To market to market to buy a fat pig. The first stock that comes to mind when people say, 'Blue Chip' is GE. On Friday, the stock wasn't behaving like a blue chip company at all. The company reported below-par 3Q numbers before the market open on Friday morning, causing the stock to open down 6%! If ever an earnings call saved the day, it was John Flannery's call with investors, where he spoke of restructuring, asset sales and cost-cutting. After starting the day down 6%, the stock finished the day higher by 0.97%; Blue chip companies are not meant to fluctuate by 7% in a day!
Market Scorecard. Japan's Nikkei has now had a record close for 15-days in a row, a new record for the index! Sticking with Japan, Shinzo Abe won a landslide victory over the weekend, where his party now has a supermajority in the Japanese parliament. On Friday, the Dow was up 0.71%, the S&P 500 was up 0.51%, the Nasdaq was up 0.36% and the All-share was up 0.09%.
Company corner
Byron's Beats
As you know, Mediclinic owns 29% of UK listed Healthcare Group Spire. Spire provides care services via 39 hospitals and 10 clinics in the UK. Much of that is focused on cancer, sports medicine, physiotherapy and rehabilitation. They have 17% market share of the UK private acute hospital market and 24.4% in private hip and knee replacements. You can check them out here in the About Us section of the website.
On Friday afternoon rumours started circling that Mediclinic were looking to make a bid for the rest of the business.
This morning Mediclinic came out with an official SENS confirming the offer.
Under the Proposal, Spire shareholders would receive 0.232 Mediclinic shares and 150 pence in cash for each Spire share. Based on the closing price of Mediclinic shares as at 17 October 2017, being the last business day prior to the Proposal being made, the Proposal valued each Spire share at 300 pence, representing a premium of:
1) 30% to the closing price of Spire shares on 17 October 2017(1); and
2) 31% to the volume weighted average closing price of Spire shares in the one month prior to and including 17 October 2017(2).
This values the business at around 1.2bn pounds, half cash, half shares. Although Spire are also sitting on around 436m pounds in debt. The company made 8.7 pence for the half year ending June 2017, if you annualise that, the price Mediclinic are offering is around 17 times earnings.
The Spire board have rejected the offer. Mediclinic have until 20 November 2017 to revise it or officially say they won't make another bid in the near future. We will keep a close eye on the proceedings.
Linkfest, lap it up
Michael's Musings
China's National Congress came to an end last week, with many leadership changes. I found this interesting article about the history of the congress and an informative three-minute video of what Xi Jinping has done over the last five years - The Real Message for the World in China's First Global Congress.It is paradoxical that China talks about free global trade but the country itself is still very closed to outside businesses.
Sticking with China and foreign companies, Tesla looks set to open up a factory in China without needing a local partner - Tesla Strikes Deal With Shanghai to Build Factory in China
One of the advantages of having a diverse society is the increased choices when it comes to food - American Soft Power
You will find more statistics at Statista
Bright's Banter
The most common question that we have been getting from clients before the recent rally was the following:
How can you invest in company A, B, C, etc. if you knew Brexit was going to happen and share prices would go down?
I can't remember where I got this, but I will use it as an example to explain how we cannot know the future but how you can prepare for it. What we can do to take advantage of low share prices.
The most conservative companies in South Africa are life insurance companies, Discovery and the likes. How can these businesses insure peoples lives when they know we're all going to die? How do they do it?
1. The key is knowing the risk involved. They know we're all going to die, it doesn't come as a surprise like "oh we had someone just die".
2. There are risks they can analyse; we have to do medical check-ups every so often to update their risk profiles for us.
3. There are risks they can mostly diversify away; they have a diverse client base. They do not only insure people in the Cape Flats, or only Skydivers, or only Smokers.
4. They are well paid to take the risk. The insurers get to sit on all your premiums, investing them, until you do claim one day. If you reach retirement and decide there is no longer a need for expensive life insurance and cancel the policy, then those premiums are pure profit.
The point here is that if you understand risk and you are aware of it. You can price the asset right and you can get a bargain.
Howard Marks says:
"Most things are governed by cycles. Yet people believe that trends will go on in one direction repeatedly into perpetuity. That trees will grow to the sky. That things that are going down today and are worth less today will go to zero.
These are the times when biggest errors are committed by investors. People get more excited as share prices rise and they want to buy more. The same people get more depressed as share prices fall and they want to sell them. This is the opposite of what you should do."
Here at Vestact, we see these market gyrations as an opportunity to buy more of the same quality businesses that we liked before. The only difference now is that they are cheaper.
Home again, home again, jiggety-jog. Our market is green this morning; Mediclinic opened up and then dropped, currently down 2%. Since around 8 AM the Rand has significantly weakened against all major currencies, currently sitting at $/R13.76
Sent to you by Team Vestact.
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