Money with a dash of Funny: November 2014

Friday 28 November 2014

Ring-a-ring o' roses, we oil fall down

"The prices for the balancing of the budgets for Iran, Algeria, Libya, Nigeria, Venezuela, Saudi and Iraq are all north of 100 Dollars a barrel. UAE, it is around these levels, after last evening, the slump in the oil price, it looks harder. Qatar and Kuwait are fine. Saudi, as the biggest of the oil producers has been more prudent, some people say that the health of the Saudi Royal Family is more important at this point in time. Some countries have been prudent with their resources, some have not."

To market, to market to buy a fat pig. Oil, it is possibly the most immediate necessary commodity, other than food and water. The market cares less who produces it, the market always finds what is the best level at any given time for a specific commodity. Without the consumer for a specific commodity, the price would be next to nothing. You can have as much of the stuff as you want, when the consumer changes their minds and uses something else, that price might as well be finished. You know the old saying that the rocks did not run out when the stone age ended.

Think of some of the examples known to humankind, whale oil, it is practically extinct as a commodity, as a result of a) no more demand for the product and b) we now protect the giants of the sea. Whale oil was exceptionally valuable before kerosene was used for lamps and cooking oils obtained from plants was more widespread and used for cooking. Sounds like a whole lot easier than going out to find Moby Dick, it made economic sense eventually to switch.

Nutmeg, you can find it in your spice drawer, did you however that wars were fought over a series of islands known as the Banda Islands, at the time they were the only source of nutmeg globally. Why? Nutmeg was not only a preservative, it was thought to ward off the bubonic plague. All this from Wiki. Today the cost of something transported from either Indonesia or Grenada is negligible, compared to what it used to be. Still expensive at nearly 40 Rand for 35 grams whole or 45 Rand for 50 grams ground, not 90 shillings a pound as it was back in 1760 (Wiki). Not so tasty really and once people figured out that it was the rats and the associated fleas, the plague was exterminated.

Coffee is at the opposite end of that spectrum. According to Wiki, the first European coffee house opened in Rome in 1645. Roughly half of the US population over the age of 18 drink a cup of Joe daily, they are the leading market with daily consumption of 400 million cups a day. Per capita however, the distinction of being the most highly caffeinated country per capita belong to the Finns. Nearly 10 cups per person per day. It is not surprising when you consider that they endure 100 days of winter in which the mean daily temperature is below 0 degrees celcius. I would drink a lot of coffee too on that basis. It is however the second most important commodity on the planet currently, after oil.

And we are talking oil today for the very reason that OPEC met yesterday. I for one have not seen this much excitement around an OPEC meeting in an age. The Venezuelan oil minister, Rafael Ramirez, criticised the US fracking community, suggesting they should be reigned in. Sorry pal. Free enterprise has trumped your ideology and cartel, consumers dictated that, not dictating to consumers. Rafael Ramirez suggested that everyone had to make sacrifices. He also said something dumb like lower oil prices was bad for consumers. Really? Perhaps for fingerprinted Venezuelans forced to buy a set number of food items at a set price, their lives are about to become harder, as are the ruling elites. 95 percent of all export earnings are derived from oil. The market always beats you if you try and manufacture something idiotic. I feel for the people of Venezuela.

Forget my Venezuela bashing, the prices for the balancing of the budgets for Iran, Algeria, Libya, Nigeria, Venezuela, Saudi and Iraq are all north of 100 Dollars a barrel. UAE, it is around these levels, after last evening, the slump in the oil price, it looks harder. Qatar and Kuwait are fine. Saudi, as the biggest of the oil producers has been more prudent, some people say that the health of the Saudi Royal Family is more important at this point in time. Some countries have been prudent with their resources, some have not. Dutch disease as Michael reminded me, is a real thing, the whole idea that your manufacturing sector is decimated due to natural resources that are exported furiously. Your currency strengthens, industrialists concentrate on the resources industry, the existing manufacturing industry cannot compete with cheaper imports. Balance I guess.

The upshot of the OPEC decision to keep oil production flat at 30 million barrels a day (pretty loose and fast) has been that the oil price has gotten completely smoked, down over 6 Dollars a barrel at one stage, for Brent the biggest one day fall since 2011. We are now at a four year low and not too dissimilar to the slide in the other commodity prices. Well supplied markets, including the US, have seen to that. The question then becomes, at what level is US shale production unprofitable? According to the FT, that level is around 40 Dollars a barrel for the least cost producers, 115 Dollars a barrel for high cost producers. Guess what will happen with enterprise, they will be forced out immediately. If governments are too reliant on one income stream, that is their problem, not ours. For us here in South Africa and in many parts of the world, a weaker oil price is fabulous for consumers, it is like a massive tax break.

Company corner snippets

Truworths have been busy, yesterday announcing that they were acquiring the Naartjie brand locally from a crowd called ZA One, as well as the US holding company. Did you know that? The headline misspelt the name, it read: Proposed acquisition of the Naatjie Kidswear Business. I wonder how many people read it and missed the mistake. The business has been around since 1989, there is a store network of only 26 stores, clearly the plan is to sell more kids clothes in the stores, rich people go nuts for this brand that the little darlings grow out of so quickly. Just a few weeks ago Truworths announced something similar, they announced that they intended buying Earthchild, again, another rich peoples clothing option for their children. Expensive clothes and children, do they go together? Why not. The deals themselves are possibly not that big, for now. It is still about the fashion of the parents, you can imagine trendy tots too though.

Santam have announced the replacement for Ian Kirk, Lize Lambrechts joins the company from Sanlam, where she has been since 1985. Lambrechts was chief of Sanlam Personal Finance, which is the retail arm of that business for the last 12 years. She is an actuary, studied at the business through her career. Hard work, studies and keeping in the same place seems to have rewarded this smart person. There is a lesson in that, well done to Ms. Lambrechts and good luck to Captain Kirk at Sanlam.

Things we are reading and we think you should be too

Given that it is thanksgiving, Nassim Taleb's most famous Black swan analogy comes to the fore - NASSIM TALEB: Consider The Thanksgiving Turkey…. The analogy shows the futility in placing a high degree of confidence in forecasts because we simply do not know what tomorrow holds.

This article sums up the reality of economics perfectly - FARMING: Prices on a peel. Given the uncertainty around land reform, farmers have moved their longterm investments to where they feel they have more certainty. Another note is the economies of scale and the stronger position that the bigger guys are in due to them being larger.

BMW is taking a feather out of the cap of Apple when it comes to customers - BMW's genius move is from Apple's playbook. As car companies place higher importance on the customer experience I think having private dealers will become out of date because the car companies will want to have maximum control over the experience. This is a fight that Tesla is already in.

Healthy wage growth is good for companies everywhere - Private-Sector Wages Up 5% For Year Through October

If Europe is to catch up to the US in the growth department Germany is a key driver - German Jobless Rate at Record Low as Confidence Improves

Having your own drone would be very near the top of most peoples Christmas lists - GoPro to release consumer drones next year, report says. If the drones are as cool as the current GoPro's they should be awesome.

