"We can never say what happened, it seems pretty amicable and grown ups have dealt with this in a positive manner, seemingly from the outside. So close to the year end is a little concerning for all, I am pretty sure that market fears will be allayed come the results, the strategy of the business will be no doubt to continue to supply the market and look for growth in the same steady manner that has served one of the longest listed South African entities."
To market, to market to buy a fat pig. Back up the truck there guys, know however when to stop. There was again no respite for the commodity producers yesterday, as we had discussed earlier in the day the iron ore price had slipped to a five year low, holding a level just above eighty Dollars a ton. If you are a high cost producer, then you are in serious trouble at this juncture, I said to Byron yesterday, where is Imperial Crown Trading now? You remember the folks that disputed that they had mining rights (or was it prospecting rights?) of an existing mine in production, namely Sishen. Sishen is still "fine", unit cash costs at the mine for the last six months was 266 Rand a ton, at Kolomela it was 211 Rand a ton. At the current iron ore price and Rand/Dollar exchange rate, the selling price (before all other costs) equals around 900 Rand a ton. You can see that this mine is still very profitable, no doubt running into an area of concern though currently. Kumba, the price thereof, fell 5.89 percent on the day.
The good news for the commodity producers overnight is that the Chinese Flash HSBC PMI number came in at above 50 and marginally beat expectations, at 50.5. A pickup in new orders and exports is good, it is not so good on the employment front for locals in China. The data was collected during the week 12-19 September, so I am guessing that this is about as fresh as you get. In the meantime however, China on a per capita basis has become more polluted than North America and Europe. Sigh. The air quality has deteriorated badly. Time to plant some trees, the problem is that the trees desperately need sunlight too. Check this FT article -> China's emissions outstrip those of EU and US.
At the moment there is a distinct lack of corporate news, the majors have reported in their June reporting cycles, the September year end companies will no doubt release their trading updates a little later next month. There are a surprising number of February/August companies that will report in the month of October, a whole lot more than I thought. Towards the end of October it starts to get a little crowded with regards to the results that come in. Of course third quarter US earnings season kicks off early next month, Alcoa traditionally gets the ball rolling, this time on the 8th of October. Of course the company is no longer a Dow component, it is however a good proxy for the US economy. They (Alcoa) have subtly changed their profile to a technology, engineering and manufacturing business. Cans, automobiles, airplanes, consumer electronics, their customers are in many places.
Back to Mr. Market quickly, Chinese lack of action and a statement suggesting that they would not act to slowing production perhaps has been justified today, right? I guess one swallow does not make a summer, the good news for locals on that score is that the days are now longer than the nights. The click over was last Thursday, today the difference between the sun coming up and going down (official) is 12 hours and 7 minutes. Well, I say official, thanks Accuweather. Locally the ALSI fell heavily, down 1.9 percent, resource stocks were down 2.77 percent on the day, the aforementioned commodity prices sinking has had a marked impact. Over the seas and far away, the Dow sank over 100 points, the NASDAQ sank over a percent and the broader market S&P 500 fell 0.8 percent on the day.
The numbers hit the screens, Apple sold over ten million iPhones over the weekend. That excluded China, which represents just shy of one sixth of all sales, the reason being that Apple are awaiting a second licence to give them the go ahead. It has to do with networks and access, China is more open to the outside world than ever before, of course not all freedoms are permitted. Paul just visited both Hong Kong and Beijing, his feelings having spoken to some english speakers is that life is definitely improving. Obviously the poor air quality is a serious issue. When the company, Apple, can sell phones in China, I am sure that the sales numbers will be a lot higher.
The sales took place at only 10 cities around the world. So roughly one million units a city! I am pretty sure that the flagship store in New York did more sales than most, if you have ever been there you would have noticed how awesome it really is. This week, according to the FT article: Apple sells record 10m iPhone 6 models in first weekend, Russia and Turkish iPhone lovers will be able to "get" their new model. As you can see, analysts are expecting around 45 million phones to be sold in the current quarter. And it turns out Byron and I will be wrong, early signs are that people want to the get the iPhone 6 and not the plus, the ratio in the UK (early signs) is a 7 to 3 split, in favour of the iPhone 6.
