Tuesday, 24 March 2015 - 20:00
Charts
Seed Weekly - Property ? Return Deconstruction
Many successful investors look to invest into assets that offer an attractive initial yield with a high probability of that yield growing consistently in real terms into perpetuity. By taking this approach, investors need not overly concern themselves with the prospects of capital growth, as the income generated (that should be consistently reinvested) will be a large component of the total return and, as with most investments, capital growth should approximate income growth over a full cycle. Furthermore, if investing when the yield is higher than the long term average, investors could receive additional capital returns through the rerating of the asset.
Investment returns can therefore be broken down into 3 broad sources:
• Initial yield
• Growth in yield
• Change in rating
When looking at the local listed property market, it is interesting to dissect the three sources of return to determine whether this asset class offers value or not. Property is an asset class that local asset managers have (even in their own words) historically been underweight, and it is interesting that there are currently divergent views about this asset class amongst some of the larger managers.
The starting yield offered by this asset class is currently 5.3%, which is at the low end when compared to its history. This is partially offset by ultra low interest and inflation rates which have resulted in most other asset classes also offering historically low yields. While the market trades at historically low rates, property portfolios can be constructed with an initial yield of between 6.7% - 7.7% (above cash and broadly in line with bonds).
While it’s all good and well to construct a portfolio with a high starting yield, it is short sighted if this is done at the expense of yield growth. The above mentioned portfolios have expected annual distribution growth over the next three years of between 8.5% and 10.5%, which in the current low inflation environment is healthy real growth. These expected numbers aren’t much different from the historical real growth in yield generated by property. The chart below shows real distribution growth of the index over the past 10 years. Over this period property distributions have grown, on average, 2% pa ahead of inflation (in line with the often quoted 8% annual rental escalation clauses many tenants face). Even from their peak (in mid 2007) distributions have grown in line with inflation.
Naturally there are risks that real distribution growth will temporarily go negative, which is where active management will play an important role. Over time, however, we remain convinced that the industry as a whole can grow distributions in line with inflation, with the better operators growing income in real terms. We also think that investors under appreciate (and hence undervalue) the consistency of this distribution growth (over this period annual equity distributions have twice contracted by more than 10% in nominal terms).
Over the very long term the impact of the change in rating doesn’t have too much of an effect on the total return generated from an investment (unless investing at valuation extremes). It does, however, add to the volatility of the return over the shorter period and is often a reason used by investors not to invest into property. This is the case as the initial yield has a high correlation with the bond yield, but what investors often fail to appreciate is the consistent growth in yield from property that is nonexistent in bonds. We also don’t define risk as volatility, but rather the permanent destruction of capital.
Seed’s Multi Asset Funds (Seed Flexible Fund and Seed Absolute Return Fund) and other managed solutions have performed extremely well over the past few years on a back of a sizeable allocation to property. While we aren’t married to this investment view, we expect that property will continue to deliver solid mid to upper single digit real returns for the foreseeable future (although it may exhibit a fair amount of volatility on the way).
Take care,
Mike Browne
www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966
Tue, 24 Mar 2015
Top News
Revenue for the interim period jumped to R52.3 million (2013: R48.1 million). Profit for the period rose to R4.2 million (2013: R3.6 million), while headline earnings per linked unit grew to 0.75cplu (2013: 0.57cplu).
Dividends
No dividends were paid or declared during the financial peri Full story
South Africa's rand rode the wave of an emerging market rally on Tuesday, extending gains to a new three-week high to a U.S. currency weighed down on expectations the Federal Reserve will delay an interest rate hike to September. Full story |
|
Taiwanese President Ma Ying-jeou flew to Singapore on Tuesday to pay his respects after the death of the city-state's first prime minister, Lee Kuan Yew, a diplomatically sensitive visit given China's stance that Taiwan is a renegade province. Full storyGreece risks running out of cash by April 20 unless it secures fresh aid, a source familiar with the matter told Reuters on Tuesday, leaving little time to convince sceptical creditors it is committed to economic reform. Full story |
|
|
Markets | Gold steadied below a 2-1/2
week high on Tuesday, heading for its fifth session of gains on
growing expectations that a U.S. interest. . . Full story | | Hong Kong shares finished lower on
Tuesday, dragged down by Chinese firms after a survey showed
China's manufacturing activity unexpectedly contracted to an
11-month. . . Full story | | China stocks clawed back
sharp early losses to post their 10th straight daily gain on
Tuesday as investors took advantage of a sharp. . . Full story | | Japan's Nikkei share average
fell on Tuesday as a weak factory activity survey in China and a
drop in U.S. markets weighed on. . . Full story |
|
| Australian shares ended 0.2
percent higher on Tuesday led by gains in resources and
energy-related stocks in line with firmer commodity prices.. . . Full story | | The dollar fell further on
Monday on views a Federal Reserve interest rate hike will come
later rather than sooner, and the decline. . . Full story | | Gold firmed for the
fourth straight session on Monday to its highest in more than
two weeks, as the dollar extended losses and. . . Full story | | Hong Kong stocks rose on Monday, taking
cues from bullish mainland China shares, which extended their
winning streak to a ninth straight session.. . . Full story |
|
SA Business | South Africa's Finance Minister Nhlanhla Nene said on Tuesday the temporary suspensions of key officials at the state-owned power utility Eskom was a concern, but the firm's financial stability was on course.. . . Full story | | The South African central bank's leading business cycle indicator rose 0.3 percent month-on-month in January, lifted by higher residential building plans passed and an increase in the dollar-based export commodity price index.. . . Full story |
|
| Capitec Bank's new strategy of targeting wealthier clients in addition to its core low-income customers helped boost the South African lender's 2014 earnings by 27 percent, sending its shares to a record high on Tuesday.. . . Full story |
|
Company News | On 27 February 2015, the Directors proposed a final dividend for 2014 of 9.1 pence per share (the ôDividendö). We are pleased to announce that the Dividend will be paid on 28 May 2015, subject to approval of the shareholders at. . . Full story | | In terms of the Listings Requirements of the JSE Ltd. relating to Trading Statements, a listed company is required to publish a trading statement as soon as it becomes aware that the financial results for the next period to be reported. . . Full story |
|
