#299: Dealing with fallen angels

"Brought to you by Absa ETFs"

Simon Shares

• 2017 GDP was 1.3%, better than the expected 1% and hopefully means that the treasury 2020 GDP expectation of 2.1% is wildly low.
• Bleak trading update from Sasfin (JSE code: SFN). But still trading at tangible net asset value (TNAV) levels.
• MMI drop their dividend in favour of share buy backs and drops cover from 1.5x-1.7x to 2.5x. Considering the dividend yield was some 6% and a good reason to hold this is a major change. Now sure a share buy back is in theory share holder value enhancing and tax efficient but it is also not hard cash in ones hand.
• Making sense of CGT tax.
• New Stanlib tech ETF.
• Upcoming events;
  • ABSA NewFunds ETF seminars (JHB and webcast)
  • JSE Power Hour: Small cap stock picks with Anthony Clark 

Fallen angels (devils?)

When a share is hit by scandal it can take ages to recovery as investors shy away from the stock.

Some like Steinhoff (JSE code: SNH) will never recover due to the seemingly rampant fraud hat happened. Others like EOH may but will stay under 'caution' for a while as will the Resilient (JSE code: RES) stable of stocks. Others such as Capitec* (JSE code: CPI) will also struggle for a while but should shrug it off in time.

Tiger Brands (JSE code: TBS) has held up fairly well since the Listeriosis story broke on the weekend and is only back to November levels. But it could get real bad with almost 200 dead people, but markets seem to not be so concerned with these sort of issues. I remember Pioneer (JSE code: PFG) righting the bread fixing claims, eventually paying a R1billion fine and the share rocketed. In part it is the known vs. unknown. PFG struggled until the fine was agreed on, and TBS could well see its share price struggle until some sort of finality is reached - and that cold be years.

The concern is perception and some potential investors will stay away while existing holders may head for the hills and this means less buyers for the stock so less/slower upside.

Your strategy needs to ask if the scandal is terminal, long-term or merely a passing fad? Then remember if it is time to panic, panic quick.

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