River Rat

The local and international markets are almost impossible to fathom right now. I'm sitting on the sidelines with only some shorts on some international markets to trade with and I'm watching the first quarter earnings data with great interest. On one of my portfolios I'm taking the opportunity to re-balance it and lock in some capital gains losses at the same time. Sell low and buy low was not a concept I have thought much about?

https://mybroadband.co.za/news/business/348835-life-after-lockdown-4-scenarios-for-south-africa.html?source=newsletter 4 scenarios done by the master himself.

That's why we need to develop an at worst case scenario and of relevance here is the mortality rate. I have started a discussion on the General Discussion thread I can only hope that we can get a real debate going there if not we'll have to bring it back to this thread.

I think you're right and it will be an even deeper cut and slower rebound in the at worst scenario. But I think we have it modeled correctly in the it's only the flu scenario which shows a 12 month rebound.

Let's go to the next one the long term economic impact of the regional shopping center on the economic impact of the customer/ Again I can't see an impact so no change necessary here. However, number 3 could be impacted by the development of a regional shopping center and it follows that we have to debate whether the COVID virus would have been sufficiently beaten for our customers to go back to mall shopping. There are two potential outcomes the roughly 24% who said they would avoid malls overcome their fears and go to the mall even if it just to see what the fuss is about or they avoid the malls regardless of where the virus is on the curve. I'm not sure how to call this one.

So now we have to review these key uncertainties and how they could impact on each other. The best way to do this is to consider the last one first because like it or not when we developed number 2 we would have been cognizant of number 1. However we would not have known what 2 is when we developed number 1. So the question is to what extent would the development of the regional shopping center impact on the expected spike straight after lockdown ends? Clearly these are different time frames so the answer is no.

This is where we are on the it's just the flu scenario and we need to look at the whole, then consider the inter dependencies and the potential impact of one key uncertainty on the others. 1. We expect a spike in activity immediately after lockdown ends but we don't know by how much. Our customers have a pent up demand for all the non-essentials and there's a run on the shopping centre. The bottle store, hardware etc. will all being under pressure even the restaurants and coffee shops are full as people celebrate being out and about. Tenants are capable of recouping about 30%? of lost revenue. 2. We expect an economic impact on our customers but we don't know how severe or for how long. Although our customers have lost some income during the lockdown their costs were lower and because the world comes to terms with the fact that this virus is just like the flu it takes about 6 months for the demand side of the economy to come back to normal and with that earnings recovery back to where they were before lockdown. 3. We expect customer shopping behaviour to change but by how much and for how long? 4. Government could extend or lift the lockdown depending on where we are on the curve. A decision on a further lockdown extension would be informed by the rate of spread seen in average new daily cases between 10 and 16 April, which they were 95% sure would remain between 40 and 80 cases. Above 90 cases a day calculated over a week would result in a lockdown extension. This is according to Professor Salim Abdool Karim, the chairperson of Health Minister Zweli Mkhize's Covid-19 advisory group, who addressed a media briefing alongside other scientists on Monday night. You can read the entire article here https://www.news24.c...entist-20200414. This confirms a Rule of the Game and gives us an excellent parameter to monitor and for the sake of this scenario the average of new daily cases for the period 10-16 April 2020 is <90. 5. Will the development of regional shopping mall continue? Under this scenario it would suggest that shopping patterns will be back to normal within the next 12-18 months. Regional shopping centres are usually based on long term demographic studies which are incorporated into a feasibility study with a 20-30 year time horizon. The worst of the economic impact would be felt during the construction phase so it follows that there would be no reason to halt the development.

Man when I started this process I thought I would have more than enough time on my hands, I have bitten off more than I can chew. Some of you might know that I left corporate life 5 years ago thanks to the Zuptas creating an environment that required an unethical approach to business, which I couldn't stomach. I decided that I would stay out of big business and seek out entrepreneurial opportunities that specifically excluded an involvement with Government or SOEs ostensibly to stay as far away from corruption as I could. Things have been going very well and I have carved out a niche for myself investing in and helping small businesses to grow. Corruption wasn't an issue until July 2019 where a change in leadership at one of our major customers saw some rather suspicious procurement practices emerge. My partner in this specific venture happens to be a player in ANC circles who also left corporate life for exactly the same reasons as mine. We were both appalled that corruption was once again rearing it's head this time in the private sector. We jointly decided that we were not going to let this destroy our venture, we set about stopping this and as things would happen it came to a head during lockdown. My entire Easter weekend and the majority of this week has been taken up in this fight. Thankfully, our efforts to stop this particular crime bore fruit and this morning we have been informed by the board of the customer that the specific contract had been cancelled and an independent board of inquiry had been established to determine the criminal charges to be brought against those involved. Fortunately, my involvement is no longer required other than answering questions posed by the board of inquiry. Needless to say my partner and I are proud of ourselves as we feel we have played our small part in rebuilding our country. So as I sit here with my Batman crime fighting cape on I am ready tackle anything including this strategy so let's get on it.

