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After the local market closed yesterday, PSG announced that they would unbundle their Capitec shareholding. Due to the amazing growth from Capitec, it has become too big to stay part of the PSG stable. By unbundling Capitec, PSG is hoping to reduce the current discount to NAV that the market has assigned to the PSG shares. The plan is to unbundle 14 Capitec shares for every 100 PSG shares owned. Once all the dust settles, PSG will still own 4.3% of Capitec. The plan allows the Capitec stake to reduce, so it doens't dominate the PSG stable, but by keeping a small stake, PSG will still have exposure to its most successful investment.
As tensions between the US and China sour further, Asian stocks have been taking some heat. Prosus dropped 4% yesterday, and Tencent is down 3% this morning. Helping global market sentiment though is a EUR2.4 trillion recovery plan that has been proposed by the EU. The plan still needs to be voted on by all the nations in the EU, but it does give the market an idea of the size of the stimulus package.
Yesterday the JSE All-share closed down 0.21%, the S&P 500 closed up 1.48%, and the Nasdaq closed up 0.77%.
Byron's Beats
If you went to a Woolies during a lockdown you'd be forgiven if you thought they were thriving. Unfortunately for Woolies, most of their sales (and profits) come from clothing. This was confirmed in their latest trading update.
The update covered the first nine weeks of the year (before lockdown) which saw overall sales increase 2%. The following eight weeks ending 26 April saw overall sales drop 18.8%. During lockdown food sales increased 17.4% but clothing sales dropped over 60% in SA.
The case studies developing over this period will be incredibly interesting. Essential winter clothing was back on sale a few weeks back, did people pile up? As of 1 June the clothing stores will be fully operational. Unfortunately there is less money going around so luxury purchases like Country Road may take some strain.
Sales at David Jones (Australia) dropped 35.8% during their lockdown. That lockdown has been eased and things should normalise pretty quickly there. An entire review of the capital structures in Australia is taking place. That business really has gone from one set back to the next.
There will be another trading update in July and the results in August. We will watch closely.
One thing, from Paul
How far off is a vaccine for Covid-19? This is a relevant question to ask in an investment newsletter because a return to full and free economic activity requires that people feel confident to interact socially again. Having a vaccine is assumed to be the only way to guarantee that outcome.
Some people think that because we would like a vaccine soon, and lots of pharma companies around the world are working hard to invent one, that a release is imminent. In truth, developing vaccines takes ages, because they have to be safe and effective. They have to be developed through painstaking lab work, tested on captive primates, then trialled in lengthy studies on humans with placebo groups. If found to be effective (many are not), they'll be granted regulatory approval and can be distributed widely.
Covid-19 is a really nasty disease caused by a novel (new) virus. There seem to be a number of horrid side effects of getting the disease, even if you are asymptomatic or lucky enough to make a fairly quick recovery. People won't be lining up to get the Covid-19 jab if it is suspected that doing so increases your chances of having long-term heart and lung problems or a greater chance of contracting Parkinson's.
According to this article on Bloomberg, people who get paid to make forecasts say there's only a 9% chance that there will be a widely available vaccine for Covid-19 before next April.
That's according to Good Judgment Inc., a company that maintains a global network of forecasters to make predictions for clients based on publicly available evidence.
Good Judgment asked its network, "When will enough doses of FDA-approved Covid-19 vaccine(s) to inoculate 25 million people be distributed in the United States?" As of 25 May 2020, the forecasters put a 9% probability on that happening by 31 March, 2021; a 34% probability on its happening by 30 September, 2021; a 63% probability on its happening by 31 March, 2022; and a 37% probability on its happening sometime after that, if ever.
The 180 top forecasters, who work on contract, and whom the New York-based company dubs Superforecasters, don't have any inside information. They sift through news reports, scientific data, and whatever else they can get their hands on to make their best guesses as to what the future holds. They live and work on six continents and have backgrounds in a variety of fields, including, according to the company's website, finance, statistics, political science, intelligence analysis, science, engineering, and technology. Here's something that you may not know: I'm one of those 180 forecasters mentioned above.
Michael's Musings
As society gets richer, there is a growing voice calling for governments to implement a universal basic income (UBI). The research on UBI is still in its infancy though. The questions that need to be answered are: How to distribute the money? How much to distribute? Who should get the money? Is UBI even effective at lifting people out of poverty?
One of the arguments for UBI is that it will assist humanity move into a place where robots displace many workers. If society has the safety net of UBI, we then have a situation where more people can make a living doing creative things. A UBI safety net would also come in very handy during a crisis like we are living through now. The impact on the economy from retrenchments will be muted because people still have some money to spend.
People arguing against UBI say that the free money will just create inflation, wiping out most of the money paid by the UBI. Also, if people get paid for doing nothing, then vast parts of the population will do nothing. Then the last concern, where will the money come from to fund the programs?
It is an interesting debate, we will have to see what the research shows in the coming years. To assist in the research Jack Dorsey has donated $5 million - Twitter's Jack Dorsey Is Giving Andrew Yang $5 Million to Build the Case for a Universal Basic Income.
Bright's Banter
The world's most valuable startup, TikTok's mother company ByteDance made over $3 billion in net profits, with over $17 billion in revenues last year. Revenues more than doubled from 2018 when the social media giant made $7.4 billion as user traffic and engagement started to pick up at a fast clip. The business sits with a $6 billion cash pile.
The advertising game is a very tough one because when revenue taps open on one hot company, the tap slowly closes on other social media businesses. In this case, it's the likes of Tencent and Baidu that lost out on these advertising revenues. Instagram is said to have made $20 billion in revenues last year and Alphabet announced that YouTube made $15.1 billion in comparison.
In the first quarter of 2020 TikTok saw 315 million app downloads, the most downloads any app has ever gotten in one quarter.This helped ByteDance cross 1.5 billion monthly active users across video making apps TikTok, Douyin, and news services business Toutiao. Contrary to popular belief, lip-syncing videos are not the most popular videos on the app, it's still the good old pets (cats in specific).
I am a big fan of ByteDance and can't wait for the business to come to public markets so one could own a piece of this brilliant enterprise. This company has a lot going for it from having the highest social media engagement from its users - parents see it as an app that encourages creativity, to its massive global footprint that no Chinese tech business has enjoyed before.
Signing off
It is US initial jobless claims Thursday again. The expectation is for the number to slow to 2.1 million people claiming unemployment benefits for the first time last week. The Rand continues to eke out small gains, currently trading at $/R 17.34, and the JSE All-share is higher this morning.
