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The Confidential Report - Dec 2024

America

At the time of the last Confidential Report on 6^th November 2024 the news of Donald Trump’s victory in the US presidential election had just broken. This news together with the Republican win in both the House and the Senate was not what we were expecting or predicting. So, like many analysts around the world, we got it wrong.

We did however correctly predict that as soon as the election was over the S&P500 index would rise to a new record high – which it has done. Clearly, we find the markets much easier to anticipate than politics.

The ramifications of Trump’s win are numerous, and much is still not known about exactly what he will do when he comes into office next year. He truly is a wild card – but we believe that his policies might not be as much of a disaster as is feared by the Democrats.

What is clear is that the elections represented a significant area of uncertainty for equity markets around the world, and especially inside America. Investors generally hate uncertainty so in the months leading up to the election the market moved sideways, but as soon as the election was over, it rallied to a new record high.

After the election, we tweeted on the 12^th of November 2024 that “some sort of correction” would follow and the S&P500 fell back to find support at 5870. This was followed by a hammer formation on the 20^th of November 2024 so on the 21^st of November we tweeted:

“The hammer formation on the #SP500 yesterday, combined with the strengthening of the rand since 14-11-24 bodes well for Wall Street today. It looks to us like the correction which we predicted on 12-11-24 may be over. We should probably now look for a Christmas rally”.

Consider the chart:

S&P500 Index: Chart by ShareFriend Pro.

Immediately after the Thanksgiving holiday in America, on Black Friday, the S&P rallied to a new all-time record high at 6032. It actually reached 6043.53, but there was some window dressing in the last hour of trade as institutional investors sought to tweak their portfolios before the end of the month in a very thin market.

The Christmas rally which we predicted in our tweet is now well under way and we expect the S&P to continue generally upwards through the end of the year.

It is important to understand that the S&P is in a major bull trend that has been going on for more than fifteen years. It began in March 2009. The underlying forces which are driving this market have been and continue to be:

1. The massive quantitative easing which followed the subprime crisis and then COVID-19. This enormous money-printing exercise more than compensated for the sub-prime crisis and then the pandemic by flooding the world with cash. That liquidity is now creating an asset bubble in equities.
   
   
2. The advent of new technologies like smart phones, artificial intelligence (AI) and humanoid robotics – each of which will have a major impact on the productivity and hence profitability of companies around the world.
   
   
3. The world-wide switch to renewable energy which is taking place. Renewables, especially solar power, are and will reduce the cost of power significantly in the coming decades. The falling oil price is evidence of this. In our view the price of North Sea Brent oil will eventually reach $10 a barrel or even lower.

We suggest that these three factors are far more important than the outcome of the US elections. They are massive macroeconomic forces that will continue to impact the profits of listed companies and the progress of equity markets for years. In other words, we remain bullish in the medium term, even though there will undoubtedly be periodic corrections as the market goes higher.

Having said that, some of Trump’s actions since becoming the president-elect are having an impact:

1. He has prepared executive orders to immediately remove America from the Paris Accord on climate change. This immediate action will open the door for more drilling of new oil wells, especially in the previously unexploited territory of Alaska. America has recently incurred severe damage in the South from two major hurricanes coming two weeks apart which most experts believe were exacerbated by climate change. In view of this, the wisdom of withdrawing from the Paris Accord seems questionable. Our information is that America has about 4,23% of the world’s population but uses approximately 20,3% of its oil. This is clearly disproportionate. The COP29 conference began in Baku, Azerbaijan on 11^th November 2024 with the first speaker saying that the world “...stood at a crossroads...” If Trump takes the US out of the Paris Accord then there is little doubt about the future direction of climate change.
   
   
2. He appears to be intent on launching a trade war with some of America’s key trading partners such as China, Canada and Mexico. Trade restrictions, like tariffs are never good for business or markets. They inevitably result in high levels of domestic inflation and lower profits. Hopefully, he will be persuaded to moderate his extreme stance on this issue in time.
   
   
3. His use of Elon Musk to reduce the massive and overwhelming American budget deficit which now stands at $36,1 trillion and is rising rapidly. In our view, Musk will find it a great deal more difficult to cut costs in government than he has in the various companies that he runs. He will run into considerable bureaucratic and political opposition. We doubt that he can cut the $2 trillion off government expenditure that he has proposed, but, if he can, it will be a major achievement both for him and the Trump administration.

The inflation rate in America continues to be relatively benign. The consumer price index (CPI) came in at 2,6% in October 2024 with core inflation at 3,3%. Both numbers were expected and did not have a major impact on markets. The Federal Reserve Bank is continuing to reduce interest rates by 25 basis points every two months and is expected to continue to do so at its December meeting and into next year. The declining level of interest rates will gradually have a positive impact on corporate profits and hence on share prices, but this impact is likely to be dwarfed by the profitability impacts of the three major factors mentioned above.

Non-farm payrolls increased by 12 000 in October and the unemployment rate was unchanged at 4,1%. This indicates that the employment situation in America has stabilised, but at a very strong level with very low unemployment. We expect that it will take many months of steadily falling interest rates to begin to impact this labour market. It is becoming more and more clear that the Fed has achieved its goal of reducing inflation without pushing the economy into recession. We believe that the three underlying forces driving the economy are those dealt with above and they continue to be the most important factors.

As the prospects of a war between Israel and Iran tail off, the North Sea Brent oil price has fallen to new lows just above $70 per barrel. Consider the chart:

There is a rough descending triangle in the oil price with the earlier support at $72 and the downward pattern of prices since September 2023. Our expectation is that Brent will break below $72 at some point and remain there. Every year that goes by now brings more and more solar power on line and the technology is becoming steadily cheaper and more productive all the time. From a political perspective, this means that the political importance of the Middle East is declining. Obviously, falling fuel costs are benefiting countries around the world, including South Africa. We expect that pattern to continue.

Ukraine

Another issue that is likely to occur very early in the new Trump administration is an effort to broker a peace accord between Ukraine and Russia. At this time, the incoming Trump administration is not considering trying get Russia to relinquish the territory which it has annexed, including Crimea. Ukraine’s President Zelensky has previously said that no peace deal is possible without the complete withdrawal of Russian forces from all occupied territories including Crimea – so it remains to be seen whether a peace deal is possible. The other stumbling block to a peace accord will be Ukraine’s membership of NATO. Russia says it cannot allow that, and Ukraine cannot really afford not to have NATO membership because that would give it the security that it needs from future Russia invasions. In recent days, it has been suggested that Ukraine may be willing to give up the territories that Russia has taken in exchange for full NATO membership and a cessation of hostilities. This certainly looks like a viable solution for both parties.

It is clear that both the Russians and the Ukrainians are ready to end this war which is costing both nations enormously. The recent escalations which have seen the deployment of North Korean troops by Russia and the permission for Ukraine to use longer range NATO missiles to attack targets inside Russia are undoubtedly dangerous. The use of a Russian IRBM Oreshnik missile, capable of carrying a nuclear warhead to bomb the Ukrainian city of Dnipro was an undisguised attempt to intimidate NATO countries which, in our opinion, did not really work. Basically, everyone already knows that Putin is never going to use nuclear weapons – especially against a NATO country - because to do so would result in the complete annihilation of Russia and probably his own death.  

In anticipation of the expected peace negotiations, the Russian forces have been pushing hard to gain more territory – but they have been doing so at an enormous and unsustainable cost. They lost a record of more than 2000 troops killed, captured or injured in a single day recently. At the same time the collapse of the Russian ruble to below 1c (US) has clearly shaken the Russian people and has made Putin far more vulnerable.

President-elect Trump has said on many occasions that he will bring the war in Ukraine to an end quickly once he is in office – but he has not said exactly how that will be done. His victory at the polls has probably come as something of a relief for Putin, but we believe that his relief may turn out to be short-lived. Both the UK and France have recently re-affirmed their support for Ukraine and, of course, there is some concern that Trump will withdraw US aid to Ukraine altogether. The Biden administration has committed the maximum amount of $7,1bn in further US support while he remains in office – which will perhaps give Ukraine an advantage at the frontline over the next two months or so.

