"Again, many are unable to know how to value Naspers, it is a sum of the parts valuation method and not an out and out earnings company. And now that Naspers will be building all sorts of different businesses around the world, this is again geographic diversification. Naspers is up (tighten your seatbelt) at time of writing, around ten percent, perhaps the shorts are getting squeezed out of sight, perhaps some people starting to realise that normal valuation metrics need to be adjusted."
If you did not get the email on Friday about the number change, here goes again: We have changed our telephone number with immediate effect to 087 985 0939. Thank you for your patience, if you battled to get through to us recently.
To market, to market to buy a fat pig. Ohhhhh, that is it, that is why the market went lower in the US, although it had recovered by the end of the day. As usual it had to do with rates and the prospects of rates going higher (at some stage they have to go up) sooner than Mr. Market anticipates. I for one do not care too much, the Federal Reserve will do what they need too in order to fulfil their dual mandate, maximum employment and price stability, i.e. keeping inflation in check in that 2 percent range. Something that Janet Yellen had said that her and the Fed were watching closely was the JOLTS report -> Job Openings and Labor Turnover Survey News Release.
Huh? What does job openings and labour turnover have to do with the idea of rates rising? The part to look for in that report is the number of quits, which increased from 2.5 to 2.8 million. As the report says: "This was the highest level of quits since April 2008." I guess you could say that I have quit a job before in my life, twice in fact, once to come to Joburg and then the second time to make sure I was here for day one at Vestact, back in 2003, the 2nd of February if memory serves me right. Or was it the third? Paul has a superb memory, he will set me straight on that score.
The question is, how easy or hard is it to quit, in order to look for an opportunity? Hard, right? You must be darn sure that things are going to be better at the next place. And that is why the Fed watch this report closely for signs of confidence in the broader labour (labor if you are the Fed) market, the more people quitting, the more likely that you are to be feeling confident. That is however enormous movement, for a really big labour force. Hires up sharply too, five million people hired in the month, the biggest increase since December 2007. So, the labour market continues to improve in the biggest economy on the planet, if and when the Fed decide to raise rates, I am sure that it will be very well signalled. After all was said and done, the Dow Jones had added around one quarter of a percent, the nerds of NASDAQ and the S&P managed small gains.
Crude oil continues to trend lower, now at a four year low in what is called an oversupplied market. I need you to watch one video today, with Jeffrey Currie from Goldman Sachs on commodities -> Brent Oil May Rise If OPEC Maintains Level: Goldman. Downgrade in the forward outlook, increase in supply, US shale production and Libya returning, and then strategic case with OPEC being a "second mover", no cut from OPEC in supply. Those were the three things. 60 is as low as it could go, on WTI, that is the cash cost of US production. With a slump in oil prices again overnight, currently prices are a fraction higher at 74.23 Dollars a barrel. So Jeff deals with oil prices and then currencies.
Currencies, being a stronger Dollar which almost always = weaker commodity prices. A weaker Chilean Peso and weaker Australian Dollar reduces costs in local currencies, weaker commodity prices are not all bad for producers, their own costs are reduced. On gold, Jeff is looking for around 1050 Dollars per fine ounce by the end of the year. Iron ore, which of course is linked to steel production, Jeff points out that the lower grade iron ore production in China having been cut 15 percent. He does still point to an oversupply, with iron ore production growing at 10 percent and steel production (global) only at 4 percent, Jeff sees downside in the iron ore price. I wish that I could find a transcript of the video, I have watched it now four times.
I think that the overwhelming feeling coming away from the fellows over at Goldman, and specifically Jeffrey and his crew, is that (and probably coinciding with the IMF global growth report) possibly these two markets (iron ore and oil) are more than adequately supplied and growing, whilst demand has softened a little. As such the marginal producers will be caught badly here. And that will remove a whole lot of supply from the market, bringing it back into balance. The iron ore producers are betting on peak steel production in China around 2025 to 2030, we are still a long way away. The super cycle in commodities is by no means finished, it is however slowing.
Local markets, quick check where we closed. Resources down 0.6 percent, industrials led the charge, up nearly a percent as a collective with the Jozi All Share index closing up shop over fifty thousand and five hundred, up two fifths of a percent on the day. There was a lot going on during the day, the biggest part of that by a country mile were the half year numbers from SABMiller, the second largest brewer on the planet. Here they are, if you want to view them -> SABMiller delivers top-line and earnings growth.
Beer growth lower, soda growth being boosted on our own continent. It is not a recommended company across the client holdings, their two biggest areas are of course their growth areas, Latin America (roughly 30 percent of profits) and Africa (25 percent of profits) are going to continue to be the growth engines of this business. Asia Pacific fell heavily, weather related "problems" in the summer time. Check this out, the first company that I have come across that has done this: F15 half year results in 60 seconds. 60 seconds? I guess for many retail investors that is awesome, we have too much on our plates nowadays, perhaps little videos of results, a summary before looking into the results are all that some people need. Trend setters? Who knows.
Naspers, what has happened there? Here it is: Global classifieds platforms combine to deliver superior customer experience. It looks rather complicated, deals with Schibsted Media Group (from Norway), Telenor Group (also Norwegian) and Singapore Press Holdings (no surprises, from Singapore) have teamed up with Naspers, the common partner, to establish JV's in Brazil, Indonesia, Thailand and Bangladesh. I checked the demographics there, Brazil has more than 200 million people, Indonesia, more than 250 million, 66 million people in Thailand and lastly Bangladesh, 157 million people. Astonishing really, nobody is suggesting instant success, Naspers and their partners can replicate their successes in other emerging markets, China, Eastern Europe and India, in classifieds. It is all part of the sharing economy.
There is a conference call during the course of the morning here and then an archived call for around 7 days. I will try and listen in, again, I wish that there was a transcript. The market has received this news favourably, meaning more businesses for Naspers in developing countries around the world, and in true style, finding a willing and energetic partner to drive the collective businesses forward.
In other news related to the big stake in the business that delivered results just the other day -> Tencent Rises on China Distribution Deal With Warner. Nice, all happening.
Again, many are unable to know how to value Naspers, it is a sum of the parts valuation method and not an out and out earnings company. And now that Naspers will be building all sorts of different businesses around the world, this is again geographic diversification. Naspers is up (tighten your seatbelt) at time of writing, around ten percent, perhaps the shorts are getting squeezed out of sight, perhaps some people starting to realise that a normal valuation metrics need to be adjusted.
Things that we are reading, that we think you should be too
It is amazing what competition can do - Telkom launches LTE-A, drops Parks fibre. Less government and more free market; which leads us onto our next article.
How the Venezuela government is stepping in to "save" christmas - Shortages, inflation threaten Venezuela Christmas. Forcing businesses to sell at a loss will probably mean that next year this time there wont be Barbies on the shelves of stores - In socialist Venezuela, Barbie for the masses
When Warren Buffett talks people listen because he has great insights and he talks so that the man on the street can understand - Warren Buffett's 23 Most Brilliant Insights About Investing. I have read these things before but is it always good to get a refresher.
Home again, home again, jiggety-jog. Chinese data in the form of spending is weaker, stocks are lower and specifically the commodities market again. Gold stocks are getting smoked along with the rest of the commodities complex, Naspers is holding together an otherwise very sloppy day for equity markets.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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