Olivia Stoch

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	72 115	72 577	-1,55%
NASDAQ Composite	15 833	11 323	11 146	-29,60%
S&P 500	4 797	3 993	3 965	-17,34%
Prime Lending Rate	7,25%	9,75%	9,75%	34,48%
Lunar BCI WW Flexible Fund	165,68	146,33	147,16	-11,18%
USD/ZAR	15,96	17,25	17,26	8,15%
EUR/ZAR	17,95	17,86	17,82	-0,72%
Brent Crude	77,86	95,82	87,82	12,79%

Source: iress

Lunar Capital on Eastwave Radio

Every Tuesday, at 07h45, Sabir chats with Nazia from Eastwave Radio (92.2 fm, live stream on www.eastwave.co.za) on investing and the markets.

Company and Market News

Last week, Walmart released their Q3 2022 results. Total revenue increased by 8.7% quarter on quarter to $152,8 billion. However, cost of sales increased at a higher rate of 10.1% to $115,6 billion. The higher cost of sales growth than revenue growth impacted Walmart’s gross margin, which decreased from 32,5% for Q3 2021 to 31,0% for the current quarter (Q3 2022). The gross margin of a company is a good indicator when looking at their ability to withstand the impact of inflation. The higher the gross margin, the better the company’s ability to withstand the impact of inflation. Despite the still high gross margin, Walmart registered a loss of $1,8 billion for the quarter largely because of opiod legal settlements. This is down from a profit of $3,1 billion for the same quarter last year. For the full fiscal year, Walmart expects year on year sales growth of 5,5%. They also expect fiscal year earnings per share to decline by 6% to 7% YoY.  The share price for Walmart increased by 5,37% during the week.

Walmart were still able to grow sales in the current inflationary environment and they indicated that their share of higher income earners has increased as inflation and high fuel costs impact people’s buying power. In general, big retailers, such as Walmart are able to perform well when inflation is increasing. They are able to negotiate prices months before delivery (when inflation is lower.) And when they actually sell the goods, if prices for the goods are higher in the market, they are able to increase their prices accordingly.

Walmart faces competition from many different companies, including Amazon and Costco. These three companies try to gain market share by reducing their margins They can do this through the general way they set prices, or through loyalty programmes – which incentivise people to spend more but at discounted rates. Amazon does both of these, and they also have an additional super strength: their cloud business. Their cloud business has a much higher operating margin compared to the other segments of their business. Amazon are then able to subsidise their other businesses using the profits from their cloud segment.

 

Disclosure: Walmart and Amazon are held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	64 271	65 539	-11.10%
NASDAQ Composite	15 833	10 321	10 860	-31.41%
S&P 500	4 797	3 583	3 753	-21.76%
Prime Lending Rate	7.25%	9.75%	9.75%	34.48%
Lunar BCI WW Flexible Fund	165.68	141.74	143.88	-13.16%
USD/ZAR	15.96	18.37	18.10	13.41%
EUR/ZAR	17.95	17.85	17.86	-0.50%
Brent Crude	77.86	91.66	92.82	19.21%

Source: iress

Company and Market News

Last week, ASML released their Q3 2022 results. ASML is an innovation leader in the semiconductor industry. They provide chipmakers with hardware, software, and services to mass produce patterns on silicon through lithography. In simple terms, to manufacture chips. For the quarter, net sales were up 10.25% to €5.8 billion compared to the same quarter last year. Net profit, for the quarter remained flat at €1.7bl and ASML recorded a net margin of 29.4%. For the last 5 quarters, the orders received have surpassed net sales, reflecting growing demand for their machines. Their results have shown more resilience compared to some of the other semiconductor companies. During the week, the share price increased by 17.93%. However, the share price has decreased by 33.5% since the beginning of the year.

