6 February, 2020
Eskom: Winter is coming...
Following our long-term analysis of Eskom, we argue that the current wave of power cuts is fundamentally different from earlier rounds of load shedding.
We make the case that, contrary to management's claims that poor plant performance due to a lack of maintenance and an ageing plant infrastructure, the outages may be a consequence of the focus on staff costs, which resulted in a decline in the adherence to standards of operating practices.
We believe the focus on increased maintenance will not be sufficient to arrest the high level of unplanned outages, but that an increase in engineering and technical skills at the power stations will be a more effective long-term solution to Eskom’s operational failings.
We forecast that the period from April to September 2020 could see higher levels of load shedding if unplanned maintenance remains at current levels.
In our view, the poor generation performance is not structural in nature and improvement in energy availability can be achieved by focusing on the company’s human capital.
A snapshot of Spur (SUR) - 1H20 results.
We attended the Annual General Meeting of Rhodes Food Group (RFG) and summarise key points from the shareholders’ meeting.
A snapshot of Truworths (TRU) - 1H20 results.
A snapshot of Woolworths' 1H20 results.
Following our long-term analysis of Eskom, we argue that the current wave of power cuts is fundamentally different from earlier rounds of load shedding. We make the case that, contrary to management's claims that poor plant performance due to a lack of maintenance and an ageing plant infrastructure, the outages may be a consequence of the focus on staff costs, which resulted in a decline in the adherence to standards of operating practices. We believe the focus on increased maintenance will not be sufficient to arrest the high level of unplanned outages, but that an increase in engineering and technical skills at the power stations will be a more effective long-term solution to Eskom’s operational failings. We forecast that the period from April to September 2020 could see higher levels of load shedding if unplanned maintenance remains at current levels. In our view, the poor generation performance is not structural in nature and improvement in energy availability can be achieved by focusing on the company’s human capital.
Some positive news came in the form of the 4.3% y-y uplift in vehicle sales for December 2019 following a dismal year for new car sales. Furthermore, CPI and PPI inflation remained stable at 4.0% and 3.4% y-y respectively. On the other hand, PMI remains under the 50-point neutral mark at 47.1 points in December 2019 while the value of Building Plans passed plummeted by -35% y-y in November. In February 2020, the price of petrol will moderate by -13c/litre to R15.29/litre while diesel will decline by -5c/litre to R14.03/litre. The rand depreciated by -11.5% against the dollar on a y-y basis, closing at R15.01/USD.