"The entire size of the Greek market is 44.8 billion Euros (50.62 billion Dollars). 28 percent below the 12 month average of 49.6 billion Euros (56 billion Dollars). The total S&P 500 market capitalisation, as per the end of last month (last Friday) was 18.738 trillion Dollars. If the S&P 500 goes up by 0.3 percent (or down), then the market cap is equal to the entire Greek market. All I am trying to say is that too much is made of the Greek equities market movement, Apple has a market cap in Euros of 606 Billion Euros, nearly 11 times bigger than the entire market in Greece."
To market, to market to buy a fat pig. Wow. This Greece ongoing relative importance is getting me down a little, not down in the sense that I am lying in the foetal position on the floor, down that people ignore the bigger picture. There is no way that the Greeks can just say, no, that is it, forgive our creaking 315 billion Euros in debts outstanding, according to a piece that I saw, around 80 percent of that debt is owned by external parties. No other country in Europe is remotely close to that, in Portugal and Ireland the debt is around 40-50 percent owned by external parties like the IMF and the Europeans as a collective (read taxpayer). Portugal has started paying the IMF back.
The new finance minister in Greece has been busy. First things first, he was spotted riding to work on his 1300cc Yamaha motorbike (I am not too sure I would want my finance minister zipping around on a bike, better in a low cost car). Why a bike? Not a hipster, rather it turns out that he has requested the sale of the ministers fleet of BMW's. So, he is definitely going to practice what he preaches. He wants to move the country away from the addiction to debt. How to deal with it is tricky. It cannot just go away. It (the debt) is an asset that belongs to someone else. The minister is committed to starting to target tax dodgers, the rich, in order to get to the point where Greece can run a primary surplus. In other words, before interest payments. Some countries that attract a lot of investment never balance the books, this is not a household or human being, you can as a country always be in the red. Purists would disagree, they would want the government to always be running a slight surplus.
The finance minister seems to be approaching the efforts to renegotiate the debts in a manner that you would probably think consistent with someone new to the job. Remember that neither the funding, nor the firebrands inside of the coalition have much experience. They are starting from scratch, they are shaking things up, they want the rest of Europe to listen. As you can imagine, the rest of Europe, including Germany does not want to hear it. No. Another renegotiation from a previous one, seems too much like the prior one. I can appreciate both sides have arguments. However, give me a break when talking about the Greek equities market.
As per this download -> Hellenic Exchanges - Athens Stock Exchange S.A., from yesterday, the entire size of the Greek market is 44.8 billion Euros (50.62 billion Dollars). 28 percent below the 12 month average of 49.6 billion Euros (56 billion Dollars). The total S&P 500 market capitalisation, as per the end of last month (last Friday) was 18.738 trillion Dollars -> S&P 500. If the S&P 500 goes up by 0.3 percent (or down), then the market cap is equal to the entire Greek market. All I am trying to say is that too much is made of the Greek equities market movement, Apple has a market cap in Euros of 606 Billion Euros, nearly 11 times bigger than the entire market in Greece. The last three month move in the Apple share price is around 10 percent higher, we hardly get our knickers in a knot that an entire Greek market has been added. Flavour du jour I am afraid.
Company corner snippets
Standard Bank, the biggest bank on this continent with loads of potential, had two announcements yesterday. Firstly they were going to receive less, 75 million Dollars less than they indicated for the sale of 60 percent of the London Based global markets business to 20 percent (of Standard Bank) shareholder ICBC. 690 million Dollars for the stake, the lower price is due to a Chinese metals trader having pledged metal inventories many times over as collateral for loans. What? Exactly, this does little for credibility and does more to reinforce the notion of dodgy dealings in mainland China being more prevalent. I am sure, like most things in life, that a few rotten apples spoil the bunch. At the same time, including discontinued operations (this one), the company reported that they expected earnings for the full year to be between 5 percent lower or higher. In the middle of the range that is flat.
My only positive spin on this metals trading debacle is that whilst the exit from London may have been poorly timed, it is far better to now be out of Argentina and Russia, territories that they (Standard Bank) used to have assets. They sold the Russian assets (a 36.4 percent stake in TDMP) in the first quarter of 2011 to Sberbank, their stake was worth 372 million Dollars at the time, plus a two year 8 percent of profits earn out. Standard sold their Argentinian assets to ICBC in the same year, 2011, for 600 million Dollars. ICBC paid 5.5 billion Dollars in October of 2007 to buy 20 percent of Standard Bank, last evening, at 153.15 Rand, Standard Bank had a market cap of 247.852 billion Rand. At the end of 2013 (the last annual report) ICBC held 325 million shares, or 20.1 percent of the business. That equals 49.82 billion Rand, rounded up. At an exchange rate of 11.50 Rand to the US Dollar = 4.33 billion Dollars. That is worth 1.17 billion Dollars less than what they paid for it! I am reminded that Chinese investors have long timeframes, surely however the ICBC shareholders must be getting a little antsy. The stock price of ICBC in Hong Kong, since the beginning of October 2007 is completely flat. It has been better to have owned Standard Bank in Rands it turns out, it is important to see the perspective from the other side.