One of the main reasons that ASML’s results have been so resilient, is that ASML has an effective monopoly on the sale of lithography machines. The demand for their lithography products has remained above their current supply levels. Some of their current customers are decreasing their forecasts of capital expenditure. They asked ASML to delay the delivery time of their orders. Most of ASML’s clients, however, have urged ASML to get their machine orders as soon as possible. In 2021, around 67% of the sales were accounted for by 2 customers, and roughly 40% of the net sales were recognised in Taiwan. This poses a risk to ASML. If there were to be any sudden demand side shocks to these customers or Taiwan – it could negatively affect the short-term prospects of the company.

Before ASML released their results, The USA put severe export controls on the sale of advanced semiconductor products to China. While this has a negative outlook for certain US producers, ASML is not directly affected by it, as they are based in the Netherlands. A few years ago, the European Union had already put export controls on specific semiconductor equipment, which includes the EUV (Extreme Ultra-Violet) lithography machines that ASML sells. ASML is still currently able to sell the Deep Ultra Violet (DUV) machines to China. If the EU were to put more strict controls on semiconductor companies, ASML may likely not be as badly affected as some of the other semi-conductor companies. 85% of their current order-book is for their EUV and immersion technology, which they have already been banned from selling to China.

Disclosure: ASML is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	65 675	64 271	-12.82%
NASDAQ Composite	15 833	10 652	10 321	-34.81%
S&P 500	4 797	3 640	3 583	-25.30%
Prime Lending Rate	7.25%	9.75%	9.75%	34.48%
Lunar BCI WW Flexible Fund	165.68	145.28	141.74	-14.45%
USD/ZAR	15.96	18.14	18.37	15.10%
EUR/ZAR	17.95	17.66	17.85	-0.56%
Brent Crude	77.86	98.52	91.66	17.72%

Source: iress

Company and Market News

 

Source: Iress

                                       The graph is for illustrative purposes only

Source: Iress

                                       The graph is for illustrative purposes only

There has been a lot of talk in the news about how poorly the South African Rand (ZAR) has done this year. We think that is a misconception since it doesn’t necessarily tell the full story if we only compare how the Rand has performed against the US Dollar (USD).

Over the last decade, the ZAR has depreciated almost 50% against the US Dollar, and approximately a third against the British Pound (GBP) and the Euro (EUR). Graph 1 shows this inversely since 31 March 2013. The USD/ZAR exchange rate has increased by nearly a 100% (i.e. 50% depreciation of the Rand), while the GBP/ZAR and the EUR/ZAR have both increased by just under 50% each (i.e. 33% depreciation of the Rand).

This year, the ZAR has also depreciated against the USD. However, Graph 2 shows that the ZAR currency isn’t the only currency that has depreciated this much against the USD. The British GBP, EUR and the Japanese Yen (YEN) have depreciated even more against the Rand. The main reason of the USD’s strong performance against all or at least most currencies this year is that the US Federal Reserve has been increasing interest rates in the USA at a much quicker pace compared to its economic peers. This is to try and tame high inflation in the US. The higher interest rates relative in US Dollar interest paying assets makes it more attractive to be invested in than interest paying assets in other currencies. Further, the dollar is considered as a safe haven and approximately 60% of globally disclosed foreign reserves is denominated in USD.

So, why has the ZAR held up better than other arguably stronger currencies? South Africa’s main export is mineral resources. Most mineral resources are priced in USD. When South Africa wants to export minerals to other countries, the other countries will pay the SA companies in USD. The South African companies will then need to convert the USD to ZAR. Which will result in the price of the ZAR increasing. Another reason the ZAR has performed relatively well, is that some of the long-term SA Bonds also have relatively attractive rates. For e.g. the R2044 offers investors current yield of 11.85%. This still gives holders of the bond a positive real return, when taking inflation into account.

