Friday 11 May 2012

Giant pile of scrambled egg falls on Jamie Dimon

"If you judge the fellow by what he is wearing and that is how he views investors, well then, don't own the stock. If people thought that about Steve Jobs or even Bill Gates (who kind of dressed up) opinion of shareholders is what they wore, then that is you conforming with a opinion of your own. Once, the Zuck actually gave investors a presentation in his pyjamas in the early days."

Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. We were flying, markets around the world were recovering after a week of selling, heck, even Prince Charles was presenting the weather for Scotland on BBC. I am pretty sure that I could have done the Scotland weather without checking too hard. Cold, windy, chance of snow here and there. That line about Scotland from Trainspotting could have been used to describe the weather. Watch both of those things if you have not already. Factory output in South Africa unexpectedly fell (Read Cees Bruggemans piece: SA mining bounces as manufacturing crashes), most economists were expecting a gain. The same thing has happened in India this morning, not good. I guess the Euro austerity is starting to impact on all of us, somehow the Germans are just fine with the weaker Euro. Those Germans are workaholics, I suppose there is no sun to sit in, you might as well be indoors and working.

Resources stocks bounced hard, up two and a quarter percent, sending the Jozi all share index to 33869 points, a gain of 435 points or 1.3 percent. Banks added a percent and two thirds, gold stocks ramped up nearly three and a half percent, industrials underperformed, but still gained nearly three quarters of a percent. There were a whole host of results, from paper maker Sappi, gold producer AngloGold Ashanti, as well as ArcelorMittal and a host of smaller companies including Afrimat. But the management statement from Old Mutual was received with a great deal of enthusiasm by shareholders, the stock added 4.84 percent on the day. Nampak said afterhours that HEPS for the six months were expected to be between 10 to 20 percent higher than the 93.5 cents recorded at the last interim results.

Byron's beats takes a look at a company that is in a sector that we really like. Healthcare. This time it is Life Healthcare, who listed in 2010. But it was Afrox Healthcare beforehand, a separately listed business and a private equity buyout. It has expanded significantly from that time!

    This morning we had another good set of numbers for the six month period ended 31 March 2012 from hospital group Life Healthcare. Group revenue increased by 11.7% to R5.5bn while operating profit increased 22.4% to R1.2bn. Normalised earnings per share increased 21.9% to 62.3c. The share price has done fantastically well. Since listing in June 2010 at 1350c it's been a one way ticket up, now trading at 2655c, nearly a 100% return if you had got involved in the IPO. Sasha in fact pointed out that they are now the biggest hospital group in the country by market cap. At R27.5bn they have overtaken both Mediclinic (R24.9bn) and Netcare (R20.9bn). Both of these competitors have massive debts on their balance sheets which may have something to do with their lag.

    So how do the valuations look? At 62.3c per share for 6 months, analysts expect 140c per share for the full year. That puts the stock at a forward valuation of 19. Which seems expensive but for a company growing this fast I wouldn't be deterred. Let's look at the commentary.

    "Life Healthcare continued to grow during the period under review and is in a healthy financial position to deliver on its strategic objectives of growth, efficiency and sustainability. Activities as measured by hospital paid patient days (PPDs), increased by 6,0% as a result of an increased demand for hospital services due to high incidence of disease together with a growing and aging medical aid population and preferred network arrangements."

    That last part is important. Life Healthcare are well positioned to benefit from our aging higher income group while disease incidence remains high. They have also taken advantage of the gap left by the public sector with regards to healthcare. Our very advanced medical aid system also benefits the hospital groups, thanks Adrian Gore.

    Are there social issues about a company like this providing an essential service at such high margins and making so much money? I guess that is why the government want to roll out those national healthcare plans. It does pose a concern. I also think competition will increase which should benefit the (sick) consumer. Life Healthcare are rolling out their capacity aggressively and so are the other two groups, the market is there to be grown into.

    The fundamentals still remain strong for this sector and you would have to back the management to maintain this efficient growth as they increase beds. We prefer Aspen in this sector because of their alliance with the regulators (cheaper medicines) and international exposure but I do rate Life Healthcare a good investment for the future.

A few Greek facts that I managed to piece together yesterday in preparation for an interview. Greek youth unemployment has doubled since February 2007, with the overall unemployment rate sitting at a pretty lofty 21.7 percent. Youth unemployment is 53.8 percent. Greek industrial output, the figures released yesterday showed a drop of 8.7 percent year on year. According to a CNBC interview I saw, around 1000 businesses close every week, and after the elections, hotel bookings on the first two days of the working week fell 50 percent relative to the norm. There have been huge tax increases and massive spending cuts, needed, because the civil service was completely bloated. GDP is down 20 percent from the recent highs. BNP actually stuck out a note on what a Greek exit (being termed a Grexit) might mean for the country in the short term. GDP would contract another 20 percent overnight. Inflation could spike to 50 percent and debt to GDP would climb to comfortably over 200 percent.