Giving some relativity to the size of Apples market cap - Sizing up What Apple's $700B Market Cap Could Buy

Then to end off, a thought provoking article - Why can't a billion Chinese people rise up and overthrow the Communist Party and make China democratic?.

Home again, home again, jiggety-jog. It is Black Friday, the shopping holiday in the US where the queues are long and the urge to splurge exists. It is starting to go global, I have had many emails here today suggesting that I have a chance at a discount. If only I was a shopper!! Sadly for commerce I am not, I do however encourage everyone to get something that they desperately need on the cheap.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Thursday 27 November 2014

Turkey time, 46 million goodbyes

"Around 46 million turkeys are eaten at Thanksgiving, 205 million are raised each year in the US. The turkey pardon at the White House by the president has been around since 1947. The day itself, the day of Thanksgiving is 225 years old today. Forget that, Black Friday, the big shopping day after Thanksgiving dinner attracts over 90 million shoppers."

To market, to market to buy a fat pig. Some average data from the US saw to it that the brakes were applied to a market that must have left the bears licking their wounds and wondering what has happened in the last 40 days. The S&P 500 is up 11.28 percent since the lows of the market washout in October, the speed of the recovery matches the speed of the draw down, there was high fives all around, it was short lived however. Yesterday was another closing high for both the Dow Jones Industrial and the S&P 500, with the blue chip and older index, the Dow Jones within striking distance of 18 thousand points. The Dow Jones is up 10.45 percent in the last 40 days, the gains have been swift and the period of oops from Mid October have washed by.

Locally we did not have a chance to break the resources shackles, remembering that we get one less hour of US markets through the local summer. We get the princely sum of half an hour of US trade, ten minutes of that includes a closing auction. Obviously with the futures market almost always trading we get direction all the time. Gold stocks had another good day yesterday, bullion is starting to gain a little more momentum, the oil price has however been under huge pressure. The OPEC announcement comes out at around 11am, OPEC are however not what they used to be. The WTI (West Texas Intermediate crude oil for delivery at Cushing in Oklahoma) price is down 20 Dollars over the last year. The budgets of many OPEC countries desperately need higher prices.

So why is OPEC no longer the force to be reckoned with as before? Simple. This graph via this article explains everything about lower prices: The surge in US shale oil has offset declines elsewhere, stabilized world oil supply, prevented gas prices from rising, courtesy of Mark J. Perry and AEI. It is all that you need to know about weakening oil prices which is excellent for the global consumer.

Let us talk turkey for a little. No two turkeys are the same, the rage this year (for the last few in fact) for hipsters and the wealthy (and maybe the healthy) is to go for a heritage turkey at Thanksgiving dinner. A heritage turkey is a turkey that has the characteristics of the original turkey that was served the first ever Thanksgiving meal. Skinnier, more pheasant looking, they could perhaps outrun humans in the old days. The price difference between an organic heritage turkey and mainstream one is as much as 48 percent more. The price of being a hipster/trendsetter is more than ordinary people. Question, do hipsters tell the other people around them of their organic expensive tastes? Or are they quiet about it? They just post it on Instagram.

Around 46 million turkeys are eaten at Thanksgiving, 205 million are raised each year in the US. The turkey pardon at the White House by the president has been around since 1947. The day itself, the day of Thanksgiving is 225 years old today. Forget that, Black Friday, the big shopping day after Thanksgiving dinner attracts over 90 million shoppers. Yowsers. The Holidays - All Markets at the NYSE point are out as this is a holiday in the US, one of only 9 days that the markets close completely. I think that it is a half day for the US trading tomorrow, short straw for that one! I guess if you live in the surrounds you can go to work for half a day and not be off, an extra days leave to use elsewhere. The US actually has no statutory minimum for leave days (paid), the typical package allows for around 15 days.

In South Africa it is about the same, workers are entitled to 21 consecutive days leave, 1 day per 17 days worked, 1 hour per 17 worked. I guess the more you work, the more leave you get. If your average day is around 10.5 hours, your average week is around 52.5 hours, which means three hours leave a week. A more conventional 8 hours a day (know anyone who does that?) equates to 2.35 hours leave a week, or 122.35 hours a year. Which divided by 8 hours = 15.29 days. If you are a security guard and work a 12 hour shift, the measure (divided by 8 hour working day) of leave days is 23.

So it matters where you work and how, our leave days are pretty much inline with the rest of the world. I read an article that suggested the Austrians, Portuguese and Spanish have the most paid leave and public holidays in the world, around 35. Wow. Japan, Canada and the US in the developed world are the folks that demand the most from their workforce, from being at work and being there a lot. Well done, work hard today y'all! I am thankful that my roof did not blow off last night during a hectic storm.

Company corner snippets

Michael makes a good point, after we saw a SENS announcement yesterday that Christo Wiese had bought 30 thousand contracts (representing 3 million ordinary Brait shares) at 73.505 Rand for a total value of 220,515,000 Rand. He suggests that Wiese must know how Brait are going to invest the cash that they are potentially left with, obviously a few hurdles to clear now. Wiese would have bought these two days ago, when the market fell hard, it fell hard again yesterday, down to 70 Rand. I wonder how leveraged he is, this takes relatively large sized you-know-whats to do this. He thinks the fall in the share price of Brait is overdone, he leveraged this, he thinks that he can make back his money quickly. Imagine the funding cost on 220 million Rand! And imagine if you were down 3.5 Rand multiplied by 3 million shares (on paper) in one day. Don't feel bad for Wiese, his shareholding in Shoprite, 15.31 percent of the business equals 87 699 198 shares. The recent final dividend, after 15 percent dividends tax, equals 162.5 million Rand paid to him mid September. Good work if you can get it! Finding a home for it you see, I am sure that it hurts a little.

Santam released an operational update yesterday afternoon. It is a general 10 month communication with shareholders, which in case you forgot (who the shareholders are), as per the last annual report, 3 shareholders own 73 percent, including the gorilla shareholder, Sanlam, who own 57.83 percent. Remember that at this time last year there were plenty of hail related claims, that storm last night happened at a good time for the insurers, i.e. when most folks were off the roads. I cannot imagine what happen with crops, or whether the high winds could fuel fires, that is a possibility. All around however the trading update indicates that it is tough out there, the one line sums it up: "Underwriting conditions remain challenging, with continued pressure on claims costs and the tough general economic climate impacting on growth." Ian Kirk moves up to deputy CEO as main shareholder in January, a new CEO will be announced shortly. The stock took a sharp leg down, it has recovered somewhat today.