Disclosure: The R2044 bond is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	63 726	65 675	-10.92%
NASDAQ Composite	15 833	10 576	10 652	-32.72%
S&P 500	4 797	3 586	3 640	-24.11%
Prime Lending Rate	7.25%	9.75%	9.75%	34.48%
Lunar BCI WW Flexible Fund	165.68	141.13	145.28	-12.31%
USD/ZAR	15.96	18.10	18.14	13.66%
EUR/ZAR	17.95	17.75	17.66	-1.62%
Brent Crude	77.86	85.29	98.52	26.53%

Source: iress

Company and Market News

Semiconductors

Earnings reports for Q3 in the USA are starting to come in. Last week, AMD (Applied Micro Devices), a semiconductor (computer chip) manufacturer, released a preview of their Q3 report. We think it will be interesting to review the Q3 results and outlook for semiconductor businesses. Their results and outlook may provide insights into the status of the industry and their respective businesses.

Revenue for AMD for Q3 is expected to be approximately $5.6 billion, this is compared to their previous expectations of $6.7 billion. This large decrease in expected revenue is primarily due to decreased demand in their client segment (laptops, PC’s, gaming, etc.), down 40% year-on year. However data centre revenue was up 45% year on year. Data centres comprises of 28.6% of total revenue for AMD. At the end of August this year, Nvidia released their Q2 results which showed similar trends. Their gaming segment recorded revenue of $2.04 billion, which was down 33% from a year ago. While their data centre segment grew by 61% from a year ago to $3.81 billion. Micron, who also operate in these fields but focus more on memory and storage products, saw decreases in sales in all their segments. The decrease in personal computing revenue from these companies is an indicator of the effects of the recession on consumers’ wallets. Consumers are likely holding out with regards to immediately buying new products as both inflation and interest rates take effect on them. Another factor that could be playing into the decrease in personal computing revenue is that many individuals would have upgraded or bought new laptops or PC’s during the Covid-19 pandemic and would unlikely need to immediately purchase a new one. Companies also ensured that their staff were had adequately specified laptops at home to meet the work-from-home requirements during the pandemic. These machines are still adequate as workers come back into the office. Semiconductor companies have seen heavy decreases in their stock prices this year compared to the overall market. Micron’s share price decreased by 44.7%, and AMD and Nvidia’s share price decreased by 61.1% and 59.9%, respectively. With the on-going geo-political and economic tensions between USA and China, semiconductor companies are coming under increasing pressure to limit the sale of high-end semiconductors by Western countries to China.

Disclosure: Nvidia is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	66 584	63 726	-13.56%
NASDAQ Composite	15 833	11 448	10 576	-33.20%
S&P 500	4 797	3 873	3 586	-25.24%
Prime Lending Rate	7.25%	9.00%	9.75%	34.48%
Lunar BCI WW Flexible Fund	165.68	146.28	141.13	-14.82%
USD/ZAR	15.96	17.62	18.10	13.41%
EUR/ZAR	17.95	17.65	17.75	-1.11%
Brent Crude	77.86	91.53	85.29	9.54%

Source: iress

Company and Market News

A few weeks ago, we looked at FirstRand and compared their results to some of the other banks that it primarily competes with in South Africa. This week, we shall take a look at Capitec. Last week Capitec released their unaudited interim results for half-year ending 31 August 2022. Headline earnings increased by 17% to R4.7 billion for the interim. Capitec also increased the number of active clients by 13% to 19 million people with 10.8 million of their retail clients using their digital channels.

Capitec also boasted a healthy 25.49% return on equity for the trailing 12-months. For the interim period, Capitec declared a dividend of 1400 ZAC per a share. Compared to FirstRand, Capitec targets a completely different market. Capitec target the lower income groups and offer them loans at higher interest rates. These higher interest rates are charged to compensate for the higher risk taken by Capitec. For the current interim period Capitec had a credit loss ratio of 3.3%. This is 5.9 times higher than the credit loss ratio that FirstRand had. However, we can see that their return on equity is higher than FirstRand and the other banks in the table below.

Capitec customers, who have taken loans out with them, will be put under pressure in the current increasing interest-rate environment. Lower income groups are put under significantly more pressure than higher income groups in these environments. And there is a likely chance that Capitec’s already high credit loss ratio could increase further. Capitec is progressively attempting to reduce its loans to lower income groups, for example by stopping lending to the lowest tier, and acquiring Mercantile Bank to increase its foothold in the business segment of the market.

