Today we have two trades on our radar: Spar Group and Harmony Gold.
#1. Spar Group
Positive sentiment in the global equities market as well as an appreciation of South African focused companies in the run-up to the local and national government elections has helped the relatively expensive relative sector gain sharply following concerns around the local economy (including retail) primarily driven by concerns around Eskom’s threat to growth. This sharp ‘bounce’ has seen share’s hit multi-week highs with valuations still remaining stretched in the context of a fundamentally weak South African economy.
Spar Group, which has operations in South Africa, Ireland as well as Switzerland, reports it’s interim results on Wednesday 15 May. For the full year analysts as per Reuters, are calling for EPS of R11.28, equating to an 18% rise. At yesterday’s closing level, the price-to-earnings ratio stood at 20 times trailing earnings, implying that at the current price, market is discounting a high rate of growth, which if it does not materialize, may lead to selling pressure and a de-rating of the share.
I’ve decided to look at the share on both the long and short side to take advantage of any potential move, which is often rapid and may require swift action.
These are the trade levels:
Buy SPP below R186.00
Take Profit Target: 197.00
Sell SPP above R199.00
Take Profit Target: R188.00
#2. Harmony Gold (HAR)
With the run-up in equities, South African gold shares have have naturally under-performed as the risk-on sentiment has persisted. Now, with heightened global tensions (i.e. trade wars which threaten global stability and growth), demand for safe-haven assets as well as a weaker/risk off Rand would see gold shares in demand. On this basis, Harmony Gold, which is down from a high of 3155c on 21 February to it’s recent low of 2265c reached yesterday, presents an opportunity for traders to take a buy/long position in anticipation of a short to medium term rebound. Technically, we are nearing an oversold level with the previous RSI readings suggesting an optimal level to accumulate the share.
These are trade levels:
Buy/Long HAR at 2300c or better
Take Profit Target: 2550c
Please chat to the Unum Capital Trading Desk to take advantage of any trading opportunities.
All the best,
Unum Trading Desk Analyst
Tel: 011 384 2923