To market, to market to buy a fat pig. European growth numbers disappointed the market and we sold off for much of the afternoon, but then the best non-farm payrolls for a while: U.S. jobless claims hint at firming job market conditions. Yes, things are getting better. On that side of the pond of course, the European worse than anticipated numbers left you feeling deflated on a day in which the winds were taken out of your sail already: Euro zone economy falls deeper than expected into recession. But, St. Valentines Day could have picked up your spirits, here is a nerdy bunch of charts pointed out to me by a friend that are guaranteed to make you smile: 14 Ways an Economist Says I Love You.
And then possibly the big news of the day, the news that Berkshire Hathaway and 3G Capital were buying Heinz, a huge global brand for 28 billion Dollars, including the debt. Buffett's business would put up around half the cash required, and would also fund the deal with a 9 billion Dollars convertible pref shares. 9 percent? Wow, those are good rates for Berkshire. Heinz's best and flagship product is of course what we call "tomato sauce" here. In the southern hemisphere English speaking countries, here, Australia and New Zealand we know what "tomato sauce" is. Elsewhere it is called ketchup. The funniest thing was that apparently Buffett said something along the lines that he was familiar with their product and used it. The WSJ reports that 650 million bottles are sold a year, the New York publication cites the Heinz website as the source. Phew. That is lots of bottles of ketchup. And essentially, as the WSJ points out, ketchup is recession proof. A real soft luxury. Which Americans put on everything from fries to omelettes. All sorts of food requires a little sauce on it, not so? What is the strangest dish that you have put ketchup/tomato sauce on? Anyway, Buffett is adding his brand as an investor in another brand, Heinz.
A Wall Street big slug out afterhours again with the same fellows Carl Icahn and Bill Ackman involved and of course the same company again, Herbalife. Icahn is looking to Ackman out of a billion Dollar short scoring a profitable trade, but also win what is an enormous battle of egos. Ackman must be under huge pressure now. Fortune fills you in on the background: Icahn Squeezes Ackman With Big Stake In Herbalife, May Push For Sale. Now that is not the only front that Ackman is struggling on, he is long JC Penney. I saw a story with a simple enough headline to strike fear into the hearts of his investors: Maybe JC Penney is just one of those companies that can't be saved. You see, folks who would give Ackman money have less patience, they need their money to work hard given those kind of fee structures of the hedge funds. Today Icahn is on the box explaining his long. For all I know he might be selling to the shorts that need to close out their longs this morning when the market opens. The biggest risk to Ackman is simply that his investors stop believing him, because fund redemptions equals forced sales, or buy backs in this case. Good luck to them!
Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E This morning we have results from perhaps the most well known South African company, at least inside of our borders. The one founded by a German who worked in London. And then moved here, after getting his first job in the diamond business in London, a place called Dunkelsbuhler & Company. And the money to fund the business came in part through involvement from JP Morgan. The funders, the original shareholders you stumped up 1 million pounds were from the old world in the United Kingdom and the new world, the USA. Hence the name.
But let me put one thing straight here, the Anglo American that you know today is and was not the Anglo from 15 years ago. Anglo industrial side of their business has been slowly unbundled, Tongaat Hullet, Highveld Steel, Mondi, they owned a big chunk of what is today FirstRand, they owned media assets, what is Times Media today. Byron points out of course they owned a large chunk of AngloGold Ashanti and Gold Fields. They also owned motor vehicle assets. They owned a lot, I have probably forgotten a lot in there too. So that is what I mean, they are not the company that we know today, which is not an industrial and mining company, but rather just a mining company. But, both Rio Tinto and BHP Billiton have comfortably outperformed Anglo American since June of 1999. I remember there was a time when Anglo was the biggest. No more. They are now the hunted, perhaps we will see a merger of not so equals at some stage with the Xstrata/Glencore merged entity.