Company	Return on Equity	Credit Loss Ratio	12m Headline Earnings (ZAR’bn)	PE at Friday 30 Sep 2022
Capitec	25.49%	3.30%	9.1	19.69
FirstRand	20.60%	0.56%	32.7	10.40
Standard Bank	11.30%	0.82%	27.7	8.36
ABSA	14.22%	0.91%	20.9	13.82
Nedbank	11.58%	0.85%	13.1	7.41

At these levels, the market expects Capitec to continue to outpace the other banks in earnings growth.

Disclosure: FirstRand is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

Lunar Capital Weekly Roundup

Source: Iress

Company and Market News

Last week, we saw the central banks of the United States of America, United Kingdom and South Africa increase their respective interest rates. Their decisions were based on trying to tame inflation in their respective economies remaining at higher levels than where they each would like it to be. The US Federal Reserve increased its rates by 75 basis points which resulted in its Federal Fund Rates being in the region of 3.0 to 3.25 percentage points. The Bank of England increased its interest rate by 0.5 percentage points to 2.25 percentage points. The last time these interest rates were seen in the UK, was during the 2008 global financial crisis. Last year, the Bank of England interest rates were as low as 0.1%. Lastly, South Africa increased its repo rate by 75 basis points taking the SA repo rate to 6.25% with our prime lending rate now at 9.75%.

With the increase in interest rates in mind, it’s worth looking at how the components of the consumer price index are changing. And what is still driving the current CPI levels. Let us look at the US as an example. In the US, they break down the components of the CPI basket into 3 categories: Food, Energy, and All items less food and energy. Food prices in the US have increased by 11.4% year-on-year. Energy has been the main contributing factors to the higher inflation figures. Year-on-year, energy prices increased by 23.8%, despite a decrease of 5% for the month of August. All items less food and energy category, which includes medical services, transportation and shelter – has increased 6.3% year-on-year.

Overall year-on-year inflation in the US was 8.3%. And month-on-month inflation was 0.1%.

The central banks are effectively trying to decrease spending by making it more expensive for consumers to borrow. This in turn, should bring down the level of demand for certain goods as consumers would not be able to buy the same number of goods and services with their current wallet. Producers would then see where they can decrease prices so as to decrease their inventory levels and sell more goods.

A major concern is that aggressive interest rate increases to tame inflation and high energy prices could lead to a recession in many economies around the world. Central bankers fear that runaway inflation could pose a bigger problem than a temporary recession and hence the drive to bring inflation lower.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	68 708	66 584	-9.68%
NASDAQ Composite	15 833	12 112	11 448	-27.69%
S&P 500	4 797	4 067	3 873	-19.25%
Prime Lending Rate	7.25%	9.00%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	146.87	146.28	-11.71%
USD/ZAR	15.96	17.33	17.62	10.40%
EUR/ZAR	17.95	17.41	17.65	-1.67%
Brent Crude	77.86	92.19	91.53	17.56%

Source: iress

Company and Market News

Last Thursday, FirstRand released their 2022 year-end results. The group CEO, Allan Pullinger, commented that earnings for the group have recovered and are above the 2019 peak levels. Return on equity (ROE) for the year was strong at 20.6% compared to the ROE of 18.4% from the previous year. Normalised headline earnings for FirstRand increased by 23% to R32.7 billion. The group also declared an annual dividends of 342 cents per a share, and a special dividend of 125 cents per a share. The total distribution to shareholders was R26.2 billion. Pullinger noted that the earnings growth for FirstRand is expected to revert back to the long term target of real GDP plus CPI plus (0% to 3%).

Comments from FirstRand indicate that the significant growth seen this year was as a result of new business origination picking up during the second half of the year. They were also able to significantly decrease their credit loss ratio (the amount they do not expect to recover from their core lending advances). Their credit loss ratio for 2022 year end was 0.56% compared to 1.10% from a year ago. The net interest income (NII) for the year increased by 6%. This was as a result of FirstRand taking a more conservative approach to who they lend to.

