Budget bodes well for bond yields

You're listening to the Money Web Now podcast series with Simon Brown. Livestreamed every weekday at 6.30 a.m. Thursday 26 February we got dull technology results after US closed tonight. I'm Simon Brown coming at you, Lavin Loud from a hotel room in post budget Cape Town. On the show today put your tender from Perture Investment Managers. The bond market liked that budget a whole lot but also got a question around as I debt to GDP sort of lowers demand stays as it is. Being a check with Okad Yenser, friend Rensberg, Motors CEO, strong results, improved vehicle sales boosting margins and then bid corp CFO, operational leverage and muted trading conditions. This podcast is brought to you by Standlip Asset Management, invest in more global opportunities through their partnership with JP Morgan Asset Management. Morning headlines, Money Web, Minister Lifts and your tax free limit up from the 36 to now 46,000 a year that kicks off Monday however lifetime limit remains half a million. Business day taxpayers get 13.7 billion in relief. Meanwhile, Katsius was green, S&P 0.8% higher and Nasdaq 1.4%. The East is mostly red, we got Sydney off a 10th of a percent, Turkey is the exception of half a percent, Hong Kong is down half a percent and 10th sent down 0.7%. Commodities are mixed, we got gold futures again unchanged, $5,202 announced, Brent is weaker, $7,103, Platinum is green, $2,298, and palladium is weaker, $1,840. The Rand is $15,85, Bitcoin is $68,200 and the top 40 opening call, red but seven points, we can call that flat. Money Web now, on the money, also available on podcast. Telling that with Pujatana for perpetual investment managers, Pujat appreciate the early morning time. Budget yesterday, I watched what the Rand's responses are, I watched what the stock market responses. My sense is always, it's kind of the bond market which is really telling the story and if anything, I know my screen, bonds are at the 10 year local bonds are trading down at about 7.8%, they traded closer to a full 8% earlier in the week, the bond market liked the budget. Is that a fair assessment from your thought? Yes, he's now, so yeah, absolutely. Let me, so it's a very good question and let's take a step back and assist the budget very quickly but I'm going to assist it from a fixed income lens. And I'll give you what the short term reaction in rates yesterday versus what we actually expect on a longer term. So what we wanted to see and what we got, we wanted a credible investment. A credible debt peak, we got that. So debt peak said 78.9% of GDP this year and gradually declines into the high 60s by 2033, 34. So this peak and decline story is the single most important anchor for essay bond risk premium. So the second thing we wanted, we wanted no new tax shocks, right? We got that too. So the proposed tax hike was pulled and there were also the brackets were adjusted to inflation. So that's mildly supportive for growth and sentiment. Again, we want that growth and then lastly that commodity upside, we wanted to see that being used to strengthen the fiscal story and this is where Treasury was conservative. The big test for this budget was where the Treasury would spend that commodity winfall. So it turned out that they actually largely ignored this in their revenue numbers and maintained government spending at the Indian terms budget projections. So this is a huge plan. So as we could see substantial fiscal outperformance, especially if that revenue continues to print better than the base. So overall, the feeling is a budget that probably well, and this is interesting, will probably under promise, but over deliver on fiscal consolidated consolidation. So this is all very good for bonds, but very important. And yesterday, you probably, if you had noted the price action, we got properly topped and tailed in the market, right? Because what happened was as he was announcing, as he was announcing the budget, the, you know, when he mentioned an unchanged or a smaller main budget deficit, so unchanged of 4.5%. And when he mentioned that, the market thought, okay, actually, well, then how can he reduce issuance? So the bond deals weakened off. But then the same announcement came out and actually, actually issuance had been reduced, which is what bond markets were looking for. They were looking for a reduction in that issuance. And basically, the reduction is that weekly government bond issuance gets cut by 450 million to like 2.55 billion a week. Non-comps are unchanged, linkers are unchanged, and treasury bill issuance increases by 500 million. And this is easily absorbed because there's a lot of demand for short data paper and there's also boosts government cash balances. So now that weekly nominal bond auction will attract a deviant one or ramp the point of $110,000 per point, give a take versus a peak of nearly $300,000 in mid-2021. Wow. That's actually quite a remarkable reduction. And especially, this reduction is coming at a time where there's demand for EMS. It's specifically South African assets. So bond deals rarely added into the closed yesterday. And the curve ended flatter as the ultra has loved a good supply story. And this is very good for the back end of the curve. So then the question is, the longer term does this reduce get further aid yields? And the very short answer to that is yes. But it works through the risk premium and non-streat lines. And now you need to look at it. I'm going to like sort of like three channels to this thing. Lower did the first channel is lower did is equal to