Retail investors tend to focus on Sens and only Sens when it comes to making investment decisions. After all, this is the official channel through which information is disseminated to the market, ensuring that everyone has a fair chance and receives information at the same time. Right?
In such a world, what then is the role of sell-side analysts? Their work is available only to institutional investors who are able to pay for it, effectively creating an “unfair” advantage for themselves by getting higher quality information. Sell-side analysts piece together various sources to try to figure out what might be going on out there. Naturally, company announcements are a major part of the research process. By the time it’s on Sens though, it’s too late to have any kind of edge with that information.
There are elements of the work of sell-side analysts (and institutional investors, for that matter) that can start to become a grey area. I don’t believe private meetings with management behind closed doors are in the best interests of the market.
An incredibly underutilised tool in the market is the releases from Stats SA
There’s no way of knowing whether material, price-sensitive information is being shared or acted upon, aside from the deterrent of knowing that it is illegal to do so. One has to hope that rules are always followed. This is why one of my passion points is Unlock the Stock, a project that encourages management teams to present on a public webinar and accept questions from any interested parties, thereby levelling the playing field for retail investors.
Aside from company-specific information and hoping that management teams are willing to engage in more detail on a public basis, what tools can investors use to get closer to how sell-side analysts operate? An incredibly underutilised tool in the market is the releases from Stats SA. We have many government departments that are worse than useless, but this isn’t one of them. The data is of high quality and is released consistently, making it excellent for analysts.
For example, the retail trade sales report for August was released on October 16. One of the categories is “household furniture, appliances and equipment”, which contributes 4.2% of the total retail sales measured by Stats SA. For the three months to August, these sales grew 8.6% year on year in real terms, which means at constant prices. Simply, this category grew volumes by 8.6%, so any inflationary increases would be on top of that.
Here’s another fun fact: that same category grew 5.3% on a quarter-on-quarter basis at constant prices. In other words, growth was 5.3% for the three months to August vs the three months to May this year. Clearly, things are going better after the election for most people and they are willing to spend on discretionary items.
Now, where would this information have been helpful? On October 24, appliances group Nu-World released results for the year ended August. It had suffered an unpleasant interim period ended February, with revenue down 2.8%. For the 12 months though, it clawed this back to growth of 8.3%. That’s a huge second half of the year. The Stats SA release gave us a strong clue that this might be the case.
I strongly doubt that any sell-side analysts follow Nu-World, with a market cap of just R650m, but if there was such coverage, then you can be sure that Stats SA releases would be mapped against Nu-World’s historical results to test for correlation and then used as a predictor of how things might turn out. If nothing else, the Stats SA data is fresher than the company information. Stats SA releases monthly data and companies report every six months.
Then we have Lewis, which released a spectacular trading statement on October 30 for the six months to September. It forecast headline earnings to be up between 45% and 55%, leading to the share price closing 7.3% higher on the day. Common sense would have suggested Lewis would be doing well, as conditions have improved and it is a highly competent discretionary retailer. There’s something even more powerful than just having a hunch and acting on it: having a hunch and checking it against a sensible, reliable data source such as Stats SA and the retail trade sales data release.
Best of all? It’s free. You just need to search for it on the Stats SA website. Happy researching!
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