All positive and this bodes well for the company, another update no doubt when the company posts results, some time at the end of October, the 27th is the date I have seen. We should have seen at least an iPhone 6 this side, here in South Africa, although my web search suggests not, some time in November. I checked the respective Facebook pages of MTN and Vodacom (strangely MTN have more "likes" on Facebook than Vodacom) and I cannot tell immediately.
Oh no. What happened? PPC sank 7.7 percent to 30 Rand as the news came through that CEO Ketso Gordhan had resigned. He says in the SENS that he leaves with a heavy heart. Why did he resign? The SENS makes it clear: due to differences of opinion with the Board, regarding Board procedures for the approval of certain decisions. Bheki Sibiya, the Chamber of Mines CEO will fulfil the role of Executive Chairman at PPC, until such a time as a new CEO has been appointed. That sounds like a tricky time for Sibiya! The process has commenced, the company said, to find a new person to run PPC.
The management structures are strong at PPC, Pepe Meijer is still in charge of the international expansion whilst joint CEO's of the local business, Johan Claassen and Richard Tomes have oodles of experience between them. If you add up all the time that those three individuals have spent at the business, it is around 65 years, or the normal retirement age of an individual. So to say that PPC have lost a great leader in a South African business sense is correct, to say that they are a rudderless ship is completely inaccurate. Perhaps the time will come for one of these three individuals to assume the top job. There is also a very able CFO, Tryphosa Ramano, prior to that role she was CFO of SAA (a while back). She is "only" 42, perhaps her time will come in the next cycle.
This is during the 110th master builders conference in Port Elizabeth, that gives you an idea of how well established the industry is in South Africa. PPC will celebrate 125 years as a company in 2017. Recent expansion plans across the continent include plants in the DRC, CIMERWA in Rwanda, equally the company feeling that their Zimbabwe assets needed an upgrade. Strong capex was required in the second half of the year, in order to meet the estimates, most of that would have been spent in the DRC. We shall see, not too long to wait for the full year numbers, final results are expected on the 18th of November this year.
I see from the recent media releases that Ketso Gordhan has been calling for an infrastructure CODESA, referring to the Convention for a Democratic South Africa that took place in South Africa over 20 years ago, the first process towards dismantling apartheid. Perhaps it was the well publicised pay cut that Gordhan took earlier in the year, remembering that in February he cut his salary by 1 million Rand and froze the pay of 60 top managers, refresher -> PPC CEO takes R1m pay cut, urges others to follow.
We can never say what happened, it seems pretty amicable and grown ups have dealt with this in a positive manner, seemingly from the outside. So close to the year end is a little concerning for all, I am pretty sure that market fears will be allayed come the results, the strategy of the business will be no doubt to continue to supply the market and look for growth in the same steady manner that has served one of the longest listed South African entities. PPC has been listed for 104 years!
Things that we are reading, that we think you should be too
This is pretty interesting, from the St Louis Fed, I follow their Twitter account. Titled, Delinquency Rate on Credit Card Loans at Historical Low. Makes you wonder about the consumer under pressure, right? Obviously this is inside of the largest economy on the planet. Of course I saw many detractors say that.
The last line is telling, in this article titled How poor countries seemed to be catching up with rich ones—and why they are now falling behind again: "The end of the recent era of fast convergence may mean that developing countries will have to work harder to reform their economies and boost education in order to continue catching up with the rich world." You cannot ignore the structural problems, not reform and prioritise education, equally you cannot follow wonk economic ideas and expect a different outcome. Work smarter, not just using hard manual work.
Home again, home again, jiggety-jog. The better PMI number in China is fuelling commodity prices this morning, US futures are ever so marginally higher early in their session. Obviously the military strikes on IS by a number of nations in the region is far from a positive, I cannot understand how everyone cannot just all get along. I cannot understand it, I will never stop trying to moderate in my own personal capacity. In the same way that climate change starts with individuals (eating less food that requires loads more resources than others), togetherness also starts with humans treating each other better. The internet will do lots of that. I am expecting a marginal bounce back in equity markets, there are PMI numbers across Europe this morning, from France and Germany. A little later in the week there will be US numbers of the same sort, as well as durable goods orders. Gosh, I cannot tell you how this period in-between earnings always is a bit of a drag for me, I love companies.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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