Money with a dash of Funny: October 2015

Friday 30 October 2015

Starbucks, growing like gangbusters

"Across their geographies it is evident that the growth engine is going to be in China/Asia Pacific, after the integration of Starbucks Japan during the financial year. And they plan to add 900 stores, half of all the stores this year for the group in the China/Asia Pacific region, 700 in the US and the balance, 200 in the EMEA."

To market to market to buy a fat pig. It was a real mixed bag yesterday, a smorgas board (my publishing package does not allow umlauts and accents, sorry) of sort. Amplats was down an astonishing 7.95 percent, whilst SABMiller was up by nearly three percent. The move higher in "Breweries" represents two things, one, for starters a weakening local currency and secondly the conclusion of the deal. I for one never actually thought it would close, I thought that there were too many hurdles, too many egos. The deal seemingly will be announced before Guy Fawkes Day next week. Strangely, the failed attempt to blow up the house of Lords (the gunpowder never went off) is "celebrated" with fireworks, which almost always go off. At the heart of the plot (the Gunpowder Plot) to destroy one and stick another on the throne was religion and politics (the monarchy). Hence the reason your mum told you never to discuss this topic with family, or strangers for that matter, stand back!

Markets locally in Jozi, Jozi, yesterday closed lower, stocks as a collective were down two-thirds of a percent, the sellers far outnumbers the buyers. Whilst that can never really be true, in markets you need each buyer to be matched with a seller, that is market speak for stocks closed lower and I have very little explanation. It is possibly a broader response to emerging market selling, a weakening of the currency also in response for heightened chances of the US Fed raising rates at the next FOMC meeting in December. Mid December, meetings are held every 45 days (there and there about). And as such, US assets in the fixed income space become more attractive, emerging markets less so. Which is not exactly great news, most emerging markets find themselves having taken on too much debt since the financial crisis, and now having some serious budgetary challenges. "Challenges" is South African for "problems".

That aside, like I told a client yesterday, companies evolve and adapt to the changes around them at a far faster pace than organisations or countries, if you think of the businesses that you own, like Aspen, or Discovery, or Mediclinic, Naspers, those companies have global reach and presences that they did not have a decade ago. The world cannot end at our borders, you need to attract all the customers of the world. Talking of something that may impact on all of us and specifically the Chinese consumption story long term is the change of the one child policy that was announced yesterday, the number is now two. As a result of an ageing population in China, the authorities have u-turned on the idea that Chinese urban population be allowed to only have a single child. What the longer term implications are for consumerism in China will only be felt in the decades to come.

MTN still continues to be in the vacuum of a lack of news, which is bad for the company, and unnerves those who have shaky nerves at the best of times. Vodacom stock has absolutely crushed MTN over the last 12 months on almost all metrics. Most of that is recent though, to be fair to both companies. Paul pointed to a tweet with an interview with Calixthus Okoruwa, who runs a telecoms consulting firm. It is definitely worth a read: NCC's $5.2bn fine is like 400-year sentence for traffic offence. It is full of pithy quotes, including this one: "Investors are not likely to forget that this is one country where a regulator can summarily impose a fine to the tune of billions of dollars on a telecom operation. The entire industry should be worried because this will considerably jeopardize investor confidence for a long time to come."

And of course in the headline: "My only regret and a big one at that, is that this was allowed to happen in the first place. Investor confidence is now badly shaken and will take some time to recover. This was very unnecessary. It is like imposing a sentence of 400 years imprisonment for a traffic offence." Okoruwa points to the fact that damage has been done, it can be somewhat restored by reversing the fine. To put the quantum of the fine into context, it represents over 20 percent of the total Nigerian budget, and one percent of GDP. Which begs the question, why are Nigeria not raising more money across their economy for starters, and are they trying to dip the golden goose into molten lead to store it for posterity? That'll clearly kill the golden goose and chase away any investment. Mission accomplished administrators, guess who indirectly pays your salary, tax collections dummy.

Over the seas and far away in New York, New York, the broader market S&P 500 nearly closed flat on the session, blue chips ended down around one-eighth, whilst the nerds of NASDAQ sank just over four-tenths of a percent, most of the selling coming in basic materials, healthcare and financials. A first look at a US Q3 GDP was ever so slightly lower, inventories were run down during the course of the quarter, perhaps in response to the global anxieties around growth, companies also read the headlines. Allergan gained over 6 percent after they revealed that they were indeed in friendly talks with Pfizer, as Paul pointed out yesterday the seller of botox and the seller of the legendary little blue pill has a fabulous end-to-end business right there. Across to the east, where it is nearly weekend as I write this, stocks are mostly higher, just a little lower in Hong Kong, most other markets are higher there. The Japanese market is up nearly a percent.

Company corner

Starbucks, one of the Vestact recommended stocks, reported numbers post the market close last evening. It was a meet, in terms of what matters for the people who suffer from quarteritis. Quarteritis is a disease whereby you judge a company purely on the metrics of what the market analysts expect the company to earn. And you can make a sweeping statement like, they had an excellent quarter, what a stock, or rubbish quarter, rubbish stock. Eddy Elfenbein captured it perfectly in his Friday morning message, where he quoted the doyen of index investing, Jack Bogle: "The stock market is a giant distraction to the business of investing." We try and stress many times that we own companies, not share prices. The share price represents the prospects at any one given time, whether you are an investor, speculator, stapler, trader, or whatever you call yourself, that is the price and that is what someone is willing to pay. Bogle is right, at times it seems nuts.

Back to the business of roasting beans and serving up a cup of Joe. The origins, like in beans sources in years gone by, are a little lost in time, research suggests that reference to "Joe" means that coffee was the drink of the common man. Coffee smells and tastes delicious, the side effects and positive attributes include heightened heart rate and breathing. Which I guess can be both good and bad. Coffee is used to revive mental and physical fatigue, according to WebMD. And we all know WebMD is always right! These results, luckily enough for us, were not only the for the fourth quarter, by extension they were full year number reporting time too. So let us first whizz through the quarterly numbers. EPS increased 16 percent to 43 cents, which was a Q4 record, revenues jumped 18 percent to 4.9 billion Dollars, operating income was also a record for Q4, up 13 percent to 969 million Dollars.

Full year revenues were 17 percent higher than 2014 revenues to 19.2 billion Dollars, with consolidated operating income up 17 percent to 3.6 billion Dollars. EPS increased 35 percent to 1.82 Dollars. Over the year the company opened 1677 new stores, net, to end out the financial year at a whisker over 23 thousand stores across 68 countries. And of course, here locally, Taste Holdings will be in a position to sell Starbucks coffee across our fine land. Of course hipsters everywhere are outraged, yet their look is the same, chequered shirts, well groomed beards, rolled up jeans, sneakers made up of canes, snappy hat, Vespa and of course organic beer and coffee. I have an idea, if you don't like it, don't drink it, OK?

Across their geographies it is evident that the growth engine is going to be in China/Asia Pacific, after the integration of Starbucks Japan during the financial year. And they plan to add 900 stores, half of all the stores this year for the group in the China/Asia Pacific region, 700 in the US and the balance, 200 in the EMEA. EMEA is Europe, the Middle East and Africa. That area will continue to be the future of the business, and is so far away from matching the presence of Nike and Apple in that region. The truth is that you cannot lie to any customers across the globe on quality, and what you will pay for it. Starbucks checks many boxes, both ethically and of course quality.