I am being generous in the best case scenario and having done a few of these feasibilities myself I can tell you that the economic cycle is always factored into this. Usually a down turn of about 5% is expected for a 12 month period every 5-7 years. In this case my assumption is that the down turn and development period coincide. However, I am not so sure that your concerns won't be valid when we consider the at worst scenario.

5.Will the development of regional shopping mall continue. Under this scenario it would suggest that shopping patterns will be back to normal within the next 12-18 months. Regional shopping centers are usually based on long term demographic studies which are incorporated into a feasibility study with a 20-30 year time horizon. The worst of the economic impact would be felt during the construction phase so it follows that there would be no reason to halt the development.

Right let's consider the next key uncertainty under "It's just like the Flu scenario" 4.Government could extend or lift the lockdown depending on where we are on the curve. We have to consider which data government would consider A decision on a further lockdown extension would be informed by the rate of spread seen in average new daily cases between 10 and 16 April, which they were 95% sure would remain between 40 and 80 cases. Above 90 cases a day calculated over a week would result in a lockdown extension. This is according to Professor Salim Abdool Karim, the chairperson of Health Minister Zweli Mkhize's Covid-19 advisory group, who addressed a media briefing alongside other scientists on Monday night. You can read the entire article here https://www.news24.com/SouthAfrica/News/sa-unlikely-to-avoid-wildfire-spread-of-covid-19-but-lockdown-bought-time-top-scientist-20200414. This confirms a Rule of the Game and gives us an excellent parameter to monitor and for the sake of this scenario the average of new daily cases for the period 10-16 April 2020 is <90.

Considering the extend lockdown it is really only the timeline of the graph that is impacted. So this is where we are. 1.We expect a spike in activity immediately after lockdown ends but we don't know by how much. Our customers have a pent up demand for all the non-essentials and there's a run on the shopping center. The bottle store, hardware etc will all being under pressure even the restaurants and coffee shops are full as people celebrate being out and about. Tenants are capable of recouping about 30%? of lost revenue. 2.We expect an economic impact on our customers but we don't know how severe or for how long. Although our customers have lost some income during the lockdown their costs were lower and because the world comes to terms with the fact that this virus is just like the flu it takes about 6 months for the demand side of the economy to come back to normal and with that earnings recovery back to where they were before lockdown. 3.We expect customer shopping behavior to change but by how much and for how long? .

This the beauty of creating a robust process when something changes it's easy to update and run through the issues to review the impact. At this stage this is what our matrix looks like.

My apologies for not maintaining the momentum over the Easter weekend. I have been rather busy helping someone save their business and the good news is that we have managed to get them a reprieve from the banks using this scenario planning tool. We created an at best and an at worst scenario, this was presented to the bank with a payment plan that addressed the at worst. The response from them was extremely positive as they engaged with us on the likely outcome from these scenarios, they accepted the uncertainty of the situation and were most supportive of the business because it planned for the worst. What we got yesterday is a 6 month payment holiday with interest capitalised with the obligation on the business to start paying sooner if the outcome is better than expected. I get the distinct impression that the banks are keen to renegotiate loans rather than have defaulting customers and bad debts on their books. This is extremely good news for our economy as a whole, hang in there guys there is light at the end of the tunnel. So let's get this exercise completed.

That's enough for tonight will see if we can finish the other 2 on Saturday. Happy Easter!

