To market, to market to buy a fat pig. Stocks sank in late trade in New York Monday after having flirted with all time highs earlier in the session. I am starting to see the debate that a better number on Friday, in terms of non-farm payrolls could actually be negative for market sentiment. Big number = Fed taper early, if you wanted the very simple version of how/why it all ties together. Do you need to worry about the Fed taper? I think that we have covered this many times and the short answer is no, that you must not do anything with regards to the Fed making a decisions around their bond buying program.
If the Fed decide to wind in their necks it is because they view the economy as better, and not in need of assistance and support of having ultra-low interest rates and mortgage rates. A better economy should translate into higher corporate profitability, most of the serious cost cutting has already been done. Even the US Postal service went from a 5.2 billion Dollar loss last year for the same quarter to an only 740 million dollar loss for Q3. Post? Really, we will deal with the idea of the local postal services with regards to the tolls on our local byways. So I think that the Santa Claus rally does in large part depend on this, but it is not everything. Next year is only four weeks and a few hours away. But we will see.
Why would Bidvest want to buy Adcock? Or even a portion thereof? The company segments their business into four distinct operations, South Africa, Namibia, Foodservice and Bidvest corporate. The last one is where I presume the Adcock stake would appear and we discussed briefly in this office that perhaps there is a change of direction here. The business of automobiles, cables and associated services, banking and insurance, freight and storage services, manufacturing and trading businesses, office furniture and equipment, hospitality industry services and equipment, outsourced corporate services, travel management and the big foodservice businesses all tie up into a large diversified business that is centrally managed.
We feel close to this company, so much so that we can see their fire exit from where we sit. Michael saw Brian Joffe getting dropped off outside here in his squash (or tennis) kit, he was thinking hard and exercising at the same time when wanting to make the decision of steering his fellow shareholders in this direction. And in terms of the offer made to Adcock shareholders, they are alongside Community Investment Holdings (CIH) when making this offer to acquire 34.5 percent of the Adcock shares in issue, outside of the treasury shares. CIH themselves have various healthcare investments, ranging from Public-private partnerships with government hospitals and pharma investments, which include Sonke pharmaceuticals, which is a JV between Ranbaxy South Africa and CIH.
And Ranbaxy, if you needed reminding, is a 191 billion Indian Rupee business, 31.55 billion Rand is the market cap of Ranbaxy. So there is an angle of sorts here, a bigger foot print for Ranbaxy here in South Africa with CIH being the same shareholder in both. So I can see something here, but I am not even sure how big Africa is to Ranbaxy for the time being, their annual report suggests that this remains a key market for them. Them being Ranbaxy. Sales in South Africa in 2012 for Ranbaxy was 50 million Dollars, half a billion Rand. Not really a huge participant, but there and there abouts.
But in an interview on CNBC Africa with Alec Hogg, at lunchtime, Brian Joffe explained how the deal of Bidvest was far better than the CFR deal, because remember that their offer (the Chileans) is far higher than this. Or WAS higher, but because it is part shares and the CFR shares are trading lower, this deal is better. But because CFR is small, they are leveraging up here. Shareholders existing in Adcock could be benefitting more, said Joffe. Believe it or not, Bidvest and the PIC have not chatted yet, but will probably vote in the same direction. This is interesting, not because we are Adcock shareholders on behalf of our clients, but because we are Bidvest shareholders. Obviously shelling out a lot of cash (4 billion Rand) for an under performing asset that clearly needs a management shakeup.
Joffe points to the successes of Aspen and the underperformance of Adcock, relative. Over five years Adcock (with this deal related activity) has doubled in price, Aspen is up 690 percent. The real divergence comes in August 2011, until then the two prices tracked each other on a relative basis, from the Adcock unbundling by Tiger Brands. Perhaps the comparison is too simple, Aspen is not Adcock, and Adcock is not Aspen. Borrowing of course a line from Spanish PM Mariano Rajoy who said, Spain is not Uganda. I wonder if this has lit a fire under the Adcock shareholders bottoms, the PIC can vote around 18 percent, Bidvest have been buyers and have added yesterday to own around 5 percent. A little shakeup is needed, to awake a slumbering (almost) giant.
I spoke to a lawyer friend of mine yesterday and he had some powerful observations about the etoll/SANRAL systems and how they are going to work, should people NOT pay. I tried to check some of the information that he gave me, not all is able to be verified, I did call the editor of a South African business news magazine to fact check and he seemed to think from his own checking and our numbers pretty much matched each other. Firstly, let me tell you what prompted this. I bought my etag on the 13th of January 2012, yes, that long ago. I believe in the pay per use principal, why should someone else subsidise my trip? And if you want world class infrastructure you have to pay for it. I do believe that. I also pay traffic fines, I personally have only been responsible for one in my life. I am very, very boring in that regard, if the speed limit is x, then normally I am a needle below that. Boring. True. And my friends (yes, I have some) used to call me Miss Daisy.
But back to a few observations that I made this morning, personally. I leave early and get here at sparrows *bleep out* in order to get ahead. The early bird catches the worm. I am not a late night owl, in a previous life I must have been a farmer. But Howard, our driver/admin assistant was with me and I asked him to count the number of vehicles between Rivonia and the Buccleuch Interchange (where there is a gantry going up the hill). And the number he came to? 2. Yes, two. Out of 75 to 100 vehicles around us, that included trucks and delivery vans, we counted a whole two. I mean Howie counted two, my eyes were on the road. So if you think about it, all those people without etags will need to settle their accounts when they get a registered letter in the post.