The decision by President Biden and the UK to allow Ukraine to use their missiles to attack targets inside Russia came at a critical moment. Putin has been threatening to attack the UK directly, but nobody believes that he will do that. Such a step would immediately invoke the famous Article 5 of the NATO agreement and bring all NATO countries directly into a war with Russia. We think that these concerns are probably unfounded, but the situation is fluid and difficult to predict. One thing is certain, the 1000 days that Russia has been engaged in this war have taken a terrible toll on both its soldiers and its military equipment. Russia is hardly in a position now to engage in a conventional war with even a single NATO country let alone all of them. But, of course, there is always the prospect of a nuclear war. In our view while a nuclear war would be catastrophic for NATO countries and the world, it would also mean Russia’s complete annihilation. Dictators, like Putin, are not usually willing to die for their causes. They invariably prefer to let other people do the dying.

One other important point is that Wall Street is moving higher and in a strong bull trend. If there really was an imminent prospect of WWIII, would the smart money, the big money really be pushing markets to record highs? We think not. Wars are notoriously bad for stock markets generally. In our view, the stock market is not behaving as if such a war is imminent. But of course, the media is taking maximum advantage of the fears and apprehension surrounding such a catastrophe. In our view, this Worl War III scare, like many before it will evaporate. We doubt that Russia will take the risk of attacking any military base of any NATO country - even with a conventional weapon, never mind a nuclear weapon. To do so would result in the mobilisation of hundreds of thousands of NATO troops and weapons systems against Russia. It would be Pearl Harbour on steroids – and Putin knows it.

The fact that the Russian ruble has finally broken below one US penny, despite interest rates being at highs around 21%, shows that the Russian economy is close to collapse. When a resistance level like this is broken, the downward trend usually accelerates. At $0,096 the ruble is basically now in free-fall. Obviously, a falling ruble is bad for Russian inflation and makes it much harder for Russia to buy badly needed war materials from other countries like China and India.  

Political

The government of national unity (GNU) is proceeding with its reform work without any major concerns about its stability at this stage. The economy is already responding well to a variety of reforms and generally improved management. There has been a huge improvement in business and consumer optimism which is being encouraged by the falling price of petrol and falling interest rates. In that positive environment some issues have become apparent:

President Ramaphosa is still battling with the possibility of impeachment over the Phala Phala allegations with the matter now being heard by the Constitutional Court. Lawyers representing the President claim that the evidence against him is hearsay and thus inadmissible. Obviously, Ramaphosa is a key component of the government of national unity (GNU) and his impeachment at this stage would be a major problem for the newly formed government. In our view, this is unlikely to happen.

The Special Investigating Unit (SIU) has been called in to investigate allegations of corruption and maladministration at the South African Special Risk Insurance Association (SASRIA). The allegations are that the R32bn paid out by SASRIA following the civil unrest in 2021 was corrupt and that not all payments were legal. SASRIA’s own internal investigations did not unearth any wrongdoing but the company called in the SIU to conduct an independent investigation. SASRIA is the only organisation in South Africa that provides insurance cover against riots and public disorder. It has also requested R20bn from the Treasury to replenish its reserves.

The basic income grant (BIG) is now R370 per month and is given to impoverished people between the ages of 18 and 60. It costs the Treasury R40bn per annum at the moment, but that amount is expected to increase substantially if the grant is made permanent. The grant was supposed to be a once-off payment to alleviate the impact of COVID-19, but there has been strong pressure on the government to make it permanent. The problem here is that, like the National Health Insurance (NHI), the ANC made promises and incurred obligations prior to the elections in order to increase its political support. If the BIG is made permanent it will make reduction of the government’s debt very difficult, if not impossible. 

The poisoning crisis at spaza shops which has so far resulted in the deaths of at least 20 people with a further 900 made sick points to one of the major problems with the informal sector in this country. Informal businesses benefit the economy because that they employ millions of people who would otherwise probably be destitute, just as informal settlements house millions of people who would otherwise be on the streets. However, the word “informal” really means that they operate almost completely outside the law. They pay no taxes and adhere to only those of the country’s laws that are actually enforced – which is very few. Thus, informal settlements are regularly devastated by fire, floods and disease because they do not adhere to proper building and health standards. The entire taxi industry consistently breaks the rules of the road and operates vehicles which are often not roadworthy, driven by people who have often not passed a proper public transport licence - resulting in excessive road deaths.  And, of course, the spaza shops are not constrained by health inspections – which has resulted in the current crisis. So, the informal sector provides millions of people with a living, but at a significant cost to society. The politicians have yet to come up with any viable solutions to these problems.