Biggest news of the day so far, a release today: SABMiller, The Coca-Cola Company and Coca-Cola Sabco to form Coca-Cola Beverages Africa. This will form the largest Coca-Cola bottler on the continent, 40 percent of all beverage volumes across the continent, the 10th largest on the planet. 30 plants, 14 thousand people. The shareholding split will be SABMiller 57 percent, Coca-Cola Company 11.3 percent, with the balance, 31.7 percent in the hands of the Gutsche Family Investments, you can read the family history and involvement in the business via their Coca-Cola Sabco Our Company profile on their website. Fascinating change of ownership from a sales person, Phil Gutsche joined the business as a sales person, and ended up with all of it 20 years later. He worked for 16 years (Gutsche) at the business before acquiring a stake, and then 4 years after that had everything, talk about being in the right place at the right time. The SABMiller price has barely budged in London, up a touch.

Things we are reading and we think you should be too

Ronald Wayne's sale of his 10% share in Apple for $800 is considered one of the worst trades ever - Apple's Forgotten Cofounder Is Auctioning Off A Collection Of Early Documents. At least he can make a couple bucks off these documents.

It is great to see how technology moves, for Sasol this should save them some costs as well as being more environmentally friendly disposing of industrial waste - Microbes to munch Sasol sludge

This link is to a 19 minute Ted talk, if you have the time I recommend watching it - How not to be ignorant about the world. How did you do on the three questions about which way the world is moving? The basic message from the video is things generally are getting better and not worse as our biases would point toward.

Management remuneration is a hot topic at the moment - What's a CEO Really Worth? Too Many Companies Simply Don't Know.

Cullen Roche gives a brief look at the FED borrowing and the US government debt and gives his reasons why the myths are wrong - When Gurus Say Strange Things.

Home again, home again, jiggety-jog. I am deeply saddened by the passing of Australian cricketer Phil Hughes, who was struck on the head by a cricket ball two days ago in a first class match in Sydney. The sport is not associated with contact, the ball is extremely hard, even though it weighs only 163 grams, batsman are genuinely scared with quicker bowlers. I feel sorry for all and sundry, the family and friends, the broader cricketing fraternity and indeed for the fighter Hughes himself, on the cusp of muscling his way back into the side. Sad.

OPEC, are they as relevant as before? The US need to be able to export a whole lot more oil than they did before, currently they cannot. I have no idea what vehicles we will be driving in 2040, I can only assume that if the economics dictate that a battery operated vehicle is cheaper in all respects, then no doubt that is what we will drive, not combustion engines. Talking of which, did you see the "poo bus" in the UK, the bus that runs on biomethane energy from from human waste, from the sewerage plant. In the UK alone there is enough biomethane to power half of the truck fleet. And on that note, we have fallen to talking potty, it is time to sign off!

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Wednesday 26 November 2014

Apple tops a juicy 700 billion

"Last thing on Apple, also to do with the ecosystem, the services business recorded annual sales of 18.06 billion Dollars, 10 percent of total sales, an increase of 13 percent versus the prior year. A massive business in itself growing quickly, ahead of most of the market. The more iOS devices out there, the more people likely to spend, this amazing headline and associated graph tells you almost everything that you should know about the ecosystem: Apple Has Nearly A Billion Payment Cards On File."

To market, to market to buy a fat pig. Ahead of one of the most celebrated US holidays, the US markets slipped a touch, we had seen another negative day, courtesy of the commodity companies again sadly, as a collective they were down 1.8 percent. That hurrah was short lived. During the course of the session Apple topped 700 billion by market capitalisation, slipping back from the positive start. Does that make it the most valuable company of all time and the first to reach that level? Yes. 700 billion is huge. Yet strangely, Apple trades at a discount to the NASDAQ and a marginal premium to the S&P 500. With revenue expectations for the current quarter of over 60 billion Dollars worth of sales, the blockbuster iPhone 6 is selling like hotcakes.

Unbelievably the sales expectations for the current quarter are 71.5 million, which represents a 40 percent increase on the same quarter last year. That boggles the mind. Sales in the second quarter are expected to be nearly 50 million units, meaning that more than 120 million iPhones would have been sold inside of 6 months. Poor Byron cannot source one for love or money through MTN. He wants one, I guess I am in a different position, I will have to wait for my contract to renew before I can get the newer one. The Business Insider did a short survey, of course this is in the US, it seems however than many people want an iPhone: CHART OF THE DAY: Consumers Ready To Upgrade Want An Apple iPhone. Forget that. As I was saying to a couple of clients yesterday, it is being in the Apple ecosystem that is important, nobody owns as cool hardware and software together.

Last thing on Apple, also to do with the ecosystem, the services business recorded annual sales of 18.06 billion Dollars, 10 percent of total sales, an increase of 13 percent versus the prior year. A massive business in itself growing quickly, ahead of most of the market. The more iOS devices out there, the more people likely to spend, this amazing headline and associated graph tells you almost everything that you should know about the ecosystem: Apple Has Nearly A Billion Payment Cards On File. Nearly four times that of Amazon.com meaning that the Apple Pay service is actually more likely to work quicker than you think. Apple is not necessarily an inventor of the certain product or service, they certainly know how to make the most beautiful one.

Did you get a chance to see the local growth numbers here yesterday? Released at the same time as the Eskom numbers, more or less, I was not too sure which one was worse. Check out the GDP release from the StatsSa website: Gross domestic product -> "Real gross domestic product at market prices increased by 1,4 per cent quarter-on-quarter" That sounds really poor. By province, you folks down in the Eastern Cape really need to pull up your socks, if it is you that is trying hard, it is time to get the folks around you to try even harder. Gauteng Province, the place that the people in this office call home is the fastest growing according to the release. Nice, keep up the good work guys! The rest of the country has some sort of problem paying for the roads here, seemingly happy to get the tax receipts generated from here.

And then there was the biggest economy on the planet, the USA, which managed to grow at an annual rate of 3.9 percent, comfortably ahead of the markets expectations. This is a second look, there is of course a third and final look for the third quarter, which is released two days before Christmas. For the full release and just to get a chance to see the monster size of that economy, follow the link: Gross Domestic Product: Third Quarter 2014 (Second Estimate). $17,555.2 billion or 17.555 trillion Dollars is your number that you are looking for.

That number is simply mind blowing, nearly the entire size of the European Union economy, which is a touch bigger. Those 28 states are collective GDP estimated at 18.399 billion for the current year. As a collective the Europeans are in danger of being overtaken by the Americans. Ironically, if Goldman Sachs are right on their currency projection for next year, the Euro could settle around 4 percent lower than current levels, which would also see to it that the gap is closed. If the US economy grows by around 2.3 percent next year, and the Euro area is flat, we are looking at a tight race when the official data would be released early 2016. Something to look forward to, no doubt!

Company corner snippets

We saw this announcement, we had not had a chance to write on it until now. The news that Richemont were considering spinning off Net-a-porter during the course of 2015. Richemont owns two thirds of the business, Natalie Massenet is the founder of the business. The Bloomberg story: Net-a-Porter's Owner Said to Mull 2015 IPO of Retailer, perhaps someone is just kite flying a little here. I guess all we need to do is to wait and see if there is any official announcement from the business. As an aside, you can buy their expensive items on their website, delivered here to South Africa, it costs a fortune to get it here 22.5 Pound Sterling and then of course the courier would call you to let you know of the import duty.