The poor current macro environment in South Africa poses a risk to FirstRand. The slow increase in the real GDP for the country will negatively impact the amount FirstRand will be able to earn over the long term. Another possible risk FirstRand faces is that they are currently being more conservative with the loans they are issuing. This could result in competitors increasing their market share if they are able to effectively manage their credit loss ratio.

Below is a table comparing certain metrics of FirstRand with other South African banks.

Company	Return on Equity	Credit Loss Ratio	12m Headline Earnings (ZAR’bn)	PE at Friday 16 Sep 2022
FirstRand	20.60%	0.56%	32.7	10.87
Standard Bank	11.30%	0.82%	27.7	8.09
ABSA	14.22%	0.91%	20.9	7.31
Nedbank	11.58%	0.85%	13.1	7.98

Disclosure: FirstRand is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	67 378	68 708	-6.80%
NASDAQ Composite	15 833	11 631	12 112	-23.50%
S&P 500	4 797	3 924	4 067	-15.21%
Prime Lending Rate	7.25%	9.00%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	144.43	146.87	-11.35%
USD/ZAR	15.96	17.32	17.33	8.58%
EUR/ZAR	17.95	17.23	17.41	-3.01%
Brent Crude	77.86	93.26	92.19	18.40%

Source: iress

Company and Market News

Last week, Shoprite Holdings (Shoprite) reported their full-year results for 2022. Revenue for the year was R184.1 billion, up 9.6% compared to the previous year. The increase in revenue was due to the number of customer visits increasing and the size of the average basket increasing. Profit for the year was R5.74 billion, up 18.13% compared to the previous year. The gross margin for Shoprite in 2022 was 24.48% versus 24.53% for 2021. Despite the global surge in inflation, Shoprite was able to keep their gross profit margins relatively flat. The share price for Shoprite decreased by 3.29% last week. The decrease in the price could be due to the market considering Shoprite to have been over-priced.

The July Unrest from last year is still taking effect on Shoprite. During the unrest, 231 stores were effected. As it currently stands, 37 remain closed; and 10 of those will be permanently closed. Shoprite successfully recovered R1.6 billion of its losses due to the unrest, from its insurance policies. Unfortunately, a further R145 million is expected to be irrecoverable. Shoprite still plan to open 275 stores during their 2023 financial year as they look to further increase their market share.

Shoprite Holdings is the largest South African retailer in terms of market capitalisation and revenue. Some of its brands are Shoprite, Checkers, and Usave. Shoprite Holdings primarily focus in the food retail space. The Shoprite and Usave stores account for 50.8% of the total sales and have a total of 1139 stores between them. 32.5% of Shoprite Holdings’ revenue comes from Checkers and Checkers Hyper stores, where they have a total of 284 stores. Checkers is considered more of a premium brand. On average, they account for more revenue per a store compared to the Shoprite and Usave.

Below is a table showing key metrics of Shoprite compared to some of their closest competitors. These are point-in-time figures which may contain historical anomalies.

Company	PE at close on 9 Sep 2022	Gross Margin	Net Margin	ROE
Shoprite	21.60	24.00%	3.06%	22.40%
Pick ‘n Pay	22.97	18.80%	1.24%	32.69%
Woolworths	16.41	35.48%	4.52%	31.57%

Disclosure: Shoprite Holdings is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

Lunar Capital Weekly Roundup

 

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	70 173	67 378	-8.61%
NASDAQ Composite	15 833	12 142	11 631	-26.54%
S&P 500	4 797	4 058	3 924	-18.19%
Prime Lending Rate	7.25%	9.00%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	149.91	144.43	-12.83%
USD/ZAR	15.96	16.88	17.32	8.52%
EUR/ZAR	17.95	16.82	17.23	-4.01%
Brent Crude	77.86	100.70	93.26	19.78%

Source: iress

Company and Market News

In 2016: the Democratic National Committee (DNC) thought that they were hacked during the 2016 US-election between Hilary Clinton and Donald Trump. They brought in Crowdstrike to assess their assumptions. Crowdstrike put their product on all the DNC members’ laptops and phones, and noticed that a number of apps were sending information to a specific Russian Hacker group known as Cozy Bear, without the DNC-members knowing. Crowdstrike were able to provide evidence to the FBI, to indicate that Cozy Bear had tried to influence the election.