Economy

The inflation rate fell to 2,8% in October month this year – sharply down from September’s figure of 3,8%. This opened the way for the monetary policy committee (MPC) to reduce interest rates by a further 25 basis points and is a general boost for the economy. Most of the decline in inflation is due to the 5,3% drop in the price of fuel since last month. Inflation in food and beverages rose by only 3,6% - lower than expected. Bread and cereals were 0,5% cheaper and maize meal fell in price for the third month in a row. These figures undoubtedly gave the MPC space to reduce rates by as much as 50 basis points, but they remained very conservative and reduced rates by only 25 basis points as expected. This takes the repo rate down to 7,75%. The Reserve Bank is now predicting that growth will reach 2% in 2027. The plan is to reduce the target for inflation to 3% bringing it much closer to the inflation rates of our main trading partners. 

The producer price index (PPI) dropped into negative territory in year ended 31^st of October 2024, coming in at -07%. This was mainly due to a drop in fuel prices with petrol and diesel down 22,2% and 26,9% respectively. Food inflation was also down at 3,4% for the year – down from September’s 4,1%. In general inflation both at the producer and the consumer level is benign and falling, allowing the Reserve Bank to continue reducing interest rates.  

Consumer spending rose by 4,1% per annum in the 3^rd quarter of 2024. Fast moving consumer goods (FMCG) grew by 4,5% with frozen foods up 7,4% and fresh foods up 9,1%. The end of loadshedding has enabled consumers to rebuild their stocks of frozen and other perishables. Falling inflation and interest rates have boosted take-home pay and consumer confidence. Home appliance sales were up almost 10% and online shopping became a major element. Black Friday sales, which has been spread over several weeks, should be a further boost to retail spending.

Retail sales increased by 0,9% in September 2024 compared with the same month last year. General dealer sales (which includes supermarkets) were up by 4,5%. On a seasonally adjusted basis, sales were down by 0,8%. Business confidence is high at the moment supported by an end to loadshedding, falling interest rates and lower fuels costs. The falling inflation rate (down to 2,8% in October) is also a positive. Fuel prices are 20% lower now than they were in September last year and about R35bn has been withdrawn from pension funds since the two-pot system was implemented.

The decision by the international ratings agency, Standard & Poors (S&P) to raise South Africa’s outlook to positive because of the appointment of the government of national unity (GNU) is a hopeful sign. S&P currently has South Africa at 3 levels below investment grade, but is optimistic that the country has turned the corner economically. The low growth rate in the economy and the high level of government debt are negatives, but these issues are now being addressed directly. It is expected that growth will improve rapidly in 2025 and that government debt will stabilise and then begin to fall as a percentage of gross domestic product (GDP). The improved outlook should have a positive impact on the rand as overseas investors begin to reassess the risks of doing business here.

The South African economy created almost 300 000 jobs in the third quarter of this year due to the end of loadshedding, the formation of the GNU and the prospect of lower interest rates. The unemployment rate fell to 32,1% from 33,5% in the previous quarter. Officially, there are currently nearly 17 million people employed in South Africa and the number of unemployed people has fallen by 373 000 to 8 million. These are very good numbers and bode well for everyone living in the country. The country is still creating less jobs each year than the increase in the size of the labour force, but at least the trend is now moving in the right direction. Most of the job growth has occurred in the informal sector rather than the formal sector – which means that it will not impact the tax base. Youth unemployment remains high at above 60%.

Manufacturing production fell by 0,8% in September month mainly because of an 18,7% decline in motor vehicles, parts and accessories. Manufacturing output in the 3 months to 30^th September 2024 was up 0,2% on a seasonally adjusted basis. This was partly because of a rise in iron and steel production. It is clear that the world’s transition toward electric vehicles (EV) is beginning to have an impact on South Africa’s overseas vehicle sales.

Mining production increased by 4,7% in the year to 30^th September 2024 because of a 6,7% increase in platinum group metals (PGM) production and a 10% increase in iron ore production. Manganese was up 13,5% and chrome was up 17,3% with diamond production up by 35,4%. The end of loadshedding was a major factor in allowing the increased production levels. Gold production was down with Gold Fields reporting a 6% decline, Sibanye reporting production down by 9% , and Harmony reported a 10% decrease in production.

The civil servants in South Africa are likely to go on strike if the government tries to back out of its 4,7% wage increase offer. Finance Minister, Enoch Godongwana, is desperately trying to bring the government debt down and looking for ways to save money. The public servants’ union is asking for a 7,5% increase. In the past when the civil servants have gone on strike the economy has not suffered significantly. At worst, these strikes cause inconvenience for people trying to get something done at Home Affairs or some other department. Schools have a worse problem, but they also generally manage to get through any strike action by the teachers. Basically, the civil service in this country is so inefficient anyway that everyone expects there to be delays with whatever they are trying to get done.

South Africa is already using about 75% of its available surface water resources according to the Minister of Water and Sanitation, Pemmy Majodina. It would be difficult and expensive to increase water availability by building more dams. At the moment, the department is engaged in 14 projects around the country worth more than R100bn, including the Lesotho Highlands water project and raising the walls of various existing dams. A major problem is water leaks in municipal infrastructure which caused the loss of as much as 33% of water in Gauteng and 45% in Durban (eThekwini). The international norm for water leaks is around 15%. The average person in South Africa uses 218 litres of water per day compared with an international average of 173 litres – but a good chunk of that usage can be accounted for by water leaks. Now Joburg water is considering raising the level of water restrictions to level 2 or even level 3 from level 1 (which was implemented in September 2024). This will obviously impact directly on both consumers and businesses in the region. There is a drive to eliminate illegal water connections and to fix leaks. There has, however,  also been poor management and a lack of planned maintenance.

From South Africa’s perspective one of the good things to come out of the COP29 conference on climate change is that the amount pledged to assist us with our “just transition” away from coal-fired power stations rose to almost $14bn (over R250bn). Much of this cash will be grants and the rest will be very low interest loans. The private sector is still expected to put in about R600 billion. This cash should flow into the country and stimulate the economy. Ironically, the move away from Eskom and coal-fired power stations is being driven by Eskom’s absurd price increases in the face of falling international coal prices.  

One of the likely consequences of Donald Trump winning the White House is that he intends to implement tariffs on a variety of American imports. This will impact South Africa’s motor industry directly which currently accounts for about 10% of total South African exports to America. The Americans will not impose tariffs on our platinum group metals (PGM) because they need those raw materials, but the motor industry is definitely vulnerable. During 2023, our exports of motor vehicles have dropped by more than 23% from the previous year, and in October month our vehicle exports were down 42,6% on October 2023. Obviously, the motor industry is an important contributor to our GDP and a big employer. If we can’t organise a deal with America to continue vehicle exports then we will have to find other markets elsewhere in the world for our vehicles.

Eskom is losing about R30bn a year to illegal connections and electricity theft. This loss should be averted in the future as users begin to comply with the utility’s new rollover project. That in turn could result in lower increases in electricity prices. Eskom has applied for an increase of over 36% next year which is extraordinary given that the price of coal has been falling for some time. More than 2 million users will have to move over to the new pre-paid meters. On 13^th December Eskom will enforce the conversion to the new meters which cost R6000 split over 12 months so the user must pay R500 a month – and then the cost of electricity used on top of that.

The government’s mid-term development plan (MTDP) anticipates that growth in gross domestic product (GDP) will be between 2% and 5,4% by 2029. To achieve this the government will implement accelerated reforms with the individual ministers in the newly-appointed government of national unity (GNU) taking on performance agreements to comply. Obviously, if this plan can be achieved, even partially, it will have an enormous impact on the economy and hence on the share market. Ther end of loadshedding and the advent of the GNU combined with the pattern of declining interest rates has already had a salutary impact on growth and we are expecting it to be at least 2% in 2025.

The World Platinum Investment Council (WPIC) is projecting that the platinum market will experience a third year of shortages in 2025. The shortfall is expected to 539 000 ounces compared with this year’s shortfall of 682 000 ounces. The demand for platinum has been impacted by the switch-over to electric vehicles (EV) which do not require auto-catalysts. However, the demand for internal combustion engine (ICE) vehicles is rising again and with it the demand for catalysts. There has been a sharp drop in mining production of platinum in recent years at a time when the hydrogen market, using fuel cells, is expected to create a new demand for the metal.   