I did a quick sort to see how expensive you can get with regards to a shoe, the Versace Embellished suede over-the-knee boots, which retails at 6008 pounds is currently sold out. True story. The most expensive dress is a Marc Jacobs Crystal-embellished sequined wool-crepe dress that retails for 20800 Pounds. That is nothing, a Bottega Veneta Roma medium crocodile tote retails for a mere 37439 Pounds. Wow. Guys, Mrporter.com is limited, yet there is a Loro Piana Montgomery Suede-Trimmed Beaver-Lined Cashmere Jacket for a cool 10485 Pounds, Berluti Venezia Leather Calf Boots for 2112 Pounds and a Santiago Gonzalez Crocodile backpack for 4934 Pounds. Merry Christmas everybody!

Everyone is starting to talk about the Glencore-Rio Tinto merger as something that will happen sooner rather than later. OK, the certainty was from a former JP Morgan dealmaker in the commodities complex, Ian Hannam, suggested this to a small bunch of investors in a restaurant. Yes. Even the restaurant is named in the Bloomberg article: Glencore-Rio Merger Will Happen, Hannam Tells Hedge Funds. 20 odd investors, middle of November, at a place called Corrigan's, where the Loin of Fallow Deer (36 Pounds) and side of Green beans (7 pounds) hardly comes cheap. The wine at around 8-14 Pounds a glass, 8.5 quid cheesecake finishes your meal off. On the other hand, the 70 odd pounds seems like a cheap price to pay for the information, the leakage to the press (person responsible asked not to be identified in this private manner), well, that is another matter for Hannam to deal with.

Byron beats the streets

Yesterday one of our recommend stocks Omnia released 6 month results for the period ending 30 September. These numbers were not well received by the market and the stock fell over 11%. Lets look at the structure of this chemicals business then delve into the numbers.

Ultimately it is three divisions; Mining explosives, fertilisers and chemicals. Here are 2 tables hacked from the presentation which shows you the contribution from each division.

As you can see Mining is the biggest profit contributor, with agriculture not far off. Chemicals is a big revenue contributor but adds very little to profits. We can also see here that the second half of the year is much bigger than the first, especially for fertilisers which is of course seasonal.

Revenues increased by 1.1% to R7.6bn, profits for the period decreased 4.7% to R404 million, operating margins remained the same at 8.8% and the dividend increased 2.7% to 190c. After all was said and done basic earnings per share were down 4.9% to 606c. The share currently trades at R194.80 but its hard to annualise this number because as mentioned above the second half is much bigger. Lets assume the company makes R14 a share for the full year, (down 6.5% from last year) the stock trades on 13.9 times earnings. Sounds fair for a business of this nature. Lets look at the different operations.

Mining. As you can imagine the division had a tough period. Revenue was down 2.7% and profits were down 6.4%. Commodity prices have slumped which means your smaller producers get pushed out the market completely and stop mining. The strikes on the platinum belt also did not help. It's not all doom and gloom. Omnia have a massive presence throughout Africa, especially in West Africa where mining spend is booming compared to SA. They are also more exposed to opencast mining which is less reliant on labour.

Agriculture. Africa has 60% of the worlds uncultivated arable land. Many farms are extremely inefficient. The room to grow here is huge. However certain macro factors have gone against Omnia. Ammonia is an input and due to a lack of global supply the price for the product has increased. This compared to the final demand for fertiliser which has remained stable means that Omnia have to absorb this price increase. We have also seen a decrease in maize and wheat prices which of course means less planting. The rains have come late this year so Omnia expect a much better second half. Revenues increased 5.2% and profits increased 40% (they had once off production costs last year).

Chemicals. This division is geared towards the South African manufacturing sector which is facing many challenges as we all know. Revenues increased 1% and profits were down 34%. Strikes and Eskom related issues have put pressure on the companies who demand Omnia's products. This division contributed 5.5% to overall profits.

Conclusion. It is tough, especially for their biggest profit driver in mining explosives. But this business is well managed, has a great infrastructure set up and should benefit from many fast growing sub-Saharan countries where they operate. Operations in China, Australia and Brazil give them some diversity. I continue to like this business but it is going to be a choppy ride.

Things that we are reading, that we think you should be too

For me this is probably the most thought provoking article I have read this week - Are Low Interest Rates Responsible For High Stock Valuations?. My conclusion from reading the piece and doing some thinking is that the research makes sense. Stock prices are leading indicators and interest rates are lagging indicators, so why should there be a significant link between the two? "That also means that, if rates were to begin to rise, valuations do not need to fall as the Fed Model suggests."

The positive impact of having a profitable company as your investment - The case for the profitability factor in your portfolio. It may seem obvious but very profitable companies are normally "expensive" to buy. The way I see it, a very profitable company can withstand headwinds better and they then have the cash flow to take advantage of opportunities, these traits I would say lead to companies beating expectations.

Fostering partnerships and trying to standardise charging will go a long way to an explosion in the number of electric cars bought each year - Tesla says in talks with BMW over car batteries, parts

Home again, home again, jiggety-jog. Gold up, platinum down, Eskom bleeding and paying their senior exec a whole lot of money, the Rand has weakened a little. It seems like the government may swap the debt at Eskom for more equity (only shareholder), shifting the debt from the parastatal to the government, which is you and I my fiends.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Tuesday 25 November 2014

Naspers, they own other "stuff"

"first of all, the company is investing heavily in their businesses, 4 billion Rand to be exact, up 35 percent from the comparable six months. Here is the revenue spread, Internet is 58 percent of revenue, Pay TV business represents 32 percent of revenue and the balance (10 percent) is Print. That is likely to be less and less in the coming years, trading profits at the print business was 96 percent lower than the prior reporting period."

To market, to market to buy a fat pig. A very, very modest gain for blue chips on Wall Street last night, the other indices, it was a whole lot better, including for technology stocks. I bet it is just a matter of time before we start seeing the headlines like "market fatigue setting in" or "bulls running out of steam", or perhaps there will be the good old Santa Claus rally, as mystical as the bearded man himself, for the kids that is. I am planning to get little, I have everything, right? We can always have new things, whether or not they are useful, that is another story. Mr. Market saw another closing high for both the S&P 500 and the Dow Jones Industrial, the nerds of NASDAQ have around 300 points, or 7 odd percent from here to reach an all time high.