The stock is down in the pre market, just a little less than a percent. Again, when you are primed for growth, you must deliver more than the market expects. We are comfortable that the share price represents very much the future, and that future is bright. The company and accordingly the stock price will continue to march onwards, gathering new and loyal customers across the globe, the expansion story remains intact, and it is a growth business with a quality product. We continue to add to Starbucks.

We had numbers from Luxoticca on Wednesday. If you need reminding they are the guys that make sunglass brands Ray Ban, Prada, Oakley and a whole host of other brands. Over the past few months, most of the companies that we have written about talk about strong dollar head winds, Luxoticca is a European company which results in strong dollar tail winds instead. Group sales are up 15.4% compared to the same quarter last year but if we strip out the strong dollar tail wind, sales are only up 5.5%. If we look at EPS, in Euros it is up 19.8% but in US Dollars it is only up 0.5%.

Here is a breakdown of the sales in each region and their respective weighting for the business:

Note the solid growth in North America, which is a good indicator of how things on the ground for the consumer have improved. A key figure to look at though is the Asia-Pacific region which only accounts for 13% of sales and if you drill down further China only accounts for 3% of sales. Given that figures from China have been showing a strong shift to consumption (Apple and Nike both confirming this with their numbers), China is going to be a key growth market for them. Consider that China has 30% more people that both Europe and the US combined, so a region that will grow with in significance.

Then the last number of interest was that they grew their E commerce sales by 50%. Most people I know try on many pairs of glasses before they buy a pair, maybe this is people who are buying glasses they have already tried on in the shops? The stock is not not cheap, trading at a P/E of 30 for next years expected earnings. The reason is due to the huge growth that is expected to come out of China, which at the moment can be considered a blue sky market.

Linkfest, lap it up

The boys at Moneyweb have written a great piece, giving the circumstances of the MTN fine - The background to MTN's fine in Nigeria. Having read the article it highlights how crazy the fine is.

Facebook is putting their employees in their customers shoes so that they create a better product - Facebook will make its employees feel what it's like to have a 2G connection. To keep the platform relevant in the developing world, the site needs to be able to function if you have a very slow internet connection. If the site does not function, selling advertising space won't happen.

The problem with using hindsight in your next decision, is that with hindsight everything looks so simple and obvious to us. "How could the outcome have been anything else than what it was?" - The Insidious Nature Of Investing Hindsight.

Home again, home again, jiggety-jog. Our market is marginally higher this morning at the start. MTN is also marginally up on the news that the group CEO is engaging the Nigerian authorities. Phew, it has been a really tough week for them.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Thursday 29 October 2015

Fed said make bread

"Perhaps the Federal Reserve in their statements should simultaneously give everyone a placebo and tell them everything is going to be OK. Look, I am not going to understand how it is, all I know is that far too much emphasis is placed on the single actions of the smartest academic minds around, at least in the field of economics. They watch the data and make decisions accordingly, in the same way that single business owners do, to the best of their ability"

To market to market to buy a fat pig. What a relief sports lovers! Now that the Fed meeting is out of the way and that the giant Fed blankey has been handed to Mr/Ms. Market, he/she can sleep better knowing that rates will probably go up in December and that global anxieties have lifted a little. Great, thanks for that, if the Fed says that then we can all sleep a little better. This is a classic case of going to the doctor and feeling better already just sitting in the waiting room, and even better once the doc gives you the thumbs up.

Perhaps the Federal Reserve in their statements should simultaneously give everyone a placebo and tell them everything is going to be OK. Look, I am not going to understand how it is, all I know is that far too much emphasis is placed on the single actions of the smartest academic minds around, at least in the field of economics. They watch the data and make decisions accordingly, in the same way that single business owners do, to the best of their ability.

If you sell hot dogs at a corner stand in New York and demand seems to be dropping, you start to explore solutions, discount your product to attract back customers, work longer hours to meet your desired daily revenues, make sure the condiments administered are slightly less to save costs, work quicker or change location. All these have a knock on impact in the broader economy, in a tiny way. For the record, the cheapest hot dog I came across in New York was the corner of Broadway and Wall Street, opposite the Trinity Church, one of the richest parishes in the world. So you have religion, finance, showbiz and cheap hot dogs in full view. Put that in your economics text book.

Getting distracted, to read the full FOMC statement, be my guest. Cullen Roche makes some good points (fresh back from completing an Iron Man, good for him) in his post titled: The Fed is Navigating Global Uncertainty Well (So Far): "It's now clear that China's economic weakness is having a significant impact around the world, but it is not causing anything remotely similar to a 2008 style financial crisis. In fact, US economic data has basically continued to muddle through. It's weak, but it's not catastrophic. And parts of the housing market actually look very strong. So, the Fed has tilted their position ever so slightly to set the table for the potential that they could raise rates later in the year or early 2016."

So there you go, stocks in New York, New York flew after the announcement, all the major indices closing over a percent higher on the day, after having been slightly lower just before the FOMC statement. Sigh, if only people were as attentive to their portfolio make up and the companies they owned, rather than worrying about the Fed the whole time. Other big news last evening was that Pfizer were in talks with Allergen, in what could be the biggest takeover deal of the year, the WSJ reports -> Pfizer, Allergan Considering Combining. Allergan has a market cap of 113 billion Dollars, this would eclipse the AB InBev bid for SABMiller (which was extended yesterday, AB InBev happy after having done due diligence). Allergan is best know for Botox! And best known for being based in Dublin, guess what, low tax rates there!

Back to local is lekker, in Jozi, Jozi we closed almost flat (14 points down in the end) after having spent most of the day in the red. Discovery was on a tear again, the share price hit an all time high. MTN was under pressure again, the stock was down just over two and a half percent by the close. Uncertainty = sell first and ask questions later. The stock traded nearly 1 percent of the market cap again, over 3 percent of all shares in issue have traded over the last three trading sessions.

At some stage we need to hear from the regulators and the company in Nigeria, a few good points were made, for instance RencapMan on Twitter (who is Charlie Robertson) pointed out that the fine was 1 percent of Nigerian GDP. And someone else pointed out that if a fine of the same quantum was dished out to Apple, they would have to pay the US government 190 billion Dollars. Depleting all of their cash resources. Any sane country looking to attract FDI would not fine their biggest investor in their economy a ludicrous amount.

It is not like they committed a monster crime, and had very short time frames as far as I am understanding it. How to win friends and influence investor decisions, something the lefties and regulators always know how to do well. There is a reason why South Korea has amongst the fastest internet in the world and why North Korea has basically no internet. Anyhow, we wait for clarity, I am sure that the business wants that too for their shareholders. Clarity and a conclusion.

Company corner

Amgen, one of the newest additions to the Vestact recommended stock stable, reported numbers post the market last evening. This is a company that I have been watching for about 8 years, back when Lehman Brothers still housed employees and actually had a family. The numbers were for Q3 and were a pretty solid beat, guidance was also a little higher than the previous range. Preliminary guidance was released for 2016 too, the group expects revenues in the region of 21.7 to 22.3 billion Dollars for that financial year, with EPS in the region of 10.35 to 10.75. The share price closed last evening at 162.67, in simple terms the share price trades in the middle of the guided range (10.55 USD EPS) on 15.4 times earnings. The yield at current levels is just below 2 percent.

Nice, what do they do however? Their Google finance profile pretty much sums it up: "Amgen Inc. (Amgen) is a biotechnology company. The Company is engaged in discovering, developing, manufacturing and delivering human therapeutics. The Company's sales and marketing forces are located in the United States and Europe." What are human therapeutics? Therapies that are extracted from biological sources. They are looking to produce cost effective therapies based on advances in cellular and molecular biology, says their business mission statement.

