"The worst part in South Africa is that you have skills, race and class lines drawn as a function of the past, that stinky word that all of us wished did not exist, apartheid. The reality is that we are straddled with the inequalities of the past, white and black, still open for all to see. But if it did not exist, then the lines would not be drawn along race. More likely class, it would be a simple class struggle. The worst news however for labour is that mechanisation is a given."
To market, to market to buy a fat pig. OK, yesterday was not quite a record setting session here locally (in terms of where we closed) but it was certainly an intraday all time for the markets, the Jozi all share is now within a whisper of 50 thousand. Another market that set a first was the S&P 500, which crossed 1900 for the first time yesterday. 1800 was passed for the first time in November last year, 1700 in August last year, 1600 for the first time in May last year. All sounds quite close together, right? The S&P 500 however passed 1500 points for the first time in March of 2000, a full 7 years later it was more or less at the same level. Peaking at 1565 in October of 2007, when the US mortgage market was going nuts, the next time that level would be seen was 28 March 2013. A full 13 years from 1500 to 1567. With a whole lot of action in-between. So it you say that it took 14 and one quarter years for the S&P 500 to get from 1500 to 1900, that hardly sounds like the returns you would want as an equity investor, but again we always make the point that the index is not what you own.
You want to own individual companies. And in Jozi, your current choice is 354 listed businesses, bearing in mind that a handful of them are not currently tradable, as they are currently suspended. Most companies that fall into this category are most likely never to come back. If you slightly tweak your criteria to say, OK, I am only going to own businesses with a market cap of 500 million Rand, then the list here in Jozi shrinks to 247, with Keaton Energy being the last on that list. Change that to five billion Rand and suddenly your options start really getting small, only 134 companies. If your mandate as an investment manager was to only invest in businesses with a market cap of 1 billion Dollars or more, in other words 10.3 billion Rand, you would only be able to invest in the top 98 businesses listed on the JSE all share. And businesses larger than 10 billion Dollars, there are only 21 choices here in Johannesburg, Remgro being the last of those choices.
If I were to apply the same criteria in the US, businesses larger than 10 billion Dollars in market capitalisation (using Google Finance stock screener), that list is 1692 companies long. Which means that there could be an enormous variance between owning the S&P 500 as an index tracker saving option, or doing your homework and owning 10-15 of these companies with market capitalisations of larger than 10 billion Dollars. Sometimes having more choices is not necessarily easier or better for investors, but it does help.
We have this ghastly situation that continues to fall into the category of unsolvable for the time being along the platinum belt in South Africa. 100 odd days ago, newer mining union AMCU decided that they would draw a line in the sand and demand a minimum wage of 12500 Rand for the rank and file employee and they have stuck to that number, despite numerous rounds of negotiations.
I was most interested to see an opinion piece by none other than former spokesman of the National Union of Mineworkers, and now employed by an academic institution, the University of Kwazulu-Natal titled Amcu, the 'suicide bombers' of mining. I really do not agree with all of it, but he does make some good points. I see at the same time in Australia that overpaid associated mining industry workers at Port Headland (Iron Ore port in Aussie), the tugboat Maritime Union of Australia members want more. Understandably right? We all want more.
Deck hands (according to this article -> Australian iron ore trade faces labour unrest as boom fades) earn 135 thousand Aussie a year with the work cycle being four weeks on and four weeks off (every single day) want four weeks annual paid leave. Deck hands want their pay hiked to 70 percent of that of what tug boat masters earn, 220,000 Aussie a year is currently the salary. So, they want 154 thousand Aussie, 12.8 thousand Aussie a month. Which at the current exchange rate of 9.67 Rand per Aussie Dollar, that is 124 thousand Rand a month for Deck hands on tug boats, who would work 12 hours a day for four weeks straight. Of course societies are all different, eduction for starters in Australia is good. Not quite as good as South Korea (the best), but they rank 15th in the world (source -> Pearson always learnings), we do not even make it into the top 40.
But does that simply mean that if you live in a society which is more equal and more educated and has a higher standard of living that your salary should just be adjusted to meet what the workforce would term reality? Should a tug boat hand in Aussie earn ten times more what AMCU are demanding here? Because AMCU are told that their demands are unreachable. The truth is, and this hurts, the tug boat workers did not create the demand for Iron Ore in Western Australia, neither did the Western Australian government. If there are only 14 tugs (source -> About Port Hedland - Shipping Information - Towage Fleet), how many people can there be working as deck hands? The point is that everyone is worth something, we are all commodities essentially. But the point about quality of the employee (skill set and productivity) relative to what they earn, is that ultimately down to the shareholders?
