"Take the TenCent market cap in Hong Kong = 1200 billion Hong Kong Dollars, or 1.20 trillion HKD. Naspers owns 33.85 percent of Tencent, that translates to 402 billion Hong Kong Dollars. Now one Hong Kong Dollar is equal to 1.45 Rand. So, quite simply, multiply 402 billion HKD by 1.45 and that equals 581 billion Rand. At last close, Naspers had a market capitalisation of 573 billion Rand."
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. The best levels for the local equities markets were reached around 12, in fact a little after. From then on for the rest of the trading session we gave up all the gains, the local Jozi all share index closing up shop 0.04 percent better. Hey, a gain is a gain, not so? Nothing really in the extreme down or extreme up columns, rather we are in this vacuum post a whole host of results. Decent enough employment figures, good company numbers are being weighed off against a British economy that continues to be pulled backwards by their European friends across the channel, geopolitical fears again resurfacing.
Thank goodness we are not living in the Ukraine or surrounds, let alone holding the stocks over the last five trading sessions. Down nearly 25 percent in five days. Fears that Moscow, their backing of the rebels in forming another breakaway state will cause more tensions to mount in the region. It has done very little for oil prices however. Oil dependent countries (dependent for their exports) are also feeling the heat, Nigeria has seen their market sell off heavily for the month of October, the stock market there YTD is down 14.63 percent. Most of that has been inside of the last month. Lower oil price = lower export revenues. Unable to manage the currency at the higher levels has seen the Naira plunge to over 170 to the US Dollar. The central bank has been active in that market, like the Russians however, they will find that this is like ummmm ..... flatulence against thunder?
A little spacecraft named Philae would never have known that the oil price could move so violently over the ten odd year period that it spent finally landing on comet 67P/Churyumov-Gerasimenko yesterday. The risks were that it would bounce off, no gravity on the small object. The aircraft in total weighs 97.9 kilograms and has been waiting since the 2nd of March 2004 to do its thing. For all the problems that we have here on earth, we have fabulous engineers who can send a spacecraft (Rosetta) and an extension (Philae), hook up with a comet and land the extension in order to sample the comet and take photographs. Humans did that, pretty amazing, no?
Spacecrafts and amazements aside, the markets in the US were mixed, the nerds of NASDAQ ended the session comfortably in the black (Black Friday looming sports lovers), whilst the Dow and S&P 500 closed up shop marginally in the red. That was a much better outcome than where it could have been, the start saw the S&P down by around one third. Locally it was a monster day for retailers, Spar in particular who released results ahead of consensus (clearly), the stock ramped up eight and a half percent, to close at a 52 week high. It certainly looks cheaper than their competitors, even after this big rush up.
CEO Graham O'Connor, who has been in the job since the beginning of this year, was pretty upbeat about the prospects of the business (cautiously so though) in an interview with CNBC Africa: Spar Group, reported a full-year profit gain of 13 per cent and revenue growth of 15 per cent to 54.5 billion Rand. Seems like a good guy, O'Connor that is. When opportunities arise it seems like they will partner up. I had to chuckle, he said "We and the Irish are really close", his name seems to suggest that he is of Irish heritage.
Spar, is an international brand that operates across 35 countries, South Africa is right up there in terms of sales, nudging the top of the territories with Austria. There are a whole lot more outlets in the UK, Italy and Austria, here however Spar are less 7-Eleven, more supermarket. The brands, 7-Eleven and Spar are about the same age, just over 80 years old. 7-Eleven has over 50 thousand outlets globally, yowsers!!! Imagine trying to manage that lot, it must be more than a little hard.
Remember how we have been suggesting that the lower oil price was good for almost everyone, provided of course that you have a balanced economy and are not for instance Venezuela, or Saudi Arabia or even Russia. The chart of the day at the BusinessInsider, which is via a modelling crowd at the National Institute Global Economic Model, research done by Societe Generale's Michala Marcussen. Thanks Michala for this, someone needed to do the research.
The suggestion from her is that after the nerves have settled, this drop in the oil price (20 dollars) represents a positive impact of 0.26 percent on global GDP. And as you can see from the chart, the positive impact for Canada (an energy producer themselves), the US, Korea, Taiwan and India outweighs by a long way the negatives for the Middle East and specifically for Russia. Ummmm..... what now? Will Vladimir Putin be putting blankets on the Russian economy in the same way that he did for Xi's wife the other day? Apparently that was censored from Chinese news, the display not exactly seen as culturally acceptable in China. Perhaps the incursions into the Ukraine have not had the outcomes for the energy markets that Putin would have liked, I am not trying to suggest anything sinister.
