"What does all of this mean for earnings? Net income was up 16% and diluted earnings per share was up 19%, due to there being fewer shares in issue. Nike bought back 6.5 million shares in the last quarter and a total of 74.1 million shares at an average price of $71.13 a share, since 2012. Share buybacks in a growing company that has spare cash is a great way of returning value to the shareholder."
To market, to market to buy a fat pig. I watched Janet Yellen the other night, including the Q&A segment thereafter. I have confidence that her, and the the people around her have it all under control, really. The questions are designed to make the journalist look clever. I am sorry, I didn't mean that, the questions asked at analyst presentations or on conference calls are designed for the same purpose, to make the question asker seem clever. No, no, that is not true, the questions are designed to make the Fed chair, Janet Yellen flesh out the future outside of the statement itself. As best of course as she and the FOMC see it, the future is always unknown, the future rates and prospects evolve to fit the incoming data. The upshot of it all is that expectations for a rate hike, the first one, have moved to October. That is what the forward market is suggesting. So there, you can take from that what you want.
After the heroic move on Wednesday evening our time, markets in New York pulled back last evening, not everything, healthcare companies made a better fist of it. Energy stocks again were the big laggard last evening, the big moves in the oil price the session prior was met with more selling again last evening. The NYMEX oil price is flirting again with a five year low. Excellent news for global consumers, terrible news for the major exporters and private producers.
Locally we were in catch up mode, a really strong day for the resources companies, up 2.8 percent on the day, driving the overall market up just over a percent. Another massive feature of the market yesterday was the afterglow of the TenCent results and the impact on Naspers' share price, it still is very much a sum of the parts calculation when trying to work out what Naspers is worth. The stock is trading over 1800 Rand, up 5.3 percent yesterday, during the course of the day the stock touched 1857.63 Rand.
Of course if you look at Naspers on an out and out earnings basis, you are expecting somewhere in the region of 31-32 Rand of earnings, a PE unwind to somewhere in the region of 55 to 60 times at the current price. Earnings expectations for 2016 are somewhere in the region of 50 Rand next year, over 65 Rand the year thereafter, the share price will need not only TenCent to continue to power ahead on better and better earnings. On some measures the stock is really cheap, on others it is wildly expensive, it all depends what metrics you use.
So. That is why there are many different views on the company and their share price, the business is transforming into something that would be totally foreign to us (as users and investors) 10 years ago. Energetic energy in that company, with new and transformative businesses and old cash generative businesses that themselves are transforming. Koos Bekker even said that their satellite TV business was a legacy business, imagine that!
Company corner snippets
Amazon has been granted the ability to fly their drones, or more specifically as per the FAA website: Amazon Gets Experimental Airworthiness Certificate. It is pretty simple, as per the release: "all flight operations must be conducted at 400 feet or below during daylight hours in visual meteorological conditions. The UAS must always remain within visual line-of-sight of the pilot and observer. The pilot actually flying the aircraft must have at least a private pilot's certificate and current medical certification." That sounds pretty dumb. I would love to hear a pilots opinion on the matter.
Surely flying drones (which can pilot themselves) in urban areas at a very low altitude does not necessarily mean the same rules should apply as commercial airlines? I suppose that they (the drones) could have accidents and endanger someone below, that is what the broader public and the FAA are worried about is my best guess. One year ago the FAA supplied a document about unmanned aircraft: Busting Myths about the FAA and Unmanned Aircraft-Update. I suspect the last myth is something to watch.
Michael's musings
Last night we had 3Q results from NIKE, INC which mostly beat estimates. The big trend in the results was that the stronger dollar had a significant impact on the revenue figure and the earnings figure.
The revenue for 3Q are up 7% (13% removing the negative currency effect) to $ 7.5 billion, with the Converse brand growing 33%. Having said that revenue from Converse was $538 million which is in the same ball park as the sales on their LeBron James shoes, which was $340. Revenue from China is up 15% and Western Europe up 10% (21% if the Dollar/Euro hadn't moved so much). The increased sales was also accompanied by an increase in gross margins, from 44.5% to 45.9%. The number is expected to continue growing.
What does all of this mean for earnings? Net income was up 16% and diluted earnings per share was up 19%, due to there being fewer shares in issue. Nike bought back 6.5 million shares in the last quarter and a total of 74.1 million shares at an average price of $71.13 a share, since 2012. Share buybacks in a growing company that has spare cash is a great way of returning value to the shareholder.
An area that Nike have been struggling is their equipment division, which was down in 4 of their six regions. They don't breakdown which products in their equipment division did badly but based on figures from the previous quarter, the huge drop in golf players would definitely be a big contributing factor. The division is small though with revenue of only $382 million out of the $7.5 billion made this quarter.
The market really liked the numbers with the stock being up 4.5% after hours, meaning that the stock has broken the $100 mark. Going forward EPS is expected to grow in the low double digits. Given the move from society towards being more healthy (more exercise), Nike being a very well know brand, margin growth and double digit EPS growth the stock is trading at a P/E of around 30. Not cheap by some metrics but fairly valued I think. Still a buy in our books.
We're reading this, you should too.
Times they are a changing thanks to the internet - Streaming music revenue beat CDs in the US last year for the first time
Fighting to stay relevant which is hard when your product is unhealthy - Major soda makers are desperate for a drink that tastes like the real thing, but doesn't contain sweeteners that spook consumers
More push back against another unhealthy product - Gates and Bloomberg create $4 million fund to fight Big Tobacco
Some very cool new features introduced to Tesla - Elon Musk: It will be 'impossible to run out of range' in a Tesla, self-driving features coming in 2015
Given that it is Friday and beer will be on the cards this weekend, here is a look at what the top selling beer is in each country - Countries' favourite beers.
Staying with the beer theme, Craft beer is going up against main stream beers and making inroads - THE DIE IS CAST IN THE BATTLE OVER MACRO VS. CRAFT BEER. Watch the youtube clips to see the lighter side of the rivalry.
Home again, home again, jiggety-jog. The stocks that led the charge yesterday are falling today, resource companies are prone to wild movements one way or another, that is the nature of the underlying commodities markets and the geared nature of the businesses. We live in a country and have a market that is obsessed with commodities and the listed businesses, meanwhile there are other amazing industrial companies that do not attract as much attention as they should.
Sasha Naryshkine, Byron Lotter and Michael Treherne
Follow Sasha, Byron and Michael on Twitter
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