The mid-year earnings season is drawing to a close, but there have been some exciting recent reports. Not least of which is international premium sports- and footwear manufacturer, On Holdings (ONON).

We look at how it attained such impressive growth, possible risks and challenges to gauge a long-term outlook for the stock.

Shining some light on 🔦 

• On Holding’s foot forward in revenue & profits

• Sasol’s R55bn hit, Standard Bank optimism & AI chip slides

• Stock update: Higgo’s Top 10 stock picks for 2024

• Earnings calendar: Who’s reporting on revenue, when

• How to build (and live off) a dividend portfolio

A Foot Forward in Innovation

Footwear and sports apparel maker On Holding has shown impressive growth in its recent Q2 earnings report, highlighting a 28% increase in net sales and a substantial rise in profitability. 

It’s attracted consistent "buy" ratings from multiple analysts, including Goldman Sachs and UBS, with Stifel Nicolaus boosting its price objective to $45.00, indicating a potential upside of 11.86%.

Innovative Technology and Brand Momentum

The company has shown its dedication to innovation – developing a new manufacturing technique called light spray where the upper part of a shoe is sprayed, rather than built, using robotics; a practice already used very successfully in its premium performance marathon shoes.

And the brand has strong momentum, supported by strategic partnerships with global talents and high-profile marketing efforts. On has significantly boosted its direct-to-consumer (D2C) sales, which now account for a substantial portion of its revenue.

Risks and Challenges

Despite its strong financial performance, On Holding’s biggest likely risk is its supply chain – it’s seen warehouse capacity constraints in North America that led to inventory shortages and impacting deliveries. 

Additionally, the company has a high P/E ratio and will need to rely on maintaining exceptionally high growth to justify its valuation. This could pose challenges if market conditions change.

Long-term Outlook

On Holding AG’s financial health is supported by a strong liquidity position, with more cash than debt on its balance sheet, which is crucial for sustaining its growth and innovation strategies. 

The company has set itself high targets – 30% net sales growth for next year and a gross profit margin of 60%. But the thing to be mindful of risk-wise here is not what On itself does, but external factors, such as economic downturns or increased competition.

Note: This is not financial advice; it is merely observations. For personalised financial advice, you can book to speak to a financial advisor here (powered by a registered FSP: No. 51310).

STOCKS AND ALL

💥 Sasol’s $3 Billion Hit: Sasol faces R55.1 billion ($3 billion) in impairments, mainly from its US operations, leading to an expected net loss of R55.8 billion. With shares down 6%, investors are keenly awaiting tomorrow’s earnings report for updates on the company’s strategy.

💼 Standard Bank's Potential: With earnings per share (EPS) growth of 51% annually over the past three years and a 20% revenue increase to R161 billion, Standard Bank is catching investors' eyes. Insider confidence is strong too, with recent purchases totalling R51 million, including a R20 million buy by CEO Simpiwe Tshabalala.

🔻 AMD & Nvidia Slide: Digital infrastructure stocks like Nvidia and AMD have dropped, with returns now at 8% YTD, trailing the S&P 500. AI demand remains high, but economic concerns and Nvidia’s GPU delays are fueling the selloff. Note: tech is sure to win in the long run, but we have to admit that valuations in this space have been a bit high due to the AI “craze”.

📉 Scottish Mortgage: Buy the Dip?: Scottish Mortgage shares have dropped 8%, now trading at an 8.5% discount to NAV. With a focus on AI giants like Nvidia, Amazon, and Tesla, this dip could be a buying opportunity for long-term investors.

🚀 Liberty Media's F1 Surge: Liberty Media reported Q2 2024 F1 revenue of $871 million, up from $724 million in 2023, driven by two extra races and increased F1 TV subscriptions. Team payments also rose to $435 million as F1 continues to see strong global growth and fan engagement.

UPCOMING EARNINGS REPORTS

These companies are expected to deliver earnings reports in the next few weeks:

15 August 2024

• Standard Bank

20 August 2024

• Sasol 

21 August 2024

• Curro Holdings Ltd 

• Snowflake

WEALTH HACKER’S KIT

How to Live Off a Dividend Portfolio

Thinking long-term and retirement?

Living off a dividend portfolio is an effective strategy for generating income during retirement or supplementing your current income. By investing in dividend-paying stocks, you can create a steady income stream without selling your shares. Here's a step-by-step guide on how to achieve this, complete with calculations.

Step 1: Determine Your Income Needs

Start by calculating your monthly expenses and subtracting any other income sources, such as pensions or interest. This will give you a clear idea of how much income you need to generate from your dividend portfolio.

Example:
If your monthly expenses are R25,000 and you receive R5,000 from a pension, you'll need R20,000 per month from your dividends. Multiply this by 12 to get your required annual income: R240,000.

Step 2: Build a Diversified Dividend Portfolio

Diversification is key to reducing risk and ensuring a consistent income. Invest in a mix of stocks from various sectors.

Example Portfolio:

• 30% Mining: BHP Billiton, Sibanye Stillwater, Exxaro

• 22.5% Real Estate: Vukile, Stor-Age

• 20% Retail: Shoprite, Woolworths

• 15% Telecom: MTN, Vodacom

• 12.5% ETFs: Satrix DivI Plus, Satrix Resi

Step 3: Calculate Your Expected Dividend Income

Determine your expected dividend income by multiplying the dividend yield of each stock by the number of shares you own.

Example:
With R4 million invested across these stocks at current yields, you could earn R301,600 annually before tax. Dividends in your Tax-Free Savings Account (TFSA) won’t be taxed, but the rest will be taxed at 20%. Remember, the maximum you can invest in a TFSA is R500,000.

Step 4: Monitor & Update as Needed

Regularly check your portfolio to ensure your stocks are performing well and continuing to pay dividends. If a stock's performance declines or its dividends are cut, consider selling it and replacing it with a better-performing stock.

THE PEOPLE HAVE SPOKEN

How panicked are you about what’s happening on the local and global financial stage?

🟨⬜️⬜️⬜️⬜️⬜️ 😰 Very much – I’m afraid of losing what I’ve built so far. (12%)

🟩🟩🟩🟩🟩🟩 😎 No, it’s OK, I know the ups and downs will settle soon. (61%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🌎 I am worried about how global events affect my ability to earn and grow (6%)

🟨⬜️⬜️⬜️⬜️⬜️ 🇿🇦 I'm not too concerned with the rest of the world, I just want SA’s economy to get going. (12%)

🟨⬜️⬜️⬜️⬜️⬜️ 😉 To be honest, I didn’t notice the global panics – I’m in this for the long-term gains. (9%)

What you said…

Exactly, Asethemane, that’s the spirit.

Indeed, Esaluya, it stabilised so quickly that a bit of free cash could have had you up right now.

Nice one, Jan, glad you could benefit from the frenzy – a good example of why you need to have a little cash cushion around.

Indeed, Holman, Jan said he had some opportunity to capitalise – everyone else wishes they had more to buy with too.