Sum of the parts trading presentation

My second Stock Alert webinarFrom the desk of Robby P, Vunani Private Clients

Tonight join me, Robby P, Private Client Trader at Vunani Private Clients, I will be talking to Michael Porter who often contributes fundamental trades to Stock Alert. You will recall his recent BVT break-up trade.

We will cover

• Sum of part trades• His core holdings• How and when to divi strip

I will leave some time at the end to answer all of your questions related to trading the short-term share market and the Stock Alert service.

EA Trading service

• EA is short for Enhanced Alpha, a classic hedge fund trading approach for retail CFD accounts.

• The strategy is a mix of:– Long/Short trades on. We will actively be either Net long or Net short, depending what our view is on current market conditions.

• This is to eliminate extreme volatility on accounts.

What is my EA trading service?

Local equities, Index, ETFs & CFDs

offshore equities & CFDs

offshore indices & commodities (CFDs)

Forex (CFDs on major currency pairs)

Current holdings

Sum of the Parts Trading

5

What is SOTP?

• Sum of the Parts analysis ( SOTP ), or break up analysis, is a method of valuation of a

holding company. The essence of the method is to determine what divisions would be

worth if the holding company is broken up and spun off or acquired by another company.

• I will be covering two holding companies, and how to trade them by knowing what the

SOTP value is.

PSG Group is an investment holding company consisting of underlying investments that

operate across different industries.

4 of its biggest investments, is listed as separate entities on the JSE which compromises

around 84% of PSG value. Thus the discount/premium to it underlying holdings can be

calculated.

PSG Group

Asset/Liability Shares ( m) Share price ( R ) Value ( Rm ) % of total

Capitec 35.5 557.01 19773.855 44.69%Curro 207.9 36.22 7530.138 17.02%PSG Konsult 790.8 7 5535.6 12.51%Zeder 526.2 6.45 3393.99 7.67%PSG Private Equity 1393 3.15%Dipeo ( prev.Thembeka) 597 1.35%PSG Corporate (incl. PSG Capital ) 1672 3.78%Other Assets ( cash and pref investments ) 4350 9.83%

Total Assets 44245.583 100.00%Perpetual pref funding 17.4 78 -1347Other Debt -959Total SOTP value 41939.583

Shares in issue ( net of treasury shares ) ( m ) 215SOTP value per share ( R ) 195.07PSG Group share price ( R ) 177.3

Discount/Premium -9.11%

PSG SOTP Calculation





PSG discount/premium

SOTP trading

• Current discount is around 9%.

• A fair average discount is usually around between 9-15%.

• So if this discount deviates a fair amount from the average, a trade opportunity is possible.

• You can do a pairs trade on PSG/ underlying holdings.

For example Long PSG/ Short CPI,COH,KST,ZED.

• Or trade PSG individually.

For example if the discount is 25%, you can long the stock back to fair discount.

We shorted PSG at R197.50 ( Discount was 2.14% ) and bought back the share yesterday

at R183.00 ( Discount was 9.14%)

PSG SOTP the trade

• This is not as exciting and as frequent as the PSG trade, but does provide a opportunity

non the less.

• RMB Holdings (RMH ) is a holding company with its sole investment being 34% of First

National Bank ( FSR ).

• By doing a calculation we can determine what the discount is.

• I have then taken the discount over the last year, and plotted it on a simple diagram to get

an idea what the average discount is.

• As soon as this discount deviates from the average, you can trade this.

• For example if the discount moves to 0 ( or a slight premium ), you can short RMH and

Long FSR till the discount moves back to around 6-8%.

RMH/FSR pairs trade





Company Shares on issue Share Price Market cap

FSR 5,609,488,001.00 42.55 238,683,714,442.55 81,295,673,139.13

RMH 1,411,703,218.00 52.85 74,608,515,071.30 74,608,515,071.30

(6,687,158,067.83)

Discount/Premium: -8.23%

RMH/FSR SOTP calculation





RMH/FSR discount plot

How

& wh

en to

tra

de a

Div

i stri

p

14

3 Dates to remember when doing a dividend strip:

• LDT: This is the last day to trade in the stock in order to qualify for the dividend. This is usually on a Friday

• Ex Date: If you hold the stock on this day you qualify for the Dividend. This is usually on a Monday

• Pay date: This is when you will receive the cash payment for the dividend amount. This is usually the next Monday.

Lets take for example Famous Brands is paying a dividend of R2.15 next week. In order to qualify for this dividend you will need to

purchase the stock before or on Friday the 1st of July 2016 ( LDT date ). Ex date will be the Monday the 4th of July, and all

shareholders that came into the day with stock will qualify for the dividend. The following week on the Monday 11 th July you will

receive the cash payment of R2.15 per share.

• As a rule of thumb traders will buy up the share on the Friday, and the market will price in the dividend amount in the share price.

This is where the trading opportunity arises as the maket sometimes prices in more/less than what the dividend amount is.

• Remember that if you are short on the stock ( short selling ) you will need to pay in the divi amount.

• We notify clients each week on what stocks is LDT the Friday, and what stock is worth trading for the dividend.

Trading a Divi strip

Profit from Stock Alert

Copy trade

Do it yourself

Phone and email

Sum of the parts trading presentation

Economy & Finance

Transcript of Sum of the parts trading presentation