SA Market News - 30 June 2022

Global Macro

The UK’s inflation rate hit a 40-year high of 9.1% in May, exacerbated by the impact of continuing high food and energy prices. According to the Office for National Statistics (ONS) the Consumer Prices Index (CPI) rose by 9.1% in the 12 months to May 2022, up from 9.0% in April. The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 7.9% in the 12 months to May 2022, up from 7.8% in April. Whichever method is used, the net result is the same; UK inflation has risen virtually exponentially in the past 15 months with few if any signs of it abating. Most observers now expect UK inflation to exceed 11% by October, when price curbs on energy prices are removed.


^Source:ONS

There are worrying signs that inflation may becoming un-anchored, with special interest groups such as trades unions militating for high wage increases to offset their cost of living increases. The latest union to go on strike to back up their demands for higher wages is the RMT, which is looking for a 7% wage increase, while the rail bosses are only offering 3%. In a three-day strike in the UK last week, only around 20% of trains, excluding London Underground trains, were operating. The union has promised further industrial action if their demands aren’t met.

Russia “defaults” on $100 million interest payment. Russia has defaulted technically on a $100 million interest payment for the first time since 1998. The country has the money to pay the interest but has been unable to do so because of sanctions by the international community. The $100m interest payment was due on 27 May. Russia says the money was sent to Euroclear, a bank which would then distribute the payment to investors. But that payment has been stuck there, according to Bloomberg News, and creditors have not received it.

In itself, this is not an especially big deal, although it does harm Russia’s reputation among lenders. A bigger potential problem is that it could act as a “trigger” for other debts amounting to around $20 billion.

 
Local Macro

South African inflation moved higher in May, reaching 6.5% from April’s reading of 5.9%. This is the highest reading since 2017 and it has now breached the SA Reserve Bank’s Monetary Policy Committee’s upper limit of its inflation targeting range of 6%. Transport, food and non-alcoholic beverages accounted for just over half of the increase.

The dreary Eskom loadshedding cycle continues unabated, with the power utility having to implement stage 4 loadshedding at short notice last week. This is forecast to last at least until Wednesday 29 June. A further 4000 megawatts of outages is possible if an unprotected strike by Eskom workers goes ahead as planned. If this happens, Eskom could, theoretically, push loadshedding to an unprecedented stage 8.

Since the new financial year began on April 1 this year, there have been 47 days of loadshedding out of 90 days in total. Put another way, one out of every two days so far this financial year has been a loadshedding day.  

At time of writing, it was announced that stage 6 loadshedding would be implemented from 16:00 on Tuesday until 22: 00 whereafter stage 4 would continue. This is due to unlawful and unprotected labour action, which has caused widespread disruption to Eskom’s power plants.  

 
Featured Company

Spar Interim Results to March 2022 were released recently. Although solid, they were not especially impressive. Group turnover rose by 5.2% to R67.6 billion and operating profit rose by 7.1% to R1.8 billion. Diluted headline earnings per share rose by 3.7% to 641.1c and a 175 cents per share interim dividend was declared.  This was a 37.5% reduction in the dividend, in order to conserve cash for a period of two years to fund the strategic SAP implementation.

Within SA, the largest segmental increase was in liquor, with a 41.6% increase in liquor sales from a very low base of comparison in the previous year. The core grocery businesses sales only grew by 4.6% year on year. Sales in Ireland grew by 8.3% in Euro terms but only by 2.9% when converted into rand. Swiss sales decreased by 1.6% in Swiss francs but by 2.8% in rands. In Poland, sales rose by 6,5% in Polish zloty but fell by 0.7% in rand.

Of the three large supermarket chains in SA-Pick n Pay, Shoprite and Spar, Spar is the cheapest by far, trading on an historic PE ratio of 11.6x compared with 23x for Pick n Pay and 19.1x for Shoprite.



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