Wednesday, 04 May 2016 - 20:00
Charts
Seed Weekly - Local Equities - Expensive or Not?
An important part of Seed’s multi management process is performing monthly asset class valuations using in-house quantitative models. This process covers all of the local and global asset classes that are suitable for inclusion in our multi asset class funds and model portfolios. The output of these models guide our tactical asset allocation decisions, where we under- or overweight certain asset classes in the short term, compared to our longer term target weights.
Local equities form the core of our multi asset class products, and determining whether this asset class is cheap or expensive is crucial. One of the inputs of our valuation model is the Price/Earnings (PE) ratio, which is the multiple of annual earnings investors are willing to pay for a certain company, sector or the market as a whole. We have found that the total market PE is not a great leading indicator of stock market returns over the short to medium term, but does give a good indication of what to expect over the long term.
Practically, this means that a high current PE ratio (expensive market) results in lower than average returns over the next five years, while a low PE ratio predicts above average subsequent returns. Of course, with many factors other than PE ratios at play, the model does not have a perfect statistical fit. In the past, during periods of exuberance, expensive markets have continued to perform well, and during times of pessimism, cheap markets have continued to lag.
A potential shortcoming of the PE ratio, when applied to a specific company, is that it fails to allow for potential growth in earnings. This means that it might appear that investors are overpaying for the current level of company earnings, but if reported earnings grow strongly the ratio can quickly come down to more normalised levels.
The graph below illustrates the model graphically, with the total market PE on the x-axis and the resultant 5-year nominal annualised return on the y-axis. With the current market PE at nearly 22 times, the model indicates that we can expect muted returns over the next 5 years, assuming that the modelled historical relationship continues to hold. It is clear from the graph that the PE is very high compared to the historical observations.
Although the market in total might be expensive, there is always the possibility that there are pockets of value that might be overlooked. When applying the valuation model on a super sector basis, it is clear that Financials still offer some value at the moment, while Industrials appear very overvalued.
At Seed, we have been viewing the local equity market as expensive for about 3 years, and therefore have remained underweight local equity in the Seed Balanced Fund. However, the volatility of equities has provided us with some good opportunities to add exposure in some months or to take profit in others. In addition, our equity exposure remains tilted towards Financials.
Kind regards,
Cor van Deventer
Tel +27 21 914 4966
Fax +27 21 914 4912
Email info@seedinvestments.co.za
Seed is hiring: Visit the Seed Analytics LinkedIn profile to view vacancies.
www.seedinvestments.co.za
Wed, 04 May 2016
Top News
SABMiller and Coca-Cola have agreed concessions with the South African government to win approval for their plan to merge African soft drink operations into what would be the continent's biggest Coke drinks bottler. Full story
Local markets
The JSE All Share edged down 0.07% on Wednesday, as gains in industrial shares failed to offset losses in financial, gold and resource shares. Full story |
