KAPLAN EQUITY ANALYSTS - Independent research, valuations and industry insight

KAPLAN EQUITY ANALYSTS
Independent JSE research, valuations and industry insight

Featured Research:

December - a quiet month with some exceptions
by Irnest Kaplan,CFA - 7 January 2010

Welcome back and may I take the opportunity to wish each and every one of you a good 2010.

December was a quiet but strong month for markets. The US indices were up with the NASDAQ up a very strong 6%. Our All Share was also up a healthy 3% but our Tech Index was down 1%. This can be explained by the 4% strengthening of the ZAR against the GBP, which pulled down heavyweight Didata in Rand terms by 3%.

As expected, volumes were down. For the technology stocks we look at, volumes were collectively around 80% of their monthly average year to date. Stocks with very high volumes (3 to 4 times their typical monthly average) were Digicore and Vox Telecom. This is the second month in a row that these stocks have had very high volumes. Perhaps there are changes in large shareholdings. Other stocks with reasonably high volumes for December were Mustek, EOH and Simeka. However in the case of EOH, Lucky Khumalo sold 1mln shares. Deducting this, the volume for EOH would have been more normal.

December was a quiet month on the newsflow and results front.

The chart below shows the December 2009 price performance of the technology shares we keep a close watch on. The yellow bars reflect indices and currencies. On the right, we give short commentary on selected companies.

The December STAR performers:

Faritec - oscillating between 4 and 5 cents. The trading update implies a smaller loss for the 6 months to Dec09, so let's see if they can break even for the full year. They need to raise a further R 60 mln. Perhaps a share consolidation can somehow be done in conjunction with this raising.
UCS - interesting that the share has reacted quite positively after a poor set of income statement numbers in the annuals to Sep. what appeared to be a average set of annual results recently. However there were strong cash flows and the dividend was maintained.
GijimaAst - not surprising. We think it is still quite undervalued. Doing well in the public sector. Closed period share buyback is a positive.
Net1 - the downtrend from R160 to R130 has reversed despite CEO Serge Belamant having sold 1 mln shares (half his holding) netting him around USD 18 mln.
EOH - this quality counter continues its upward trend reaching almost R10. After the last annual results, we rated it a buy with a DCF value just above R13. Interesting that deputy CEO Lucky Khumalo has sold 1 mln shares for R 9.4 mln.
SecureData - we re-iterate the good performance they had in their second half at their last annual results. Things are turning around. The share has risen by 44% over the past 3 months. Very low Dec volumes.

The December laggards:

Vox Telecom - has been the worst laggard for three months in a row! 2 of those with very high volumes. At a price of 31 cents, we felt the market was unrealistically pricing in the end of the world for Vox. It looked as if their Orion LCR operations were being valued at zero. It doesn't surprise us to see that the share has shot up to 40c in the first few days of Jan.
Simeka -the midpoint of their interim trading statement (HEPS down 40-50%) implies HEPS of 4.8c - below where we would have hoped. The share has fallen a lot, but we continue to believe it is very undervalued.
Spescom - has given up some of the gains from being the best performer in November - albeit on low volumes. We are still waiting to hear what the cautionary is all about.

Analyst disclosure: Of the performers and laggards commented on in the right-hand side above, Irnest Kaplan, CFA holds shares in Faritec, GijimaAst, SecureData and Simeka.