The whole idea that only shareholders should have the ultimate say is kept in check and balance by the regulators and broader society. As Amplats CEO Chris Griffith said yesterday, there is no way in a public forum that he is going to win a debate on corporate remuneration. If you look at the 2013 Annual report for Amplats, page 61, you will see that remuneration for executive directors and prescribed officers reached 100 million Rand. The base salary for Chris Griffith was 6,747,404 Rand (he paid a lot of tax on that, but most people would not mind that problem), with his medical and retirement benefits totalling 1,172,007 Rand. That is all laid out in the report, for all to see.
Also there for all to see is that the company pages salaries of 13.052 billion Rand in 2013, and retirement benefits of 1.074 billion Rand. As well as medical aid benefits of 524 million Rand. All in all employees of the company earned 15.152 billion, plus I guess the departing ones made 874 million in severance packages, you should add that in too. On the wages and benefits (page 39) the total is 15.6 billion, let us use that number then. Total number of employees and contractors? 46,139 employees and 14,528 contractors, 60,667 souls in total earned that money. The shareholders parted with that, in return for a workforce sweating their assets. Simple math means that before any deductions, the average salary at Amplats is 21428 Rand a month. Average. But surely there is a massive difference in skill sets between a senior engineer, a surveyor and a rock drill operator. And by extension earnings power, the market sets that.
The worst part in South Africa is that you have skills, race and class lines drawn as a function of the past, that stinky word that all of us wished did not exist, apartheid. The reality is that we are straddled with the inequalities of the past, white and black, still open for all to see. But if it did not exist, then the lines would not be drawn along race. More likely class, it would be a simple class struggle. The worst news however for labour is that mechanisation is a given. And the best part for those with remaining jobs is that they will be paid more as a result of their skill sets. Which means unfortunately that the least well paid, least skilled and therefore must vulnerable in society will be most affected. Sad, but quite probably true. Education changes everything, and that is probably why the department of lower and higher education is possibly more important than at any other time in our history.
Michael's musings: BHP becoming lean and mean
Yesterday BHP Billiton released a presentation that they gave at The Bank of America Merrill Lynch Metals, Mining & Steel Conference (quiet a mouthful to say). The highlights of the presentation were that during the current financial year there have been significant improvements in productivity with truck utilisation up 8% and their digging fleet utilisation up 10%. Increased productivity is great news for shareholders, invested capital is now producing greater returns, which brings down operating costs going forward.
Another focus was their drive towards core assets and to bring down their capital and exploration expenditure going forward. The rational for bringing down the expenditure is that less capital available increases the competition for it among different projects. The end result being that only the best projects are selected. The reason for moving towards their core assets is given in the slides, it is a bit disjointed due to it being bullet points but it gives you a good idea.
- We have been progressively simplifying our portfolio for more than a decade... Our major iron ore, copper, coal, and petroleum assets demand our focus (because they) generate the highest margins and deliver a superior return on incremental investment.
- Continued simplification will create an unrivalled portfolio of large, long-life, low-cost and expandable assets diversified by commodity, geography and market.
So in short quality assets give the best returns.
Part of their plan to focus on their core assets, BHP Billiton this morning announced that they were reviewing their Nickel West (Australia) operations, this is one of their two Nickel assets, the other being in Columbia. What this means is that they are looking at selling part or all of the assets associated with their Australian Nickel operation. The decision to review the assets fits with their plan going forward as their resource grouping of Aluminium, Manganese and Nickel only contributed 1.9% to EBIT in the previous quarter.
As an investor you want to see a company becoming more efficient and keeping a close eye on their capital investments. The best assets give the best returns and if an assets does not meant this criteria, then the company can return capital to the investors so that we can allocate it elsewhere.
Home again, home again, jiggety-jog. Stocks are higher here to start with, Naspers is on fire, up around 8 percent plus. Why? TenCent have had numbers that have completely blown the socks off the expectations. I see. Some more detailed analysis on those numbers tomorrow.
Sasha Naryshkine, Byron Lotter and Michael Treherne
Follow Sasha, Byron and Michael on Twitter
011 022 5440
No comments:
Post a Comment