The Ingham Analytics Weekly Letter on Sunday - 13 December 2020

Sunday, 13 December 2020

Welcome to another Ingham Analytics Weekly Letter on Sunday in which we aim, inter alia, to take a step back to see wood for trees, in South Africa and around the world - we try not to take ourselves too seriously, seeing the humorous side of life in 2020 is a healthy release valve. 

Happy Hanukkah, also known as Festival of Lights. The word Hanukkah means dedication in Hebrew. The story is not mentioned in the Torah, but it is in the New Testament as the event came after the Torah. The festival refers to the rededication of the Second Temple in Jerusalem. 

This was the week that Mount Everest was officially declared taller by China and Nepal - 8,848.86 meters or 29,031.69 feet, in line with the cruising altitude of jet aircraft. 

Whilst Mount Everest is a tall story, an even taller story is that of Airbnb which on Thursday listed on Nasdaq. An intraday market capitalisation of $100bn immediately made it worth more than Marriott, Hilton, Inter-Continental and Hyatt combined. Those storied hotel names (pun intended) have real assets - real estate actually - whereas Airbnb is not much more than an App relying on the real estate of homeowners or buy-to-rent-out owners.

In an interview on Bloomberg television the CEO of Airbnb was so dumfounded he could barely string two words together. 

As we mentioned recently, making a profit is so out of date. Airbnb has generated collective losses of $700m and counting. Revenue has been clobbered due to the pandemic. Some neighbourhoods around the world are agitated by the disturbance or disruption in what is a largely unregulated short-term rental service. Even some of their "hosts" are cheesed off. 

Nevertheless, IPO's, as listings are called in the US, have raised $157bn this year and this week also included DoorDash, one of those seemingly innumerable food delivery outfits that now commands a market cap of $60bn but has never made a profit.

Those who have been around in the markets for a while, with grey hair, insanity or alcoholism or all three to prove it, will recall the dotcom days of twenty years ago when price to revenue became the trendy valuation metric. We're back there again. So, we think that rather than price to earnings ratio price to loss ratio is just the thing for the absurdities of today's US markets. 

Back to cruising altitude of aeroplanes which nowadays are cruising few and far between. This week confirmed the decimation of aviation by the pandemic fallout. Half of direct and indirect aviation jobs have gone worldwide whilst economic activity supported by aviation has halved too. Boneyards of jet planes are filling up. This week British Airways retired its final Boeing 747, in iconic retro BOAC livery. The final fuselage of the Airbus A380 was completed two months ago and marks the end of production. 

Whilst some airline stocks are off the bottom, and there has been a burst of punter enthusiasm, there seems little likelihood of any V-shaped recovery. With safety a priority in civil aviation a dearth of pilots will be a challenge in a sector in which skills need to honed daily to keep sharp. 

On the topic of V-shaped, K-shaped has entered the economic lexicon. This refers to recovery from the COVID-19-induced lockdowns imposed by governments. The takeaway on K-shaped is the better off you are the better off you'll be, in the upward line in the K. 

In America, as little as 15% of American households own stocks directly and half of households have a retirement account. What is startling, when we thought Robinhood App punters were taking over the universe, is that those accounts have a median value of just $65,000, which is not much more than the mean annual household income in America. Only 20m people in America qualify as a millionaire in a time when a million in USD doesn't buy what it used to. A few haves and many have-nots, a phenomenon everywhere. 

We got a bit of cheerier news out of five JSE listed companies this week. KAP, which includes the well-known PG Bison, gave a five-month update that showed the Group to be resilient and looking forward to better times. Tongaat Hulett reported half-year results which show that this great name is on the road to recovery under refreshed management taking decisive action. Capitec reported strong balance sheet metrics for the quarter ended November. PPC released mildly encouraging interim results but the cement Group still has major operational and financial challenges to cope with.

Congratulations to Bytes Technology Group plc which on Friday listed on the London Stock Exchange and closed higher than the offer price. Altron shareholders have shares in both firms due to the demerger. With 240m shares in issue the shares reached an intraday high of 338 pence which translates to a market cap of 800m. 

This week we issued our latest thinking on Sasol entitled "Stuck between the devil and the deep blue sea." Sasol is the most popular stock or topic in our universe by downloads and clicks. We aren't sure if this is due to morbid fascination or because South Africans truly are concerned about the prospects for what was once a corporate pillar of the JSE and of course the local economy. 

Sad to say we had further sobering analysis to impart on Sasol. Short of finding more jewels to sell a rights issue of $2bn or so seems increasingly likely and it is important to quantify these financial impacts, however unpalatable. We also point out that whilst the share has picked itself off the canvass the share hasn't moved to the extent that it could have given a more favourable oil price situation and a rand at R15/$ as Sasol's earnings breakeven oil price has risen.

Our latest Mining Monitor is entitled "Dr Copper gives a diagnosis." In a week when copper almost got to $8,000/t we pointed out that copper has historically been used by traders as a short-hand stethoscope for the health of the global economy. Iron ore, nickel and aluminium are also buoyant and so too is an agricultural commodity such as soybeans. BHP and Rio Tinto are beneficiaries, and we prefer these diversified miners to some pure plays or an ETF. Maybe the economic future won't be as bleak as some know-it-all experts at banks and media outlets tell us. 

It is unfortunate that once again South Africa will lose out on a commodities boom because of ANC government policy that has stunted the sector and deterred investment on the altar of outdated ideology. Ironically, rich countries like Australia, Canada and the US benefit from strong demand and pricing for commodities the most. 

And finally, switching from astronomical commodity prices to astronomy, for the astronomers among you don't forget to put 18h20 GMT give or take on 21 December in your diary. 

The year 2020 has been ghastly for economies and volatile for financial markets but it will end with a special astronomical event - the closest great conjunction of Jupiter and Saturn in 397 years. 

On 21 December, the two planets will almost touch in the sky with Jupiter and Saturn separated by 0.1 degrees, appearing as a single bright star. This is the closest great conjunction since 16 July 1623. The pair of planets will become visible at twilight, close to the southwestern horizon in the Northern Hemisphere, or the western horizon in the Southern Hemisphere. 

Perhaps an astronomical harbinger of a better 2021. 

The NASDAQ debut of Airbnb is the big deal for us this week.


Thank you all for visiting us.

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