The surprise improvement in the audits outcomes of provincial and national government departments over the past five years cannot be attributed to the newly appointed government of national unity (GNU). In the 2023/24 year, 50% more departments received clean audits than did in the 2018/19 year – showing a sharp improvement in management and accountability. 142 departments got clean audits – but there are still many where accounting controls are lacking. The improvement can probably be attributed to the presidency of Cyril Ramaphosa’s administration. As usual, the DA-run Western Cape was the best with 15 clean audits, followed by the Eastern Cape, Gauteng and Natal with 4 each.

The Rand

Prior to the US elections, the rand was on a strengthening path which began with the end of loadshedding and the appointment of the GNU – and then gained momentum with a general shift in international sentiment towards “risk-on” which began in May 2024. That trend came to an end with the surprise victory of Trump on 5^th November 2024. Now the rand is moving sideways at lower levels as investors wait to see what Trump will do in January. His stated intention to implement tariffs on a variety of American trading partners like Canada, Mexico and China have raised the possibility of trade restrictions on African countries including South Africa.

Looking at the chart, we believe that the rand will continue on its strengthening path once the uncertainty about Trumps next moves becomes clearer. Luckily for us the oil price has been moving down which has compensated for the weaker rand over the past three weeks.

So, we are expecting that in due course the rand will break below its cycle low at R17.12 to the US dollar made on 27^th September 2024. This will be good for inflation and will benefit importers while punishing exporters.

Bitcoin

We have said on many previous occasions that we are not fans of cryptocurrencies as an investment because they have no assets and generate no income. We have always advised clients to stay away from them and our position has not changed despite the fact that Bitcoin is now close to $100 000 per coin.

The jump in the Bitcoin price began immediately that it became apparent that Trump would win the election and has been supported by his close relationship with Musk who is a champion of cryptocurrencies. Until that happened, The Bitcoin price was in a downward channel characterised by a series of falling tops and bottoms.

We did not correctly predict the outcome of the US elections – and so we did not anticipate this surge in the price of cryptocurrencies. Consider the chart:

The chart clearly shows the downward channel in the Bitcoin price prior to the US election – and the surge once the outcome of that election became known.

In our opinion, this sharp rise in the Bitcoin price is likely to be relatively short-lived. The value of cryptocurrencies is entirely notional – it is based only on perceptions. There are no fundamentals. If enough people believe that it has value – then, of course, it does – but it can never be seen as anything more than a speculation. It pays no dividends, rent or interest. If that belief evaporates for some reason, then the price will collapse. The loss of upward momentum just below $100 000 indicates  that there is already some profit-taking taking place.

Companies

NEW LISTINGS

ASSURA (AHR)

Assura is a UK healthcare real estate investment trust (REIT) which commenced a secondary listing on the JSE with effect from 21^st November 2024. 3,25 billion ordinary shares were listed and opened at 950c. They have now moved up to 1000c. The company owns 625 buildings across the UK mainly in the healthcare sector worth about GBP3.2bn. In the six months to the 30^th of September 2024 the company had around GBP 179 million in annualised rental revenue and made a profit of about GBP 77,1million. The purpose of the secondary listing on the JSE is to broaden the company’s shareholder base. In our view, this will be another blue-chip rand hedge property company which trades below its net asset value (NAV). It should continue to appreciate steadily.

BOXER (BOX)

Boxer, which was spun out of Pick ‘n Pay and separately listed on 28^th November 2024, published a pre-listing statement in which it is offering 202,380,953 shares to “selected investors” at a price of between R42 and R54 per share. This amounts to just over 40% of Boxer’s total listed shares. The company plans to use the capital raised to open 500 new stores over the next 7 years. Boxer’s main competitor is the Usave chain belonging to Shoprite which already has 463 stores. After listing, Boxer has a market capitalisation of between R30.3bn – which means that it will be worth more than Pick ‘n Pay itself. But Pick ‘n Pay will retain at least 60% of Boxer after the listing. The initial public offer (IPO) was well supported with 157,4m shares sold at R54 to raise R8,5bn. The offer shares comprise 34,4% of the total issued shares with Pick ‘n Pay holding the remainder. The share closed at 6351c on its first day of trade – about 20% above expectations. We believe it will be a solid blue-chip counter going forward.

