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What threats to an already deflated Sasol investment do shareholders face?
Oil & Gas Producers - 17 October 2019

Sasol has ignominiously qualified for the JSE hall of shame for breaching listings requirements. The share has been under pressure since 22 May, the date the company announced that costs at the project would again overrun.

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A materials matter
Construction & Materials - 9 October 2019

Ingham Analytics says building and construction has had a torrid time and the sector as represented on the JSE is a shadow of what it was. Raubex has flagged that headline earnings for the first six months of the 2020 financial year will be around 70% higher. 70% seems like a whopping increase. So, is this a new dawn for the sector? Ingham Analytics examine the context of this.

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Regulatory woes
Health Care Equipment & Services - 3 October 2019

Ingham Analytics says healthcare stocks Mediclinic, Life Healthcare, and Netcare have been pummelled and as if the National Health Insurance Bill wasn’t enough there is now the Health Market Inquiry report, creating further uncertainty. They assess the implications for the big three hospital groups. The insights, as usual, are to the point and a must read.

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BHP - Oil price boost from Saudi production disruption
Mining - 25 September 2019

For investors looking to play the recent oil disruption theme, BHP is one stock that benefits from higher oil prices. The pre-dawn attacks on 14 September knocked out more than half of Saudi Arabia’s output or 5% of global oil supply, which is 5.7m barrels per day. The Petroleum segment contributed 16.4% of Group EBITDA in F2019, which compares with iron ore at 48.0%. A $1/bbl change in oil has a not inconsiderable $40m impact on EBITDA if that applied for a full year. The biggest is iron ore with a $1/ton change from a base case having an approximate $230m impact up or down on EBITDA. We also alert investors to positive developments in the prices of nickel, gold and silver which benefit BHP. The F2020 forward gross dividend yield is 6.6%, falling to 4.7% in F2021. The one-year forward price earnings ratio is 10.9x, increasing to 15.2x in F2021. On a DCF basis, which allows for the variability in commodities, our fair value DCF is $22.33 or AUD32.83 at an exchange rate of AUD1.47/$. This translates to £15.72 on the LSE (including a 12% discount) and R293 per share on the JSE at an exchange rate of ZAR18.61/£. For traders, the stock is a little on the high side relative to our through-thecycle fair value but not unreasonably so given the commodity drivers we refer to in this note. We recommend traders either take short positions or sell rallies

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Sasol Compendium
Oil & Gas Producers - 18 September 2019

Ingham Analytics is close to the action at Sasol and has issued several insightful notes since 4 April when “Pain at the pump, gain on the share” was issued. “Louisiana Blues”, issued on 24 May, was especially pertinent given the newsflow that has come out on the Lake Charles Chemicals project of late. On 6 June, a note entitled “Bouncing Back” Ingham Analytics pointed out that the exchange rate would have to strengthen significantly and oil to weaken below $40/bbl for Sasol to be approximately breakeven over a full financial year, based on F2019 production metrics. Then, on 16 July, the note entitled “Implications of the rand at R14/USD” examined what effect a stronger rand would have on earnings. “Confidence takes a knock” was issued on 20 August and again dealt with the Lake Charles issue. At a time of great uncertainty on Sasol, Ingham Analytics has dispassionately guided investors through the noise.

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BHP - Earnings outlook remains encouraging
Mining - 15 September 2019

BHP is a good option for South African investors seeking alternatives in mining without the geographic and political risk of JSE mining stocks. BHP has no mining in South Africa, having effectively divested through the unbundling of South32. It is a significant player in iron ore and has a large market capitalisation. The Chinese import price of 62% Fe content ore has firmed this week to over $92 per dry metric ton, having eased back to $80 at the end of August. Iron ore prices remain buoyant and further is colour is provided to investor on that. We take the view that whilst their latest earnings estimates are predicated on a lower through – the – cycle assumption, that iron ore is supportive of earnings for the foreseeable future. Interestingly, firmer gold and silver prices whilst relatively small in Group earnings, is also positive. There is no change to the DCF fair value estimates. Netting out iron debt and cash, iron ore is 60% of their value.

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First Rand - FNB in the driving seat
Banks - 8 September 2019

The reported results for the twelve months ended 30 June 2019 were good with FNB in the driving seat in percentage growth and overall contribution. Ingham Analytics had forecast growth in normalised earnings at 5.9% and the result is 5.6% growth for the year. In this punchy analysis Ingham does give the salient points of the result and it has a warning about the banking sector as whole. They reiterate that banks as an asset class are sensitive to bond yields, which, are affected by negative political and fiscal factors. There is no change to estimates for earnings following these annual results and the target price is unchanged.

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Old Mutual - Softness in the H1 F2019 result
Life Insurance - 3 September 2019

Ingham Analytics says that the reported results for the six months ended 30 June 2019 are weak and are off an already tepid historic base. Ingham Analytics points out that results from operations for the full year in F2018 were weak with adjusted earnings essentially flat if the functional currency change for Zimbabwe is stripped out. They point out that little has changed, and the medium-term outlook is not encouraging. Moreover, Ingham Analytics takes a negative view of the share buyback programme and don’t see it as a vote of confidence. There is some encouragement in that Ingham Analytics say that the capital position is strong with solvency measures toward the higher end. There is no change to estimates for earnings following these interim results. Shareholders do get a dividend of 45 cents per share, with the last day to trade cum dividend 17 September. Ingham Analytics say the fact that Old Mutual is at a PE discount to Sanlam does not make it a compelling buy.

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Sanlam - “A sound result from Sanlam’s Santam stake”
Life Insurance - 29 August 2019

In the Politics Proofing note, Ingham Analytics rated Sanlam and Santam as shares to consider owning as they have historically been relatively resilient and historically well-managed businesses. Sanlam is a traditional insurer in life and general insurance and furthermore owns 61.5% of short-term insurer Santam. Whilst Ingham Analytics have observed that earnings growth in the prevailing economic situation will be difficult to achieve, they think that earnings quality should remain sound. Sanlam reports interim results on 5 September and Santam reported interim results on 29 August. In this detailed note, Ingham Analytics analyse the Santam result, which they say is much in line with their expectations and see no reason to alter their outlook or valuation. Ingham Analytics also assesses what impact the new accounting standard IFRS 16 Leases has. They also indicate what they believe Sanlam is potentially capable of delivering this year.

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Sasol - Confidence takes a knock
Oil & Gas Producers - 20 August 2019

Ingham Analytics say that Sasol shareholder confidence in Sasol management has worn thin. This, they say, is mainly because of a history of cost overruns on its enormous Lake Charles Chemical Project (“LCCP”) in the United States. An independent external expert review of the LCCP project was undertaken to unearth why controls and financial forecasting have been weak. Consequently, annual results will now be delayed for a month, which Ingham Analytics say is an unprecedented decision. They also point out that as the company is being audited by PricewaterhouseCoopers, the auditor will need to consider these findings and the consequences thereof, both managerial and financial.

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