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Syria's government is refusing U.N. demands to deliver aid to hundreds of thousands of people including many in Aleppo, the city at the centre of an eruption of fighting in the past two weeks, U.N. humanitarian adviser Jan Egeland said on Wednesday. Full storyA massive wildfire in the western Canadian city of Fort McMurray that forced the evacuation of 88,000 residents has resisted efforts to bring it under control, officials said on Wednesday, with more hot, dry winds forecast for later in the day. Full story |
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SA Business | South Africa imported 1.96 million tonnes of maize during the 2015/16 marketing season which ended April 30, compared with just 65,000. . . Full story | | South Africa's state pension fund is talking to Barclays Plc about buying some of the stake which the British bank is. . . Full story | | South Africa's Finance Minister Pravin Gordhan said on Wednesday he favoured a minority equity partner buying into struggling national airline South. . . Full story | | South Africa's Finance Minister Pravin Gordhan said on Wednesday he was confident of meeting fiscal targets for 2016, but that stronger. . . Full story |
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| South Africa's parliamentary
protection services forcibly removed members of the ultra-left
Economic Freedom Fighters party from the chamber on Wednesday as
they attempted to. . . Full story | | Protesters, angered by a
change in municipal boundaries which they fear will leave them
worse off for social services, torched 13 schools. . . Full story | | Impala Platinum (Implats) will be paid $201 million by a U.S. recycling company to compensate for years of defaulted payments, the. . . Full story | | South Africa's Public Investment Corporation (PIC) would invest 70 billion rand ($5 billion) over the next three to five years to. . . Full story |
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| South Africa's rand extended losses against the dollar to 1.5 percent on Wednesday, dragged down by a gloomy outlook for both. . . Full story | | SABMiller and Coca-Cola have agreed concessions with the South African government to win approval for a deal to combine their soft-drink. . . Full story | | South Africa's rand touched a two-week low on Wednesday, hurt by subdued risk appetite as investors fretted about weak global growth. . . Full story | | South Africa's African Oxygen Limited (Afrox) and Renergen have signed a deal that will see Afrox process and market helium extracted. . . Full story |
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Company News | Barclays Africa shareholders are referred to the announcement released by Barclays PLC in relation to the launch of a proposed placing. . . Full story | | At the Annual General Meeting held on 4 May 2016, all resolutions proposed at the meeting were passed by vote on. . . Full story | | Shareholders are advised that at the annual general meeting of shareholders held on Wednesday, 4 May 2016 (in terms of the. . . Full story | | Shareholders of Liberty Holdings are advised that Steven Braudo has resigned with immediate effect from the boards of Liberty Holdings and. . . Full story |
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| Implats reported on a court order issued by the United States District Court for the Eastern District of Pennsylvania on 26. . . Full story | | The shareholders of Wesizwe (ôShareholdersö) are advised that at the annual general meeting of Shareholders (ôAnnual General Meetingö) held on Wednesday,. . . Full story | | Notice is hereby given that preference dividend number 160 at a rate of 6% per annum in respect of the interim. . . Full story | | Highlights of the period:
* Remain on target to deliver growth in like-for-like net rental income for the year in the. . . Full story |
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Company Results | Revenue for the interim period grew to R856.0 million (R808.2 million). Operating profit rose 6.8% to R433.6 million (R406.1 million). Profit. . . Full story | | Net loss before interest and other items widened to CAD11.7 million (loss of CAD3.8 million). Loss attributable to owners worsened to. . . Full story | | Sales for the year grew to R1.7 billion (R1.5 billion). Gross profit increased to R828.0 million (R735.0 million). Operating profit rose. . . Full story | | Income for the year increased to R94.7 million (2015: R84.6 million). Operating profit for the year jumped to R86.7 million (2015:. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 51873.50 | -38.61 | -0.07% | JSE Top 40 | 17:00 | 45559.49 | 10.52 | 0.02% | JSE Gold | 17:00 | 2124.66 | -3.66 | -0.17% | JSE Financial | 17:00 | 41013.78 | -345.08 | -0.83% | JSE Industrial | 17:00 | 77512.83 | 492.03 | 0.64% | JSE Indust 25 | 17:00 | 69783.77 | 509.11 | 0.73% | JSE Resource | 17:00 | 30206.99 | -436.33 | -1.42% | DJ Futures | 19:50 | 17566.00 | -107.00 | -0.61% | DJ Ind | 19:02 | 17637.74 | -113.17 | -0.64% | SP 500 | 19:02 | 2048.91 | -14.46 | -0.70% | Nasdaq | 19:02 | 4722.74 | -40.48 | -0.85% | FTSE 100 | 16:16 | 6137.31 | -48.28 | -0.78% | DAX | 18:10 | 9828.25 | -98.52 | -0.99% | CAC40 | 18:10 | 4324.23 | -47.75 | -1.09% | Nikkei | 02/05 | 16147.38 | -518.67 | -3.11% | Shanghai | 09:28 | 2991.27 | -1.37 | -0.05% | Hang-Seng | 10:34 | 20525.83 | -151.11 | -0.73% | All Ords | 08:42 | 5335.60 | -79.40 | -1.47% | NZSE 50 | 08:28 | 6824.50 | -18.51 | -0.27% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1273.54 | -12.12 | -0.94% | Gold R | 19:59 | 19016.18 | 204.72 | 1.09% | Gold R/kg | 19:55 | 617663 | 6078 | 0.99% | Silver $ | 19:59 | 17.2480 | -0.1300 | -0.75% | Platinum $ | 19:59 | 1049.00 | -12.00 | -1.13% | Palladium $ | 19:59 | 593.10 | -10.96 | -1.81% | R186 | 17:42 | 9.20 | 0.11 | 1.27% | R204 | 17:17 | 8.33 | 0.05 | 0.60% | R207 | 17:17 | 8.56 | 0.08 | 0.94% | Brent Crude | 19:50 | 44.41 | -3.69 | -7.67% | USD / ZAR | 19:59 | 14.9411 | 0.3075 | 2.10% | GBP / ZAR | 19:55 | 21.6197 | 0.3736 | 1.76% | EUR/ ZAR | 19:55 | 17.1650 | 0.3376 | 2.01% | NZD/ ZAR | 19:55 | 10.2646 | 0.1295 | 1.28% | AUD / ZAR | 19:55 | 11.1422 | 0.1814 | 1.65% | USD / JPY | 19:59 | 107.1230 | 0.0670 | 0.06% | EUR / USD | 19:59 | 1.1491 | -0.0004 | -0.03% | GBP / USD | 19:59 | 1.4494 | -0.0037 | -0.25% |
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Click here for the Sharenet Spot Price page
The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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04/05/2016 | 150 | 211 | 68 | 429 | 327,287,451 | R26,447,978,410 | 309039 | 411963 | 03/05/2016 | 134 | 264 | 54 | 452 | 311,292,549 | R26,159,875,346 | 312177 | 295751 | 29/04/2016 | 180 | 188 | 53 | 421 | 273,263,765 | R20,370,657,388 | 241155 | 2421096 | 28/04/2016 | 187 | 172 | 68 | 427 | 265,218,296 | R21,711,330,067 | 277946 | 2595811 | 26/04/2016 | 169 | 161 | 70 | 400 | 215,435,796 | R17,125,692,034 | 191887 | 2270032 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 45,559.49 | 10.52 | 0.02% | Industrial | 77,512.83 | 492.03 | 0.64% | Mid Cap | 75,022.29 | -451.77 | -0.60% | Small Cap | 61,151.57 | -234.09 | -0.38% | Resource 20 | 30,206.99 | -436.33 | -1.42% | Industrial 25 | 69,783.77 | 509.11 | 0.73% | Financial 15 | 14,840.02 | -152.51 | -1.02% | Financial & Ind. 30 | 72,245.48 | 291.42 | 0.41% | All Share | 51,873.50 | -38.61 | -0.07% | Oil & Gas | 