Olivia Stoch - Lunar Capital

Weekly Roundup 2022-08-19

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	70731	69 719	-5.43%
NASDAQ Composite	15 833	13047	12 705	-19.76%
S&P 500	4 797	4280	4 228	-11.85%
Prime Lending Rate	7.25%	9.00%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	148.81	151.96	-8.28%
USD/ZAR	15.96	16.23	17.01	6.58%
EUR/ZAR	17.95	16.64	17.08	-4.85%
Brent Crude	77.86	97.1	95.78	23.02%

Source: iress

Company and Market News

Last week, Walmart released their Q2 2023 results. The results were good and it gave quite an interesting insight into the current spending behaviour of US consumers, primarily. Total revenue for the quarter increased by 8.4% compared to the same quarter a year ago. Gross profit for the quarter increased by 3.2%. And net income for the period increased by 20.4%.

The smaller increase in gross profit compared to the total revenue for Walmart indicates that Walmart were not able to sell all their inventory at the prices they initially planned to sell it at. The company noted that they reduced prices of some of their goods so as to not maintain a bloated inventory. This affected the gross margin for Walmart compared to the previous quarter. The gross margin for Walmart was 31.96% for Q2 2023 compared to 34.10% for the same quarter last year. The gross margin of a company is a good indicator as to how well a company can handle inflation. However, the absolute increase in gross profit resulted in Walmart increasing their net income significantly.

One of the drivers for growth in Walmart is its advertising business. Walmart has a large amount of consumer data, and are leveraging it to companies who want to advertise on their platforms. Their Ad business grew by just under 30%. An article in the Business Day suggests that Walmart could potentially roll out a platform that will allow social media influencers to market their products. Whether they are able to successfully do it or not is another question. Walmart already works with influencers to promote certain goods on other platforms. Currently, influencers are able to earn a commission on goods sold if a customer uses an influencer link to purchase a Walmart product.

The large scale of Walmart allows them to offer customers low prices for their goods. However, the net margins for the business remain quite low in comparison to other businesses, but they operate at such a large scale that they are still quite profitable in absolute values. The low margins still provide a risk for the company, as it means they are quite price sensitive to input costs. If we look at one of their competitors, Amazon, Walmart’s margins are significantly lower as Amazon has a highly profitable cloud service: AWS. This allows Amazon to offer similar prices to the eCommerce consumers while generally maintaining higher margins in their overall business.

Below is a table comparing certain metrics of Walmart to metrics of a year ago.

Period	Price at end of week of Q2 results release ($)	EPS	Gross Margin	Net Margin	ROE
Rolling 12-months Q2 2023	137.02	5.00	24.60%	2.36%	16.21%
Rolling 12-months Q2 2022	150.45	3.56	25.10%	1.78%	11.53%

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 together with our Disclaimers can be read here

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Weekly Roundup 2022-07-29

Weekly Stocktake / By Olivia Stoch

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	68 070	68 934	-6.50%
NASDAQ Composite	15 833	11 834	12 391	-21.74%
S&P 500	4 797	3 961	4 130	-13.90%
Prime Lending Rate	7.25%	9%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	148.08	145.24	-12.34%
USD/ZAR	15.96	16.85	16.53	3.57%
EUR/ZAR	17.95	17.21	17.00	-5.29%
Brent Crude	77.86	103.71	103.59	33.05%

Source: iress

Company and Market News

Last week, many of the big US companies released their quarterly results for the period. Overall, the companies released positive results compared to what the market was expecting. This resulted in the Nasdaq and the S&P 500 increasing by over 4% during the week. The major companies that released their results were: Alphabet, Amazon, Apple, Meta, Microsoft and Qualcomm.

Earnings this quarter were better than expected given the inflation and recessionary outlook. However, at Lunar Capital, we think that the next quarter’s earnings season will be more significant indicator with regards to the outlook of the economy. The economy would have been through a longer period of increased interest rates. Consumers would then be paying higher interest on their mortgages, for example, for a longer period; and thus, would have less discretionary spending. This arguably would be felt in the economy as a whole, potentially reducing the earnings of companies.

Below is a table showing some of the financial indicators of companies that released their results.

Company	Market Cap @ 29 July 2022 ($bn)	12m Earnings Change (%)	PE Ratio @ 29 July 2022	ROCE
Alphabet	1 519	14.44%	21.72	24.41%
Amazon	1 375	-60.57%	121.52	4.17%
Apple	2 630	14.78%	23.05	48.26%
Meta	428	15.79%	13.19	30.57%
Microsoft	2 095	18.72%	29.09	26.96%
Qualcomm	163	39.72%	12.86	36.55%

Disclosure: Alphabet, Amazon, Microsoft, Qualcomm, and Berkshire Hathaway (which has a significant holding in Apple) 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.

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Weekly Roundup 2022-07-22

Weekly Stocktake / By Olivia Stoch

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	65 089	68 070	-7.67%
NASDAQ Composite	15 833	11 452	11 834	-25.26%
S&P 500	4 797	3 863	3 961	-17.42%
Prime Lending Rate	7.25%	8.35%	9%	24.14%
Lunar BCI WW Flexible Fund	165.68	141.63	148.08	-10.62%
USD/ZAR	15.96	17.08	16.85	5.58%
EUR/ZAR	17.95	17.23	17.21	-4.12%
Brent Crude	77.86	102.60	103.71	33.20%

Source: iress

Company and Market News

Last week, ASML released their Q2 2022 results. Revenue and net income for the quarter both increased by 35% compared to the Q2 last year.

ASML have indicated that they expect net sales for Q3 2022 to be between €5.1 bl and €5.4 bl. And for the year they expect revenue growth to be around 10%. This is lower than they previously stated. They noted that it is due mainly to delayed revenue recognition from the fast shipments they are implementing. They noted that some customers are indicating signs of slowing demand from certain consumer-driven market-segments. However ASML are still seeing high levels of demand for their systems. They currently have strong net bookings for their systems. According to ASML, the strong demand is driven by global megatrends in automotive, high-performance computing, and green energy transition.

Due to the on-going supply-chain issues, ASML is using the process of fast shipment to deliver their products to customers. This means that ASML will skip some of the testing at their factories and will do final testing at their customers’ site. ASML will only then be able to recognise revenue at a later stage. Their customers, however, are able to test the systems they receive from ASML earlier and can begin production of microchips earlier.

With the ongoing geo-political tensions, ASML faces the risk of being forced to stop selling their DUV (Deep Ultraviolet) systems to China. Semiconductor companies require export licenses, as semiconductors are considered dual-purpose products that are used for general consumption and military use. Currently, they are unable to sell their flagship EUV (Extreme Ultraviolet) systems to China.

ASML is one of the leading suppliers to the semiconductor industry. The company provides chipmakers with the hardware, software, and services to mass produce microchips. Some of their clients include Intel, Samsung, and TSMC. ASML effectively has a monopoly on making equipment that uses photolithography (process of using light to print patterns on silicon) to produce microchips.

Below is a table comparing some of the rolling 12-month results for ASML.

Rolling 12-Month Period Ended	Net Income (€’bn)	Free cash Flow (€’bn)	PE at end of week Results Release	Return on Capital Employed
03-Jul-22	5.62	9.24	37.74	32.53%
04-Jul-21	4.78	6.55	55.64	25.09%

Source: iress

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.

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Weekly Roundup 2022-07-15

Weekly Stocktake / By Olivia Stoch

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	68 327	65 089	-11.71%
NASDAQ Composite	15 833	11 635	11 452	-27.67%
S&P 500	4 797	3 899	3 863	-19.46%
Prime Lending Rate	7.25%	8.25%	8.35%	13.79%
Lunar BCI WW Flexible Fund	165.68	144.63	141.63	-14.52%
USD/ZAR	15.96	16.90	17.08	7.02%
EUR/ZAR	17.95	17.21	17.23	-4.01%
Brent Crude	77.86	107.08	102.60	31.77%

Source: iress

Company and Market News

On Friday, 15 July 2022, MTN announced that they were in talks with Telkom, to acquire the entire share capital of Telkom in return for shares in MTN, or a combination of a cash pay-out and shares in MTN.

The mobile market in South Africa is primarily made up of 4 players: Vodacom, MTN, Telkom, and Cell C. For the period ended 31 March 2022, MTN had a total of 34.5 million subscribers in South Africa and Telkom had 16.9 million subscribers. For the most recent quarter, the mobile subscription Average Revenue per User (ARPU) for MTN was R93.26 and R89.94 for Telkom
Vodacom has the biggest share of customers in South Africa (45.4 million customers) with an ARPU of R90. And Cell C had 12.9m subscribers in South Africa (the lowest market share.) Cell C have not disclosed their ARPU.

If the MTN-Telkom deal goes through, MTN would significantly be able to close the gap between itself and Vodacom in the South African mobile market. MTN would also have further access to the fibre and other ICT (information and Communications Technology) markets. However the deal would still need approval from the competition commission. We are not sure whether the approval will go through. The outcome of the deal would likely result in 2 players (MTN and Vodacom) controlling more than 80% of the mobile market in South Africa.

The share price for MTN remained flat for the week and the share price of Telkom increased by 16.6%. Below is table comparing certain metrics of MTN with Telkom.

Company	Market Cap at end of week (R’bn)	Total Assets at Year End (R’bn)	PE at end of week	ROE
MTN	267	366	13.70	5.29%
Telkom	22	66	7.34	7.73%

Source: iress

Disclosure: Vodacom and MTN 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 together with our Disclaimers can be read here.

Weekly Roundup 2022-07-15 Read More »

Lunar Capital Youth League – 2022 2nd Intake Invitation

In The Media / By Olivia Stoch

Dear Lunar Capital Clients and Prospective Clients

Invitation to Participate in the Lunar Capital Youth League Academy

We are almost complete with the first intake of the 2022 Lunar Capital Youth League Academy programme. We are now ready to take on the second intake of the Academy for 2022. If you are under 35 and would like to learn about investing, this is your opportunity to apply for this programme, which is run free of charge!

At Lunar Capital, our core purpose is to meaningfully impact the investment culture of communities and people whose lives we touch. We believe that learning is foundational to creating a strong investment culture in South Africa. Therefore, one of our initiatives is to create the Lunar Capital Youth League to upskill the investment knowledge of young investors. We ran our first programme in the first half of this year, and we are excited to announce that we will be having our next programme, starting in July 2022.

The upcoming programme of the Lunar Capital Youth League will be 10 sessions run from July to November and will be hosted by our CEO, Sabir. We will cover the different investment themes, the Lunar Capital Investment Framework, and the approach to analysing specific stocks and managing your portfolio. The Lunar Capital Youth League will start on 18 July 2022 and thereafter will be held every second Monday after that. We aim to have ten Zoom sessions of between 45-60 minute, starting at 5pm.

The Lunar Capital Youth League has 12 spots available and is open to our existing clients (or prospective clients) who are between the ages of 18-35 years old. If you are interested, send us a brief motivation (no more than 80 words) by Monday the 21st of June 2022, letting us know why you would like to join. Send your response to [email protected].

Our ethos at Lunar Capital is to Learn, Invest and Enjoy. We look forward to learning, investing and having fun with you!

Please forward this invitation to anyone that you think may be interested in joining the Lunar Capital Youth League Academy.

Kind regards,
Lunar Capital Team

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Weekly Roundup 2022-06-03

Weekly Stocktake / By Olivia Stoch

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	70 485	70 920	-3.80%
NASDAQ Composite	15 833	12 131	12 013	-24.13%
S&P 500	4 797	4 158	4 109	-14.33%
Prime Lending Rate	7.25%	8.25%	8.25%	13.79%
Lunar BCI WW Flexible Fund	165.68	139.50	142.61	-13.92%
USD/ZAR	15.96	15.60	15.54	-2.63%
EUR/ZAR	17.95	16.75	16.68	-7.08%

Source: iress

Company and Market News

Lululemon Focus

Lululemon, a premium athleisure brand, released their Q1 2022 results on Thursday, last week. It has a market capitalisation of $38.5 bl. The current high inflation in the US has not had as much strain on Lululemon’s consumers’ wallets in comparison to products that are targeted to people at a lower income level. Lululemon’s net revenue for the quarter increased by 32% compared to the same period last year. For 2022, Lululemon expects net revenue to range between $7.61 bl and $7.71 bl. This will represent a growth rate for the year of around 22%.

Lululemon started out as a high-end yoga clothing company in Vancouver, Canada. Over the years they have expanded their range of offerings, with the most recent product being an athletics shoe specifically designed for women. Lululemon primarily sells through their online website and through their company-operated stores. For FY 2021, 70% of sales were made in the US, 15% were made in Canada, and 15% were made outside of North America.

According to Business wire, the overall athleisure market is expected to grow from $411 bl in 2021 to $793 bl in 2028. Despite having a strong brand, Lululemon operates in a very competitive environment. There is still a risk that if inflation were to remain high and the US were to go into a recession, the overall sales of Lululemon could still be affected negatively. Consumers would likely cut spending and/or go to their competitors who sell athleisure at lower prices.

Below is a table comparing certain financial metrics of Lululemon to Nike, and Under Armour:

Company	PE at end of Friday	ROCE	Gross Margin	Net Margin
Lululemon	38.22	27.6%	57.7%	15.1%
Nike	31.91	20.6%	46.2%	13.1%
Under Armour	21.45	7.1%	49.6%	3.9%

Disclosure: Lululemon 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.

