Finweek English|25 June 2020
Beware the risk
Raubex is one of the few remaining construction stocks left on the JSE. It published decent results for the year ended 29 February at the end of May and commented that it has seen an increase in tender activity in the last few months. Raubex is also well-positioned to benefit from the Integrated Resource Plan program approved by Cabinet in October 2019, but which is not yet out on tender. Another opportunity is the likely infrastructure spending planned by the government to help mitigate the economic impact of the Covid-19 pandemic and lockdown. So, the sector could start seeing some work returning. However, the problem is that after years of little activity in the construction space there is certainly an oversupply of potential bidders for any work and that means highly competitive bidding that ends up revolving around price – and this is a risk. We’ve seen local construction companies with projects that are loss-making in the past. While this can be intentional in a bid to keep equipment and skills, it goes without saying that profitable projects are preferred.
Index changes drop Redefine
Changes to the JSE’s indices were confirmed to have taken place on 19 June. Redefine is exiting both the FTSE/JSE Top 40 Index and the FTSE/JSE Financials 15 Index (Fini) to be replaced by Exxaro and Quilter, respectively. This always reminds me that the Fini has a lot of listed property and not just banking stocks. No changes were announced to the FTSE/JSE Resources 10 Index.
Little light for malls
An update from Hyprop Investments in the second week of June confirmed the trend we saw in the Liberty Two Degrees update of a few weeks ago. Currently, on average 80% of mall stores are open; malls that house more sit-down restaurants are sitting on lower rates due to the fact that the restaurant sector remains largely closed. Foot traffic is also picking up and the first week of June (just after SA shifted to lockdown at level three) saw it improve to 76%. Rental collections are also improving, but anecdotal evidence is that several stores have simply not survived the initial stages of the lockdown and filling that empty space is going to be a significant challenge. The JSE’s listed property index gained 25% in early June but has retreated as conditions remain tough and valuations impossible to determine.
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25 June 2020