According to the WSJ markets data page, the NASDAQ trades on a 19.85 times multiple forward, the S&P 500 on a 17 times multiple forward, meaning that the earnings of the collective shares relative to their weightings, versus the index level, which can be seen as a price. We can work backwards, the S&P 500 closed at 2069, divide by 17, you get to 121.7 Dollars. The yield is only 1.9 percent currently on the S&P 500, versus the ten year yield of 2.304 percent. You can see that something has happened here, the market is expecting better and better from corporate America, and by corporate America essentially I mean all the listed businesses there. The UK and the local market are strikingly similar in that many of the listed businesses in London and Johannesburg do not represent the economy, that is not so much the case in the US, around 70 percent correlation there. Japan seems highly correlated.

To finish off, the local market was once again dragged back, the same stocks that pushed us forward in a rush on Friday, resource stocks closed the session down 2.33 percent to send the overall market down one quarter of a percent on the day. There was decent enough data from Germany, confidence numbers from a business point of view, the IFO numbers. I also saw that the Russian finance minister had said that the sanctions and a 30 percent fall in the oil price had cost the country a whopping 140-150 billion Dollars. Wow. 100 odd billion for the fall in the oil price (lost revenue) and the balance, around 50 billion being the impact of sanctions on Russia. Imagine if nobody bought energy from the Russians? That would basically mean that their economy would flatline, the country has the most incredible prospects and resources, vast forests vast deposits of minerals and oil and gas, we do certainly need the Russians.

Having said that, the combative nature of Putin and the insiders are worrying, I did read a short piece written by Nouriel Roubini, titled "Russia: 21st Century Empire?" which was emailed (I couldn't find the web link, must have signed up some other way) in which Roubini described personal experiences of having visited Russia and was snubbed by the inner circle. Roubini described how himself and Ian Bremmer had a meeting with senior policymakers in Moscow, arrived and those same said folks who had committed to meetings suddenly cancelled. Even more reason to use Google hangout, or Apple FaceTime or webcams. Cheaper and at least it gives you that opportunity to "see" one another and learn more before you commit to a physical meeting. The reason for the snub on Roubini and his mate Bremmer? They had written an article in the FT criticising Russia for being on the wrong path. One line sums it up in the Roubini email: corruption in Russia has become endemic to the political system. Sounds familiar.

What are the implications of corruption? According to corruption watch -> Economic impact of corruption: corrupt activity hinders development, contributes to the depletion of the public purse and distorts markets - further hindering local and foreign direct investment. In broad terms Transparency International calculates that investing in a "relatively corrupt" country compared to an "uncorrupted" one is some 20% more costly. The direct economic impact is obvious: investment is critical to job creation and poverty alleviation goes elsewhere. That cost is "hidden" and defies calculation. There goes, and once deep rooted in society, it is difficult to shake. There is of course a way of unleashing the human element (call it greed) by imposing fewer restrictions, normally corrupt societies have very many parameters and restrictions, hence the reason for skirting around the rules, buying people off and of course political backstabbing and nest feathering at the publics expense. That is another story entirely.

Naspers released their 6 months number to September this morning, these results were so highly anticipated that I hardly slept last evening. No, not true at all, I slept like a baby, you know, I woke up every three hours crying for food. Naspers are a business in another transitional phase, they are setting themselves up to become a major ecommerce player globally, and of course becoming more dominant in the mobile space, the whole idea of shopping on your phone. Naspers have a whole lot of interesting slides in the Financial Results Presentation, including the one that suggests that in emerging markets there could be more than double the number of mobile internet users in the developed world in 2018 than currently. They measure that against a relatively flat number in developed markets, here is the slide that I am talking about:

They really, really push the ecommerce part of their business, the first part of the results presentation is dedicated to this next big push in their businesses history. Koos Bekker has made that clear, we should not be that surprised. There was however one image in the slide presentation that caught my eye. It was this one:

So who does that include? What I mean by that is, who and what are the Naspers ecommerce businesses, remembering that the others are single platforms that are well know globally. Kalahari you will know and recognise (they have just teamed up with Takealot), flipkart in India you may have heard of, Souq in the Middle East is making progress, the European businesses (markafoni, emag, mall.cz and esky are amongst the ones in Europe) and avenida in Argentina. Konga in Nigeria. Yip, it is all happening in places that do not necessarily have english as their first language and if you cast your eye back up to the first image, it is happening away from where those others operate. The ecommerce business is bleeding money at this point in time, trading losses for the six months of 2.426 billion Rand was recorded.

Of course there is the small matter of a growing classifieds market too, OLX is surging, operating in more than 40 countries across the globe, 8.5 million monthly transactions, 11 billion monthly page views (JUST BROWSING!!!), 200 million active monthly users with 25 million new monthly listings. Wow. Yes, they, Naspers own this too. The growth in the number of listings on OLX are mind blowing. Of course this is mostly at a standing start. In terms of the countries that OLX operates in, they are number 1 in 8 of the top 9 countries by population, the only one missing is the USA. Who wants to fight against the biggest rich population in the world? 58.com in China, OLX in India, Indonesia and Brazil is the top dog. Collectively Naspers' classified businesses cover around 3.9 billion people in the most populous states in the world. That is potentially a lot of people, remembering of course that eyeballs do not translate to transactions, which would translate to profits!

The numbers, what do they look like? First of all, the company is investing heavily in their businesses, 4 billion Rand to be exact, up 35 percent from the comparable six months. Here is the revenue spread, Internet is 58 percent of revenue, Pay TV business represents 32 percent of revenue and the balance (10 percent) is Print. That is likely to be less and less in the coming years, trading profits at the print business was 96 percent lower than the prior reporting period. And to think that the local business is in far better shape than the international segment, Brazil sucks, the Abril business lost over 100 percent more than in the six months to September last year. Notwithstanding the fact that the ecommerce business made a loss, the internet business now generates more for Naspers than the TV business, mostly as a result of a 59 percent jump in the Tencent share of trading profits. We didn't even discuss or look at carefully (in this piece) the payu, the payments system, which is growing like crazy.

So what do you need to know here as a shareholder? First and foremost, the company now has 72 percent of their revenues earned offshore. True story. Yet, it always seems like a proxy for Tencent, the Naspers share price. What you get right now is a new business, a business again in transition that basically has this ancient (by media standards) legacy media business, a maturing TV business and the exciting part, the ecommerce and classifieds business, that is what Naspers are investing in heavily. The share price and the valuation part is always tricky, this is a sum of the parts calculation, something that we will again be looking at in detail over the coming days. We continue to recommend this company as a buy.

WHOA! This is big. No, this is huge. Two listed companies and another "Titan" of South African business involved in both legs have announced this morning that Steinhoff will be acquiring Brait's 37.06 percent interest in Pepkor for 15 billion Rand in cash (now you know why they raised the money - 18.2 billion Rand in August) and the issuance of 200 million Steinhoff shares at 57 Rand a piece, total consideration of 26.4 billion Rand. Not so long ago Anchor Capital valued the stake at 28.066 billion Rand, Brait seemingly sold at a discount. It does not stop there for Steinhoff, they acquire Titan Premier Investments Proprietary Limited's shares in Pepkor, which represents 52.47 percent of the company, which will be bought for 609.1 billion ordinary Steinhoff shares. And then Steinhoff will buy 2.81 percent from Pepkor management to own 92.34 percent of Pepkor. The balance will be held by Pepkor management (they obviously wanted to cash in some chips). This values Pepkor (enterprise value) at 73.382 billion Rand.

