Simon Shares

• The announcement by the president that business will be able to build up to 100 megawatts of power without constraints is huge. Aside from the fact that the current limit is 1 megawatt, it will have three direct impacts;
  • Estimates are that at least 4,000 megawatts can be built in 18-24 months. That is level 4 load shedding. So bye-bye load shedding.
  • Tens of billions in spend aiding the construction and allied industries.
  • Savings when using your own power. Goldfields (JSE Code: GFI) is building a 40 megawatt supply for South Deep that they estimate will save them R120million a year.
• Annual consumer price inflation hit a 30-month high in May, rising to 5.2% from 4.4% in April. Core inflation 3.1% and at the bottom end of the range.
• Renergen* (JSE code: REN) has spooked the market as they announce a capital raise "raising the proceeds for the completion of the Phase 2 studies of the Virginia Gas Project". Details by the end of the week, but this isn't a massive surprise. Startup miners always need more cash, even for studies never mind the actual building of the facilities.

* I hold ungeared positions.

Upcoming events;

• 24 June ~ JSE Power Hour: Rand ~ stronger for longer

Deep dive hospitality stocks

The third wave of the pandemic in South Africa is so are very much a Gauteng issue as it records higher daily new cases above the peaks from the first and second waves.

This is no surprise to anybody. But what was notable is that lockdown restrictions remain very relaxed (albeit rumours that we'll see tougher restrictions soon). I had expected a harder lockdown for the third wave.

Expecting a harder lockdown I was very cautious on local hospitality stocks.

The Yoco small business turnover index shows activity at 78% of the levels pre-lockdown after hitting 128% at the end of May 2021. So even without harder lockdowns, we are being more cautious but this is still well ahead of the 40% odd we saw during the end of the second waves lockdown.

We also have some Stats SA data on occupancy in tourist accommodation. Here we're back at around 30% for the end of April and that's back where we were before the second wave arrived.

Hotels in South Africa recorded an occupancy rate of 26,8% in April 2021, up from 23,2% in March and 17,9% in February.

Read more here: https://t.co/Pzft0bs8oi#StatsSA pic.twitter.com/rcjbJcUHdV

— Stats SA (@StatsSA) June 21, 2021

 

Airports Company SA (ACSA) data shows domestic travel picking up to around 60% of pre-pandemic levels. International is at around 15%-20% and regional around 25%-30%.

So in short this new wave is still early days and is hurting, but so far not as bad as I had feared (occupancy data is a month out of date). Certainly ahead of the third wave we were seeing improved tourist activity even if still below the pre-pandemic levels.

So what stocks to look at? I am not rushing in, but they're on a watch list for when we're past this third (and hopefully final) wave.

• Spur (JSE code: SUR). Sit down dining hurts under lockdown and restaurants are the real spreader risk. But as we pass through this third wave and assuming no significant fourth wave (vaccines rates should be moving higher by then) Spur looks good.
• Famous Brands* (JSE code: FBR) I like their takeaway as it's more resilient than sit down. But they still have debt issues that will take another two years to fix. So speculative.
• City Lodge (JSE code: CLH). Their break-even occupancy is around 35% which is a little below the Stats SA data, but that was for tourist data, City Lodge has mostly been business travel. So they need more improvements to start a profit. They also have the sale of East African assets, which if it happens will be a boost. Of course, if that is cancelled, that'll be bad news.
• Tsogo Sun Gaming (JSE code: TSG) has been running and here consumer spare cash and the third wave are a threat to that run so I'd stay away for now.
• Tsogo Sun Hotels (JSE code: TGO) has also been running and again I'm not convinced the market is totally right on this one.
• Sun International (JSE code: SUI) ran hard but then has come under pressure and looks interesting on more weakness.