The business itself was started with three biological sources, three people, 35 years ago. The first CEO, George Rathmann, worked from a trailer to give his scientists space in the lab. That is how you achieve economic freedom. The company listed in 1983, looking to raise money early on. A young researcher, Fu-Kuen Lin and his team worked round the clock for two years to produce one of the most successful drugs in biotech history, EPOGEN.

If that sounds familiar it is associated with cycling and all the wrong reasons around the most famous bike rides of them all, the Tour de France. EPOGEN (third largest drug in terms of sales for the company) is used to treat patients with low amounts of red blood cells, a condition known as anaemia. And it is normally used to treat people with chronic kidney conditions, people who would be on dialysis. It helps the body create more red blood cells and raises hemoglobin levels. You can see why healthy humans would benefit from taking this drug whilst participating in sport. The company also managed to deliver another blockbuster by the mid eighties, NEUPOGEN. It helps your body produce more white blood cells, and is particularly useful when people are undergoing chemotherapy.

The company continued through to present day, producing other blockbusters like ENBREL (currently their number one drug by sales), which treats Psoriasis and Rheumatoid Arthritis, as well as Ankylosing spondylitis. ARANESP is used to treat anaemia that is caused by both kidney failure or chemotherapy, SENSIPAR is another therapy used in the treatment of adult patients for secondary hyperparathyroidism, as a result of being on dialysis. You see the theme here. More recently Amgen have been involved in drugs that treat cancers, VECTIBIX, which treats colon or rectal cancer, equally in woman genome therapies, PROLIA treats postmenopausal osteoporosis, high risk patients.

AMGEN have also recently acquired businesses that treat speciality caners, rare forms, as well as tricky to treat. Kidney, liver, leukaemia, that realm. A more recent therapy is Neulasta (their second biggest seller), which is also used in helping the body create more white blood cells whilst you undergo chemotherapy. Kyprolis (their fastest growing drug by revenue, up 46 percent quarter-on-quarter) is used to treat multiple myeloma, a cancer of the plasma cells.

More recently, Corlanor, which treats heart disease and as recent as the end of August, Repatha, which is an injectable prescription medicine called a PCSK9 inhibitor. What is that? They dramatically lower LDL cholesterol levels. LDL is Low-density lipoprotein, the bad cholesterol. Do you feel like you should have been paying more attention in your biology and chemistry lectures? I don't blame you. Just two days ago the FDA approved one of Amgen's therapies, IMLYGIC, (and I am going to copy and paste from a release) "the first FDA-approved oncolytic virus therapy, for the treatment of melanoma lesions in the skin and lymph nodes." Skin cancer is still the most common kind of cancer in the USA.

Why own a company like this? It is a simple question. They spend nearly one-fifth of all revenues in research and development, they are hugely cash generative. Plus, to be frank, I would rather much own a company and part with my money to own a piece of a business that is trying to cure humanity. The therapies may be wildly expensive, there may be an ethical argument to cost of the treatments, without that, the company would not be able to recoup the money spent engaging in finding these cures. They are busy working on a breakthrough drug (known at the moment as AMG334, developed in conjunction with Novartis) that would treat episodic migraines. As well as other biosimilar therapies, for treating breast cancer, lung cancer, as well as arthritis/Crohn disease/ulcerative colitis biosimilar, adalimumab is the Monoclonal antibody. Now you really wish you had paid attention!

The company is in an exciting space currently, there are plenty of opportunities, the stock is up only 2.2 percent year to date and looks cheap in their respective peer grouping, well placed to acquire bolt on businesses if needs be. And with the bigger pharma companies shopping for biotech companies, who knows! We add Amgen as a buy to our core grouping of stocks.

Linkfest, lap it up

Mark Perry has a look at on of the unintended consequences of raising minimum wage - Minimum wage = minimum on-the-job training = maximum misery for unskilled workers. Do you agree with his logic?

This is a very interesting read about the global cloud seeding industry - Weather on Demand: Making It Rain Is Now a Global Business. It was interesting to see how wide spread it is, especially that the Chinese government uses it throughout most of the country.

As demand patterns shift in China, steel producers are looking for new markets to sell their product. The result is that cheap Chinese steel is hurting local producers but it means that it now cheaper to construct and that more construction projects should go ahead. It is never a good idea to artificially elevate prices to protect an inefficient local industry because it ultimately means that you spend more resources to get less. Over the long run inefficiencies always die out - China Steel Head Says Demand Slumping at Unprecedented Speed

Home again, home again, jiggety-jog. Asian markets are not as up as I would have expected, US futures are a little lower. European markets and ourselves opened lower today, with the Rand weakening to the Dollar. Most likely people moving cash back to the US in anticipation of rate hike that will come at some point.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Wednesday 28 October 2015

Growing only 99% in China, so finished!

"In terms of territories, China still is growing like gangbusters, sales of 12.5 billion Dollars in mainland China represents a 99 percent increase year on year from the corresponding quarter. Wow. Mainland China is now bigger than Europe as a destination for Apple, European growth has been muted, up 2 percent year on year. The biggest market, the Americas, which counts for 21.773 billion, or 42.2 percent of total sales."

To market to market to buy a fat pig. It was a break from a pretty long rally, stocks as a collective fell 0.7 percent here in Jozi, Jozi, MTN feeling the heat again, that stock was down another 4.2 percent. As long as the uncertainty remains over the quantum of the fine and the small matter of looking to have their licence renewed next year in Nigeria (that is possibly a bigger concern), the share price will display the concerns of the broader investor community. The stock traded 3.64 billion Rand of value, which is around three times more than their average, and that is around 1.2 percent of the total market cap. In a single day! Over the last week the stock is down 14 percent, and this has been a very unwelcome stink for investors.

The question remains, what should one do with the stock if you own it? Obviously the Nigerian renewal remains a serious concern, bearing in mind that it is their biggest territory. We watch it closely, at the moment we are inclined to wait and see, remember that doing nothing is doing something in investing. To use the Warren Buffett baseball analogy, you don't always have to swing at the plate, you have more than three strikes.

Also stinking up the joint was a sharp move lower in Anglo American, down over five and a half percent. The outlook for the commodities complex worsens, worries about the main customer, China, worries about the operating environment locally, worries about cost controls, worries about the rest of the industry supply. Whilst we wait for the bigger picture to see an unwind in inventory levels (specifically for oil), usage patterns to change globally (in light of the VW Diesel-gate scandal, the VW results are soon!) and generally too many projects coming online in one go, our view is to avoid the sector for the time being.

We have no doubt that it will turn, when however is not an answer that we have. It will not be in the short term, perhaps inside of the next 18-24 months we could see more balanced markets in key commodities. In the mean time some countries are experiencing evident pain, the Saudis, Venezuela and the like, all very dependent on export prices being higher. For the global consumer however, this is great news, more money to deploy elsewhere. For the time being, avoid.

Over the seas and far away, in New York, New York with Fed watching back on the radar (the FOMC are expected to deliver their two day meeting statement this evening local time), stocks gave back a little. Both the broader market and blue chips sank around one quarter of a percent, the nerds of NASDAQ almost squeaked into the green for the day, healthcare stocks were the only sector that were comfortably in the green. Energy and basic materials (what we call resources) were down by over a percent and a half, lower commodity prices across the board to blame. Alibaba topped analysts expectations, with the same question asked of the company as with Apple below, Chinese consumers are strong! Year to date the stock is still down 23 percent, loads of heavy lifting left to do.

