Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. We went out the blocks like a house on fire and in fact we were only a whisper away from 38 thousand points. But as Peter Siddle and his mates found out on Monday, a whisper away can be too much. We managed to close in the green here locally, the Jozi ALSI up by one tenth of a percent. Later in the session there was pleasing US durable goods numbers and more than pleasing US housing data but unfortunately we had a local GDP read which was stinking up the joint. The fingers were being squarely pointed at the mining industry, for dragging us lower in the third quarter. Of course mining related activity declined as a result of industrial action.
We covered Omnia and Naspers results yesterday, but there was another major company, Adcock Ingram which reported rather disappointing numbers. Initially the stock sold off heavily, but recovered a little by late afternoon, still ending the day down two percent. In fact this is a 52 week low for the stock, Aspen on the other hand is a few percent away from their 52 week high. I guess it helps (for Aspen) when your biggest shareholder is Glaxo, at 18.6 percent and the next biggest shareholder is the chief executive, Stephen Saad owns 12.1 percent of the company. That now translates to an eye popping 8.85 billion Rand, or almost exactly one billion Dollars. Not bad for a boy from Durban, right?
But, as I always say, how many people has he made wealthy along the way? He deserves it, my intel tells me that he is amongst the finest South African businessmen ever. And a nice guy too, that is what I hear. I wonder how hard it is to maintain that entrepreneurial spirit when the company you knew and built has changed to something almost unrecognisable? In a good way of course. Aspen's divergence from Adcock has been nothing short of extraordinary. Aspen's market cap is now 7.5 times larger than Adcock Ingram, 7 or 8 years ago they were peers. Now, well, not so much. Most of the price divergence over the last five years only stems from around August last year. Since that time, Aspen's share price is up a whopping 95 percent, whilst Adcock has gone backwards to the tune of 10 percent. Eish. The problem is that Adcock's sales and profit growth has just been downright pedestrian at best.
Talking pedestrian and even in some cases a leash type mentality, there was a good interview with Koos Bekker at lunchtime yesterday on CNBC. To watch the interview, follow the ABNDigital link: Nasper H1 Results with CEO Koos Bekker. He talks about self inflicted wounds as a result of government interference in Telkom. Bekker reckons that governments policies, protecting Telkom have held South Africa back. I agree. And then he uses a football analogy, like we said yesterday, football is key to DStv. An absolute must for many people who buy the package is the football option. It is of course, whether you like it or not, the biggest sport in the world with more watchers than any other sport.
MTN Nigeria. There is a BusinessDay article by Sure Kamhunga this morning which is suggesting that MTN International are selling part of a stake in their business in Nigeria to the Shanduka group. I can't find anything on either the MTN Nigeria website, under press releases or the MTN group website either. Sure's article, which you can find here: Ramaphosa's Nigeria deal raises eyebrows, does not give the minority stake percentage, but does give the price, 335 million US dollars. Which is nearly three billion Rands at the current exchange rate, that is a lot of money. As Paul said in the office, he is a little disappointed that MTN are selling a stake in a very profitable and exciting business. Not so much the issues around whether or not the right partners are involved, just you would think that MTN should keep on the stake.
There is however a short piece on the Shanduka website: Shanduka Group advances African growth strategy through acquisition of a stake in MTN Nigeria. The only reason why I am as keen as beans to find out the percentage that Shanduka have bought, is that of course it would be nice to get a valuation of the business. The group itself, Shanduka is a little too diversified for my liking, but hey, what does my opinion matter, that is an issue for their shareholders. In fact you can see all the parts of Shanduka under their Our Business section. Shareholders, as per the Shanduka website include over 200 thousand historically disadvantaged individuals. I wonder when the entity will list, or will it take some time, perhaps another half a decade or so. I guess we have to be patient on the MTN stake, maybe we will get more clarity in the next annual report. Hopefully sooner.
- Byron's beats
Yesterday we had GDP figures released by Stats SA which showed a definite slow down and came in below expectations. GDP slowed to 1.2% on a seasonally adjusted basis in the third quarter. This was following an adjustment to second quarter growth of 3.4%. Expectations for third quarter growth were around 1.6%.
