Interestingly, even though labour unrest continues to swirl around
the country, politicians in general have mostly kept their heads down and their
mouths shut. Similarly there has been scant official reaction the slew of
credit rating downgrades that Moody’s have been dealing out to numerous local
institutions and businesses. What has happened? Has the pres issued an
instruction to government people not to comment on things they don’t
understand? Even this morning’s
anticipated announcement about the way the state will toll motorists for using
the splendid new roads around Joburg has been politely delayed until a noisy
and cross labour organisation has had its say. All very restrained and
statesmanlike. Maybe it has to do with keeping everyone under control until the
much feared party congress in Bloemfontein
takes place in a few weeks time.
Reported earnings of the 30 companies that comprise the JSE’s top
Financial and Industrial Index are 14% higher than a year ago. This is rather good
given the poor performance of the wider economy both here and abroad. The index
itself, however, has outpaced this growth by a factor of almost two and this
has propelled at least one measure of value into very unappealing territory.
The index historic pe ratio is above 17 times.
Optimists of course see this as the market merely discounting an
improvement in earnings to a growth rate of 20% or better. Bears and
pragmatists have their doubts and would prefer to let other people do the
buying here.
Remember that an index represents a sort of average which means that
there are always individual shares which lie either below or above that
average. Insistent buyers (or indeed sellers) should perhaps look for those counters
which occasionally and momentarily stray far from that average. There are no
particularly obvious candidates for that category at present. Over in the
resources though there are a great number of shares bumping along at multi-year
lows. Buyers will need great courage and also perhaps a sign that the
government has stopped giving the miners a hard time.
Cash returns after tax and inflation are negative so that area too
is best avoided. Now that the mess created by the drop in repo rate taking
place so shortly after the introduction of a dividend withholding tax is
starting to clear, the variable dividend pref share market is coming back into
focus. Pre-tax dividend yields above 7% (and even 8% if you think micro lending
is a great business) are available. Remember of course that there is no possibility
of capital growth from these preference shares because the prices remain in a
band roughly 10-12% wide.
Normally SARS are depressingly on top of their game. But their
ruling that taxpayers my keep electronic records of their affairs provided they
are in a place physically inside SA is rather quaint. What happens if they are
on a flash stick in my pocket which I take along when I go fishing in Mozambique? And
the famous “cloud” where so much electronic stuff is now sent to spend its
days. Where is that? Oh dear no SARS, this idea is not going to work.
Last weeks ‘bok home win over the Wallabies has calmed the din of
complaints from the 10 million unofficial selectors to a soft rumble. If they
manage the same against the All Blacks tomorrow it will be very satisfactory.
The Protea’s ignominious departure from the T20 World Cup with not a single win
in the second round of the tournament was disgraceful. It seems our cricket
players are not very good at doing the division sums required for understanding
run rate. Is cricket another victim of the crumbling school system?
This is the 400th Tidemarks I have published. That’s a
quarter of a million words. And I still type with just two fingers.
James Greener
5th October 2012
