Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. We turned up sharply in the last hour and a half, thanks to the US markets opening higher. The US futures market had been mixed through the day, up at one point, down at another. Resources led the charge, perhaps the better PMI not only in China, but also in the US, an ISM manufacturing release around four our time beat expectations. And as you know, in the world of the short term, all that matters is whether you beat the expectations or not. Earlier in the day a United Kingdom and German manufacturing PMI had beaten expectations. Some of the rest of the European PMI's were less than appealing. Hello austerity. That argument between austerity and stimulus will no doubt be answered over the coming years. Although to be fair, European and US growth have never been the same really. America is always seemingly ahead of the curve as far as entrepreneurial spirit is concerned. Less government, more private enterprise. But don't tell anyone here.
The Jozi all share index closed at 33975, up 420 points or 1.25 percent, resources added nearly a percent and a half, the retailers added a whopping 3.55 percent, Byron will look at this a little later in the message. MTN was a huge laggard on the day, we also explore that a little further too. The stock was down four and a half percent on a whopping 1.8 billion Dollars worth of trade on the day. The closing deal was for around one million shares. Also in the losing column were the steel makers, ArcelorMittal sank 1.9 percent yesterday, Evraz Highveld Steel since Valentines Day has lost nearly one third of their value. Wow. That has been a hard year for them. More on that later.
OK, many people have been asking us, when do we sell MTN, what do we do now, dump them and run, and so on. Paul sent an email yesterday to a client on one of these concerns, here we go, we will share it with everyone:
- For now, we are just watching this nasty situation develop. We are disinclined to be sellers into this bout of weakness.
The Turkcell allegations are very detailed, so I assume that they are based on a high-level leak at MTN. However, MTN management have denied it all, so are these memos fakes?
The bribes paid to the SA ambassador and the Iranian deputy minister are more problematic, if true. The other allegations about military aid and help with the IAEA look like a red herring to me, especially since these did not materialise.
I doubt whether a US court will hear this matter. The Hoffman committee will likely dredge up some dirt and some heads might roll.
The bigger issue is how the anti-Iran sanctions will affect MTN directly and indirectly. The Iranian government is in dire straits, and might need to offer up some concessions.
Does that answer all the questions? If there are more, keep them coming as ever. There is no way that the fellows from Turkcell are making all of this up. Equally important to ask, who is feeding them (Turkcell) with all this information, as Paul implies above here? No really? Where are they getting all of this from? The stock got crushed yesterday, it is doing better today, but clearly this news is weighing on the share price.
Byron's beats tries to understand the strong run up in prices of the retailers yesterday.
- Yesterday the retailers rallied over 3.5%. A journalist asked me why I thought this happened and I was a bit stumped. Sometimes coming up with a clever answer to daily moves can be really difficult. The best answer I could come up with was that foreign investors had more appetite for risk following some decent data coming out of the US and China. Boring. There were suggestions that foreign investors were actually selling out of MTN and buying into the retailers to keep their African exposure.
For me, daily moves are not relevant. Of course it's nice to see your stock picking up 4% in a day but at the end, as a long term investor, it is about the collective consensus over your holding period. Whether you have more up days than down is what is important and that will be deciphered by detailed fundamental analysis, what we do on a daily basis.
Back to the daily moves and one of those stocks that shot up 4.7% yesterday was Woolworths. Wow this stock is just reaching new heights all the time. I know you cannot base an entire investment on personal experiences but every Woolworths I walk into is packed with people buying both clothes and food. The stock now trades at R50. At the beginning of 2011 it was around R26 and at the beginning of 2010 it was at R17. During the crisis it reached as low as R8.80. A great return for anyone brave enough during that period that follow their instincts.
But do not forget about the Woolworths dividends over this period which has been very generous. They actually announced their dividend for this interim period yesterday, this is why I am babbling on about them. Now remember that companies used to pay the STC tax before it got to the client. Now the client pays before it even gets to them. Different method, same result except for a slight increase in the rate. The dividend paid per share equates to 63.5c net of the withholding tax (75c before tax). The company made 135.7 cents a share. That is a dividend cover of 1.8 times.
But in their last results presentation they had this to say. "It is anticipated that the group's full year dividend cover policy, previously 1.5 times headline earnings per share, will be adjusted for the impact of the new tax, resulting in a lower dividend cover ratio." This means that the dividend for the next period should be much higher than this so as to get the overall cover down. At current elevated prices the yield is decreasing but still very healthy, especially if you got in at lower levels. We are happy with the dividend and still happy to add at these levels.
The business of steel making is cyclical at the best of times. Having your inventory valuations moving this way or that depending on which way the economic activity in the local economy is going. I remember a time when both Highveld and Mittal were literally leaking dividends. You were getting so handsomely rewarded. Of course the two big shareholders in those businesses, Evraz and Mittal global were very happy with their dividend flow. And it was happy days. But sadly, since then it has all been backwards. Over the last five years, the ArcelorMittal share price is down 54 percent, Evraz is down 66 percent. Check out this story from MiningMX yesterday: Amsa, Highveld face collusion charge.
But it gets worse for ArcelorMittal, because BusinessDay ran another story yesterday, Mittal fury over state's local content policy snub. I am not too sure that anyone gets preferential treatment? Right? I am not even sure we want to go into any of that. I am very confused, we get ministers Davies and Patel talk about beneficiation and then, those who do it, then get told that they are getting no special treatment. There are those folks out there who are saying stuff like, well, they benefitted already for all those years, not now. Steel making. That is hard. And to rub salt into their wounds, ArcelorMittal was downgraded to underweight at ABSA Capital yesterday. Errr..... well spotted guys.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. Markets managed modest, no, very decent gains, the nerds of NASDAQ added nearly a percent, the broader market S&P 500 added three quarters of a percent exactly. There was some deal related activity in the background, Avon being approached by Cody, with the small(er) fry (Cody) trying to swallow something much larger (Avon). Avon, as far as I can understand it, continues to see sales slow, has no real leadership and most importantly (at least in the short term) is involved in some pretty bad allegations about bribery in a foreign territory. Avon used to be at the top of their industry, but that was a long time ago. So, Cody are probably being opportunistic here. But, as usual, the Avon board thinks that the company is worth more. Always. So, like the Yahoo! board when approached by Microsoft, something is always worth more in your eyes. But, if it were actually worth more, then the stock price would be trading at a premium. Let the suffering shareholders decide.
Currencies and commodities corner. Dr. Copper is last at 391 US cents per pound, the gold price is lower at 1676 Dollars per fine ounce. The platinum price is higher at 1656 Dollars per fine ounce. The oil price, the one that we use the most, is last at 104.42 Dollars per barrel. I mean, I last bought myself a piece of gold in 2002, I filled up my vehicle this morning. The Rand is steady to firmer, 7.64 to the US Dollar, 12.24 to the Pound Sterling and 10.19 to the Euro. We have started better here today, the Jozi all share in back through 34 thousand. Time to make a push to 35 thousand, come on!
Sasha Naryshkine and Byron Lotter
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