Sasfin : Taking Stock - TFG is buying online shopping and delivery Quench

MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Local stocks took a breather yesterday, reversing gains from previous sessions as some uncertainty over Omicron lingered and as South Africa saw an increase in COVID-19 reinfections due to the new variant. The Johannesburg All-Share index closed 0.25% weaker to 71,021 index points, while the Top-40 index dropped 0.36%. Leading the decliners were gold stocks, tracking weaker bullion prices. Gold struck a one-month low on Thursday as U.S. Federal Reserve Chairman Jerome Powell's comments on the need to tame inflation bolstered bets for faster monetary policy tightening and offset Omicron-driven safe-haven inflows into bullion.

EUROPEAN MARKET COMMENTARY

European stocks pulled back on Thursday, in another volatile trading session as concerns persisted over the omicron Covid variant. The pan-European Stoxx 600 fell 1.1%, with tech stocks plunging 3.8% to lead the losses as almost all sectors and major bourses slid well into the red. Meanwhile the jobless rate across the common currency bloc continued to fall, coming in at 7.3% of the workforce in October after, down from 7.4% in September.

US MARKET COMMENTARY

US stocks rebounded sharply on Thursday, following an omicron-driven sell-off in the previous session, as cyclical names made back some of their recent losses. Airline, casino and energy stocks led the gainers on Thursday, rebounding from Wednesday's market rout. Delta Air Lines rose about 9.3%, MGM Resorts added nearly 7.7%, and Hilton Worldwide gained 7.4%. On the negative side, Apple's stock dropped after Bloomberg News reported the tech giant is experiencing slowing iPhone demand ahead of the all-important holiday season.

ASIAN MARKET COMMENTARY

Shares in Asia-Pacific were mixed earlier today following days of turbulent trading this week as investors continue to monitor the situation surrounding the omicron Covid variant. Chinese tech stocks in Hong Kong plunged after ride-hailing giant Didi announced Friday on social media platform Weibo that it will begin taking steps to delist from the New York Stock Exchange - less than six months after it made its debut stateside. The company also said in the statement that it will pursue a listing in Hong Kong.

CURRENCY MARKET COMMENTARY

The rand bounced back on Thursday against a weaker dollar after again breaching the 16.00 mark in the previous session as the Omicron coronavirus variant established itself as the dominant strain in South Africa. At the close of the session, the rand was trading around R15.94 to the dollar or 0.67% firmer. Data from South Africa's National Institute for Communicable Diseases showed on Wednesday that 74% of all the virus genomes it had sequenced last month had been of the new variant, as new cases doubled from Tuesday.

COMMODITIES MARKET COMMENTARY

Oil prices climbed this morning, extending gains after OPEC+ said it would review supply additions ahead of its next scheduled meeting if the Omicron variant hits demand, but prices were still on course for a sixth week of declines. Gold was set for a third straight weekly drop today, weighed down by signals from Federal Reserve officials that the central bank could end its pandemic-era asset purchases and raise interest rates faster than expected to combat surging inflation.

LOCAL COMPANIES

Rebosis Property Fund (REB) 0.0%

Rebosis Property Fund on Thursday declared no dividend for its full-year ended 31 August 2021 - the third consecutive financial year that the group has opted not to do so. This comes as the debt-laden property counter continues to prioritise deleveraging the business, especially over the past year with the Covid-19 financial fallout hitting the Reit harder that many of its JSE-listed peers. Dividend payments or dividend per share is a key metric for the financial performance of SA Reits. According to tax rules, a listed property counter needs to pay-out at least 75% of distributable income in order to retain Reit status. The decision by Rebosis not to pay a dividend also comes as the group did not meet solvency and liquidity tests, which is a prerequisite for Reits to pay dividends. The group, founded by property entrepreneur Dr Sisa Ngebulana, reported a 10% slide in net property income on a like-for-like basis compared to its prior (2020) financial year. "The distributable income before tax [and] excluding once off items [capitalised interest and operating expenses on deferred payment liability] is R83 million," it added. Rebosis, which announced a proposed R6.3 billion deal to sell most of its government-tenanted office portfolio in October, however managed to increase its distributable income for its latest financial year. "The higher distributable income is as a result of a decrease in the head office costs of the group to R151 million [2020: R175 million] and the decrease in finance costs relating to bank facilities to R602 million [2020: R828 million], due to the repo rate cuts and the repayment of facilities using the proceeds from the Medscheme sale," it pointed out. The fund reported that the fair value of its property portfolio as at 31 August 2021 amounted to R13.1 billion, representing 0.3% growth year-on-year. This excludes the disposal of its Medscheme building. It comes despite the decline in net property income. The group said vacancies in its retail portfolio accounted for 9.8% of the portfolio, while the Reit's largely sovereign-let office portfolio reported vacancies of 21.7%. This resulted in a combined average Rebosis portfolio vacancy of 17.3%, excluding office properties earmarked for conversion to student accommodation. Rebosis said that rental collections on the portfolio improved to 103.9% for the period, although "the fund was obliged to provide a further R100 million [2020: R148 million] in rental concessions [R27 million] and bad debt write-offs [R73 million] to mostly smaller tenants who continue to struggle with the impact of Covid-19″. The group pointed out that it did not experience any damage to its retail portfolio as a result of July unrest in Gauteng and KwaZulu-Natal.

The Foschini Group (TFG) +1.6%

Fashion retailer TFG (The Foschini Group) is buying online shopping and delivery platform Quench via its Labs division, in a bid to expand its ecommerce business. Many consumers are still opting to shop online due to the Covid-19 pandemic, with goods delivered to their door. Quench knows something about adapting to change, as it is one of the liquor delivery services that turned to on-demand groceries and other essential products during lockdowns when liquor was prohibited. "With this acquisition we gain access to fast, reliable delivery across South Africa, whilst achieving superior delivery unit economics. With 75% of orders currently fulfilled from stores, Quench's network of micro-carriers will become an essential enabler for our 'ship-from-store' strategy" says Claude Hannan, Co-Head of TFGLabs. TFG has 29 retail brands and trades in fashion, jewellery, accessories, sporting apparel, homeware, and furniture. It has over 43 000 outlets in 26 countries, with over 26.4 million customers.

INTERNATIONAL COMPANIES

Didi global (DIDI) -0.1%

Chinese ride-hailing giant Didi Global has announced plans to take its shares off the New York Stock Exchange (NYSE) and move its listing to Hong Kong. The firm has come under intense pressure since its US debut in July. Within days of the initial public offering (IPO) Beijing announced a crackdown on technology companies listing overseas. Earlier on Thursday the US market watchdog unveiled tough new rules for Chinese firms that list in America. "Following careful research, the company will immediately start delisting on the New York stock exchange and start preparations for listing in Hong Kong," the company said on its account on Weibo, China's Twitter-like microblogging network.

NVIDIA Corporation (NVDA) +2.2%

America's Federal Trade Commission (FTC) is suing to block the $40bn takeover of UK chip designer Arm Holdings by America's Nvidia. The US watchdog said the deal would give Nvidia, one of the world's largest chip companies, control over technology and designs that rival firms rely on to develop their own chips. It is the latest hurdle placed in the way of the takeover, two weeks after Britain's digital secretary Nadine Dorries ordered an in-depth probe on national security and competition grounds. The FTC alleges that the combined firm would have the "means and incentive" to stifle innovation in next-generation technologies such as data centres and driver assistance systems in cars.

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