Lester_Davids

Pairs Trade Idea: Long Vodacom/Short TFG

VOD/TFG  
VOD/TFG  
Time Frame: Medium Term

I believe that on both a fundamental and technical level, this idea may be worth considering while also taking a market neutral approach. You could think of it as being 'long consumer staples' (or utilities) and 'short consumer discretionary'.

With talk of a 3rd 'covid wave' and murmurings by public officials, there is a risk that we could go into another lock-down, which could restrict movement and prohibit the sale of non-essential items. In that case, the need for communication services *should* increase (as remote activities become reinforced) while clothing stores *could* go shut shop temporarily.

Fundamental Features:

VOD

  • FY Revenue +8%
    Operating profit (-0.2%)
    Headline Earnings per Share (+3.7%)
    EV /EBITDA 6.67x
    Price/ Earnings 13.6x
    Price/Sales 2. 25x

(Source: TradingView)

TFG

- Recent trading update suggesting strong recovery in Q4 2021, with group t/o growth of 21%.

Full year DHEPS -75% to -85%
EV /EBITDA 4.14x
Price/ Earnings 19.3x
Price/Sales 0.94x

(Source: TradingView)

Performance over 1-Year:

TFG: +107%
VOD: 0.50%

Performance over 6-months:

TFG: +22.9%
VOD: -0.43%

Technicals:

The ratio price is threatening a channel break while the RSI is signaling a positive divergence. Also note the RSI lower time frames have shifted to a bullish regime. For conservative traders, a break of the channel would be your trigger.

Trade Levels:

Current: 1.07 (Ratio)

Entry Range: 1.06-1.08
Stop-loss: 0.96
Target Range: 1.24-1.28 (close to the 200-day SMA )

*Manage you own risk*