Tencent released their numbers about halfway through our session here yesterday, a little after midday. These were numbers for their third quarter to end September, you can download the release here: 2014 Third Quarter Results. Revenues are all measured in Chinese Yuan, Remnimbi, for the purposes of this conversation we will of course talk about the share price of Tencent in Hong Kong Dollars, the impact on Naspers in Rand terms, the results however in Chinese Yuan.
What is Tencent? I think that many people struggle to see that the company is an entertainment one, communication, an online portal with news and lastly an online shopping portal. Most people when I speak to them have a vague idea that the business is a Chinese one, offering internet and other add on services, of course they are zoning in on the right course.
QQ, Wechat, that is the communication part, Qzone is used for the social networking tool, a virtual public diary. A blog post place. The QQ Game Platform is huge, massive. That business is segregated into the Value Added Services (VAS) which contributes 16.047 billion of the total 19.808 billion Remnimbi for the quarter. The business is mostly driven here, by the Value Added Service. Then there is an exciting ecommerce business, that is only 0.459 billion Remnimbi, that did manage to grow at 76 percent on a year on year basis. Small, able to grow quickly however.
I think that the disappointments came from the levelling off of the subscriber numbers, the number of QQ monthly average users (MAU) grew only 1 percent (year over year) to 820 million, I guess that has to happen at some stage when you have this massive finite base, you cannot continue to grow forever. I think that the same will happen to Facebook, they need to crack new markets quickly, Facebook that is. The QZone MAU was only up one percent to 629 million. Those are incredibly huge bases of which to leverage off and monetise.
OK, earnings, and this is where we can stick it all together. The price in Hong Kong is nearly 130 HKD, which is around 16.75 US Dollars. Quarterly earnings of 0.605 Remnimbi equals 0.77 Hong Kong Dollars. Even if you manage to annualise that, Tencent trades on a multiple of 40 odd times, not something that you would put into the cheap category. When earnings grew 46 percent over the comparable quarter however, then on a PEG basis (price to earnings (42) divided by the growth rates (46)) then the PEG ratio, another crude fundamental metric, is below 1. On a relative basis, not extended at all.
The key here for us as Naspers shareholders is the age old one, is the sum of the parts and the rest of the business relative to where Naspers trades now. We can use our age old formula:
Take the TenCent market cap in Hong Kong = 1200 billion Hong Kong Dollars, or 1.20 trillion HKD. Naspers owns 33.85 percent of Tencent, that translates to 402 billion Hong Kong Dollars. Now one Hong Kong Dollar is equal to 1.45 Rand. So, quite simply, multiply 402 billion HKD by 1.45 and that equals 581 billion Rand. At last close, Naspers had a market capitalisation of 573 billion Rand.
So, in simple terms (as at last evening close), the stake in TenCent that Naspers has is worth more than the market is willing to pay for Naspers as a whole. Madness, we continue to buy Naspers, the Tencent stake is about the same now, with a nearly four percent gain. The rest of the business, fast growing, well, those are for free if there ever was such a thing.
Things that we are reading, that we think you should be too
Given the solid returns that we have seen in the market over the last few years, some people are getting vertigo - Stock Returns After Periods of Above Average Performance. This article points out that high returns does not mean negative returns will follow. "Based on this historical data, investors aren't doomed to experience poor market returns going forward just because we've had solid performance in the recent past. Obviously, everything is circumstantial with the markets so anything is possible. That's part of what makes investing so interesting and frustrating all at the same time. You can't predict the future with any precision by looking exclusively at past data."
Another day, another bank fine - Big Banks Are Fined $4.25 Billion in Inquiry Into Currency-Rigging. Shareholders have paid billions in fines and billions in lawyer fees relating to theses fines.
Virgin America is listing Here's what you need to know about Virgin America's $320 million IPO
Home again, home again, jiggety-jog. Markets are higher, mostly driven by the retail stocks again. SABMiller hit us with some results earlier in the day, they looked OK, a marginal miss relative to what Mr. Market was expecting. The Rand is firmer from the earlier point in the session. Banks, financials, retailers and industrial stocks have absolutely smoked resource stocks this year, the platinum stocks as a collective are down 27 percent. Tough out there.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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