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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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Kumba - Where to from here?
Mining - 25 July 2019

Kumba is enjoying a bumper harvest of profitability and cash flow. The interim dividend is in line with the entire annual dividend in 2018. So far so good for shareholders. The Kumba share price has increasingly reflected an elevated premium for benchmark 62% Fe iron-content fines, driven by China’s city pollution curbing and cleaner steel industry initiatives. This demand for 62% iron ore, together with higher-grade lump ore, has created a bifurcated market, with lower grade 58% iron ore at a discount. Kumba’s Sishen mine produces even higher-grade ore at 65% Fe fines. The commodity industry has had its share of booms and busts and given the sensitivity of Kumba to movements in the rand and iron ore, a fairly small change up or down on pricing, if maintained over a year, has a disproportionate effect on profitability. Whilst the year to December 2019 will end on a firm note we believe this is as good as it gets for now. This note guides investors on sensitivity to variables and we update our through-the-cycle fair value on the stock.

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Sasol - Implications of the Rand at R14/USD
Oil & Gas Producers - 16 July 2019

The rand has strengthened to under R14/USD whilst Brent oil is currently $67/bbl. Sasol earnings are sensitive to both variables, but chemical prices are also important, having weakened of late. The 2019 financial year is now history, so attention now turns to F2020. Ingham Analytics say that until there is clarity on Lake Charles in the US, the market will continue to discount the stock.

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Sasol Bundle
Oil & Gas Producers - 4 July 2019

Sasol, despite short-term volatility in the share price, should continue to be considered as a core portfolio holding for South African investors. The company has the capacity to remain a good dividend payer for the foreseeable future, earning an above average yield.

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Amber light on Imperial
Industrial Transportation - 3 July 2019

Imperial Logistics, listed in the Industrial Transportation sector, is forecast to underperform for the foreseeable future. Is there potential for recovery or not? What is the financial situation of the company and should we have any concerns? After a 30% fall in the share price year to date, is there recovery potential or is there the potential for the share to fall further? These are important things for shareholders to know. Shareholders in Imperial Logistics have seen a reduction in value. The question is, where to from here? Do investors cut their losses or sit it out? Ingham Analytics gives the answer. And they also have some thoughts to share on Super Group, which is also listed in the same sector. Ingham Analytics have updated their earnings estimates and suggested target price.

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Saham Boost
Life Insurance - 25 June 2019

Ingham Analytics succinctly sets out the pros and cons of being invested in Sanlam. A positive to earnings this financial year is the acquisition of the remaining 53.7% of Saham whilst agreements concluded with Capitec in 2018 will further assist volumes. By investing in Sanlam, investors gain indirect exposure to Santam, the largest short-term insurer in South Africa. Ingham Analytics have updated their earnings estimates and suggested target price. Purchase the Ingham Analytics Sanlam note and the insightful analysis of the investment opportunity and risks.

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Bouncing back
Oil & Gas Producers - 6 June 2019

In our "Louisiana Blues" note dated 24 May, we advised that the market reaction to the news there would be a $1 billion cost overrun on the Lake Charles Chemical Project in the United States was excessively negative. We concluded that for traders and longer run investors the fall in the share price, to R352 at the time the note was issued, offered opportunity. This has been a profitable call as the stock is now R380, an 8% increase. The stock remains blow our fair value and target price. Recent oil price weakness won’t alter our earnings estimates unless Brent dips below $60/bbl for a prolonged period. We update our analysis following recent developments in the energy sector.

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Banking, Earnings drivers subdued
Banks - 4 June 2019

We have updated our estimates and valuations for the big four banks. The banks are not particularly pricey by historical metrics and do offer value to a greater or lesser extent, with FirstRand retaining a premium rating, ABSA the least expensive and Standard and Nedbank making up the middle ground. All four share prices have eased back in the past month. However, earnings drivers remain weak with scope for bad debt charges to rise. Disruptive trends in the sector are a headwind for traditional players and limit scope for market share gains. All banks now have common reporting under IFRS 9 with effect from 2018. We see compound earnings growth for the big four over three years of 8%, which compares with our estimate of 16.7% for Capitec.

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