Company corner

Apple Inc. announced their fourth quarter results post the market last evening, for the quarter to end 26 September 2015. Don't ask why the quarter ends on the 26th of September. By most metrics the results were a beat, a record fourth quarter for the company. Sales of 51.5 billion Dollars were recorded for the quarter, or roughly 560 million Dollars worth of sales a day. That is mind boggling. At the same time of course being the fourth quarter, the company reported full year sales, which were also an annual record at 234 billion Dollars, an increase of 28 percent. Or by the same day measurement, 641 million Dollars of sales per day across the globe, that is pretty crazy.

That growth number for the year is so big that it deserves some quantifying, Tim Cook said on the conference call, via the transcript, courtesy of SeekingAlpha: "To put that into some context, our growth in one year was greater than the full year revenue of almost 90% of the companies in the Fortune 500." For the full year some amazing records were set, 300 million devices sold, that included 231 million iPhones, 55 million iPads and 21 million Macs. And it also included 100 billion cumulative downloads from the app store. And to think that in some categories, the Watch and the TV, they are just getting started.

Profits for the quarter were 11.1 billion Dollars, more amazing was that the company returned 17 billion Dollars back to their shareholders by way of buybacks and dividends during the quarter. At this run rate the 200 billion capital return program should be finished by the end of the third quarter of the current financial year. The dividend for the current quarter is 52 cents, payable 12 November, it all happens rather quickly when you have 205.7 billion Dollars worth of cash on hand, mind you most of it (187 billion Dollars, or 91 percent) is outside of the US.

The company also has 56 billion Dollars of term debt, when your cash position is so pretty and your market capitalisation is 674, the ratios of debt to equity are hardly worrying. The reason for the debt is due to rules that prevents US companies bringing their cash back "home", without incurring extra taxation. So, if you are cash flush like Apple, you can raise money at cheap rates in order to pay dividends and have massive buybacks, you will generate it over time quickly. A better cash utilisation methodology.

To sales of their products we go, the flagship iPhone is still responsible for the lions share, 32.3 billion Dollars of the 51.5 billion Dollars being 48 million units. Marginally ahead of the market, who were darn close, expecting 47.5 percent. iPad sales continue to fall, down 10 percent quarter on quarter and down 20 percent year on year, yet they still managed to sell 9.88 million units that generated 4.2 billion dollars worth of sales.

The Mac continues to take market share, whilst sales were only 3 percent higher year over year, across the whole industry over the same time frame sales have been down 11 percent. So certainly there are more people entering the Apple ecosystem. 5.7 million units of Macs were sold during the quarter, revenues generated from that business were 6.88 billion Dollars. Services revenues grew 10 percent year on year and closed in on ten percent of total revenue, 5.086 billion Dollars in total. Other products, which includes the watch, Beats, Apple TV, heck even the iPod is in there (no product sales breakdown is given any more). That division has experienced breakneck speed, up 61 percent year on year.

In terms of territories, China still is growing like gangbusters, sales of 12.5 billion Dollars in mainland China represents a 99 percent increase year on year from the corresponding quarter. Wow. Mainland China is now bigger than Europe as a destination for Apple, European growth has been muted, up 2 percent year on year. The biggest market, the Americas, which counts for 21.773 billion, or 42.2 percent of total sales.

Prospects? Time Cook is pretty pleased that the company heads into this holiday season with the strongest line up of products ever, the new iPhones, the new TV (that begins shipping this week), the iPad Pro and of course the Apple Watch which comes with more accessories, more wrist bands and cases. The company expects sales of between 75.5 billion Dollars to 77.5 billion Dollars, gross margins to remain about the same or improve marginally, to between 39 to 40 percent. Tim Cook also suggested that two-thirds of current Apple iPhone owners have not upgraded to the new bigger iPhone screens, i.e. own model 5 and lower. There is certainly lots of room to grow.

Back to China for a bit. Apple plan to roll out another 15 stores to their network of 25 existing stores by the middle of next year. Apple Music only launches there this quarter, as well as iTunes, as well as movies and iBooks. That could continue to drive service revenues much higher for Apple in that specific geography, which will no doubt eventually be bigger than the US as a main base for them. Emerging markets, which include China, represents 31 percent of total sales, China accounting for most of that.

Equally in the enterprise space, which grew 40 percent year on year, there are plenty of opportunities there, inside of their existing partnerships with Cisco and IBM, as well as many others. On the conference call the CFO, Luca Maestri said (transcript courtesy of SeekingAlpha) "Inside IBM, Macs are gaining tremendous traction. There are currently over 30,000 Macs deployed within the company with 1,900 more being added each week. IBM tells us that each Mac is saving $270 compared to a traditional PC, thanks to the much reduced support cost and better residual value." Amazing, whilst the products are expensive, you get what you pay for in life. They are so useful and so powerful that there is very little down time.

People want the product, there is no doubt about that. It is expensive, make no mistake. Tim Cook mentioned on the conference call that Android switches last quarter were 30 percent. I presume that means for all buyers of the iPhone. The renew cycle has been shortened for those on the "rental" model, they can have a new phone every 12 months. The Chinese middle class is set to grow ten fold from five years back (i.e. in five years time the middle class would have grown 10 fold over a ten year period). Over 50 percent of people who recently bought the iPhone 6 or 6 plus in China had never owned an Apple product before, that is something to think about for a while. Tim Cook mentioned loads of other territories that they are working hard on, India, Indonesia and Vietnam (populations of 1.28 billion, 255 million and 90.7 million respectively) came to mind.

In conclusion, you should continue to accumulate the biggest company by market capitalisation on the planet, as there are still many growth opportunities for them, in enterprise, in services, in other products that are new, or other products that may be invented at some stage. Apple should earn in the region of 10.50 Dollars for the year, that might even be a conservative number. And whilst the comparable current quarter may be a tough ask to beat, it seems like most have not gone through the renew cycle. Based on those projections, we continue to recommend Apple as a strong buy. The stock has traded marginally higher in after-hours trade, up 0.7 percent, regaining what the stock lost during ordinary trade.

The one tech stock that didn't beat expectations and isn't up after hours is Twitter. Last night Twitter released their Q3 numbers, with 58% growth in revenue to $569 million for the quarter and a smaller loss of $131.6 million compared to last year's quarter were the loss was $175.5 million. The number that is really hurting the stock at the moment is the user growth numbers, which only came in at 8%. Without user growth, the huge growth in revenue will hit a ceiling a lot quicker than analysts are expecting. The bigger problem has been the user growth in the US, their home market and where advertisers are more likely to spend on social media advertising.

Graph courtesy of this article: Twitter Sputters To 320M Monthly Active Users, Stock Drops Over 10% After Hours

It would seem that Twitter at the moment is a very niche social media platform, either you can't live without it (all of us in the office) or you are more than happy to live without it (my wife and many friends). I think that growth will come from their platform, Periscope, which allows you to broadcast video live to world (how will this start affecting live sport games and the likes of SuperSport?).

Jack Dorsey, the returning CEO has some big hurdles to get over and I think we need to give him a few quarters to make a marked impact on the company. He recently gave $200 million worth of stock to employees to help with moral, which is a good indication of how much he wants Twitter to succeed.

Linkfest, lap it up

Before WhatsApp and BBM there was MXIT - Mxit formally shuts down. I think the company could have been huge if they had moved quicker, it worked on 'dumb phones' before Apple even had an iPhone. Sad to see but also is a reminder of how quickly the world of technology changes.

James Bond hype is growing with the world premiere on Monday night. Here are some numbers from the very successful Bond franchise over the years - James Bond in numbers!