lower fiscal risk premium. So as the did to GDP trends down and your primary surplus is build, investors demand less compensation for fiscal slippage or the role of a risk. So that's where you get sustained yield compression and flattening. The second channel is that better did dynamics makes the market more comfortable to own durations. Low inflation, falling rates, the credible primary surplus. These all reduce that tail risk that used to sit in the long end of the curve. So now suddenly the back end of the curve, which we all most asset managers would have probably found very expensive, is actually now with the better, the more improved fiscal consolidation and the more improved budget actually starts making a lot of sense and is reduced risk in that back end. And then lastly, let's not forget the ratings channel. So if treasury keeps delivering and this budget actually was very good, this is a high probability of further positive action from ratings agencies this year. So this will compress term premium even further. So if you look at these three channels, absolutely. I think that reducing did what the budget has done will definitely aid yields. And then. Then where to from here? I think the local story is good. We've always been constructive, walking into the beginning of the year, we were very constructive South Africa. This budget reinforces it. It sticks to fiscal prudence, which the markets like and the supply story, this cut in issues, it's so important, absolutely helps bonds. So from here, any risks to the positive outlook on domestic bonds will actually come from global pressure. So the global geopolitics use rate volatility risk of, but I mean, Sam and you've seen of late any of these actually tend to cause commodities to continue rallying and we've actually been a direct beneficiary of this as the rent strengthens. And so at this point in time, ironically, EMS are acting as safe havens and South Africa in particular. So I cannot even say that that the outlook on domestic bonds will deteriorate because it's coming from global pressures because it actually has not of late. So the real catalyst, I think the real catalyst for the next league lower in yields is actually what we really need is growth. So we need reforms, reform, strutulating into measurable growth and seems to be that there is some headway going in that space and offshore reengagement. We need foreigners coming back in a meaningful way. Foreign participation is still below the old high. So if we see that rebuild, it's a powerful tailwind for our domestic bonds. Yeah, I get you. I mean, broadly, and I take your point. Kind of like EMS has become the safe haven. It would be sort of in the perfect storm. We'll leave it there. Would you turn up a picture investment managers appreciate the early morning poll today at LinkedIn and Twitter budget 2026 bond market. Like it. Did you have your vote? Have you say LinkedIn and Twitter? Let your money benefit from experience with stand-lib asset management. Find out about stand-lib global select fund, which follows an investment discipline that has delivered results for three decades. Money web now on the money. Denny with Okadians of Fenerinburg. He is Motors CEO. We had results for six months ending December. It's a revenue of 3%. Heps up 19%. Dividend up 25%. Okad, appreciate that time. They're really strong period. I mean, notwithstanding cheaper car imports or the like. Motors doing very well and seeing volumes increase in the local market. Thank you very much Simon and I'd like to talk to you in your listeners. I think overall the group has been able to gain from that momentum that we've had in 2025 into our new financial year. And you're right, we've been able to get good strategic focus and operational discipline to improve those sales volumes that certainly helped. As you were just speaking, I was thinking about just essay and how boy in this market has been. We haven't had good essay numbers for a while. So if it's there, you also need to make the most of it and we've certainly been able to take advantage of the good conditions we've had in the essay vehicle side. You obviously do new and pre-owned vehicles. Has there been more strength in one or the other or has it been sort of across the board more or less? Now I think in this last period to last six months you've certainly seen that we haven't seen as strong vehicle sales on the new side probably for a decade. And the new has certainly been the more dominant one. So though we also big play into the pre-owned and glad you also have been able to report that on the pre-owned we've also increased volumes. So we've took advantage on both sides of the coin there. But pre-owned probably will come back again but at the moment I think new vehicles are certainly the one you want to be in. And how are you managing the competition from the cheap imports, whether it be India, Asia, wherever that might be? You've got a lot of traditional brands at the same time. How do you sort of manage that threat? We've been able to change our brand representation quite dramatically over the last two years. So where we stand today we obviously are the importers of some of those more traditional brands like the Hyundai Kia's Renault's. But we've also been able to participate into the new emerging brands, the more Chinese like ones and also Indian. And we also the import of Tata which obviously just started in this last six months as well. So we've certainly been able to transition quite aggressively also into the more emerging brands. And that's probably why you