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TKG trade ideas

Telkom, Shoprite & Mr Price - Showing SA Economy TrajectoryThe Telkom weekly chart showing a Hammer after effortlessly tearing down multiple support levels. You have to zoom back to 2010-11 to view the price at which Telkom was last at these levels. It sounds irrational that a share could show so much fear with a lot of volume to back that up. What Went Wrong? Telkom pattern isn't strange for JSE in recent times, the market has changed faster than we can change our minds about it. Technical Analysis has failed many traders quietly leaving a trail of disaster. I was digging to find out what could be wrong because this script played out with Shoprite JSESHP followed by Mr Price JSEMRP. One thing I could pick was that these shares featured mostly on foreign buyers lists & we must understand the nature of foreign portfolio investors. South African markets like most Emerging Markets aren't dominated by local investors & foreign investors usually invest profits from own local markets into Emerging Markets. For example Apple Inc is up over 90% in USA. If an investor bought & sold Apple they made a good profit, if they decided to invest some of that profit into an emerging market they are investing a portion of their profit not capital. Now we must appreciate that a loss of profits is a small matter compared to a loss of capital. Now consider a trader/investor faced with loss on profit from profit? If I invest $1000 & makes $1900 then invest the $900 and make $1400, the $1400 isn't the capital base but profit from profit. Now if I invest $500 (1400-900) into an emerging market I have invested profit on profit. Psychologically how much would the blow be if I am to sell the $500 in emerging market? Not a big blow! This is money one can afford to lose 100% & still remain over 90% in the black. So What Then to a local Investor/Trader In emerging markets we must appreciate we are at the mercy of this profit from profit, architects of our own time bombs because we do not invest in our own markets beyond the insurance companies. This script of a tanking market I lived it in Zimbabwe, South Africa feels like a de javu & when the last foreign portfolio investor leaves then a stagnant market follows. If you think this is far-fetched consider that in South Africa less than 5% of the population has any form of saving. The best a trader/investor can do is recognize the market in which you operate in, be always on the lookout for companies dominated by foreign portfolio investors & be ready to pull a stop on adverse news because the sell-off will come in irrational fashion. The more bad news sustains the more we are going to see this horror movie repeated. Magnus Heystek will continue to be proved a genius, Local fund managers will continue to bemoan that South Africa's quality is being overlooked but who cares if S & P 500 is giving amazing returns? South Africa is now a cheap market with a lot of potential for rebound, however that potential might just die as that, potential. It is up to the political authorities to inspire confidence for a return of those who can make the market tick in large volumes. The inconsistency & hesitancy on the part of those in power might prove overpowering of any goodwill. Eskom for one needs an urgency to look at the problem then go all out to to fix, it might mean diverting expenditure from elsewhere and give it a priority because this is one company capable of keeping the bad news coming via terrible trading updates. South Africa is the door to Africa, forget Rwanda, Ethiopia and other fanciful stories. An investor is likely to forage into Africa having learnt a thing or two in South Africa. If the lights go out in South Africa then it will take a Singaporean story to attract portfolio investors again. Until then, happy fishing in the murky waters. You might catch an eel or a cat fish, just brave it and persevere. If it becomes all too much then take Magnus' advice to follow the money. But at current levels the S & P 500 is perched very high, some might jump out of the pan straight to the fire, this is the time for calm heads & calculated risk.