Eskom is in trouble. Government are the single shareholder. You and I elect officials to run the country, we do not have sway over the way that the company manages their cash. We effectively are all stakeholders in Eskom and would want them to be doing better. Government needs, as the sole shareholder, to inject money into Eskom. Bloomberg reports: South Africa Said to Favour Vodacom Sale in Eskom Bailout, it turns out that main shareholder Vodafone is reluctant to buy the shares at the current price. If Vodacom is spewing 8 Rand (roughly) a share, and government owns 13.9 percent or 207 038 100 shares. That would work out to 1.656 billion Rand per annum. In the last three years however, Vodacom has paid nearly 16 billion Rand in corporate taxes. Government cannot sell Telkom, which they own nearly 40 percent of, due to resistance from their key alliance partners, Telkom last paid a dividend in 2011, they paid only 2 billion Rand in taxes for the last two years. If it were an out and out investment decision, and not one where ideology came into the equation, I am pretty sure the start would be at Telkom. Ironically this is probably good news for Vodacom in the medium term.
Apple raised more money yesterday, 6.5 billion Dollars to be exact. Why would the corporate with more money than any other company raise money in the debt markets? Well, remembering that US corporate tax laws are not kind to companies that earn money offshore, bring it "home" and you will be taxed. Even though you have paid tax on it already. President Obama is exploring a once off repatriation of cash at a lower rate once off, and then an ongoing tax rate (at a lower rate) in order to get this un-stuck. The issue of cash repatriation. Businesses like Apple, with strong balance sheets, awesome credit ratings and great cash flows can sell debt in the yield starved markets at rates of around 3.5 percent and less. Use it for what exactly? As the FT article points out, Apple taps bond markets for $6.5bn, via the SEC filing proceeds are to be used for "general corporate purposes, including repurchases of our common stock and payment of dividends under our program to return capital to shareholders, funding for working capital, capital expenditures and acquisitions and repayment of debt." The company can use existing cash flows in the US to service their debt, buy back shares and pay dividends.
Meanwhile Apple also announced that they were going to be building a command centre in a place called Mesa, which is in Arizona. If you were paying attention in geography class you would recall a mesa and a butte. Remember? Mesa is in the desert, the Sonoran desert. There is loads of sunshine, generally, in the desert. Apple bought the location from the business that was involved in supplying them sapphire glass. All the energy will be via solar power, and they will have the ability to supply 14500 houses according to the TechCrunch article: Apple To Build A $2 Billion Data Command Center In Arizona. I guess 2 billion relative to their market cap of 685 billion is not a lot, the important thing is that a facility for warehousing client data is being created as a standalone. To be powered by the sun, there is still energy left in that giant ball in the sky (don't look at it).
Sasol have released a presentation titled Sasol Site Visit of their Lake Charles facility. It gives you a good idea of what the products are going to be, similar to Secunda. Low cost feedstock, obviously the oversupply of natural gas in the region means better prospects of higher margins for Sasol's operation here. Have a read through, I still maintain that having a sizeable North American operation that competes against other majors in the US means a different set of investors. A different set of investors that are willing to pay higher multiples for the same earnings. Good work Sasol.
Things that we are reading, you should too
This resonated well with me: What's With All the Gimmicky Stock Market "Indicators"? It is pattern recognition at its finest. If this happens, then this will happen next. No. It does not work that way.
This is awesome, titled A Dozen Things I've Learned from Keith Rabois about Venture Capital and Business, it gives useful insight into "how to do it". Get started, try not overanalyse "things".
Baron's reports Numbered Days for Chanel and Armani? Vintage luxury goods brands could be up for grabs. Richemont, could they get involved? More likely in the watch space.
It struck me whilst looking at this table from Johnson Matthey -> Platinum Supply and Demand, that no matter how strong the motor vehicle demand looks, more and more recycled material is likely to come into the market.
The Uber blog reports that the company is saving lives and changing behaviour. In Seattle, since Uber have arrived, there has been a 10 percent drop in Driving Under the Influence arrests.
Home again, home again, jiggety-jog. Passing shot across the bow. Whoa! Markets are trading near all time highs. We are within a whisper. Aussies cut rates, somehow the Greeks and their plan I think is buoying markets. Really guys, do the math. In other news, big LVMH report today, that at least is exciting.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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