see the volume still going up quite considerably in the six months even though we have traditional but now also the emerging. I think we play in all parts of the spectrum. And that's the strategy there. I mean, at group level revenue of 3%, it helps up 19, at local revenue of 7, operating profit up 22%. Nice increase in margins. Yes, I think the margins are certainly one that we are very proud of. I think the revenue number almost doesn't make sense because it's only three but obviously that also includes other parts of the business and also international businesses. While the essay revenue has gone up considerably more than that, I think it's about 8%. But you're right, the margin improvement has certainly helped us, you know, volumes are nice but if you have a fixed car space, if you think about dealerships and also even in an imported space where you've been able to get better margins as exchange rates are working in your favor, you can see you can actually get better margins out of a business and when the volumes are there, it certainly does drop all the way to the bottom line. And as you said, the heaps just missing the 20% but close enough to it. And I think overall we've been very pleased with the way we've been able to reduce our debt position and our net debt to be diagnosed now suddenly in a very healthy position from where we were maybe two years ago. And let's quickly touch on that. In balance sheet looking really good, you're net debt to EBITDA at 1.5 times. It was 2.1 a year ago. It's a significant swing. Strong cash flows, reduced interest rates, I mean everything helping to really position that balance sheet. Yes, I think and that is that is the nice part we've got in years as well. If you've been able to reduce the pressures you had on that balance sheet, it gives you the ability to also grow and strongly going forward. And that's actually the nice part of it. You can actually also focus on other parts of the business that you want to grow on. You've actually got the capacity for that. And Shell, this will be pleased that we have increased our dividend quite considerably by 25%. We've had share by back during the period so we've had quite a pleased share of the basis today. Vehicle rental, we hear record tourist numbers. Are you seeing this in your numbers? Yes, we've certainly seen that international tourism is live and well, specifically in Cape Town. So in Cape Town, we've struggled to get enough vehicles at that airport to a key ask at the moment. So that is probably the strongest piece of it that's been growing is the international tourism. But also they have to play across the spectrum. So we still really strong in local tourism, obviously the corporate site and also the replacement site for the insurance company. So try and make sure you keep your fleet as busy as possible during the year. And we're currently sitting in about 71% utilization. That's on an overall basis, which is very good for our business. We normally measure that over 65, you're doing well over 70, actually doing excellent. There is a giant number. South Africa, of course, that's sort of two thirds of you, Ibadar. You've got the UK business as well. UK, it was mixed. There were some good parts to it, but still my sense is probably more tough than easy there. Yes, the UK economy seems to be in a difficult position. You do find that if you just look at the moment, business confidence are not that great in the UK. But it's also one of those bigger economies that I think over time, it's quite reliable number that we can still get. You can look at your aftermarket parts business there. It's a really the fence of peace, still increasing operating profit even though it's just marginal. But I think in time to come, it will probably turn around again. I think it's just toughening it out. I always said that the South African guys are maybe a bit tougher than the UK guys that are used to tough times. But I think long term, it will still be a good play for us. It's a strong business reliable. And where those fleet, I mean, we're quite big into fleet there. We had some fleet deals that were the third and hopefully those come through lighter in this calendar year. Well, you've heard Okajan Sirfun Rensberg Motors CEO appreciate the time. Give you money, smoother returns for stand-lip asset management, the stand-lip flexible income friends, agile investment process, preserves and grows capital in all markets. I'm dating with her BitCorp CEO, David TzB, a result for the six months ending December, revenue up 7.1%, a heaps up 8.5%, a dividend up 9.8%. David always appreciate the time. Whenever I'm chatting with folks and sort of talking through what to look for and results, I always say to them, you want heaps ahead of revenue, you want dividend ahead of heaps, gives you that operational leverage. This is very much something which is almost in the DNA of BitCorp. Yeah, absolutely, some and more into it. I think for us it's about obviously conversing a little bit of top line, some top line into better margins and obviously getting efficiency through the cost base and delivering something snarkly out of revenue to go to the trading profit line. So we're very happy with the results, we think they're very solid. I think it's got to be born in mind that in a sort of big region of Australasia had a pretty tough time over the last six months and maybe longer than that. And so in that tracking it's not at nautish, I think you've got to put that in the context of your results. So we're very happy that the rest of the group has carried and