JSE:TKG
by runyamhere
1
Telkom is getting killed - Here's why I'm leaving it aloneTelkom's CRASHED 54% since June! Here's why I'm leaving it alone… This is sad but you need to know. Today, I am taking yet another company off my trading watchlist. Telkom… Since June we've seen this telecommunications giant' share price crash from R100 down to R46.00 per share. That's a 54% sharp drop which signals MAJOR red flags when it comes to trading. In today's article, we'll go into four reasons why Telkom is getting killed, where it could go and why I'm leaving it alone… Reason #1: 50,000 subscribers are ditching Telkom’s fixed-line service a month! For the first time, the number of fixed lines in service have fallen from 3.5 million down to 2.3 million (23% down) compared to September 2018. And this trend is accelerating as around 299,000 subscribers have discontinued the service in the last six months alone. That’s over 50,000 subscribers that are ditching Telkom a month! What’s even more concerning is that there is a major decline in Telkom’s ADSL, VDSL and fibre customers, as new, smaller, lower-cost fibre companies have entered the market, we’ve seen a drop from 981,176 in March 2018 down to 847,650 in March 2019. This equates to losing over 21,000 customers every month. And you know what that means… A drop in revenue, trust and loyalty will lead to a further drop in the share price. Even Telkom warned its earnings per share is expected to drop by 30% to 40% compared to last year. Jean Pierre Verster, Protea Capital Management, mentioned Telkom’s free cash flow generation is negative and the decline in fixed-line revenue is severe. Reason #2: Telkom is losing the battle to acquire Cell C On 15 Nov 2019, Telkom advised its shareholders that it was in talks to potentially buy Cell C, which would create a business with about 22 million subscribers… However, the acquisition would require a financial restructuring as Cell C and its owners would try to restructure R8.7 billion ($591 million) of debt to ensure its gearing level is reduced to a sustainable level. All was said and done with regards to the due diligence, at the first stage, until the deal went off on a major detour when rival MTN Group came in. You see, the MTN Group had already signed an expanded roaming agreement with Cell C. In a statement on Tuesday, Cell C said the talks with both mobile companies are at an advanced stage. CEO of Cell C, Douglas Craigie Stevenson, said in a statement that the agreement with MTN will help Cell C manage its network capacity requirements in a more cost-effective manner. “The roaming agreement is transformative for Cell C.” This deal between MTN and Cell C is putting a dampener on Telkom’s proposed take over as analysts are now suggesting Telkom may have to pay a higher future price for the deal. And according to an email sent by Lester Davids, Johannesburg-based Unum Capital… “Telkom may not have the balance sheet capacity to take on the acquisition” This news of rivalry between the telecom companies continue to cause the Telkom’s share price to drop. In fact, since the statements were released, the investment community has lost trust as Telkom dropped over 11% in a week and then another 8% fall the following week. Reason #3: Both companies are heavily in debt! Telkom’s debt levels are worrying to stakeholders as things stand. Even though the Telkom’s mobile unit is growing, they are spending a huge amount of money and are taking on a lot of debt to fund it. In fact, its net debt has increased to R12 billion. Even Verster said, considering the saturation of the market, both mobile companies are not great businesses on their own. “When you put them together it is even worse,” “It is like having a concrete boot on the left foot, and then putting a concrete boot on the right foot as well.” Reason #4: Still major downside to come for the mobile giant Looking at the daily chart of Telkom, you can see the major crash that took place from R100 down to R46 in a matter of six months… With the sudden crash and with the ongoing problems, we could very easily see it drop to the next target at R30.00 per share and then even R15.00 per share. Then there’s the technicals! As if the reasons weren’t enough, there are technical reasons why I am taking Telkom off my watch list and leaving it alone. 1. High jumpiness When you see a share price drop 8% one week and 10% in another week, there is a high chance due to greed and fear that this will be ongoing until the market rectifies itself. But as a trader, I do not enjoy high volatility when it comes to trading, as very often you’ll find the trades will hit our stop losses or worse JUMP past our stop losses meaning you can lose more than you bargained on… 2. Potential warnings in the future With the extremely high debt, talks about acquisitions and with the investment community losing trust with the company, there is a higher chance of Cautionary Statements to be released on SENS (Stock Exchange News Service). I wouldn’t be surprised if the share is suspended or, dare I say liquidated, with what is going on with the company. For this reason, I’ll leave it alone and look for better more stable trading opportunities Trade Well, Timon Rossolimos Founder, MATI Trader
JSE:TKGShort
by Timonrosso
$JSETKG Capitulation volume? time to buy for a short term trade?I've been keeping a close eye on Telkom lately. Since topping out at R100 in June this year, it has more than halved in price during the last few months. What has caught my eye is the substantial increase in volume that we have seen at these lower levels. This almost gives me the feeling that market participants have started to capitulate which is normally a good indication that the worst is behind us and the stock should rebound. What also makes the current trading levels important is that this range between R45 to R47 as highlighted by the red horizontal support channel, was a significant area of support between the end of 2017 - 2018 from where the stock lowed before starting a massive rally all the way to R100. As can be seen by the RSI indicator, the stock is also extremely oversold and should some sort of mean reversion kick in, i think this presents an opportunity to buy at these lower levels between R45 to R48, for two separate profit targets at R54.50 and R60.50. The shorter term 20 day moving average (blue line) which has provided resistance for the stock on its way down is currently sitting all the way at R60.96 and declining by about R1 a day. Whilst it is always risky to try and catch a falling knife as they call it, i think the chart has some compelling reasons to support an entry point. Keep stops tight below R44 if taking this trade and hopefully with a bit of patience we should see some sort of mean reversion start to kick in on Telkom.
JSE:TKGLong
by MarcoOlevano