Some fun with video - Time-lapse shows construction workers taking apart a bridge piece by piece

Some humour from A Wealth of Common sense, talking about the different marketing names given to funds and investment ideas. Remember simpler is normally better and definitely cheaper over the long run - The Sounds-Good-In-Theory-Portfolio

Home again, home again, jiggety-jog. Asian markets are mixed, the Japanese market is up, the Chinese markets and Hong Kong are not. I guess today, whether I like it or not will be all about what the Federal Reserve intends doing later this evening and what the impact will be on equity markets. And then we can get back to the business of covering earnings.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Tuesday 27 October 2015

Nigerian NCC nutty

"How much is 200 thousand Naira? At the official rate, (the currency doesn't float, it is managed) it is 1003.92 Dollars per unregistered subscriber. Now, as per the 3rd quarter subscriber update, ARPU's in Nigeria were 4.99 Dollars. For comparisons sake in South Africa it is 7.42 Dollars. Divide the fine by the ARPU and you get to 201 months, or in years 16.76 years. Longer than the company has operated in Nigeria."

To market to market to buy a fat pig. Two different companies connected in a way across the two markets we watched weighed on their respective markets yesterday, firstly MTN sank over 12 percent here in Jozi, Jozi, more on that lower in company corner. Locally markets ended over one quarter of a percent lower, some stocks enjoyed really great sessions, Coronation Asset Managers rose over four and a half percent as the update and earnings guidance was well received, notwithstanding the fact that earnings are likely to be 5-15 percent lower. Obviously Mr. Market was expecting worse than that. Another noticeable winner was Aspen, that stock added over three and a half percent. The stock is still down 22 percent year to date however!

Also in the winning column was Naspers, that stock traded at an all time high yesterday, closing off those levels, still a percent and one-fifth better to 2055 Rand a share. Time for a split? It does not really matter, what matters more is the amount of value that you have allocated in the company, not the number of shares you own. Often retail investors are guilty of saying, I can't get lots of shares with this amount of money. It does not matter, what matters is that the value that you hold, whether you own 1 share or 1000 shares.

Naspers news yesterday was that they had sold their two Czech businesses for a combined 201 million Dollars, after failing to merge it with a Romanian business. It happens, some businesses are just not meant to be integrated, realise when the time comes and move on I guess. This come hot on the news from Friday, we wrote about it: Naspers up stake in Avito.

Over the seas and far away, in New York, New York, another stock "doing badly" was Apple, ahead of their earnings report this evening. The estimates are out there, everyone kind of knows what they are looking for, a twenty percent plus jump in revenues, with the quarter expected to see sales clock 52 billion Dollars. The company is expected to show a 35 percent increase in iPhone sales from the comparable quarter, expectations are for 47.5 million phones to have been sold. Guidance will also be important. No need to speculate, the company will report after market this evening, we will have the extra-extra read all about it tomorrow morning.

After all was said and done, the three percent drag from Apple saw the Dow Jones lower by a little over one-tenth, the broader market S&P 500 sank nearly 0.2 percent, energy stocks weighed on the broader market, whilst the nerds of NASDAQ were buoyed by moves higher from Alphabet (Google), Amazon and Microsoft, the afterglow of earnings reports from last week.

Company corner

WTF? Really? Excuse me ... The biggest news by a country mile yesterday was that the Nigerian Communications Commission (NCC) had imposed a fine of 5.2 billion Dollars on MTN. Why? As per the release: "This fine relates to the timing of the disconnection of 5.1 million MTN Nigeria subscribers who were disconnected in August and September 2015 and is based on a fine of N200,000 for each unregistered subscriber."

How much is 200 thousand Naira? At the official rate, (the currency doesn't float, it is managed) it is 1003.92 Dollars per unregistered subscriber. Now, as per the 3rd quarter subscriber update, ARPU's in Nigeria were 4.99 Dollars. For comparisons sake in South Africa it is 7.42 Dollars. Divide the fine by the ARPU and you get to 201 months, or in years 16.76 years. Longer than the company has operated in Nigeria. EBIDTA margins in Nigeria are high, 57,3 percent at the half year stage.

Annual revenue last year was 53.995 billion Rand, or at current exchange rates 3.951 billion Dollars. EBITDA clocked 31.620 Rand (or 2.313 billion Dollars at current exchange rates) for the full year last year. Results from Nigeria are expected to be lower and a lot more muted this year than in years gone by. As such the fine represents 1.31 times last years annual revenue in the country, possibly more this year.

And in case you needed reminding, the total subscriber base in Nigeria as of the last numbers (that included the disconnections) was 62.5 million. I am guessing out loud here, I presume that the disconnections are normally marginal subscribers, i.e. not even close to the ARPU numbers mentioned above here. As the company said in their interim results, the regulator was "being difficult": "While management continues to engage with the regulator, performance continues to be impacted by ongoing regulatory restrictions."

In the release yesterday, the company said that "MTN Nigeria is currently in discussions with the NCC to resolve the matter in recognition of the circumstances that prevailed with regard to these subscribers." Let us be clear here. If you want to attract capital to your shores where capital has choices, you had better think carefully how you treat businesses that promote the economy. Without the connections and with not much left to communicate across the country. I suspect that whilst it is too premature to dismiss the fine as insane and ludicrous (in the face of budgetary constraints globally, particularly in countries that produce commodities), it is a serious concern.

From my intelligence gathering, the one day drop experienced yesterday in the share price (of over 12 percent) is the biggest since 1998. MTN have only been operating in Nigeria for a relatively short time, having made their first call on the 16th of May 2001. They bought the licence for 285 million Dollars in January 2001, people said they were nuts, I remember. They have spent nearly 2 billion Dollars on infrastructure development. That came from private money, taking a risk (admittedly for higher returns), and again they were entitled to tax breaks for building said infrastructure.

So what do you do now? The shares are lower already. Do nothing. I am sure that there will be many high level calls, the news is already global. I expect the company to pay something, not nothing and it would definitely be a body blow. In all regards, it again is a reminder that doing business in places that are not as friendly to capital as in some others comes with the risks, as well as the high rewards.

Linkfest, lap it up

How much is a cracker? A biscuit? A packet of Salticrax is around 20 Rand, or less than a Dollar fifty. How about this then, The Titanic's last surviving cracker sells for $23,000. That could buy you enough Salticrax to eat a pack a day for 43 years. In this case I hope for the purchaser of the single life raft survival cracker that this is NOT the way the cookie crumbles.

The things that science can do is mind boggling - Scientists can now "squeeze" light, a breakthrough that could make computers millions of times faster. Even the current technology to send video and voice over the airwaves, to billions of people is staggering.

Not many people know that the money spinner for Amazon is their web business, with produced 52% of their profits but only 8% of their revenue - Is Amazon Web Services A $100B Business?. Given that Amazon currently has a market cap of $280 billion, if their web services division is worth $100 billion alone, the rest of the business is worth $180 billion. Which doesn't seem too expensive if you consider that the rest of the business is expected to have revenues north of $90 billion, putting it on a 2 times sales multiple. For comparisons sake Alibaba trades on a 14 times price to sales multiple.

Surely in the modern context where most people no longer work on farms, daylight savings is something should be done away with? I have never lived in a country with daylight savings, so I would not know - Turkey's plan to ignore daylight saving time has been foiled by smartphones.

