Category Archives: Team Commentary

As reported in today’s IJG Daily, Fitch Ratings Agency yesterday downgraded Telecom Namibia Limited’s (TN) Long-term local currency Issuer Default Rating (IDR) to ‘BB+’ from ‘BBB-‘ and its National Long-term rating to ‘A-(zaf)’ from ‘A(zaf)’, putting both ratings on a negative watch.

The agency noted that “The downgrade reflects our view that state support for TN has weakened. TN’s standalone credit profile has deteriorated with no significant evidence of government support. We also note that so far this year TN has not requested additional government support. The erosion of TN’s cash flow generation looks to continue into the rest of 2014 given a decline in fixed-line revenue and high capital expenditure.“

As such, the company’s IDR rating is no longer investment grade, and considered high risk, or “junk”. This can be expected to have a negative impact on demand for the company’s debt instruments, as most asset managers’ mandate will not allow them to invest in such.

See more here: Telecom Namibia Downgrade: Reuters

FNB Namibia today released a trading statement in which the company gave guidance as to what we can expect from the FY14 financial year. Results are expected to be released on SENS on 4 September 2014 and in the press on 5 September 2014. Guidance is as follows:

                                                               FNB Guidance              IJG Forecast

• Profit after tax                       +25% to 30%               22.6%
• Basic and Headline EPS       +25% to 30%               23.3%

Our forecast for HEPS is 1.7ppt below the lower end of the guidance range, thus implying a slight beat and a positive surprise by FNB. The 25% to 30% range suggests HEPS of between 289cps and 300cps relative to IJG’s projected HEPS of 285cps. The range is also a positive surprise when compared to Bloomberg Consensus forecast that is projecting HEPS of 278cps.

At first glance we are optimistic about the guidance and continue to recommend a BUY on the stock.

Heading into August, we had 12 JSE All Share companies reporting results, with Bloomberg having estimates for 9 of these companies. Five companies surprised positively, with the most notable being Anglo Platinum coming in 33.8% higher than consensus. Anglo American surprising by 12.4% and British American Tobacco coming in 2.4% ahead of expectations.
The SA earnings season will be gaining momentum this week with Nedbank, Mondi, MTN and Old Mutual, some of the bigger names reporting interim results.
In our recently published IJG Elephant Book (EB), it was noted that we are cautiously optimistic about the market looking for positive earnings reports that will see the price multiples de-rating and our timing tool moving into favourable territory, with the market looking to change gears and rally into the year end.
The positive earnings together with the recent weakness actually sees our timing tool now predicting a 91.3% probability that the Top40 will deliver positive returns over the next three months, with the average 3 month return from this quadrant being 7.3%.This quadrant ranks 3rd in our heat map of probabilities of positive returns.
Coincidently our timing model was in exactly the same quadrant end of January, with the same fundamental background which entailed strong earnings reports and diminishing market breadth. The Top40 delivered 8.0% in the 3 months thereafter and 12.7% to date.
Given the favourable stance of our timing model, we will be looking to buy this dip and increase gearing levels should earnings continue to pleasantly surprise and if market technical shows signs of support. We will thus be buying into the soon expected market strength.

As we highlighted in our Secular Bull piece, we will closely evaluate GDP revisions, inflation revisions, corporate earnings reports, market breadth and the US yield curve together with our timing tool for predictions of a looming bear market. As we right this article none of these indicators suggest that a growling bear is on the horizon.

Once we start hitting the buy buttons we look to focus our attention around our most preferred names listed below: