Taking Stock - Pandora moves toward lab-made diamonds

In today's taking stock, we discuss Pandora that is moving towards lab-made diamonds.

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On the Johannesburg bourse, shares dropped with the opening of the US market, which saw a technology-led stock sell-off. The Johannesburg Stock Exchange's All-Share index closed down 0.62% (to 66,174 index points) and the blue-chip Top 40 index dropped 0.65%. The banking and industrials indices fell 0.64% and 1.18%, respectively. Bourse heavyweight Naspers lost around 2%. In other news, South Africa has allocated an extra R4 billion to buy Covid-19 vaccines and extend a special distress grant to thousands of people hit by the pandemic, in a Special Appropriation Bill tabled by the finance minister on Tuesday.



European stocks fell sharply Tuesday afternoon, led by declines in the tech sector, as investors monitored global recovery prospects and a fresh round of corporate earnings. The pan-European Stoxx 600 closed down by 1.5% provisionally. Tech shares tumbled 3.8% to lead the losses amid fears over high valuations and the reopening of economies after tough coronavirus restrictions that heavily benefited tech.



The S&P 500 fell on Tuesday amid selling in Big Tech and other high-growth stocks, erasing the benchmark’s strong start to the month. Reasons for the downward pressure varied, but strategists cited a mix of concerns about rising inflation, fears the Federal Reserve may have to taper monetary stimulus earlier than telegraphed, and the potential for tax increases in the months ahead. US equities hit their lows of the day following Treasury Secretary Janet Yellen’s comments that interest rates may have to rise somewhat to keep economy from overheating.



Australian shares rose this morning while some of the other major Asia-Pacific markets are closed for the day. The benchmark ASX 200 traded 0.7% higher at 7,117.60, with the heavily-weighted financials subindex up 0.84%. Energy and materials were up 0.9% and 1.2%, respectively as major miners and oil stocks mostly advanced. Markets on the Chinese mainland and Japan remain closed for public holidays. South Korean markets are also shut.



The rand weakened against a dominant dollar on Tuesday, erasing the previous day's gains as investors awaited upcoming data and policy speeches. At the close, the rand was trading around the R14.46 mark versus the dollar, 0.51% weaker. In the absence of major shifts in South Africa, the rand has taken its cue from global sentiment in recent weeks. Although rand assets offer some of the highest real returns in major emerging markets, Africa's most industrialised economy faces challenges, including a rapid build-up in public debt exacerbated by the COVID-19 pandemic.



Gold prices ticked up on Wednesday, lifted by a retreat in the dollar, although gains were kept in check after US Treasury Secretary Janet Yellen said interest rates may need to rise. Gold prices fell more than 1% on Tuesday after Yellen said she sees no inflation problem brewing, downplaying earlier comments that rate hikes may be needed to stop the economy overheating as President Joe Biden’s spending plans boost growth. Oil prices rose nearly 1% on Wednesday, extending overnight gains, after industry data estimated US crude stockpiles fell much more than expected last week reinforcing bullish views on fuel demand in the world's largest economy.


Equites Property Fund (EQU) -5.9%

Logistics-focused Equites Property Fund is one of the only local real estate investment trusts (Reits) to pay out its full dividend and increase its distribution per share in the face of the Covid-19 crunch. But its share price fell almost 6% on Tuesday, following the release of the fund’s annual results for the year ended February 28, 2021. The group’s full-year distribution per share was up 2.4%, to 155 cents (2020: 151.39 cents). Equites declared a final dividend of 80.56 cents per share. For its half-year to the end of August 2020, the group declared an interim dividend of 74.44 cents per share, which brought its total distribution for the year to 155 cents per share. The 2.4% increase in total distributions is in line with its market guidance of 2-4% growth for the year. However, this is a far cry from the over 9% growth it achieved for its previous financial year, which was pre-Covid. Equites is also paying shareholders 100% of the full-year dividend, while most of its JSE-listed peers have reduced pay-outs (introducing pay-out ratios) in order to conserve cash and weather pandemic pressure on balance sheets. Some counters, like Redefine Properties and Rebosis, have opted not to pay over the last year as a result of spiralling debt or loan-to-value (LTV) ratios. Many listed property funds have also deffered interim dividends to year-ends. Equites CEO Andrea Taverna-Turisan brushed aside the market’s reaction, telling Moneyweb the group has delivered a strong set of full-year results compared to most of its property peers. Equites notes in its results announcement that the growth it achieved was driven by strong growth of 6.7% in its South African like-for-like net rental income. It attributes this to robust in-force contractual lease escalation, coupled with no tenant defaults and limited lease expiries during the period.


South African Airways

Subsidiaries of South African Airways (SAA) are to get around R2.7 billion from the R10.5 billion allocated to the airline to implement its business rescue plan. SAA Technical (SAAT) will receive R1.663 billion, Mango Airlines R819 million, and Air Chefs R218 million. This follows the tabling of a Special Appropriation Bill by the Minister of Finance on Tuesday. “Despite the effective date of this Act, the appropriation for the subsidiaries … must be regarded as an appropriation and expenditure for the 2020/21 financial year,” states the bill. The Chief Director of state-owned enterprises at National Treasury, Ravesh Rajlal, told parliament’s standing committee on appropriations on Tuesday that at the time of the funding allocation for SAA, the Department of Public Enterprises (DPE) informed the treasury that the allocations made to SAA subsidiaries in the business rescue plan may change due to the expected restructuring of the airline when the interim board takes over.


Pandora (PNDORA) +6.0%

Pandora, the jewellery maker best known for its silver charm bracelets, will stop selling mined diamonds and focus on more affordable, sustainable, lab-grown gems, it said on Tuesday. “Diamonds are not only forever, but for everyone,” Pandora Chief Executive Alexander Lacik said as the Danish company launched a new collection of man-made stones. Pandora, which made 85 million pieces of jewellery last year and sold 50,000 diamonds, said it aimed to “transform the market for diamond jewellery with affordable, sustainably created products”. The growing acceptance of man-made diamonds by millennials attracted to cheaper stones guaranteed not to have come from conflict zones has spurred firms such as De Beers to end its decades-old policy of shunning synthetic gems in its jewellery. Prices of lab-grown diamonds have fallen over the past two years following the U-turn by De Beers in 2018 and are now up to 10 times cheaper than mined diamonds, according to a report by Bain & Company. Pandora’s new collection of lab-grown diamonds will be launched initially in the United Kingdom and will be available in other key markets next year, it said. Pandora said it expected the diamond market to continue to grow, with sales of lab-grown diamonds outpacing overall growth.

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