Company Results | Revenue for the year grew by 9% to R1.9 billion (R1.8 billion) and EBITDA was 17% higher at R340.8 million (R291.6. . . Full story | | Revenue increased to R1.8 billion (R1.7 billion) and gross profit was higher at R398.5 million (R334.5 million). EBITDA jumped to R79.8. . . Full story | | Loss for the period attributable to equity holders remained unchanged at R3.8 million (loss of R3.8 million). Furthermore, headline loss per. . . Full story | | Profit from operations increased to USD55.4 million (USD14.9 million). A net attributable profit of USD55.4 million (USD14.7 million) was recorded. Basic. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 52858.12 | 298.77 | 0.57% | JSE Top 40 | 17:00 | 46735.06 | 254.43 | 0.55% | JSE Gold | 17:00 | 1261.84 | -9.93 | -0.78% | JSE Financial | 17:00 | 45477.05 | 838.96 | 1.88% | JSE Industrial | 17:00 | 74257.63 | 171.00 | 0.23% | JSE Indust 25 | 17:00 | 65964.19 | 131.41 | 0.20% | JSE Resource | 17:00 | 43385.26 | -5.77 | -0.01% | DJ Futures | 19:52 | 17960.00 | -56.00 | -0.31% | DJ Ind | 19:58 | 18057.95 | -58.09 | -0.32% | SP 500 | 19:58 | 2097.90 | -6.52 | -0.31% | Nasdaq | 19:58 | 5007.22 | -3.75 | -0.07% | FTSE 100 | 18:21 | 7038.36 | .69 | 0.01% | DAX | 19:08 | 12005.69 | 109.85 | 0.92% | CAC40 | 19:08 | 5088.28 | 33.76 | 0.67% | Nikkei | 08:28 | 19713.45 | -40.91 | -0.21% | Shanghai | 09:28 | 3691.41 | 3.68 | 0.10% | Hang-Seng | 10:48 | 24399.60 | -94.91 | -0.39% | All Ords | 07:37 | 5934.50 | 13.50 | 0.23% | NZSE 50 | 06:48 | 5870.54 | -4.69 | -0.08% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1193.54 | 4.37 | 0.37% | Gold R | 19:59 | 14076.95 | -62.76 | -0.44% | Gold R/kg | 19:58 | 452765 | -695 | -0.15% | Silver $ | 19:59 | 16.9560 | -.0250 | -0.15% | Platinum $ | 19:59 | 1140.20 | -5.80 | -0.51% | Palladium $ | 19:59 | 762.00 | -13.00 | -1.68% | R186 | 17:40 | 7.65 | -.05 | -0.65% | R204 | 17:42 | 6.93 | -.12 | -1.63% | R207 | 17:23 | 7.10 | -.02 | -0.28% | Brent Crude | 19:58 | 55.33 | .01 | 0.02% | Rand / Dollar | 19:59 | 11.7954 | -0.0933 | -0.78% | Rand / Pound | 19:55 | 17.5030 | -0.2595 | -1.46% | Rand / Euro | 19:55 | 12.8846 | -0.1389 | -1.07% | Rand / NZD | 19:59 | 9.0174 | -0.0874 | -0.96% | Rand / AUD | 19:55 | 9.2887 | -0.0851 | -0.91% | Yen / Dollar | 19:59 | 119.6660 | -0.0320 | -0.03% | Euro / Dollar | 19:59 | 0.9155 | 0.0018 | 0.20% | Dollar / Euro | 19:59 | 1.0920 | -0.0025 | -0.23% | Pound / Dollar | 19:55 | 0.6727 | 0.0043 | 0.64% |
|
Click here for the Sharenet Spot Price page
The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
---|
24/03/2015 | 186 | 155 | 59 | 400 | 246,757,819 | R16,058,528,231 | 226857 | 100604 | 23/03/2015 | 162 | 203 | 40 | 405 | 218,378,267 | R17,813,763,773 | 252235 | 1886090 | 20/03/2015 | 188 | 171 | 55 | 414 | 257,909,488 | R16,430,643,863 | 271429 | 2065401 | 19/03/2015 | 222 | 134 | 57 | 413 | 390,769,996 | R40,932,052,295 | 262708 | 552061 | 18/03/2015 | 144 | 184 | 67 | 395 | 212,238,740 | R16,270,048,258 | 238197 | 1498311 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 46,735.06 | 254.43 | 0.55% | Industrial | 74,257.63 | 171.00 | 0.23% | Mid Cap | 74,368.51 | 599.90 | 0.81% | Small Cap | 58,986.99 | 50.80 | 0.09% | Resource 20 | 43,385.26 | -5.77 | -0.01% | Industrial 25 | 65,964.19 | 131.41 | 0.20% | Financial 15 | 17,408.63 | 351.03 | 2.06% | Financial & Ind. 30 | 71,261.69 | 421.70 | 0.60% | All Share | 52,858.12 | 298.77 | 0.57% | Oil & Gas | 28,782.75 | -423.27 | -1.45% | Mining | 26,201.49 | -13.33 | -0.05% | Gold Mining | 1,261.84 | -9.93 | -0.78% | Platinum Mining | 31.09 | -.26 | -0.83% | GENERAL MINING | 7,672.58 | 12.23 | 0.16% | Oil & Gas Producers | 15,475.95 | -227.59 | -1.45% | Basic Materials | 24,022.15 | -37.19 | -0.15% | Chemicals | 21,685.10 | -27.56 | -0.13% | Forestry & Paper | 40,203.35 | -303.59 | -0.75% | Industrial Metals | 10,515.06 | -265.46 | -2.46% | Industrials | 46,781.04 | 397.92 | 0.86% | General Industrials | 165.70 | 1.59 | 0.97% | Consumer Goods | 65,232.84 | -221.32 | -0.34% | Automobiles & Parts | 7,755.77 | -11.32 | -0.15% | Household Goods | 478.68 | 7 | 1.45% | Health Care | 10,846.04 | 110.14 | 1.03% | Beverages | 221.08 | -2.15 | -0.96% |
| | Index Name | RP | Move | % Move | Food Producers | 8,954.57 | 82.22 | 0.93% | Personal Goods | 1,016.84 | -1.60 | -0.16% | Consumer Services | 16,147.12 | 192.30 | 1.21% | General Retailers | 81,952.04 | 384.87 | 0.47% | Travel & Leisure | 6,246.95 | 31.23 | 0.50% | Media | 395.80 | 5.72 | 1.47% | Support Services | 2,945.73 | -56.96 | -1.90% | Telecommunications | 10,445.87 | -64.40 | -0.61% | Financials | 45,477.05 | 838.96 | 1.88% | Banks | 81,725.86 | 2525.89 | 3.19% | Non-life Insurance | 57,297.36 | 1148.50 | 2.05% | Life Insurance | 44,052.62 | 748.81 | 1.73% | General Financial | 4,114.45 | 23.88 | 0.58% | Technology | 60,964.79 | 1553.80 | 2.62% | SHARIAH TOP40 | 3,607.95 | 6 | 0.16% | FTSE/JSE SHARIAH ALL | 3,873.22 | 9 | 0.24% | COAL MINING | 13,640.46 | -322 | -2.31% | FTSE JSE Fledgling | 6,766.24 | 26 | 0.38% | FTSE/JSE Alt X | 1,254.70 | -12 | -0.98% | SA LISTED PROPERTY | 659.81 | | 1.53% | CAPPED PROPERTY | 568.53 | | 1.23% | RESOURCE | 23,780.56 | -12 | -0.05% | DIVIDEND PLUS | 239.63 | 1 | 0.55% | FTSE/JSE RAFI 40 | 9,926.51 | 35 | 0.35% | Capped Top 40 | 24,945.23 | 139 | 0.56% | Capped All Share | 26,810.60 | 152 | 0.57% | JSE TABACO | 8,334.61 | -77 | -0.92% |
|
Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | CLR | CLOVER INDUSTRIES LTD | HOLD | 20/03/2015 | NPN | NASPERS LIMITED | BUY | 19/03/2015 | SAB | SABMILLER PLC | HOLD | 18/03/2015 | SOL | SASOL LIMITED | BUY | 18/03/2015 | APN | ASPEN PHARMACARE HLDGS | BUY | 17/03/2015 |
|
|
Results Expected** Expected | Company Name | Fin. Date | 25/03/2015 | AFRO-C | December 2014 (Interim) | 25/03/2015 | AFROC-P | December 2014 (Interim) | 25/03/2015 | EHSV | December 2014 (Final) | 26/03/2015 | JDG CONV | December 2014 (Interim) | 26/03/2015 | JDGROUP | December 2014 (Interim) |
|
Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | KAYDAV | 23/03/15 | 08/05/15 | 18/05/15 | ZAR 0.0500 | ADVTECH | 23/03/15 | 10/04/15 | 20/04/15 | ZAR 0.1500 | ELBGROUP | 20/03/15 | 17/04/15 | 28/04/15 | ZAR 0.3000 | ANCHOR | 18/03/15 | 01/04/15 | 13/04/15 | ZAR 0.1200 | CLOVER | 17/03/15 | 01/04/15 | 13/04/15 | ZAR 0.2260 |
|
|
Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | ABSABANK-P | 03/03/15 | 20/03/15 | 30/03/15 | ZAR 32.1089 | MTN GROUP | 04/03/15 | 20/03/15 | 30/03/15 | ZAR 8.0000 | SANTAM | 02/03/15 | 20/03/15 | 30/03/15 | ZAR 4.8000 | IMPERIALP | 24/02/15 | 20/03/15 | 30/03/15 | ZAR 3.8136 | CASHBIL | 02/03/15 | 20/03/15 | 30/03/15 | ZAR 3.7600 |
|
Upcoming AGMs** Code | Company Name | Date | Status | HDC | Hudaco Industries Ltd. | 27/03/2015 | Confirmed |
|
|
Stock Exchange News Service Click here for more SENS news
|