Dr. Christo Wiese effectively through this transaction will have 19.9 percent of the shares in Steinhoff. Note how he (Wiese) through his companies, Titan and Thibault - controlled by the family trust, took shares, no cash. The Brait NAV rockets northwards (through the Steinhoff holdings and cash) to 61.35 ZAR, currently trading in the market at 72 Rand, down 18.59 percent on the day at that level. Huh? The Steinhoff discount, I guess, Steinhoff trades on a 12 multiple (historic) currently, way below the rest of the market. Keep that in the back of you mind for when we explain, why Christo Wiese would have done this.

According to the last annual report from Brait (pay attention here), their anchor investment in Pepkor was valued on 4 July 2011 at 4.1 billion Rand. An effective 6 bagger in just over four years, seems good, not so? They reckoned (Brait) that their 8 time EV/EBITDA multiple (enterprise value divided by earnings before interest, taxes, depreciation, and amortization) was a 31 percent discount to their peer group, consisting of Mr. Price, Truworths and The Foschini Group. Pepkor was 60 percent of the Brait NAV as at 31 March 2014. Pages 14 through to 17 in the last annual report.

Pepkor is of course Ackermans, PEP itself, Shoe City, JayJays, John Craig, Dunns, Flash (nope, never heard of it, yet it is in South Africa!), Power Sales, Best & Less, Harris Scarfe and PEPCO. PEPCO is in Eastern Europe (9 percent of group sales, mostly Poland) whilst Best & Less and Harris Scarfe down under account for 23 percent of group revenue. The rest is Africa, mostly South Africa. 38.2 billion Rand worth of sales. In their peer group, Mr. Price had half year sales of 7.9 billion (market cap of 61 billion Rand), Truworths 10.8 billion Rand for the full year (market cap of 30.763 billion Rand) and The Foschini Group recorded half year turnover of 7.3 billion Rand (market cap of 29.962 billion Rand). Obviously the margins at Pepkor are lower, a bit of perspective however is required in terms of retail sales, Pepkor is a monster relative to these listed businesses.

Dates? Brait shareholders vote on the 27th of January. If that is successful (results immediately), then I guess Steinhoff shareholders will vote, no dates yet, an indication that we will know closer to the middle of December.

Who scores if the deal is sealed by all concerned, the takeover regulation panel, the JSE and the shareholders all give the thumbs up? Who scores? First and foremost, Christo Wiese (the good Dr.) externalises a large portion of his local wealth, if you think about it, prior to the Steinhoff intended acquisition (as per the Steinhoff release): "the proportion of revenues and operating profits that Steinhoff generated from its non-South African operations were 74% and 90%, respectively." He is willing to give up the premium in Brait for the increased Steinhoff stake. And if you were not convinced, Wiese has worked hard to see the Invicta (a business he owns a lot of) spread their wings offshore. Of course along with the Invicta management, just a side note.

If the Frankfurt listing goes ahead, the investment in an African and European emerging markets retailer, which has a strong foothold in developed Europe would be appealing for German investors and the broader asset management community there. Steinhoff shareholders would be winners, that means Wiese, Bruno Steinhoff, Klaus Daun, Markus Jooste and others would see a PE expansion lift their personal wealth. What I am trying to say is that when the listing goes ahead in Frankfurt, there should be a slightly higher valuation (I think) given to Steinhoff in Germany. Good for Brait? Certainly not in the short term, absolutely caned. Obliterated.

I guess the Brait shareholders are telling you that they do not want their Pepkor shareholding to be a part proxy for Steinhoff, they can buy Steinhoff in the market. Plus, lots of cash and not the big premium. We will see how they vote, and by they, I mean Brait shareholders. 7 shareholders of Brait (Directors) own 35.12 percent of the shares in issue. The GEPF hold 11.68 percent. I think that this will pass on their side. We wait, this is interesting.

Things that we are reading, that we think you should be too

Coca-Cola's new direction - Coca-Cola Is Betting Big On A New Kind Of Milk That Costs Twice As Much As Regular. As people become more health conscious I can see a premium milk product working, that is if people don't perceive the premium milk as too much of a divergence from regular milk.

If you want an idea of what next year holds for markets and commodities this slide would be one of your best bets - Goldman's Entire Outlook For The Markets And Economy In One Slide. Good news for the consumer is that Goldman sees the oil price staying around these levels for the next year. I'll save this slide and we can revisit it next year this side and see how close or far Goldman was. The only certainty about these forecasts is that the numbers will ultimately be wrong if you are looking for 100% certainty.

Forecasting and valuing a company is not an exact science, with a listed stock you know exactly what the market thinks a company is worth at any given second. A companies "true value" is probably with in a 10% range of where a share trades, so daily moves have more to do with emotion than actual value change - The Smart Way to Think About Wild Markets.

Having a look at what the stocks that have doubled in value this year have in common - 60 Stocks More Than Doubled in 2014 So Far. You wouldn't base an investment decision on what the overlaps are, it is interesting though to see what the market is giving a higher values to.

Some more facts on the increased spending power that consumers will have given a lower gas (petrol) price - Gasoline "Breaks on through to the Other Side"

Home again, home again, jiggety-jog. Markets are lower here, guess what, resources again, down over a percent and one quarter. Our economy was rebased, and we managed to eke out a gain, a small one. Sigh, we need to try harder.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Monday 24 November 2014

Do the commodity bounce

"It was with great relief that the collective rallied as much as 6.1 percent, some heavyweights such as Kumba Iron Ore added 7.9 percent on the day (the last 12 months the stock is still down nearly 23 percent), whilst the heavyweight diversified companies, such as Glencore (up 3.68 percent), Anglo American (up 6.57 percent) and BHP Billiton (up 6.19 percent) helped the market higher. Industrials and financials unperformed the broader market, still managing a more than two and half percent gain.

To market, to market to buy a fat pig. Wow. I am not too sure that I have seen a day as big as that, in the direction of the bulls (sell offs are always worse than rallies), in the end the overall market gained 1583 points to close up near 51 thousand points, a gain of 3.2 percent on the day. What happened, global peace? No. Out of the blue and unexpected, just around lunchtime here Friday, the People's Bank of China (PBOC) cut interest rates, the first such move in 2 years. This obviously indicates a willingness to encourage business to borrow more against the backdrop of a rate of growth that is slowing in China. There is lots of room to manoeuvre for a bank of its size that very little if ever is talked about. People speak about the ECB and Fed until the subject has been beaten to death with a long, long stick, it is rare for the PBOC to be brought up, unless of course there is action on this sort of scale.