An interesting read from Ben Carlson. What is the phycology behind us looking for thrills on the stock market? - Satisfying Your Activity Addiction

Home again, home again, jiggety-jog. Stocks across in Asia are on balance lower, Japanese market down nearly one percent. There is of course the first of two days of the FOMC meeting in the US today, apparently that is very, very important. I doubt that they will pull the trigger and raise rates now, they may well prime markets for a December lift off and suggest that it is a certainty. Just to ease the tension. This relationship between Mr. Market and the Fed is too much for me, we will be more excited about the results from Apple.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Monday 26 October 2015

Tech shifting gears

"Stocks over the seas and far away, in New York, New York roared ahead again, the S&P 500 turned positive for the year, at the beginning of the session. Year to date the return is now a paltry 0.79 percent, Friday's move was 1.1 percent higher. The sharp movements higher in the Amazon (up 6.23 percent) and Alphabet, Aka Google (5.61 percent up) and Microsoft (up 10 percent!), shunted the nerds of NASDAQ above 5000 points again, the collective up two and one-quarter of a percent."

To market to market to buy a fat pig. It is daylight saving soon in the Northern hemisphere, that means that this time next week the Europeans will be an hour different from us. Which sort of messes up the trading day, we essentially "start" an hour later, waiting for direction from some of the dual listed companies. I guess for us in the area of the market that suggests you are in stocks forever, an hour here or there is hardly noteworthy. South Africa observed daylight savings for three short years during the second world war. If you are in the part of the market that is always looking for minute by minute changes, I can imagine that an extra hour of "dead time" is not the most thrilling prospect. Equally for the Springboks having to contest the bronze medal match Friday, at least we can say that we won our first bilateral tournament in India in ODIs. That is at least good, that line holds true, we left everything on the field. Sigh, my favourite AB is at least the most dynamic batsman in the world.

Rewind to Friday quickly, stocks locally in Jozi, Jozi were lifted by the prior night earnings rally on Wall Street initially, the follow through for stocks was the Peoples Bank of China (PBoC) cutting interest rates again, I think for the 6th time this year in fact. Whilst the interest rate was cut by 25 basis points, the reserve ratio requirement (the amount of funds that banks have to hold for liquidity purposes) was cut by 50 basis points, or half a percent.

There was for the central bank watching junkies another piece of important information, at least in their minds, the PBoC sent the deposit rate ceiling packing. That was supposedly important. All this, coupled with the European Central Bank (ECB) in the prior session hinting of more stimulus, led global markets, ours included higher. We closed up over 1000 points higher, a gain off nearly 1.9 percent to close out at 54298 points on the Jozi all share index. It was pretty much a broad based rally, stocks across the board all up. Like the Proteas scorecard.

Stocks over the seas and far away, in New York, New York roared ahead again, the S&P 500 turned positive for the year, at the beginning of the session. Year to date the return is now a paltry 0.79 percent, Friday's move was 1.1 percent higher. The sharp movements higher in the Amazon (up 6.23 percent) and Alphabet, Aka Google (5.61 percent up) and Microsoft (up 10 percent!), shunted the nerds of NASDAQ above 5000 points again, the collective up two and one-quarter of a percent. As a collective year-to-date the NASDAQ is up 6.25 percent. The Dow Jones, for comparisons sake is down a percent as of the close Friday. That is pretty bizarre, the Dow Jones is supposed to reflect industrial USA, which by most counts has done better than the rest of the developed world, yet the Dow Jones is lower year-to-date. Strange, isn't it?

The world changes and shifts perhaps quicker than the folks who stick constituents in and out of the Dow 30, perhaps the fact that Facebook, which reached a market cap of 250 billion Dollars quicker than any other company is a reflection of that. Michael told me that this morning. Yet Facebook is not mentioned as a possible contender for entering into the Dow. For the record, best performing stock in the Dow 30 is Nike, up 35 percent year-to-date, the worst belongs to Walmart, down an astonishing 32 percent for the year. The second best performer in the Dow 30 is going to surprise you, McDonald's up just over 20 percent, a whisker ahead of Disney (that is also up just over 20 percent). The 2nd and 3rd worst performers in the Dow Jones year-to-date are Caterpillar, down 21 percent and American Express, down nearly 20 percent. Not the oil companies, like I thought initially.

Oh my word, just when you thought it was safe to go outside again and bask in the sunshine of earnings, a Fed meeting returns and strikes back during the middle of this week. Talking of strikes back, have you seen the new Star Wars trailer? Looks epic. I may have to twist the wife's arm to watch it with me. It is however still a big earnings week, with giants both old and new reporting. Apple reports after the market closes tomorrow evening, the expectations are always high. A reminder, if you needed one, the stock trades on a 13.76 multiple (cheaper than the index) but not the best yielder in the world with a pre-tax dividend yield of 1.75 percent.

Other titans weighing in with earnings this week are Exxon Mobil and Chevron Friday, Pfizer and Merck earlier in the week. Of interest (I guess) is Twitter, reporting this week. I keep telling you how big I think periscope is going to be, I saw amid the jostling and violence (luckily nobody was badly hurt) Friday at the Union Buildings that one of the local TV stations used the technology. i.e. Instead of using the usual channels to stream photos, a local TV station broadcast a periscope feed. That is the first time that I have seen that, the quality is of course grainy, it is however "coming". And I am still convinced it will change the way that we consume news. Twitter just has to figure out how to integrate it fully into the application, to make it seamless, to have both sets of followers one and the same. Pretty much like the way Instagram and Facebook work. Like? Periscope for the win!

Company corner

Naspers announced on Friday that they had stepped up their investment in Avito. What is that? As per the release, it explains that the business is the leading online classifieds business in Russia, and that they (Naspers) are increasing their stake from 17.4 percent to a controlling stake of 67.9 percent. The price seems pretty hefty, it is not clear what the purchase price is, how do you interpret this: "a US$1.2bn transaction to become the largest shareholder in Avito"?

Annual revenues of 76.5 million Dollars (a whopping increase of 76 percent from 2013 to 2014) mean that the business is growing quickly, and has strong EBIDTA margins of over 50 percent. From my inter-webs reading it seems indeed that the 50.5 percent that Naspers bought was for 1.2 billion Dollars. Or 2.4 billion Dollars for the whole business. Or 31 times last years revenues. Even if we presume that the business maintains their growth rates of last year into this year, Naspers paid roughly 18 times annual revenue of the current year for an online Russian classifieds business.

For comparisons sake in a listed environment, eBay trades on a nearly 2 times price to sales ratio, Facebook trades on 23 times on the same metrics. Google slash Alphabet on 7.3 times. I guess that if the new business bought outstrips their competitors and morphs into something really big, this would have proven to be a market move (if they can maintain margins). What is less pleasing is that this is taking place in Russia, not the most favourite investment destination currently. Those politicians are crazy. The quantum of the transaction represents just less than 2 percent of the entire market cap of Naspers.

In amongst the excitement of Thursday evenings reporting came that of Stryker, the Third Quarter Highlights looked a little more like the Samoa checklist of their World Cup highlights. Some, not enough to please the pundits. The stock sank over four percent Friday on a day that stocks were on balance going a lot higher. After the move Friday the stock is trading flat for the year. Why the sudden slowdown in revenues, both orthopaedics and the MedSurg divisions were flat? Partly the Dollar, as you can see in constant currencies sales would have in those two divisions been around 5 percent higher year on year. The neurotechnology and spine division area nearly 10 percent in constant currency terms, 5 percent in Dollar terms. That division sadly only represents 20 percent of group revenues, the balance spread almost evening between the two aforementioned ones.