SPAR (SPP)

The Spar group is an international retail operation which includes Tops liquor, Build it and Pharmacy in Southern Africa. The company has overseas operations in Ireland, the UK and Switzerland. In its results for the year to the 30^th of September 2024 the company reported turnover up 4% and headline earnings per share (HEPS) up 11,1%. A major negative was the strengthening of the rand during the period which reduced the impact of its overseas operations. In South Africa, retailers are benefiting from improved consumer optimism following the end of loadshedding, the appointment of the GNU and lower fuel costs. From September 2021 until March 2024 the share was in a downward trend and we advised waiting for it to break up through its downward trendline. That happened on the 12^th of June 2024 at a price of 11065c and the share was added to the Winning Shares List (WSL) on the 2^nd of July 2024 at 12200c. It has subsequently moved up to 14419c. Consider the chart:

As the South African economy improves, we expect the Spar share price to continue moving up.  

ARGENT (ART)

Argent is involved in manufacturing and commodity trading in South Africa, the UK, Canada, Europe, and the USA. Locally it owns brands such as Xpanda and Jetmaster. It also involved in a diversity of industrial products and activities such as mining, crane services and concrete mixing. It recently bought out Xpanda Canada from a long-time distributor of the brand. We first became interested in this share when it broke out of its long-term period of sideways movement and began a strong new upward trend in July 2024. We particularly liked the fact that at the time it was trading well below its net asset value (NAV) and had very low debt levels. We added it to the Winning Shares List (WSL) on 3^rd February 2024 at 1670c. It has subsequently moved up to 2805c – a gain of 68% in 10 months. Consider the chart: 

You can see here the period of sideways movement in the share which had persisted for more than a year. In its results for the six months to the 30^th of September 2024 the company reported a gearing ratio of just 5,8% - in other words, its debts were roughly one twentieth of its equity. This gives it considerable “headroom” to make acquisitions and to expand its existing diversified operations. Even now, the company is trading well below its net asset value (NAV) of 3266c per share. We believe that it still has upside potential.

Attacq (ATT)

Attacq is a real estate investment trust (REIT) and property developer in South Africa. Its primary development at the moment is Waterfall City located just east of Johannesburg. This is a mixed-use development incorporating both commercial and residential elements. It includes 10 retail centres, 4 hotels, 80 restaurants, 3 private schools, 14 gyms, 300 hectares of green belts, and 37km of biking and walking trails. Attacq also has developments in other parts of South Africa and in the rest of Africa. In its most recent financial statements for the year to the 30^th of June 2024 the company reported distributable income up 20% with occupancy at 92,8% and collections at 100%. The company has a very low gearing with a LTV of just 25,4%. Its net asset value (NAV) is 1793c which compares with the current share price of 1335c. Technically, the share was moving sideways from February 2023 to January 2024 at which point it began a new upward trend. Consider the chart:

The chart shows the period when the share was moving sideways for a year between February 2023 and January 2024. At that time it was trading well below its NAV and represented very good value. We added it to the Winning Shares List (WSL) on 25^th January 2024 at a price of 964c per share, since then it has been moving up steadily. At this price it is still well below its NAV and we believe it still has considerable upside potential.

KAL GROUP (KAL)

Previously, Kaap Agri, the KAL Group is an agricultural company owned 40,9% by Zeder, which is, in turn, 43,7% held by PSG. The company has 270 operating points offering a wide range of products and services mainly to the farming community. Kaap Agri has seven divisions: (1) Pakmark offers a wide range of packaging materials for the local and export markets, especially to the fruit industry. (2) Agrimark has over 70 stores in South Africa and Namibia offering a wide range of animal feeds, gardening equipment, tools, outdoor and camping equipment and pet accessories. (3) Liquormark offers a wide range of liquor products from beers to wines, spirits and mixers. (4) Kaap Agri Mechanisation offers farming machinery and equipment. (5) Wesgraan offers grain handling and management services. (6) Expressmark supplies fuel, especially diesel, mainly to the farming community. It also has convenience stores. (7) The Fuel Company (TFC) aims to be the market leader in the independent fuel retail market in South Africa. The company is obviously exposed to the agricultural sector in South Africa and as such its fortunes are dependent on the weather.