performed. Yeah, I mean Australasia and that's, as you said, that has been very tough. But other regions, Europe which is your largest doing very, very well there. And I imagine that as you sort of get scale and get bigger, that brings momentum in of itself as well to a degree. I think in each person is what we're trying to do. We've got what we call our food service continuum where there's a sort of a roadmap to do the PCA of where we want to get to. And one of the first things we need to do in a particular geography is to get to scale. And scale is whatever it is, it could be five percent market share, it could be ten percent market share. But once you get that, you can then start refining your offering to your customer base. And with that comes the opportunity to leverage a bit more margin, do better procurement in the lake. And that's why there is a roadmap and that we're trying to get our business to learn from the advanced businesses to accelerate that continuum as quickly as we can. That is the UK because I mean the numbers in the UK, if I look at UK as an economy, look really tough. Look at your numbers in the UK and it's doing very well. I mean, not all the UK market is tough and you know that's so as you said, it's not used to anyone. And I think our business is on an improvement journey. So a lot of the levers that we doing are internally focused in terms of improving efficiency, we're investing a lot in terms of improving the infrastructure reach into the customer base. So a lot of the improvement is being done internally. And I don't want to say not to stand in the environment, but you know, we actually really focused in terms of improving the business and getting it to where we think it should be, you know, not to stand in the building economic environment. I think you know, in the context of what the, you know, the broader economics the business has done well, we're going the top line. Yeah. Continue to win new markets, new customers and go ahead and market share. So, you know, they're doing both. Yeah, absolutely. Inflation, I mean, you said that, I mean, inflation seems to be relatively benign. Obviously, you're in different regions. And I mean, for example, locally, meat prices are in the pressure. But I mean, broadly, the food inflation seems to be okay. It seems to be certainly in the basket we generally sell across our business. It seems to be steady. And we think it's in the one to two percent. So I think if you measure it on a weighted basis, especially, it's probably around three percent. So it certainly is way off the high food inflation we saw a number of years ago and looks like to be relatively stable. And that then leaves. And whenever I chat with Bill Corba, I mean, one of the big challenges is that we're all, but I mean, one of the big challenges always seems to be more than anything, perhaps, is people and finding the skills of people. Is that still one of the challenges across the businesses? I mean, it is always going to be a challenge. It's quite difficult to find, you know, where house officers want to work in a freezer to talk about them and spend very nice. So, you know, I think it's difficult. And it's difficult, you know, job in most jurisdictions of the operation. But, you know, we manage and it's not that, you know, we can't find the people, but it's quite difficult keeping the people. And they tend to stay for a period of time and then they move on. So we find a lot of sharing in that segment of the labour market. Yeah. I take the point. Trading margin, 5.4, up from 5.3. Is that kind of where it sits going to get much higher than that in the current environment? Well, you know, I mean, the trading margin incrementally has improved over the many periods and lots of. I mean, that's, you know, you want to look at the makeup of that. We saw good improvements in Europe. We saw good improvements in the emerging markets, not just standing with, we had some, you know, tough delivery in some of the markets, I'm sure. You know, the UK incrementally was a little bit better. And Australia was, you know, down by about 30 basis points. So I think, you know, even if it's Australia being flat, you know, we were incrementally improved that. So there's lots of relief of being pulled. You know, it can get better and our aspiration is for it to get better, but it will improve incrementally. Then I'm going to be step changes to the makeup, you know, over the next future period. Yeah, I just pulled up the doctor on my screen and I take your point. It's incremental. Little steps, but it's consistent little steps. David please be but court. That's it for today. I was chatting with avenge CFO yesterday, Adrian McCartney. We were talking results. We saw the company back in profits. And still got some challenging contracts, but looking a lot better. We asked if you were investing in construction stocks. Two thirds said, no tough sector. Rest was split between some of you saying, yep, they cheap and the balance saying you're watching and waiting. Have your vote. Have your say, LinkedIn and Twitter. Podcast is bought to you by stand-lib asset management, invest in more certainty to navigate volatile market conditions. Relive every week, their morning, the money web website to the app 630 AM podcast just after seven. Thanks to my team Eddie, no booklet, Nicole, to you for listening. My guests for their time. My name is Simon Brown. This is money web now. We'll chat again tomorrow. You've been listening to another money web now podcast posted every weekday at 7am on moneyweb.co.z. Money web now on the money.