But history aside, let us look at these numbers. We have seen most of the results of the listed entities that they own, but there were still surprises, the analyst estimates were well short of what the company actually managed to produce, even if the at face value number looks slightly worse for wear. Underlying profits decreased 44 percent to 6.2 billion Dollars. On a per share basis the company earned 2.26 Dollars per share, the interim dividend declared was 32 US cents. The company has even recommended a 53 cents final dividend, bringing the full year dividend to 85 US cents. At the average exchange rate of 8.21 to the US Dollar that comes to full year earnings of 18.55 ZAR and a dividend of 6.98. So, at the current share price, 282 and a half ZAR, the earnings multiple is 15 times plus and the yield is around 2.5 percent in Rand terms. But, the stock is priced for recovery, not for disaster anymore. Is the worst past? Gee, I still think that Amplats issues are a long way away from being resolved. The Eskom price hikes, after being promised no further material hikes last year, well, look what happened. I shall read more on the weekend of these results, but a slightly better than anticipated result means the stock gets more than a little relief today, up three percent plus in London.
- Byron beats the streets. "Cisco delivered record earnings per share this quarter and record revenue for the 8th quarter in a row in a challenging economic environment. We continue to drive the innovation, quality and leadership our customers expect, and we remain focused on consistent returns to our shareholders, said John Chambers," Cisco chairman and chief executive officer.
This was after Cisco released second quarter results which beat expectations. Net sales of $12.1bn and net income of $3.1bn which equated to 59c per share is what the company managed for the quarter. Expectations for the whole year come in at around $1.71 and $1.92 for 2014. The stock trades at an undemanding $21 or 11 times 2014 earnings.
The company has been through a rough patch. It tried to do too much, increasing its economies of scope and losing focus from its core objectives, which is to provide integrated systems and to service them. By buying businesses which did not fall part of their core business, they started crimping margins which was not taken well by the market. However they realised this and have gone back to plan A, having sold and still selling less profitable businesses.
Analysts reckon that consistent improvement in margins will allow this stock to rerate. Paul often says that the real money is made when a stock rerates on the whim of a brighter future. When the good earnings come in, it is often too late.
But that is market sentiment. The core reason we like the stock is the way the world is going. Smarter smartphones and more smartphone penetration means more data is consumed. Cisco provides the infrastructure for this. The same goes for businesses who strive to become more efficient. Because let's be honest, being connected is the first step. And of course the developing world will be coming off a much lower base in this regard. Cisco already have the architectures, solutions and services to provide these services, probably better than anyone else in the world.
Our one concern is CEO John Chambers who has been CEO of the company since 1995. There is no doubt he is a great man and has had an illustrious career. We just feel a new CEO may be a much needed breath of fresh air. That is not for us to decide though, it is up to the board. Regardless we continue to add and see lots of value at these levels.
OK, what did I think of the state of the nation speech? Well, does it really matter what I think? No, not really at all. You read the headlines today and take away the mood of the media to the president's speech. The Mail & Guardian goes with: Sona: Zuma's speech reveals nothing new. The Daily Maverick has three takes on it: The State of the Nation: Zuma receives lukewarm response by Khadija Patel, her friend J Brooks Spector had this to say: State of the Nation Address: Too many ingredients, not enough theme. And then lastly, from the same publication from Ranjeni Munusamy: Grocery-list State of the Nation fails to inspire.
Well, I guess one could forgive the president for being sick, he must shake a whole lot of hands, ad many of those folks must have been sick. Perhaps when you do shake that many hands you do in fact have a whole pack of wet wipes nearby. And if not, then you are bound to catch something. Perhaps it was the cold and snivels that saw him fall flat. Poor guy. But, he is the president. Ordinary citizens expect the best, demand the best, so we have to pick at the content of the speech and not necessarily the delivery. Here is the speech, from the presidency website: State of the Nation Address.
The word "unemployment" was used only 4 times. "Education" 14 times. The word "land" was used 24 times. "Mining" was mentioned 5 times. "Business" was mentioned 6 times. The word "tax" only three times. But I suspect that business would have looked for more clarity, instead another wishy washy sign on mining tax increases or review. More uncertainty, less time wasting here locally. Now we turn out attention to the budget speech. The real speech. The one that actually tells you how much money there is, or is not for the running of government.
Crow's nest. We are about flat here to begin with, Anglo is enjoying a good day whilst Impala Platinum is not. The second poor day in a row following worse than anticipated results and strange happenings with land in Zimbabwe. Sounds like more of the same unfortunately, and you think that we have problems! There is a sentiment number a whole lot later in the day, that could determine where we end up. I am looking forward to that smack down between Ackman and Icahn though!
Sasha Naryshkine and Byron Lotter
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