Ben Temkin
10 October 2008
column
Johannesburg — WHEN the JSE is in free-fall, I am forced to remind myself that the Private Investor's gains and losses are on paper only.
There was momentary anguish yesterday morning when I saw that Sasol, at a share price of R258,50, was now 21% down since we bought the shares. I sighed with relief when I saw that NewGold, at a price of R83,38, was 50% up since it was bought last December.
Consequently, the Private Investor portfolio index fell by just one percentage point on Wednesday.
I looked at the market ratings of Sasol. At a share price of R258,50, the historic price:earnings ratio is 6,78, the earnings yield is 14,4% and the dividend yield is more than 5%.
I also noted that the average oil price last year had risen 10,72% in US dollars and 15,12% in rands. The average increases to date (Wednesday's market close) this year are 52,70% and 57,38% respectively.
Sasol's investment fundamentals, even taking into account the swingeing fine by the European Commission, were shrieking that the share was underpriced.
Jean looked at the technical indicators and there was no buy signal based on a reversal of its downtrend. The charts did show, however, that the shares were greatly oversold. They also showed that the last time the shares had been so oversold was in 1998.
This, we felt, was a good enough buy signal even if market sentiment on the price remained in a downtrend. Private Investor portfolio doesn't have enough cash to buy more shares but our main portfolio does. The market had only been open for about 20 minutes when I placed the order but this early trading showed we were not the only investors who had perceived the buy signal. We had to pay R264 a share but reckon this is excellent value even if the market for Sasol shares retreats again.
I had already by then read the report on Grindrod yesterday by colleague Artwell Dlamini.
In this report, Grindrod CEO Alan Olivier confirmed that expectation for growth in earnings and headline earnings per share for the financial year ending December was unchanged at between 80% and 100%. He also said that the company's investment fundamentals were supported by strong demand for commodities in China and India.
Another positive investment fundamental is that shortage of credit -- and less buoyancy in shipping growth -- could delay new ship deliveries.
On paper, Grindrod has been one of three counters held by the Private Investor portfolio that, by Wednesday's market close, had paper losses of more than 40%.
At Wednesday's market close, Grindrod's share price was R14,30.
Its historic price:earnings ratio (which takes into account first half-year earnings) was 3,73, its earnings yield was almost 27% and its dividend yield was close to 8%. If this year its headline earnings per share rise 80%, its forward headline earnings will be 437,4c.
On this expectation, the forward price-earnings ratio is 3,3, the forward earnings yield is 30% and the projected dividend yield is 10%.
"Underpriced" is a euphemism.
The market rating suggests, however, that Grindrod is about to implode. But we know - don't we? - that the market is manic-depressive.
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