The upshot of it all was an epic rally in commodity stocks, something that I have not seen or am struggling to remember on this sort of scale. Reminder, Friday we pointed out that resources were down over five years, as a whole, platinum stocks as a collective had nearly halved and gold stocks more than halved over the same time period. It was with great relief that the collective rallied as much as 6.1 percent, some heavyweights such as Kumba Iron Ore added 7.9 percent on the day (the last 12 months the stock is still down nearly 23 percent), whilst the heavyweight diversified companies, such as Glencore (up 3.68 percent), Anglo American (up 6.57 percent) and BHP Billiton (up 6.19 percent) helped the market higher. Industrials and financials unperformed the broader market, still managing a more than two and half percent gain.

So what now? Is this the recovery in commodities prices that many are looking for? Perhaps in the short term. When I read headlines that US imports from OPEC producing companies are at a thirty year low as a result of the shale revolution in North America, I am pleased for Joe consumer. Lower energy prices however mean that alternatives look a whole lot less attractive. Locally I have spoken to a few people over the weekend, going off the grid (electricity) seems to be more and more appealing. Unfortunately if there is a bunch of folks talking about it, seeing the conversion process is the next big shift for relieving the grid. The problem is that those folks converting are revenues that the parastatal supplier rely on, once gone, they will not return. Price is everything. As alternatives become cheaper and cheaper, the parastatal (Eskom) continue to ask their customers for more money (and their industrial customers to use less of their product), it has to crack somewhere. That is another story altogether.

I am not suggesting that this is some sort of a false dawn, as far as the commodity producers are concerned, some of the key markets remain well supplied and as technological advances in cost savings (i.e. less resources used for same outcome) proceed, we are possibly going to see a well supplied market remain exactly that. That means that whilst China continues to build infrastructure, albeit at a slower pace now than before, the absolute steel consumption per capita should continue to rise, not at the growth pace seen before. A BHP Billiton presentation (see more below in company corner snippets) suggests that China still has around 250 million more people to urbanise over the next 16 years. The potential is mind boggling, I don't want to steal (steel!!) too much from the BHP Billiton presentation related to cost savings, the projections are pretty amazing however.

75 million motor vehicles per annum to be produced in Asia by 2030, 100 million new air conditioners to be installed in India by 2030 and 24 million tons of extra meat to be consumed in Asia per annum. In-between now and 2030, there are expected to be 1.7 billion people who will gain access to electricity for the first time. The growth in energy demand from India and China will be equivalent to the entire current US energy demand. That is pretty huge. More people, with more money needing to eat more. Time to diet and get used to fewer calories!! Or grow crops on the roof. Or something of that nature! It makes for interesting thinking about the futures of the commodities market and what the world will look like in 15 odd years. I guess that is why making such long dated predictions is a tough old job. Talking predictions, this one from The Ladies Home Journal titled What may happen in the next hundred years from 1900 makes for interesting reading, predicting wireless phones, TV's, ready cooked meals and satellites got some "stuff" right, equally much wrong. Quite fun to read!!

Why bother with a daily newsletter, is it not information overload? I mean, more to the point, why do we write such a thing? Why would it be valuable to any customer or potential customer of Vestact? When this business started, we wanted to bring people direct access to equities markets with transparency, sharing our thoughts and encouraging a community to interact with us was also one of the goals. Sharing our thoughts and writing about it also interrogates the investment thesis on specific companies. Whilst following the broader market and fretting about absolute levels is important, the most important thing is to make sure that you follow each and every company closely, the ones that you own for clients. We will continue to try and bring you our insights on a daily basis, the research and interaction with each and every one of you is just as important for you as it is for us. If it wasn't, we would tell you where the absolute level of Mr. Market was, what the ZAR was trading to the XYZ currency and what metal prices were, too many platforms to compete with on that score.

Company corner snippets

BHP Billiton issued a media release this morning our time: Focusing on Operating and Capital Productivity, in which they suggest that they can save more money. 4 billion Dollars of annualised productivity gains, which is half a billion Dollars more than previously guided. Reducing spend with no change in volume growth. There is also an associated presentation, titled Maximising value and shareholder returns. A few slides in there of importance, one of the more interesting ones is the post demerger, the core business will only have four legs, Petroleum & Potash, Copper, Iron Ore and Coal, 19 other assets ditched. Simpler management structures, less duplication means higher cost savings. NewCo, the company with all the other assets will list sometime in the middle of next year, we can cross that bridge of what to do when we get to it.

Pioneer Foods have released results for the full year, you can download the presentation by following the link. Quantum Foods has been unbundled post these results, it is profitable, ever so slightly. Forget that, the main business is their Essential Foods division, which used to be known as Sasko. 10.927 billion Rand of sales and 1.074 billion Rand worth of operating profits relative to a group level of 21.588 billion in revenue and 1.712 billion operating profits. Strip out 3.591 billion Rand in revenues from Quantum foods (profits of 21.6 million) and you can see quickly that the bulk of the business is still a bakeries, maize, rice and pasta business. The staples, hence the naming of that division Essential Foods, the brand names such as Sasko (obviously), White Star, Spekko and Champion. There is now a Groceries segment which is Ceres (Liquifruit, Cerese) and Bokomo (Weet-Bix, Moirs biscuits, Safari fruit and nuts) combined. Together, the Groceries segment is 8.06 billion Rand in revenue, 735 million Rand in operating profits. Nice balanced business, well run by an ex Tiger bloke, Phil Roux (he is not yet 50). Is it expensive? It trades on a 24 times historical earnings, not cheap. We continue to prefer Tiger Brands, this is a well run, good business, the share price is a little expensive.

Netcare have announced their results for the full year to end September this morning. What a good business, did you know that Richard Friedland (sorry, Dr.) is both a vet and a medical doctor, as well as the chap that runs the business. He can possibly fix about anything, in a way had to fix the balance sheet of Netcare. All the metrics are moving in the right direction, download the results booklet to take a closer look. What has changed significantly is that there is now a big rental bill to pay to the GHG property business, the flip side of that is that the interest associated with the debt (having acquired the property portfolio with the hospitals) has diminished. We certainly prefer Mediclinic, the hospitals business in Switzerland has better margins than the one in the UK, less government intervention and less chance of competing against the government.

Things that we are reading, that we think you should be too

Given that the South African government is planning to spend more to get our growth rates up and unemployment rates down this article has some relevance - Can we measure the benefits of government spending?.

The first half of the article is all about your health, the second half of the article deals with the economic side of things and some of the possible reasons that people are working 50 - 60 hour weeks - What working long hours does to your body.

Two heavy hitters in the financial world - Bill Gross to manage $500m for George Soros.

Things don't change until the money runs out - Not quite all there?. Given Russia's current track record the money will run out.

This is the reason why we own Nike and sold Mc Donald's and Coca-Cola - Obesity rivals smoking and war, with $2-trillion hit to global economy. As governments have to pay out more due to poor eating and lifestyles they will begin to tax the negative foods more. Add to that, companies will be willing to pay more for fitter healthier employees due to their increased productivity levels.