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Weekly Roundup 2022-05-27

Weekly Stocktake / By Olivia Stoch

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	67 575	70 485	-4.39%
NASDAQ Composite	15 833	11 354	12 131	-23.38%
S&P 500	4 797	3 901	4 158	-13.31%
Prime Lending Rate	7.25%	8.25%	8.25%	13.79%
Lunar BCI WW Flexible Fund	165.68	138.77	139.50	-15.80%
USD/ZAR	15.96	15.85	15.60	-2.26%
EUR/ZAR	17.95	16.73	16.75	-6.69%

Source: iress

Company and Market News

Nvidia Focus

Nvidia’s Q1 2023 results were released last week, beating analyst expectations. However, Nvidia decreased guidance expectations for Q2. The primary reasons are that China is still under strict lockdown which affects their sell-through rate. Nvidia has also stopped selling products in Russia which has an important gaming market.

Nvidia, a pioneer of the GPU-accelerated computing, develops graphical processing unit (GPU) based computer chips and solutions for the gaming, professional visualization, data centre, and the automotive industries. Nvidia is attempting to redefine computer graphics, high-performance computing, and Artificial Intelligence.

For FY 2022, Nvidia’s revenue was $26.9 bl. Gaming accounted for 46.3 percent of revenue and data centres accounted for 39.4 percent. Professional visualization, automotive, OEM and other accounted for the remaining 14.2 percent. They are seeing a slowdown of growth in the gaming sector; but the demand for their data centres is continuing to grow rapidly. According to IOT analytics, a conservative estimate for total addressable public cloud market is expected to plateau at $600 bl. The current addressable market is $157bl.

Nvidia faces multiple challenges though. They operate in a highly competitive environment with significant regulatory hurdles. Last year, Nvidia attempted and failed to acquire ARM from Softbank, which resulted in a $1.36bl expense. The supply chain crisis has also prevented Nvidia from operating at its historic capacity.

Below is a table comparing certain key metrics for Nvidia:

Rolling 12-months ended	EPS	PE day after release of results	ROE	Net Margin
01-May-22	3.73	43	36.17%	32%
02-May-21	2.12	74	28.37%	28%

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.

Weekly Roundup 2022-05-27 Read More »

Tough Times

Archive / By Olivia Stoch

Challenging Times

“ … (be) fearful when others are greedy, and greedy when others are fearful.”

— Warren E Buffett

This has been a challenging time for investors in the markets. Almost all asset classes have come down significantly. There are a few exceptions like oil companies that have benefited with the rise in oil prices due to the Russia/Ukraine war.

As at the time of writing, the Nasdaq is down almost 30%, the S&P500 almost 20% and the JSE down almost 15% from their peaks. Some companies share prices have come down even more than 50% or even 70%. The reasons for these drops vary, but the main reason is rising inflation across all geographies. This in turn requires central banks to raise interest rates to try and tame inflation which in turn could result in a recession.

In the last few years, the US and European central banks have had very low interest rates and were in fact printing money to support their economies. This “cheap” money has resulted in inflated asset (read stock market) prices and is also one of the significant reasons for rising inflation. As money gets more expensive (i.e., rising interest rates), this impacts negatively on asset prices, (i.e., they go down). This builds momentum as expectations of interest rates going higher increase. Prices come down faster.

When money was cheap, asset prices rose and at some point, they became overvalued. Now that money is becoming more expensive, and asset prices are getting lower, it is very likely that they more reasonably priced and in fact maybe in really good value. When this happens, it is great if you have some cash that you can use to buy these better valued assets and enjoy good returns until the next cycle starts. Look at the chart below showing the Nasdaq over 20 years. The global financial crisis of 2008-2009 looks like a blip on the chart. Investors who bought towards the end of that crisis, or even a little after, would have enjoyed significant returns on their investments. Now, we are not suggesting that this will repeat itself. Rather, that investors would be much better off buying after this dip than a few months ago.

At Lunar Capital, we wait for opportunities like this to present themselves. Whilst we cannot predict how much longer this market correction will last or how much lower the market can go; we are more confident that this is a time to be on the lookout for bargains of excellent businesses that will be able to withstand this downturn.

Lunar Capital Tough times

Source: Iress

In our experience in markets like this, it is best to remain calm and ride through the storm. This is a time to look at those businesses that were previously too expensive but now offer the prospect of better returns in the long-term. These market changes also provide opportunities to rebalance the portfolio.

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April 2022 Fund Fact Sheet

The Lunar BCI Worldwide Flexible Funds April 2022 Fund Fact Sheet can be found on our website, showing the latest performance of the fund, amongst other pertinent information.

If you wish to subscribe to our mailing list, you can do so here. Please feel free to forward this to anyone who may be interested in receiving our Insights.

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Our Privacy Policy can be found on our website, www.lunarcapital.co.za as amended from time to time.

Tough Times Read More »