To market, to market to buy a fat pig. The Libor rate scandal continues to be exposed, more fines being dished out. I could not quite understand why the UK authorities would fine RBS, when they are 82 percent shareholders, what was the point I thought, but then the thought of bonus claw backs and lower remuneration for bank employees started to emerge across the wires. Yes, financial authorities are trying their level best to reduce banks to utility like companies, the ones our grandparents knew so well.
Hold on a second here, that suggests that bank failures didn't happen when our grandparents were around, not true. These events happen from time to time, Panic of 1893, the Panic of 1907, Wall Street Crash of 1929, the list of course goes on. Any regulator that thinks that they can prevent people from engineering a new crisis is probably betting against human ingenuity.
According to Wiki anyhow, Charles Holland Duell, the commissioner of the United States Patent and Trademark Office from 1898 to 1901 was misquoted as saying: "Everything that can be invented has been invented." Quite right. As far as we know, it should have been added. A personal computer cost 3000 Dollars 30 years ago, today, according to my inflation calculator that is 6881 Dollars in 2011. Prices have plunged by more than 90 percent on an inflation adjusted basis. Makes you think, technology improved massively, but yet got wildly cheaper over just three decades. And now, just this morning on Bloomberg there is talk about the greater usage of robots in society. Just think Drones a little. And then read this: The Green Drone of the Future Will Never Come Down.
Lastly, the purpose of this segment has changed. As the newsletter always changes and evolves. Originally this letter was meant to be one about the markets, it has over time moved to a more analysis related one. I hope that it is still worth reading, if you get bored, let me know. If it gets too long however, I suggest that you read faster! This is funny, really funny: Why Do People Hate Rising Stock Prices? Turns out it is because that they are missing out. The last two lines are key to the whole thing: "So yes, it's okay to hate rising stock prices. But it's not okay for you to respond to rising stock prices irrationally." Yes, and if that means saying that prices have gone up too fast, too soon, then that is code for "I have been sitting on the sidelines watching and hoping for the markets to fall". Respond rationally. Equally, oversold = time to buy methinks. But, as you can remember from yesterday, the market by many measures still looks cheap enough to me. Many professionals look nervous of the levels. That is pleasing.
Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E We went slip sliding away, banks were off a percent and a quarter, Vodacom was a big drag, MTN went south in sympathy with those weaker than anticipated numbers from South Africa's number one mobile provider. MTN of course across the continent. Luckily for all of us the most populous country on the continent and MTN's biggest market qualified for the AFCON final. They must be feeling happy with themselves. And perhaps talking about it a lot. On their mobile phones. Their last AFCON cup was in '94, whilst this is the first final for Burkina Faso, a country with one tenth of the population of Nigeria. Nigeria has an economy roughly 20 times the size of their close-ish counterpart in Sunday's final. But, as the minnows have proved in this tournament, it is not about the size of your economy, otherwise I guess we would win every single time.
Locally we saw Sappi fall 5.7 percent, Vodacom fell over four percent and that caused local competitor MTN to sink around three percent. Too bad. Cell C fell err..... not sure. Shareholders there, at Cell C swapped their monster debt for equity three odd years ago. Whilst we continue to see a big change in mobile voice pricing, data is huge now and growing fast. I use my phone more for data now than ever before, accessing apps and news that way. Mobile, that means being out and about. I love pictures, Instagram, posting them to Facebook and Twitter, letting folks know what you are up to. Some people worry about their privacy being exposed, just what are you hiding?
New York, New York. 40o 43' 0" N, 74o 0' 0"W As the US Postal service, in an attempt to save money booted Saturday deliveries, market participants, the bulls and the bears were wrestling in and out of negative territory. The nerdy bulls lost, what a surprise, but the broader market and blue chips managed to eke out a tiny gain on the day. I am starting to wonder what the weaker Dollar to the Euro will do for many of the listed companies in the US that have big European exposure. Perhaps the anxiety over this: Biggest U.S. Companies With Large European Exposure old piece, means that those companies are going to benefit now. Talk of the town is that the Europeans, having "saved" the Euro, are now worried about the strength of their currency. I see. It happens everywhere, with the Japanese on the Buzz Lightyear currency path, somehow intertwined with the Neverending story. Remember that big hairy flying dog?
- Byron beats the streets. One of our best performers in New York, Visa, reported first quarter earnings. It seems like such an obvious story. Carrying cash is a liability of sorts, some people want to steal it. It makes life so much easier and safer to pay electronically. The people want it, governments want it because it makes it easier to collect taxes but the majority of transactions still take place in cash, especially in the developing world. That is why Visa's strategy is to get half of their revenue outside the US by 2015. $9 trillion of card spending is expected in the Asia pacific region in 2016. That is 42% of worldwide card spend. Visa are certainly targeting growth in that region.
Let's take a look at the numbers. Revenue grew 12% to 2.85bn versus expectations of R2.8bn. Operating earnings per share came in at $1.94 (30% growth) versus forecasts of $1.79 although 11c of that came from a tax benefit. Earnings for the full year are expected to come in at $7.46. The stock trades at $158 or 21 times 2013 earnings. Is it expensive? I remember in 2011 when it was trading at $70 and people called the stock expensive because it was trading at a multiple of 16. Looking back the stock was actually trading on less than 10 times 2013 earnings. Payment volume for the quarter equated to a whopping $1.1 trillion
Of course this does not mean that future growth is going to be at the same pace. But like I mentioned earlier there is still so much room for growth as the world adopts electric payments. I am sure you experience the shift in your everyday lives. I barely pay with cash any more and in fact my bank, FNB rewards me with eBucks if I swipe my card. Cash is as much a liability to the individual as it is to the bank. Moving physical money around is a dangerous, expensive process. Electronic transfers between banks is just so much easier.
To get a perspective of where the growth comes from let's look at sales regionally. Of the volume processed by Visa the US was responsible for 38%, this grew 2.7% for the quarter. Asia pacific contributed 25% which grew 11.9%, CEMEA (Central and Eastern Europe, Middle East and Africa) contributes 16% and grew 20.1% and LAC which is Latin America contributed 15% and contracted 2.7%.
We still see this stock as great entry into the developing market which will grow as the developing market consumer grows. It will also grow as we shift our spending patterns. They are innovative and at the forefront of payment technology. It is priced for growth but we expect it to remain at this valuation as the share price grows with earnings.
Crow's nest. We have started better here again, which seems to be a theme now. Remember that the first hour is devoid of trade volumes, until late March in Europe and 10 March in the US. That is the only good thing about winter here, we get an extra hour of trade around here on both sides of our session. Earlier in Europe and earlier in the US. Those are the days my friends.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
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