"The low oil price is also putting pressure on the cartel of OPEC. I have seen reports that many of the countries are selling more oil than their quota, I see that Kuwait are offering a discount on their oil and add to that conflicting views on whether they should cut their production or not. Cutting production will boost the price of oil but then makes the more marginal shale oil operations profitable again, which means that OPEC will just lose market share and not boost their revenue by much, if at all."
To market, to market to buy a fat pig. OUCH! The S&P was down 1.5% to a 5 week low yesterday. The reason given for all the red (blood of the bulls) is the drop in the oil price, which is now sitting at 5 year lows at around the $63 level. OPEC have said that the demand for their oil is forecast to be the lowest since 2003 and the US said that they had an unexpected increase in the supply of oil. On the open this morning Sasol in now solidly below the R400 mark, which is a very far way from the R640 level they were trading at in September (down 36% in the last 3 months!). The saving grace so to speak for Sasol is the weak Rand which is around R11.55 as I write this. The more that the US economy grows and goes from strength to strength, the sooner a rate hike is expected which translates into more money flowing into the US. The result is a stronger dollar and a weaker Rand.
The low oil price is also putting pressure on the cartel of OPEC. I have seen reports that many of the countries are selling more oil than their quota, I see that Kuwait are offering a discount on their oil and add to that conflicting views on whether they should cut their production or not. Cutting production will boost the price of oil but then makes the more marginal shale oil operations profitable again, which means that OPEC will just lose market share and not boost their revenue by much, if at all. There may now be an energy OPEC meeting in the new year. The cartel pushed oil prices to levels higher than they should have been and the response was to attract new participants into the market, I would say that this is capitalism at work. It may take a while for things to right themselves but they do in the long run. What did Keynes say? "In the long run we are all dead". Considering that life expectancy is now around 20 years longer than the start of the 20th century, the words "long run" mean more.
An interesting scenario that could come about due to low oil prices is lower commodity prices for longer. The theory that I heard is that the lower oil price means that commodity producers now love lower production costs which means that the marginal players can now afford to stay in the market, which means that supply does not drop off. With supply not dropping off prices will go sideways until demand gets to a point where it is greater than supply, which is most likely a couple of years away. The market will normalise so to speak, volatility will drop off and the "true" value of commodities and the companies that produce them will become "clearer".
From dirty oil to the glitz of Hong Kong and Richemont. Police began clearing the main protest site today, where they have had little resistance, the crowds thinned before police moved in. This is good news for the shopping in Hong Kong and by extension Richemont. Just in time for the Christmas shopping rush and would be part of the reason for the strong run in the Richemont share price recently.
Company corner snippets
Considering that it is December, the last 24 hours have been busy. I thought things were meant to be quiet on the corporate action side of things? Maybe the last push to get things done before the weekend when even more people will be heading to the coast, bush and mountains.
Ellies have announced that they are expected to make a loss this period of between 10 and 15 cents, compared to the corresponding periods profit of 25.27 cents. They have also given further details of their proposed rights issue which they were talking about in October. I suppose they are striking while the iron is hot, load shedding is the new normal and people are buying more generators, good for Ellies. The stock is up around 30% over the last week, down 6% today though. Ellies will be raising R 115 million by issuing 30 shares for every 100 owned at a price of 110. At current share price level of 140 the discount on the rights works out to around 20% but given the volatility there may not be a discount at the take up day. The last day to trade to be eligible for rights is the 23 December and the last day to trade the rights is the 9 January. Management have said they will follow all their rights and will underwrite further shares, which is them saying that they have faith in the company. Putting their money where their mouth is!
PPC issued a Cautionary Announcement yesterday saying that AfriSam have proposed a merger between the two companies. I wonder if this proposed merger was know to management and had some influence in the fight between Ketso Gordhan or maybe AfriSam have seen an opportunity now that PPC is weak so to speak. The big hurdle to the merger will be from the competition authorities, two heavy weights in the industry merging won't be something they want to see.
African Bank issued a Renewal Of Cautionary Announcement, Further Update On The Curatorship Of African Bank And Proposed Restructuring. The main points of the SENS are that they will not be splitting off the "bad bank" to the SARB and will just wind down the bad book in the current company. The "HoldCo" will not be listed as soon as originally proposed and will only be listed when "New Co" gets traction and all the listing requirements have been met. The curators didn't want the listing process to delay the process of getting the bank back on its feet. Our feel in the office is that if you own ABIL shares at the moment, you won't receive anything for them, you will just get a discount on the purchase of "HoldCo" when it lists. So you will have to put money in to realise any benefit from your current shares, and that would be assuming that the share price does not drop on listing day.
Things we are reading, we think that you should read them too
These technology industries form part of the high growth sectors of the future - Clean tech industries. With the drop in commodity prices, adoption of cleaner technology will be a bit slow as 'dirty' energy is now cheaper again. One company that has seen its share price nocked by the drop in oil is Tesla, down 25% over the last 6 months.
Having a look at the year gone by - TIME Picks the Top 10 Photos of 2014. Its a reflection of how society is changing but also jogging our memories of the things that markets were worried about and then promptly forgot about a few days later.
Sharing ideas and information one of the most efficient ways of solving/ curing complex problems - Google's putting autism genome research in the cloud. The advantage of being a highly profitable company is that you get to do side projects like this; they probably wont be very profitable but will make a huge impact on humanity. Capitalism at its best?
The next step in security - Google-backed password-killer crosses major milestone. Passwords can be hacked and are a mission to remember, this technology will solve those two problems.
The end of the year always makes people think about the past and then what the future holds - 10 Astonishing Technologies On The Horizon. Most of these things people have spoken about before and are still mostly in the sci-fi realm. The last one though, "Electronic tattoos" is very exciting. The tattoos will monitor your health and connect to your smart phone so that you can analyse the data, this is where companies like Apple and Cerner will come to the fore.
Home again, home again, jiggety-jog. Looking at the markets today, on the open I only saw red with the gold stocks being worst hit. An hour in and now coinciding with the UK markets I am seeing a bit of green. Aspen and Mediclinic two of our healthcare stocks are up today. Sasha is away from today and Paul from next week, leaving Byron and myself (Michael) to hold down the fort. If you need to contact us, we are reachable on our cellphones and will be on top of our emails all through the festive season. Money never sleeps and nor will we.
Sasha Naryshkine, Byron Lotter and Michael Treherne
Follow Sasha, Byron and Michael on Twitter
087 985 0939
No comments:
Post a Comment