"ArcelorMittal has been one of the worst investments you could possibly find, at least in terms of the majors, there have been many a business forced out of business, this company tends to always stumble along. We are seeing that the share price is nearly at a 12 month low. Over the last five years the stock is down nearly 75 percent. For the last five years, three have seen the company make losses. Last year the NAV per share was in the region of 51.58 ZAR a share. The stock trades at nearly half of that, 27.20 ZAR currently."
To market, to market to buy a fat pig. Another big day for equity markets, this time in the upward direction, the local market managing a 1.5 percent gain on the day, thanks to the resource stocks. Wow. I wonder what the volatility graph looks like over the last 6 odd weeks for the resource stocks. Over the ocean Wall Street had a strong day, notching up decent gains in excess of 0.6 percent across all the major indices. The oil price after a brief rally fell again, I suspect that we are going to have to wait for some time to see where it settles ultimately.
What I always find interesting, this is human nature, is that when there is something, or an event that captures the imagination, the inquisitive nature of humans suddenly makes us scramble for answers. In this case it is the impact of falling oil prices, what it will mean for the consumer and unfortunately what it will mean for oil producing nations. It is not the consumers fault that those nations did not diversify their economies, the funds were there. If there is a lower oil price to deal with, then that is their indaba, perhaps the structural reforms will come a whole lot quicker than before. Cees Bruggemans reckons that in a South African context the Oil price collapse to boost SA economy at least 2.5% in 2015. Of course all of these predictions will come to naught if there is a recovery in the oil price.
I was interested in this post from possibly the most crazy person in financial markets that you can follow on Twitter or in the blogosphere, he is simply nuts, I suspect that he likes it that way however. He comes with a health warning, a definite 18L for language! Nobody is quite certain who he is (those who do have been sworn to secrecy), he keeps the secret well, he goes by the name The Real Fly, his website is called iBankCoin. You know, I bank coin = I make money. A post last night summed up how people get it all wrong, refer to the market as being too high, or too expensive, as if it is a collective valuation or collective beast.
The Fly points out in this post, and this is the US market here, that generalisations (as usual) are all wrong: Charts Lie, But Numbers Don't. Quite simply, of the 4271 stocks that you can choose from in his database 13 percent of stocks are down more than 40 percent this year. 1567 are down more than 10 percent. A lesser number in both instances are up. The Fly trades, he is not at our end of the market, he makes valuable points in that post however, the market is made up of the collective, what matters more is what YOU own.
Company corner snippets
Phew, as much as you want companies to succeed and build an empire, sometimes the odds are stacked against you. ArcelorMittal has been one of the worst investments you could possibly find, at least in terms of the majors, there have been many a business forced out of business, this company tends to always stumble along. We are seeing that the share price is nearly at a 12 month low. Over the last five years the stock is down nearly 75 percent. For the last five years, three have seen the company make losses. Last year the NAV per share was in the region of 51.58 ZAR a share. The stock trades at nearly half of that, 27.20 ZAR currently. The company is important, they supply 60 percent of local steel (export the rest), they have four works plants, Vanderbijlpark, Saldanha, Vereeniging and Newcastle. Their customers are the automotive market in South Africa, building and construction as well as the beverage industry. They are also reliant on the government for infrastructural development. I guess you could all put the underperformance of Arcelor Mittal to poor economic conditions. One has to wonder if the news yesterday that the Newcastle works blast furnace being back online and producing steel is good news.
Oh, OK. I have no insight into the matters at PPC, a public airing of both sides of the boardroom story however is either a sign of strength in governance or/and signs of weakness in the strength of management. I would like to think that an organisation with the history and importance of PPC to South Africa would have the best people for the job at the helm at any one given time. Of course the strategic direction of the business and the next big moves outside of the borders of South Africa is the next big phase in their history. You have seen the interviews with all sides, you were probably looking forward to the General Meeting this next Monday. Well, I am sorry, PPC released a SENS this morning saying that it is cancelled -> Notice of Cancellation of General Meeting Scheduled for Monday, 8 December 2014. If you read further, you can see that the board engaged with shareholders and decided to delay the issues (and include and tweak others) to a vote at the AGM, Monday the 26th of January. So, for all of those who were looking forward to the meeting, sorry, you are going to have to wait. Shareholders can nominate directors between now and 8 December, you cannot be nominated if you were a director in the last 10 years. Good luck!
Private businesses are always cheaper than public ones, the size and scale and visibility of public ones means that they possibly always trade at that premium. A relatively small transaction for one is not for another. Yesterday I saw the SENS announcement that a business called Fintech had been bought by Sasfin for 156.2 million Rand, not big as far as these things go when one talks about mega mergers and purchases in the tens of billions of Dollars. The shareholders exiting, subject to the performance of the business that they are selling, could see them with an extra 25 million Rand. Fintech provides rental finance for equipment to over 10 thousand customers. What does a company like this make? 33.6 million Rand a year, 4.6 times earnings, and existing management have to stick around for the top up consideration. All rather interesting, the observation around a smaller business, being the blood and sweat of those shareholders being bought at what seems like a discount, in reality that was the fair price, there was a handshake. Sasfin continue to be active in this space, good for them.
Things we are reading and we think you should be too
Pushing boundaries - China may build an undersea train to America and The Hardest-To-Build Train Routes In The United States. The railway will probably not get built in the near future (if at all) due to the need to go through Russia and giving the political uncertainty I don't see investors putting their hands up. I'm sure customers are not willing to risk their cargo not making it past the Russian boarder.
Online retailers like Amazon have the advantage that they don't have to pay premium rents to get access to their customers. A cost they do have to incur though is the shipping fee to their customers - There's No Such Thing as Free Shipping
Some insight into the world of investment banking and how incentives can be skewed - Citi Analysts Thought Everyone Knew 'Hold' Meant 'Sell'
Having a look at the rolling average returns it is interesting to see how volatile the 3 year number is, which highlights that when you are talking long term it needs to be many many years - How Actual Returns Differ From Average Returns
Home again, home again, jiggety-jog. Markets are flat. European services numbers are looking weaker than anticipated, and the oil price is back on the slide. The weaker currency here (as a result of a sliding Euro) is helping a little. Oh, and in case I forget, there is the ADP employment report today, which is the precursor to the nonfarm payrolls report which is this Friday. Who would have thought that it was that time of the month again. How exciting!
Sasha Naryshkine, Byron Lotter and Michael Treherne
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