Technically, the share was in a long term downward trend which came to an end when it broke up through its downward trendline in November 2023. We added it to the Winning Shares List (WSL) on the 5th of December 2023 at a price of 3884c. Consider the chart:  

The chart shows the downward trend which ended with an upside break in November 2024. Since then, the share has been moving up steadily. It closed on Friday at 5035c – a 30% gain over the year. We expect it to continue to perform well, although its exposure to agriculture makes it volatile.

We wish all our readers all the best for the Festive Season and the New Year.

The next Confidential Report and Webinar will be on the 5th of February 2025.

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.

The Confidential Report - Archives

The Confidential Report - November 2024

America

It is no exaggeration to say that the US elections currently taking place are the most critical in that country’s history from a political perspective. The outcome will determine the long-term future and policy direction of America and the world for years to come. 

Speaking from experience, one major factor in

The Confidential Report - October 2024

America

The Federal Reserve Bank’s decision to cut interest rates by half a percent at its September 2024 meeting shows some concern that they might be “behind the curve”. In other words, they have kept rates too high for too long pushing the economy towards a recession. Chair, Jerome Powell,

The Confidential Report - September 2024

At the beginning of 2024 private investors in South Africa faced three major areas of uncertainty:

1. The outcome of the election here in South Africa.
2. The outcome of the Ukraine war.
3. The outcome of the US presidential elections.

In January 2024, all three of these were difficult to

The Confidential Report - August 2024

America

Joe Biden’s statesman-like decision to step down and make way for Kamala Harris as the Democratic nominee is having a major impact on American politics and radically changes the prospects for the November elections. Harris is now leading in most of the polls and has raised over $310m for her campaign, in the first three

The Confidential Report - July 2024

America

After a 5,5% correction, the S&P500 has entered a strong new upward trend. We anticipated this in our tweet of the 3^rd of June 2024 where we said, “We now expect the index to rise off that base to further new record highs.” It has broken above the resistance at the

The Confidential Report - June 2024

America

As Wall Steet moves to new record highs and the greatest bull trend on record is extended, you can expect a parade of “experts” to pop up predicting an impending severe recession and/or the collapse of the stock market. These “bears” are saying the problems in the economy will begin to become visible

The Confidential Report - May 2024

America

In general, politics does not usually have a major impact on equity markets. Politicians come and go – some good and some bad – but mostly their impact is far less than the ideas of the Governor of the Federal Reserve Bank. Sometimes they have a short-term impact on one particular industry, but that seldom results in major stock

The Confidential Report - April 2024

America

Core inflation and the consumer price index (CPI) in the United States were higher than expected in February 2024 on month-to-month basis and from the previous year. The CPI rose 0,4% in the month and 3,2% from February 2023. Core inflation was also up 0,4% on the month and 3,8% over the year. The monetary policy committee (MPC) is mostly

The Confidential Report - March 2024

America

On Friday last week, Nvidia shares rose 4% on Wall Street to a new record high. The rise meant that Nvidia closed at a market capitalisation of above $2 trillion for the first time and that it has doubled its value in just nine months. The market is being driven higher by the general understanding that the next move in interest

The Confidential Report - February 2024

America

Gross domestic product (GDP) in America in the fourth quarter of 2023 grew by 3,3% and comes on top of the whopping 5,2% growth in the third quarter. That is an extraordinarily strong growth for an economy which has interest rates up 5% and which is only expecting rates to begin falling in the second half of 2024. The average

The Confidential Report - December 2023

America

As the year draws to a close, most analysts are saying that, despite the rapid increase in interest rates, the American economy will probably experience a “soft landing” – meaning that it will not enter into a recession, defined as two consecutive quarters of negative growth of gross

The Confidential Report - November 2023

America

The US economy created 336 000 new jobs in September 2023 – almost 50% up on August’s 227 000 and 80% above the 187 000 that economists were expecting. This shows that the economy is still growing rapidly with companies taking on more staff.

The American