Home again, home again, jiggety-jog. Stocks are lower, the afterglow of the super rally on Friday waning a little. Some European data this morning seems pretty positive, as you were!

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Friday 21 November 2014

Consumers saved in the nick of time!

"Locally yesterday the equities market after the rates announcement and commitment seemingly to rates lower for a while saw the currency strengthen, and that is normally not the best for the local market. Good news for consumers though, at least the pressures are starting to ease. The local market ended the day off 1.75 percent, yowsers, resource stocks down three and a quarter percent."

To market, to market to buy a fat pig. Holy smokes, on the companies front locally that was one of the busiest days that I had seen in a while, at least from a majors point of view. Smaller businesses obliged to report their numbers inside of three months after their reporting period sometimes all come at the same times, within the last few days, this however was different. Trading updates, company results, Byron was on the telly later in the day, on closing bell and processing all the information was quite a mean feat. It is tricky to try and have an opinion on everything, that is the nature of our job however, to try and find out as much as we can on all these listed businesses.

Whilst these company results were flying in there was the debut speech of the Reserve Bank governor Lesetja Kganyago, delivering the statement of the MPC. He was precise and clear in his delivery, confident and gave the impression that he was in charge, in a measured sort of a way. You got the sense that the continuity that you were looking for was clearly there, it was business as usual. There were few hellos and here I am, just an on your marks, get set, and go. Lower growth expectations and moderating inflation all pointed to low rates for now, in order to boost growth. Kganyago through the delivery of the address kept on stressing what his predecessor had, the volatility of the currency makes it difficult with regards to the inflation outlook.

Consumers locally will have enjoyed around 1.90 Rand per litre decrease (the expectations are for around a 72 cents decrease in the petrol price in December), I suspect that there may be a few more before settling in March next year, having watched these things for a while. The fuel levy (according to this table on the Shell website: Petrol Price) is 224.5 ZA cents, with the RAF levy being 104 ZA cents. On the highveld here (unbeaten Lions team in the Ram Slam T20!) we pay another 33.1 cents (zone differential), 4 cents excise duty which all equates to over 350 cents on top of a basic fuel price (BFP) of 771.75 cents for 93 Unleaded Petrol. That is 45 percent of the basic fuel price. If minister Davies really wanted fuel prices to be cheaper, perhaps he should look at utilising the funds from the collections better and committing to reducing it over time. Better idea? Of course, for us of course.

Locally yesterday the equities market after the rates announcement and commitment seemingly to rates lower for a while saw the currency strengthen, and that is normally not the best for the local market. Good news for consumers though, at least the pressures are starting to ease. The local market ended the day off 1.75 percent, yowsers, resource stocks down three and a quarter percent. Listen in here a second, in Rand terms resource stocks as a collective down 8.25 percent. Phew! Gold stocks down 57.4 percent over the same time frames, five years. Platinum stocks down 48.5 percent over five years. Over the same time frame the overall market is up nearly 83 percent. That is telling, South African is not the investment destination of yesteryear, less resources and more retail, financial services.

Over the seas and far away, stocks rallied in the latter part of trade, closing at another all time high. We have a mere week to go to Thanksgiving (less now) and of course the huge shopping holiday, that being black Friday. Singles day (11/11) in China, Black Friday and Cyber Monday (the Monday after Thanksgiving) all fall during November, and then the traditional holiday season shopping around Christmas. There is absolutely nothing that I think that I need this year and sadly I cannot think of anything that I want just yet. Boring me! This Barron's piece was pretty telling: iPhone 6 May Rob Holiday Sales From Some Retailers. Funny sort of headline that, rob from who? Consumers decide at the end of the day what they want to buy and what they do not want to buy, not so?

Company corner snippets

Nampak were out with a couple of announcements yesterday, firstly their results for the full year to end September -> Audited Preliminary Group Results. At the same time, you can see that there was an announcement about the disposal of their paper businesses here in South Africa was sold to Ethos for 1.575 billion Rand. Proceeds? "Nampak intends to invest the proceeds of the transaction mainly in strategic growth opportunities in the rest of Africa." Mr. Market did not like the selling price, in the release the value of the assets were 1.969 billion Rand. They have written the asset down by 394 million. Nampak have clearly stated here that they are willing to sell the asset, for cash, at a lower price in order to explore further options across the continent, where the company anticipates higher growth rates. Ex Sasol North America exec, current Nampak CEO Andre de Ruyter suggested in a TV interview that he expected very little from a GDP point of view locally. That does not mean that the company will not invest locally, just in the higher margin businesses. Good business, There is possibly muted growth ahead for a couple of years, the stock looks expensive now, it does have a good dividend underpin.

Investec had results yesterday, for their half year: Interim Results - November 2014. You need to check out the associated presentation -> Interim results presentation. You can also watch the associated video. This company is only 40 years old, it is a lifetime however for Stephen Koseff, he has been in an executive role there since 1986, nearly 30 years. I remember in our old offices there was a fabulous chap, friendly, humble and interested in your "stuff", going about his business. I knew his name was Errol, learning a little later that it was not just any Errol, rather Errol Grolman, one of the founders. Ha-ha! Kosseff is 63, I guess he seems in good health and possibly will keep going for some time, the energy is still there, the shift to asset management focus (and selling of underperforming assets) has certainly led to a share price rerating.

Things that we are reading, that we think you should be too

The move toward mobile is good for Apple, Google, Tencent (Naspers), Twitter, Facebook, MTN and a many more stocks - For The First Time Ever, Americans Spend More Time Using Mobile Devices Than TV. Byron found a stat yesterday that showed 17% of all mobile time is spent using Facebook.

According to this article, oil will probably stay low for the foreseeable future - Oil at $75 Means Patches of Texas Shale Turn Unprofitable. Even as some shale oil is unprofitable and will stop producing, there is a multitude of other profitable site coming online. "About 80 percent of potential growth from U.S. shale oil in 2015 would remain economic at $70 a barrel, IHS Inc. said in a report today. At an average annual price of $77 a barrel, output will rise by 700,000 barrels a day in 2015,"

It is no surprise to see that the US dominates in terms of numbers for the super rich - Wealth is on the way up - 20/11/2014.

Then lastly, a controversial video to end of the week - In defence of sweatshops - they're often the best and fastest way for the poor to escape poverty. There are many assumptions in the video and some very good points made by the author. I would go one step further and say that governments would not need to interfere in what people get paid if they were not already interfering in the economy already. Governments are slow and inefficient, which leads to the argument that if governments did less there would be more to go around.

Home again, home again, jiggety-jog. Stocks are mostly higher after a better performance in New York overnight than the corresponding one here. Mario Draghi was talking about trying to get inflation back up to desired levels, Mr. Market seemed to interpret that as more central bank intervention. All markets marginally higher across the globe, US futures are up too, indicating another record session for Wall Street.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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