7,195.69 | .00 | 0.00% | Mining | 21,728.56 | -531.06 | -2.39% | Gold Mining | 2,124.66 | -3.66 | -0.17% | Platinum Mining | 25.93 | -.80 | -2.99% | GENERAL MINING | 5,377.87 | -169.63 | -3.06% | Oil & Gas Producers | 38,689.88 | .00 | 0.00% | Basic Materials | 21,506.53 | -319.12 | -1.46% | Chemicals | 22,219.37 | 71.42 | 0.32% | Forestry & Paper | 47,602.16 | 255.22 | 0.54% | Industrial Metals | 8,539.65 | 195.32 | 2.34% | Industrials | 43,322.20 | 176.89 | 0.41% | General Industrials | 160.65 | 1.15 | 0.72% | Consumer Goods | 78,423.08 | 658.27 | 0.85% | Automobiles & Parts | 5,176.55 | 86.05 | 1.69% | Household Goods | 605.30 | 0 | 0.07% | Health Care | 9,413.65 | 18.04 | 0.19% | Beverages | 305.17 | 3.51 | 1.16% |
| | Index Name | RP | Move | % Move | Food Producers | 9,003.44 | -59.33 | -0.65% | Personal Goods | 965.10 | 10.68 | 1.12% | Consumer Services | 16,837.30 | 274.47 | 1.66% | General Retailers | 7,763.79 | 2.87 | 0.04% | Travel & Leisure | 5,512.82 | -18.81 | -0.34% | Media | 422.17 | 9.85 | 2.39% | Support Services | 2,056.24 | -6.39 | -0.31% | Telecommunications | 7,599.94 | -281.87 | -3.58% | Financials | 41,013.78 | -345.08 | -0.83% | Banks | 6,202.52 | -129.72 | -2.05% | Non-life Insurance | 59,923.59 | -819.26 | -1.35% | Life Insurance | 38,383.51 | -83.81 | -0.22% | General Financial | 4,536.84 | -15.06 | -0.33% | Technology | 48,048.34 | -1147.01 | -2.33% | SHARIAH TOP40 | 3,031.97 | -48 | -1.57% | FTSE/JSE SHARIAH ALL | 3,363.46 | -46 | -1.36% | COAL MINING | 10,402.90 | -204 | -1.92% | FTSE JSE Fledgling | 7,044.70 | -55 | -0.78% | FTSE/JSE Alt X | 1,518.14 | 8 | 0.53% | SA LISTED PROPERTY | 654.32 | -2.63 | -0.40% | CAPPED PROPERTY | 569.42 | | -0.62% | RESOURCE | 17,160.03 | -255 | -1.46% | DIVIDEND PLUS | 204.62 | -3 | -1.24% | FTSE/JSE RAFI 40 | 9,336.00 | -101 | -1.07% | Capped Top 40 | 24,346.74 | -46 | -0.19% | Capped All Share | 26,498.21 | -46 | -0.17% | JSE TABACO | 11,385.42 | 84 | 0.75% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | CFR | COMPAGNIE FIN RICHEMONT | BUY | 03/05/2016 | RFG | RHODES FOOD GRP HLDG LTD | BUY | 03/05/2016 | NED | NEDBANK GROUP LTD | HOLD | 29/04/2016 | ACL | ARCELORMITTAL SA LTD | HOLD | 29/04/2016 | GRT | GROWTHPOINT PROPERTIES LI... | HOLD | 29/04/2016 |
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Results Expected** Expected | Company Name | Fin. Date | 05/05/2016 | EFFICIENT | February 2016 (Interim) | 05/05/2016 | REDEFINE | February 2016 (Interim) | 05/05/2016 | STENPROP | December 2015 (Q) | 06/05/2016 | EQUITES | February 2016 (Final) | 06/05/2016 | LODESTONE | March 2016 (Final) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | HOLDSPORT | 03/05/16 | 03/06/16 | 13/06/16 | ZAR 2.0000 | OCTODEC | 03/05/16 | 20/05/16 | 30/05/16 | ZAR 0.9840 | OASIS | 03/05/16 | 03/06/16 | 13/06/16 | ZAR 0.5505 | DRDLD | 29/04/16 | 20/05/16 | 30/05/16 | ZAR 0.3800 | RIPLC | 26/04/16 | 18/05/16 | 06/06/16 | GBP 0.0163 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | ASCEN A | 13/04/16 | 28/04/16 | 09/05/16 | ZAR 0.2200 | GRANPRADE | 13/04/16 | 28/04/16 | 09/05/16 | ZAR 0.1500 | ASCEN B | 13/04/16 | 28/04/16 | 09/05/16 | ZAR 0.1223 | ZEDER | 11/04/16 | 28/04/16 | 09/05/16 | ZAR 0.0900 | FRONTIER | 12/04/16 | 28/04/16 | 09/05/16 | GBP 0.0360 |
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Upcoming AGMs** Code | Company Name | Date | Status | ANG | AngloGold Ashanti Ltd. | 04/05/2016 | Confirmed | ANGA | AngloGold Ashanti Ltd. | 04/05/2016 | Confirmed | ANGB | AngloGold Ashanti Ltd. | 04/05/2016 | Confirmed | ANGE | AngloGold Ashanti Ltd. | 04/05/2016 | Confirmed | NBKO | Nedbank Ltd. | 04/05/2016 | Confirmed |
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