Market Scorecard. After their long weekend, US markets were red yesterday. Walmart, a player in both the Dow and S&P 500 was down 10% after poor results! (Walmart just saw $30 billion in market cap destroyed by Amazon fears) The Dow was down by 1.01%, the S&P 500 was down 0.58%, the Nasdaq was down 0.07%, and the All-share was down 1.32%. Bidcorp released their six-month numbers this morning, which the market seemed to like. The stock is currently up 2%.
One thing, from Paul
I always view Budget Day with trepidation. The state has a vital role to play in a healthy society, taking on many functions which are more efficiently handled by public entities. It is vital to save the lives of the poorest of the poor with ongoing social grants, and to provide basic healthcare, schooling, infrastructure and security services. All this has to be funded by taxes, and I'm OK with the idea that rich people should pay more, as often they have had the benefit of generations of state support. I'm also OK with the idea that the democratically elected government of the day should get to decide on its main priorities, within the bounds of the constitution.
However, public entities are seldom run well, and many people go into politics and public service for the money, or to gain control of state resources, and to divert public funds in corrupt ways for their own personal gain. In South Africa, it's hard to find an organ of state which isn't in a state of crisis.
Tax revenues have slipped badly in the last decade, and SARS's credibility has plummeted, but state spending has roared ahead. Our public sector wage bill is huge and rising (but productivity is poor). Add to that the ghastly capital spending overruns at Eskom, and we are facing a dire fiscal shortfall. South Africa's debt to GDP ratio has spiralled out of control.
Spending needs to be cut, but that is hard for politicians. So, expect tax hikes today. That's on top of last year's unfortunate hike in the top marginal income tax rate to 45%, and the recent increases in both dividend withholding taxes and capital gains taxes.
This is really Cyril Ramaphosa's greatest challenge. It's very nice to go walking in the morning with the people, but can he take the hard decisions that are required to put our country back on a sustainable fiscal path?
Company Corner
Byron's Beats
Yesterday Discovery released their interim results for the six months ending 31 December 2017. As expected from the trading update, the numbers looked good. Operating profit increased by 19% while normalised headline earnings per share increased by 31% to R4.11. The big drivers behind the growth in earnings was a solid showing from the UK business as well as profits coming through for the first time from the short-term insurance business as well as the Ping An joint venture.
The image below shows the contribution of each segment.
As always, Adrian Gore was very confident and passionate. He didn't skip a beat in his presentation. You can see he truly believes in his product and is genuinely proud that it is making the world a better place.
The local businesses all did well in a tough environment. Discovery Health and Life are the bread and butter of this business. As you can imagine, growth has slowed, but they are still stealing market share. If our economy goes through a growth spurt, these businesses will thrive. That includes Discovery Insure and Discovery Invest who have both leveraged off a good brand and some great incentive schemes.
Vitality UK is finally doing well. They now have over 1 million lives insured in a country where healthcare is mostly free. When your friends are getting free Apple watches, Starbucks coffees and discounted gym contracts because they exercise three times a week, the clients become the best salesmen. The preventative healthcare model is genius. It is cheaper and far better for your standard of living, to prevent than being cured.
Vitality Group. This is the part of their business that sells the Vitality model to third parties. This is what excites me most about Discovery. Selling on the preventive healthcare model to other insurers who have millions of clients has huge potential. This also includes corporates who have large employee bases. It benefits the insurers and their clients and it certainly benefits corporates and their healthy employees. Vitality Group now has 1.7 million members. Could this become the biggest healthcare membership in the world? The product certainly has the potential.
Ping An Health has been a slow process but the growth coming through in this last six months is very encouraging. Membership grew by 60%, and the business finally made a decent profit of R36 million. Within this joint venture, there are over 3 million people on the rewards program. They have a great partner in a tough country to crack. The potential here is huge.
These numbers represent good progress in the Discovery story. So many of the goals are becoming realities. We are very happy shareholders and clients of Discovery. This must be the only insurer on the planet that actually has happy clients!
Linkfest, lap it up
Michael's Musings
Do you know that in Japan, only around 10% of houses sold are used houses? Most houses lose their value after 15 - 30 years, as a result Japan compared to the US, has four times as many architects - Why Are Japanese Homes Disposable?
Bright's Banter
Ryan Coogler's Black Panther grossed around $235m at the box office on opening weekend across North America making it the biggest solo superhero, non-sequel, black directed movie of all time. It doesn't end there, it's also the 5th biggest movie debut of all time and the second largest Marvel debut after The Avengers (2012) and the list goes on. This movie is not done breaking records as non-US sales keep flying in.
If you haven't watched the movie yet, stop everything right now and buy tickets tonight for yourself and your loved ones (it's half-price Wednesdays at NuMetro today). Don't forget to dress up and have fun! #WakandaForever. This movie is worth every penny and the reviews such as this one (spoiler free) speak volumes.
Let's see if all this success translates to the well-deserved awards.
You will find more infographics at Statista
Vestact in the Media
Byron gets a mention in a recent Forbes article - How To Lose $2.1 Billion In One Day.
Home again, home again, jiggety-jog. Our market has been bouncing between red and green, ahead of the budget speech this afternoon. Good news for consumers, our CPI read for January was 4.4%, lower than the corresponding period and economist forecasts. Then expect some currency movements this evening, when the FOMC minutes are released.
Sent to you by Team Vestact.
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