Now here comes an interesting discussion 3.We expect customer shopping behavior to change but by how much and for how long? Our survey is clear 88% of our customers will change their behavior and 26% of them will only change back if there's vaccine. No the earliest predication for this is that it takes 12 months to develop a vaccine for the flu and after all this is "Just like the Flu" so 26% of our customers will only revert back to normal behavior in 12 months time. I think we can add the once I have had the virus into this category so lets add the 7% here so in December 2020 this 33% of our customers are shopping as usual. Another 20% said that they're watching the curve and by all accounts it takes 13 weeks to run through the curve, so using China as a reference we will only have this group back on line in 10 weeks time. That's July 2020 Another 16% say they're waiting for a signal from the WHO and I saw a lady from the WHO on the news this morning saying that SA is doing well and should be able to lift the lockdown soon. Is this the signal or is it the 10 week China curve? Stuff it, this is a positive scenario so if Cyril lifts the lockdown we're good to go. We can add the 2.5% waiting for our Government's thumbs up to this group, so at the start we have 12% that we're not worried plus the WHO 2.5% our pattern of normal shopping looks like this. We still have about 18% that say that they won't revert back to normal but human behavior is such that time heals so we'll give them until another 6 months to get back on board. So our graph shows that we should be back to about 80% of our normal trading patterns by the end of the year and back in full by June 2021.

Then you should not be surprised that 60% of our key uncertainties are customer centric

Yes it does and so does some of the others, but the methodology is to go through all of them and then adjust for the interrelated impacts. I have found 2 iterations does the trick.

Okay let's take on board the next key uncertainty in terms of our "it's just like the Flu" scenario. 2.We expect an economic impact on our customers but we don't know how severe or for how long. Although our customers have lost some income during the lockdown their costs were lower and because the world comes to terms with the fact that this virus is just like the flu it takes about 6 months for the demand side of the economy to come back to normal and with that earnings recovery back to where they were before lockdown.

If you're wondering where I get this from have a look at this article I borrowed from Andrew Steer in the General Discussion. Have a look at chart 15 and read it from there. https://medium.com/@tomaspueyo/coronavirus-out-of-many-one-36b886af37e9

Okay "it's just like the Flu" it is. So imagine a scenario that over the weekend Cyril decides that the impact on the country is minor and of no more consequence than seasonal flu. Possible? Actually the numbers suggest it is, 1845 infected with only 18 deaths does not sound like a pandemic does it? So yes it is possible now stop yourself from going into the probable discussion other wise we never get through this step. So in this scenario Cyril lifts the lockdown and society is open for business on the 17th we immediately start what the economists call a V shaped recovery. How does this impact on our key uncertainties? Here's a stab at the first key uncertainty. 1.We expect a spike in activity immediately after lockdown ends but we don't know by how much.Our customers have a pent up demand for all the non essentials and there's a run on the shopping center. The bottle store, hardware etc will all being under pressure even the restaurants and coffee shops are full as people celebrate being out and about. Tenants are capable of recouping about 30%? of lost revenue.

A scenario is effectively a version of story we tell about a possible future. Note the word possible this does not mean it's probable it's simply one version of the future not THE version. Think of trying to rewrite the ending of Game of Thrones it is not possible to add little red riding hood to the story line. We have to be guided by the rules of the game but we are allowed to speculate on the possible outcomes in terms of key uncertainties which are. Key Uncertainties 1.We expect a spike in activity immediately after lockdown ends but we don't now how much.2.We expect an economic impact on our customers but we don't know how severe or for how long.3.We expect customer shopping behavior to change but by how much and for how long?4.Government could extend or lift the lockdown depending on where we are on the curve.5. Will the development of regional shopping mall continue The trick is to create at least two scenarios in terms of best case and worst case outcomes, we can always add a third scenario where we start looking at the most likely outcome based on what information we have available. A third scenario is the opportunity to of bringing in the probability part of the equation. So let's start with the best case scenario and it helps to give it a descriptor so here's my thoughts in terms of a name. "It's just like the Flu" Any other options?

This is where we stand with our matrix and although there are some rules being developed from our poll I feel we can proceed with our first scenario using this matrix.

Thanks to admin the poll is fixed and up and running so please give your own inputs if you haven't done so yet. I will start a little earlier today (16h00) because of the holidays and we will tackle our first scenario.

As far as shareholders go (which is effectively us) even if one us faces liquidation we are protected by the corporate veil and no direct claim can be made against us or the business. However, it is possible that his/her shares could be up for sale as the liquidators seek to recoup some funds to repay creditors. In this case any sale of shares will be governed by the process in the shareholders agreement which in most cases gives the shareholders the first call to but these shares. This might actually be an opportunity for the remaining shareholders but let's assume that for our exercise none of the shareholders are in distress. As for competitors it's safe to assume that our location gives us an advantage over other shopping centers in our region, as it has for the last 10 years but the large regional mall is still a threat so I have added that as a key uncertainty .