were reduced to penny stocks on the JSE.

The JSE Construction and Materials Index (JS5011)

Murray & Roberts

A company’s debt is critical in establishing the risk inherent when investing in its shares. High debt levels expose the company to high interest and capital payments and can swallow up a large part of whatever profits it makes. Low debt levels give the company the headroom to invest in further growth either organically

Mr Price

Mr Price is a well-known and focused retailer of clothing in South Africa. It is a quintessentially South African company, and its performance is a direct reflection of the state of the economy and the level of consumer spending. It is an extremely well-managed company in a very tough and competitive market. Clothing is sold by many dedicated outlets in South Africa and almost