Buying after the lockdown (#417)

Simon Shares

Day 174 of lockdown. Level 1?

• The Foschini Group (JSE code: TFG) trading update spooked the market, but it was the six months to end September. In other words, all lockdown.
• African Rainbow Capital (JSE code: AIL) results including an R750million non-renounceable rights issue. Trading at some 75% discount to the net asset value (NAV). Sure some decent assets, but the market has hated this one since listing.
• Super Group (JSE code: SPG) results were tough, especially as they have vehicle dealerships locally and in the UK.
• Pan African Resources* (JSE code: PAN) results saw debt halve and profits and cash flow essentially doubling. Remains the best gold miner on the JSE.
• Very solid Metrofile* (JSE code: MFL) results and I would think the delisting at 330c remains on track.
• Brexit deals seem stuck again over the hard border.

* I hold ungeared positions.

• Two new ESG ETFs from Satrix.

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Buying after the lockdown

South Africa is through the peak of the pandemic.

The Lancet Covid-19 Commission classifies 1 case per 100k population as low levels of transmission and WHO says 5 per 100K. The former equates to around 600 new cases per day and the latter 3,000 and we under 1,000.

A second wave remains a real threat, but we're in level 2 with rumours that we'll move to level 1 as the president is speaking Wednesday evening. That'll surely mean borders opening (with restrictions) and maybe some lifting on large event restrictions.

So, should we be rushing out to buy SA Inc. shares? Certainly, they ran hard last week but have come back a bit since then.

Probably we should, but cautiously. Have a shopping list but also have a list of what you want to see;

• Debt levels. Sure business is returning but high levels of debt remain a risk.
• So high cash generation is important.
• Quality. Businesses struggling before the pandemic are best left to their struggles.
• Valuations still matter.
• Some sectors will be slower to recover. Leisure will have an initial boom, but what levels will it drop back to?
• Don't ignore the pandemic winners just because they won already. Some will still have room for more good growth.
• Also, think about the underlying companies. For example Airbus over airlines.

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