There is absolutely no doubt that this figure was so low because of the affects of illegal striking in South Africa. That is why expectations were so low. But clearly the impact was worse than expected. I guess the confidence impact is usually underestimated. Businesses and individuals, locally and internationally will hold back on investment if there is unrest in a country.
By economic sector contributions here is what the release had to say:
- "The most notable performances of industries in the third quarter of 2012 compared with the third quarter of 2011 were as follows:
The wholesale, retail and motor trade; catering and accommodation industry increased by 3,2 per cent;
Personal services and construction industry increased by 3,1 per cent each;
General government services increased by 2,9 per cent;
The manufacturing industry increased by 2,5 per cent;
Finance, real estate, and business services increased by 2,3 per cent;
The agriculture, forestry and fishing industry decreased by 2,5 per cent; and
The mining and quarrying industry decreased by 1,2 per cent."
Very interesting to see those trends. The service industry is becoming more and more important in the context of our economy. Also good to see the construction industry turning. It is a big employer and has lots of knock on effects. As we have seen amongst our retailers, the South African consumer is still strong while manufacturing grew nicely, probably on the back of the weaker rand. Finance, real estate and business services again falls under the services sector, we have seen property prices rise and banks recovering nicely this year so this is to be expected. Agriculture and mining are the two declining industries. Ironically but not coincidently these are the two sectors who have faced the biggest labour unrests.
It is certainly a worrying aspect. A country with our dynamics which includes high unemployment and big disparities should be growing at a faster rate than this. And the sad thing is we certainly have the potential and the resources to achieve much higher growth. My feeling is that this year, being a decisive one politics wise was especially bad and that things should stabilise next year. As investors we are still very much focused on companies with lots of international diversification. This has proved to be a winning formula with the likes of Aspen, Richemont, Naspers, Billiton, MTN and Bidvest.
Digest this.
I found this lengthy post via Cullen Roche, obviously this fellow is on his hit list. The post is titled A Critique of Grantham and Gordon The Prospects for Long-term Growth. It is a good piece, that contains some juicy stuff, the most important paragraph for me was this one:
- "We have heard concerns about the permanent slowing or stopping of global growth after every depression or severe recession. In the 1890s, the idea was circulated that everything worth inventing had already been invented. In the 1930s, it was popular to say that capitalism had created the mechanism of its own destruction. In the 1970s, concerns focused on foreign competition and resource constraints, and some people forecast mass starvation. Today's concerns are no different in principle, and they are no more realistic."
That resonates positively with me, the fact that whenever someone thinks that nothing is going to change, it invariably changes a lot quicker than you think. The smartphone and tablet revolution is a great example. My advice is to always stay the course as an investor. Don't get spooked by the short term thinking out there. Remember that you own companies, not share prices.
The new governor of the Bank of England Mark Carney seems to be a fellow that everyone likes. Even the old bearish David Rosenberg wrote an excellent piece in the Globe and Mail titled: Carney: The Wayne Gretzky of Canadian finance. I stumbled across this piece via the Business Insider website.
The only negative that I can think of (for Carney's image) is that Carney's wife seems to be not exactly mainstream. Or that is what I see is being bandied around as a negative, personally I think it is awesome. She is what is termed an eco warrior. Someone who campaigns for the environment as well as having very progressive views. Check this out: Diana Fox Carney: the bank governor's wife with her own refreshing opinions. Together, Mark and Diana they have four daughters, which is actually two less than Stephen Roach. You know Stephen Roach, the Yale lecturer and Morgan Stanley exec. But I am getting off the subject here. I think that the poms have really gone out on a limb here and good for them. Whether or not, when he becomes a British citizen, he will be able to make personal progress (chancellor of the exchequer) remains to be seen. Good luck.
Crow's nest. Markets are lower by around three quarters of a percent as a result of the late selloff on Wall Street. Some folks are still struggling to come to an agreement in Washington around tax reform, entitlement reform and all the other "things" associated with the fiscal cliff. But I tell you, that provides us with many opportunities too.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
011 022 5440
No comments:
Post a Comment