The banking system would implode. The country, as the far left have said already would stop making debt payments. And as such would quickly run out of money. And the civil service (bloated civil service) would not have any money to get paid, because Drachmas would quickly become worthless. There is a whole lot more merit to keeping the Euro, but tell that to the people who are now buying bags of potatoes for cash off the back of a truck, the supermarkets are being bypassed. It is sad, but perhaps the ordinary Greek people lived comfortably above their means relative to their productivity and economic output of their northern neighbours. A sad state of affairs all around. Although as I often say, these are rich people problems, the average GDP per capita for Greece is more than Portugal, just a little less than New Zealand. Double Venezuela or Bulgaria. Four times that of an Albanian citizen. MUCH bigger than a South African, around two and a half times more. Ten times the economic output of a Pakistani. So in a very crude kind of way, these are still rich people problems.

Beijing central. 39o 54' 50" N, 116o 23' 30" E I smell policy response in China after the data this morning saw some key metrics miss expectations. Although at face value the numbers themselves still look good, Chinese fixed asset investment year on year increased 20.2 percent, Mr. Market was expecting 20.5 percent. Retail sales missed, clocking 14.1 percent, the expectations were a whole percentage point higher. But at face value those numbers look not fine to me, but rather very good. I would prefer it to see that retail sales numbers rising more sharply, but hey a 14 percent rise is still significant. Why I think policy makers might be poised to do something is that inflation eased back to 3.4 percent.

New York, New York. 40o 43' 0" N, 74o 0' 0" W. It was quite the opposite of what has been happening recently, with the last weeks sessions characterized by deep falling markets at the start and then in the last half finding some buying support. This time we were out the blocks in a flash, and slid in the second half of the session to just close in the green. The Dow Jones just eked out a gain, there was something interesting which caught my eye, check it out: With Apple in, Dow would have set record long ago. See that, see why we should get more excited about the S&P rather than the level of the Dow Jones.

Yuck. JPMorgan Chase reported a trading loss of 2 billion Dollars on credit derivatives trading that clearly went against them. And of course everyone is seeing this as a sign that the regulators should only push harder to see prop trading banned for banks of this nature. The culprit, a trader who has the nickname, "the London whale". Well, let us just say that his trade looks more like the Twitter whale. From what I read, the trades, which were related to corporate debt, went bad quickly when markets started to move against the positions, around a month ago.

As the news leaked, JPMorgan arranged a conference call and Jamie Dimon took responsibility. That is what I like to see, accountability for wrong doing, it means that you are human and make mistakes. Nothing like saying sorry for a saga to end, but I am thinking that this trading loss (Dimon said that the company remains profitable) gives regulators everything they need to say, see, told you so. Because of course JP Morgan is the US' largest bank by assets, who wants derivatives bets messing with client deposits and borrowings? Nobody. Another reason why we don't invest in big banks where there is stuff under the hood that is impossible to understand. The stock afterhours is down six and three quarters of a percent. Not nice. This is like a giant omelette falling on Jamie Dimon as he crosses the curb from his Lincoln Town car that stops outside of 270 Park Avenue, Manhattan.

Currencies and commodities corner. Dr. Copper is last at 367 US cents per pound, the gold price is lower at 1576 Dollars per fine ounce, whilst the platinum price is also lower at 1469 Dollars per fine ounce. The oil price is also lower, 95.80 Dollars per barrel for NYMEX WTI, whilst Brent is trading at 111.10 Dollars per barrel. The Rand is weaker at 8.10 to the US Dollar, 13.03 to the Pound Sterling and 10.51 to the Euro. We are weaker here today at the start as risk off visits us again.

Parting shot. Does it matter? I mean, does it matter what you wear in order to give your investors a presentation? Steve Jobs used to wear the same thing, the turtleneck and the jeans. I wear jeans all the time, does it impact on my performance whether I wear a suit or not? Where am I going with this? Well, Wedbush securities, actually an analyst who works there by the name of Michael Pachter, who actually have a buy on Facebook and a price target of somewhere around 44 Dollars if memory serves me right (remember that the IPO range is 28 to 35 Dollars) had this to say about the Zuck's attire: "Mark and his signature hoodie: He's actually showing investors he doesn't care that much; he's going to be him. I think that's a mark of immaturity. I think that he has to realize he's bringing investors in as a new constituency right now, and I think he's got to show them the respect that they deserve because he's asking them for their money."

All I have to say is, if you judge the fellow by what he is wearing on how he takes investors, well then, don't own the stock. If people thought that about Steve Jobs or even Bill Gates (who kind of dressed up) opinion of shareholders is what they wore, then that is you conforming with a opinion of your own. Once, the Zuck actually gave investors a presentation in his pyjamas in the early days. Once, the Zuck actually gave investors a presentation in his pyjamas in the early days. To me it doesn't matter, as long as he was appealing to the investors in question, and gave them all his attention. And I do not even own a hoodie. A week today could see the listing of Facebook, what matters I guess are the valuations and the future of the business, and where the market price settles ultimately.

Sasha Naryshkine and Byron Lotter

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