Crowdstrike, founded in 2011, is a cybersecurity company that focuses on endpoint security through the cloud. Crowdstrike, essentially collects data on what applications are interacting between a person’s devices and other devices; and sends that information to Crowdstrike where their AI system continuously assesses the data to see if there are risks. If they pick up any anomalies, Crowdstrike would have the ability to contain the threat by shutting off certain applications or devices to prevent further contamination. Crowdstrike are also able to look at where the threats are coming from and compare it to all the other threats they’ve seen on the other devices of other companies in their network.

Last week Crowdstrike released their Q2 2022 results. Annual Recurring Revenue (ARR) was $2.14 billion and it grew 59% year on year. Net loss for the company was $78.7 million for six months ended July 31, 2022. This is compared to the net loss for the same period a year ago of $140.2 million. Despite the net loss, net cash from operating activities for six months ended July 31, was $424.9 million compared to $256 million a year ago. The share price decreased by 11.1% during the week.

Businesses will always require protection against cybercrimes, which is currently on the rise. This plays in Crowdstrike’s favour. Crowdstrike offers a more thorough security compared to traditional firewall security as it continuously looks for threats in the devices, whereas other firewalls generally only search for threats at the entry point. On the other hand, cyber-criminals are also continuously developing newer and more difficult-to-spot threats. Crowdstrike is operating in an ever-changing environment which makes it tougher to cement their moat compared to other business types.

Disclosure: Crowdstrike is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

Lunar Capital Weekly Roundup

 

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	69 719	70 173	-4.81%
NASDAQ Composite	15 833	12 705	12 142	-23.31%
S&P 500	4 797	4 228	4 058	-15.40%
Prime Lending Rate	7.25%	9.00%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	151.96	149.91	-9.52%
USD/ZAR	15.96	17.01	16.88	5.76%
EUR/ZAR	17.95	17.08	16.82	-6.30%
Brent Crude	77.86	95.78	100.70	29.33%

Source: iress

Company and Market News

Snowflake, a data cloud company, released their 2nd quarter 2023 results last week. Revenue for the quarter increased by 83% year-on-year to $466.3 million. And the gross-profit margin for the quarter was a healthy 72%. One of the interesting metrics Snowflake uses in their press release is: net revenue retention. Net revenue retention measures, as a percentage, how much the same Snowflake customers spend this year compared to the previous year. Net revenue retention for Snowflake was 171% as of 31 July 2022. This shows that the customers that use Snowflake’s platform, gain quite a lot of value from it, and thus use the product more in the future. This is especially strong, seeing as a lot of companies have been cutting back on spending this year. Snowflake’s share price increased by 31.68% between the beginning and end of last week. By the end of Friday, the market cap for Snowflake was $62.89 billion.

The data cloud allows organisations to share their data easily on the Snowflake platform, which operates on any of the major cloud infrastructures (AWS, Microsoft Azure, Google Cloud). Snowflake takes data from its clients and formats it so it can be easily accessible on their platform. All the clients on Snowflake’s platform have access to the data. Companies are able to monetise off the data that they share. Snowflake uses the pay-per-use model for the data on their platform. The more a client uses the data – the more the client pays. And the more clients Snowflake gets, the better the product becomes for all their clients.

One of the risks Snowflake faces, is that they have a lot of expensive fixed costs. If they aren’t able to grow their customer base and revenue fast enough – they face the risk of not recovering the costs quickly enough. Despite Snowflake creating the data cloud, other companies, with a lot of fire power, could try develop their own data cloud models. Snowflake, however, has the first-mover advantage.

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