Aha, so you need to get a registered letter in the post. How much does that cost, and who pays for that? First important question. I was told (by my lawyer friend) that the cost of a registered letter, to send a notification of travel under the gantry is ten Rand. Do the math quickly and the number balloons, sending thousands, if not hundreds of thousands of registered mails each and every day. It is going to be a very costly exercise. And again, who pays? SANRAL? It seems like a huge cost for a 3 to 7 ZAR gantry, what is the point of sending someone a 10 ZAR registered letter (if indeed that is the cost). Perhaps someone could find out what the cost is, the post office has it here it their business customers segment.
I then went to the Toll calc website segment and came up with this calculation, for my trip:
Total toll before discount: R 9.98
min e-tag Discount: R4.82 (48.28 %)
Total toll after discounts: R5.16
So if the cost of sending a letter to me for each and every pass is about the same as the actual trip (without the discount applied) then surely it is a waste of effort on all parts, from the post office all the way through to your desk. And my editor friend told me that not only are the post office very upset with this, but so are the JMPD with regards to administering the system. So much so that I am told that SANRAL might even have their own private cops with regards to enforcement. How are they going to know whether you paid, or did not pay? Or is it as simple as checking the windscreen of your motor vehicle? If my observations are right, then SANRAL will need thousands of vehicles on the road, and that will be a crazy cost.
My lawyer friend tells me that the court in Randburg can only handle 70 civil cases a day, if even 1 percent of the population decide to ignore the bills and have to go to court, it is 30 thousand odd people. 428 court days. Wow. And that is for one percent. The real clincher is that my lawyer friend told me that the payment rate for traffic fines is only 6 percent, perhaps you can verify that, a whole 94 percent of people file it in drawer number 13. The bin. If the culture exists of NOT paying fines, why would that suddenly change for people paying SANRAL bills?
So whilst I am getting another etag today (I apologise to you in advance) and remain compliant, wanting a cheaper rate for travel, I am convinced that many more people are not compliant and will not, as per my simple observations, buy an etag. I shall see my first piece of mail from SANRAL in the post and let you know when I have it. It would have been far easier to slap some cents or even tens of cents on the petrol price in Gauteng to collect the money to pay for the roads. I thought that was supposed to happen anyhow. I am neither for or against the tolls, believing that the people choose the folks to be in charge and those in charge set in motion economic decisions. That is the way that life and democracy works. But surely the collection at source, where you CANNOT ask the petrol attendant to not charge the 10 cents or so a litre for the local freeway upgrades and upkeep, that sounds easier.
The sinister part of me (not a big part, I can assure you) niggles with something that I don't want to think, someone somewhere has something to lose if this is not implemented in this way. It would be far better for our credit ratings of government agencies and by extension the rest of the country, inflation rates and purchasing power if our debts were settled timeously. The next time that creditors are approached for funding infrastructure projects of this scale they are going to demand more because the risks have risen. Surely the easiest way to collect is at the pump, there is no skirting around that, and the culture of road users can remain to be changed for another day, seeing as we can't get that part right either! Let me know what you think.
Michael's musings. FOMO
Do you suffer from FOMO when investing? Fomo stands for the Fear Of Missing Out, and is being increasingly used in our modern always moving, always connected society. When it comes to investing FOMO can lead to over trading and holding stocks that deep down you know you shouldn't own. FOMO in investing is where you own a stock because everyone else owns it, because you are sure that next year this time the stock price will be higher than today or because it is the next big "thing".
There are many assets being created on a daily basis and as such there is always going to be opportunities, so if you miss the current opportunity there will be another one down the line. Having said that, not all opportunities are equal, I don't think that we will see another buying opportunity like the last 4 years in a hurry.
Here are some cool stats of the current assets around the world, if you didn't FOMO before you will definitely have FOMO now. According to the World Federation of Exchanges, who have 57 members, their members as of the end of October had a total of $62.6 trillion dollars in market cap, where there are 45 452 companies in total listed on those exchanges. According to Wikipedia there are 142 exchanges in the world, so there are even more equity assets around the world than the 45 452 listed companies on the member exchanges. The JSE is ranked 18th in the world according to market cap, with the NYSE having a total market cap of $14 trillion and second is the Nasdaq with a total market cap of $4.5 trillion. The JSE with a market cap of about $900 billion pales in comparison to the US exchanges, where just 2 of their 12 exchanges have a total market cap of 16 times ours.
Where I am going with all these facts is that there are always opportunities that you will be missing out on, because over and above all of the listed equities there are also OTC shares, SSF, ETF, CFD's, property, gold, silver, oil, pork bellies, classic cars, wine and many more possible places to put your money to grow. In the grand scheme of things, I think picking an asset class that you understand and then sticking with to it, is the way to get the best and most consistent returns. For equity investing, that would translate to owning quality, and not worrying about other shares that will also be going up with the market. As the saying goes, "A rising market, floats all the boats".
Home again, home again, jiggety-jog. Markets have sold off locally, we had a horrible current account deficit read, 6.8 percent of GDP. Yech. That has sent stocks of a local flavour down, the selling is serious here today! This is also very backward looking data, for the third quarter of this current financial year. This is when the value of the goods and services that you IMPORT is far greater than the goods and services that you EXPORT. It is bad for inflation and equally very bad for the current rate cycle, rates will have to probably tick up sooner than anticipated. We will see. Perhaps the current quarter will be far better than the prior two quarters.
Sasha Naryshkine and Michael Treherne
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