The outlook and guidance for the year (which expected at current exchange rates a negative 4 percent hit from a stronger Dollar, or 25 cents) expects a full year range of 5.07 to 5.12 Dollars per share. Which puts the stock on a current year estimate of 18.4 times earnings. The stock is not overly expensive and not wildly cheap either. We really like the space however, the company operates in a fast growing segment of the market, and as a standalone devices and diagnostics business, we believe it is the best in terms of quality. The older people live as a result of improved therapies globally, the more they will have to have hip, knee, ankle, even spinal therapies. Those will become more commonplace and are in fact more procedural (with risk of course) than life threatening. We maintain our buy rating on the company. Once the currency headwinds are out of the way, we expect that earnings growth will return to a 10 percent per annum trajectory.

Linkfest, lap it up

After 3000 finance posts you would think that Morgan Housel would know a thing or two. He admits that he doesn't and subscribes to the old adage that the more you know, the more you know there is to know. And by extension, the more you know that you don't know. Check out his post: I'm Just Now Realizing How Stupid We Are. I particularly enjoyed: "It is always different this time, as no two recessions, recoveries, or market cycles are alike. What's dangerous is assuming the future will perfectly resemble the past."

In the USA they have a strong tipping culture where tipping your barber is common place and where 20% tip is expected on a meal. That may be changing though, where a service charge will be added automatically to your bill and then spread between cooking and serving staff - Hold the Tip, No gratuities could mean better food.

Two milestone for Facebook on Friday, as mentioned earlier. It is the fastest company to a $250 billion market cap, not bad considering the fiasco around their IPO where the share price fell for a couple months - Facebook Hits $100 a Share. The second milestone is them reaching $100 a share, which is "a 476 percent rally since September 2012".

Based on the below graph, which company would you rather own? It is clear where retail sales are heading and which business model is the future - Here's what this year's holiday hiring looks like at America's big retailers

Being able to speak to anyone on the planet in your native tough and have computer translate it for you is another step towards making the planet a smaller place. Skype is working on it but is not quite there yet - How good is Skype's instant translation? We put it to the Chinese stress test

Home again, home again, jiggety-jog. Asian markets are on balance higher, Us futures are lower. It will continue to be a collective efforts of earnings that will see this equity market higher across the globe. Not central banks, earnings and companies make equity markets go around. Pay attention to what matters and leave the focus of others elsewhere.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Friday 23 October 2015

Forget please and thank-you, lets talk ABC's

"Alphabet (Google) has enormous resources, the little over 5 billion Dollars (actually the real number is 5,099,019,513.59 Dollars, which is the square root of 26, which is how many letter there are in the Alphabet) is a dip into the nearly 73 billion Dollar cash pile. Mr. Market is cheering the Alphabet results, as easy as ABC and not XYZ. Zee and See rhyme in American English, not so much in South African english. Pre market the stock is trading at 742.8 Dollars, which represents a jump of over nine percent on the closing price (which itself was 1.39 percent higher). Mr. Market approves, that clearly was not the case 18 months ago, when people were calling the company mature and slowing."

To market to market to buy a fat pig. Whoa! Markets across the seas and far away in New York, New York soared last evening. Remember August, when it was so terrible that we were busting apart at the seams? Remember? I recall someone suggesting that his friends said you should go one-third to cash, that was the right thing to do. And now, you would be 15 percent out of pocket and sitting on an asset yielding you next to nothing. A mere 2 months later. It is a reminder that if you are going to own equities, you must roll with the punches, remembering that only the quality of what you own matters in the end.

Why was there a broad based rally yesterday across Wall Street? It was as a result of the most important "thing" that matters in equity markets, company earnings. With a little bit of a hint of more stimulus from the ECB, they were meeting in Valetta in Malta. Earnings set the level of the prices ultimately that the balance of the market is willing to pay for a specific company. First, there was McDonald's, up over 8 percent after reporting results that comfortably trumped estimates. Even after the sharp move the dividend yield is still over three percent. In the prior session after the bell (i.e. Wednesday evening), eBay reported numbers that topped estimates, that stock rose nearly 14 percent. And then an old favourite of Buffett (it used to be), Dow Chemicals beat the street and served up gains of over five percent. After the bell last evening there were some spectacular numbers from some Vestact favourites, we will sink our teeth into those in a bit.

The earnings cheer saw the broader market S&P 500 close up one and two-thirds of a percent to 2052, the Dow Jones industrials added 1.87 percent whilst the nerds of NASDAQ came away with the same gains as the broader market. Dragging back the market, to some extent, were the healthcare stocks, Valeant had another wild session, down nearly 20 percent at one point, closing the session out down 7 in the end. AbbVie stock fell sharply, ending down over ten percent as the company received a warning letter from the FDA specifically around their Hepatitis C therapies. Yikes, it is about serious liver damage caused in patients using two of their therapies. The Biopharma and Biotech space has had a really tough time against the rest of the market roaring ahead since middle August.

On the local front at home in Jozi, Jozi stocks collectively added over half a percent, the Clicks Group soared nearly 8 percent after their numbers were well received. Glencore stood at the top of the pile of the ALSI 40, there is more zig zagging in that share price than there is on the Alpe d'Huez. Our cycling friends will appreciate that one! Anglo American on the other hand was near the top of the losers board, a poorly received production report not helping their cause, more acute when compared to BHP Billiton's one, which looked decent enough. At the same time Kumba Iron Ore (essentially an Anglo company) released a production update and it was not pretty, double digit fall in production against the backdrop of prices that have plummeted. The stock sank nearly 6 percent and is close to a 52 week low of 71 (currently 75.28). The 52 week high is nearly 300 Rand. Astonishing, not so?

Company corner

Righto, loads to get into, let us try and keep it brief and most importantly, let us try and make it informative. Firstly, MTN released a quarterly trading update, which at face value was a little disappointing at first glance. Subscriber growth of 0.9 percent quarter on quarter is not exactly the growth we are looking for. On further inspection, in Nigeria there were 5.1 million disconnections as a result of registration processes (the RICA headaches we had here), 3.4 million of those have subsequently been reconnected. Is there anything more irritating than not being able to use your cell phone? No, there isn't.

The overall South African base experienced good growth (It is now 29 million strong), 2 percent QoQ (quarter on quarter), Nigeria fell hard a percent on the same metric, as explained above. Nigeria, remember has 62.4 million of the overall group subscriber base of 233 million. In Iran the subscriber base grew 3 percent to 45 million. Wow! There are only two other territories with more than 10 million subscribers, namely Ghana (nearly 15.5 million) and Uganda with 11.5 million. What was perhaps the most pleasing for me was the pick up in ARPU's (Average Revenue per User), up 8.8 percent here in South Africa. What we are starting to see is smarter handsets consuming more data.

Data revenue locally (South Africa) increased 40 percent and now represents 31.5 percent of total local revenue! Meanwhile in Nigeria, it is only 21.3 percent of total revenue. In short, the story remains intact, and whilst the share price has been trading more as a proxy for the oil price (having large operations in Nigeria and Iran), we continue to hold and be patient here. At the close the stock had ended 2.32 percent higher, at 186 Rand. That is a long way away from the 52 week high of 250 Rand, we are acutely aware that investors lately have not enjoyed the gains of yesteryear. Stay the course.

Famous Brands released their interim results to end August 2015 yesterday, the market embraced the higher dividend and better revenues, the stock was up 3 percent by the close of trade. Revenues for the half increased a very healthy 27 percent to just shy of 2 billion Rand. Operating profits and Headline Earnings (241 cents) increased by "only" 14 percent. The dividend as we mentioned increased 23 percent to 190 cents, payable Monday 7 December. Famous Brands boosts your Xmas budget!

So why were revenues so much higher than profits? They explain in the release, if you read on, having followed the link: "this pleasing top-line turnover growth failed to translate into corresponding growth in operating profit, largely due to the sub-optimal integration of the new Supply Chain projects into the business. In addition, the final phase of the Group's Fit-4-Purpose initiative, a programme aimed at bringing the business closer to its customers (franchisees) and consumers, incurred further costs." There were significant costs in setting up the new Crown Mines Distribution Centre, expectations are that the logistics division margins should normalise and improve.

The brands and company is well positioned, we continue to like all in the space. At the same time we do appreciate that consumption patterns in rich people are changing, less quick service foods and more emphasis on healthier alternatives. All of the brands globally will give customers what they want, some will struggle as a result of their product (i.e. fried chicken is fried chicken, how do you change that?), other will adapt more easily. We continue to stay long this company, it represents a changing middle class in South Africa (and indeed across the continent) for all the right reasons.

I am an Alphabet, not a Googler. Surely not at the headquarters, people who work for Google, will still work for Google and are by extension Googlers. Not Alphabeters. The reason for the renaming and reorganisation of the business was essentially to take focus away from the business being a one pony trick, purely advertising and to focus on all of their other businesses including robotics, life sciences business, just a separation and reporting differently, that is all.

Doing the same, only more transparent on spend in those other businesses. The new reporting entity, Alphabet reported in the same old way Third Quarter 2015 Results after the market. The company included the first step towards maturity (some may not think so), a 5 billion Dollar share buy back. Commencing in this quarter. Also commencing this quarter will be the segregation and more insight into the business as a whole, the true Alphabet.

Constant currency revenue growth of 21 percent was registered, in Dollars a less (still very pleasing) 13 percent growth year-over-year to 18.7 billion Dollars. GAAP diluted EPS clocked 5.73 Dollars, non-GAAP diluted EPS was a buck and a dime higher to 7.35 Dollars. Advertising revenues still represent 16.781 billion of the groups 18.675 billion Dollars, with paid clicks increasing 7 percent quoter-on-quarter and 35 percent year-on-year across the Google Websites. Cost control was also something that investors had gotten a little irritated with (well done to new CFO Ruth Porat), as a percentage of operating revenues costs were steady year-on-year at 37 percent. It is not as if the company has stopped hiring, they added nearly 8500 employees over the year, to be an organisation that employs just less than 60 thousand people. So whilst farm jobs have been decimated over 150 years, no worries, there are new companies doing new things!

The group has enormous resources, the buyback represents a little over 5 billion Dollars (actually the real number is 5,099,019,513.59 Dollars, which is the square root of 26, which is how many letter there are in the Alphabet) and is a dip into the nearly 73 billion Dollar cash pile. Mr. Market is cheering the Alphabet results, as easy as ABC and not XYZ. Zee and See rhyme in American English, not so much in South African English. Pre (and post) market the stock is trading at 742.8 Dollars, which represents a jump of over nine percent on the closing price (which itself was 1.39 percent higher). Mr. Market approves, remembering that clearly was not the case 18 months ago, when people were calling the company mature and slowing. And to think that the stock traded below 500 Dollar earlier in the year. We continue to accumulate.

In other corporate related news, Amazon.com Announces Third Quarter Sales up 23% to $25.4 Billion, which included in that is a rare profit, 17 whole cents per share for the quarter. Mr. Market had expected the fast growing company, that invests heavily in their business to not report such a profit, at best a really modest one. And whilst it is pretty insignificant in the short term (406 million Dollars operating income on revenues of 25.4 billion Dollars), it is a shift in the right direction. Comfortably above consensus and their own guidance.

Strange projects that earlier had attracted large sums of capital, have been shelved for more prudent capital allocations. Having said that however, CEO and founder Jeff Bezos is punting the Amazon Fire hard, suggesting that families pick up a 6 pack (at reduced prices) for the festive season. The Amazon Fire tablet is a hot seller, it is really cheap for the quality of screen that you get. Sales are expected to be between 33.5 to 36.75 billion Dollars, or be 14 to 25 percent higher than the comparable quarter that includes the all important festive season sales. i.e. the coming quarter. And operating income, the range is so incredibly wide, 80 million to 1.28 billion Dollars.

It is important to remember when analysing this business that Jeff Bezos is a dreamer who executes, someone who thinks really, really long term. There are many people who are not going to own the business on the basis that it is always unprofitable. Bezos is in the LOOOOONG business of building a global empire. And as such Amazon price action will be wild, the earnings will be volatile and Wall Street will continually be disappointed or overjoyed. Their time frames are 12 months, if you are owning this business (and you must), your time frame must be years, if not decades. The company is building the finest retail giant on the planet, the retailer of the future that delivers you products at the lowest possible price. That demands massive infrastructure investment, the balancing act of why it must be the trickiest job to be Amazon's CFO and have to sigh at entrepreneur and conquerer Jeff Bezos.

The stock is up nearly 10 percent pre market, and will, like Alphabet (Google) open at a record high. We continue to accumulate, I suggest that you do it in many different pieces, for all the above mentioned reasons. The future is here, two days after the day Doc and Marty arrived Wednesday, to find hover boards and augmented reality.

Linkfest, lap it up

There are not many things that cannot be done if you have the will power to push through and get it done - How an F student became America's most prolific inventor. I can't say that I am surprised at how much the guy reads. One thing he also does is not to make to-do lists and doesn't make shopping lists, he has trained himself to remember those things.

This highlights the problem of having all your eggs in one basket - Saudis Risk Draining Financial Assets in 5 Years, IMF Says. Oil will not be around forever which is why the Saudi Arabia is trying to diversify their economy, one of the things that are focusing on is developing a tourism industry.

Over the last year there have been big shifts in the international tax arena, where governments are closing loop holes and trying to standardise tax policies across the globe. Pressure will be put on companies like AB InBev - Anheuser-Busch InBev Aims Its Tax-Trimming Skills at SABMiller. There have already been "shots fired" so to speak, E.U. Orders 2 Nations to Recover Taxes From Starbucks and Fiat.

Over the short term the market is more noise and emotion than anything else. Even over a period of a year or two, emotions and not much else can drive a stock price. If your holding period is forever, then the share price at "forever" is the one that matters or in this case, the dividend matters more - One Year Returns Don't Tell You Anything

Home again, home again, jiggety-jog. The students are forming an alliance across the country, today marches to the Union buildings will be a key moment in the history of this country, I think that these will be remembered for a long time. They are peaceful now, and are as such attracting the support of civil society. Political leaders do not seem to be attracting popular support on their handling of the matter, which is in itself interesting. Stay safe if you are out there, observe and give people the space to voice their concerns, that is what a democracy is all about. We (the Amajimbos) may have drawn 1-1 to North Korea (strangely called the Democratic People's Republic of Korea) at the u17 World Cup football, in democracy terms we beat them 100-nil. Remember that students have no stable jobs, no families (mostly), no assets to wipe out and in large part have the youth to energise their processes, they are more likely to take these risks. Who will pay for free education, that is another pressing question altogether?

Market across Asia are sharply higher, following excellent EARNINGS from Amazon and Alphabet (Google) after the bell, as well as Microsoft. Markets going up for the right reasons, many will tell you that it is a more accommodative ECB, all I care about in the end is how the Vestact recommended companies do, and how they are making progress with their core products and services. If they are gaining market share, new customers enjoying their experience and so on. That is all that matters in the end! And winning the Rugby tomorrow, we will certainly have our hands full!

Sent to you by Sasha and Michael on behalf of team Vestact.

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