Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. We lifted off in the second half of the session, there were two things going on yesterday, one, Angela Merkel who said in an interview with CNBC's Sylvia Wadhwa that as the chancellor of Germany she wants to see Greece stay inside of the zone. I can understand the politicians wanting all members in, but the supposed smart money is telling everyone that the Euro zone is going to break up. But The Iron Frau's soothing comments saw some of the jangled nerves give way to some buying activity. Greece announced a new election date as anticipated, on the 17th of June, which is a Sunday. Anyone listening to me going on about elections being on a Sunday? But perhaps the biggest catalyst for the buying was a much better than anticipated industrial production read, and even more exciting a better housing starts number, the best number seen in ages. We once did a piece on those housing starts numbers, and made the same observation as some folks yesterday, the overall number, the housing starts numbers is still half of the post war average. That US data saw us head higher and close at the top end of the days range.
We closed up shop here at 33781 points, up 295 points on the day, or 0.88 percent for the Jozi all share index. Banks added 0.7 percent, general retailers surged ahead, just over two and one third of a percent, but the action was mostly with Richemont, that stock surged 7.85 percent to reach an all time closing high of 5084. I have even seen more glowing analyst reports, which is surprising because there were cautious types pointing at a stumbling European luxury goods market. I saw an FT video which tried to explain the Asians buying luxury goods on their European holidays or business trips, because it is so much cheaper than buying them (luxury goods) back home.
There are a whole host of results this morning, we are going to be a little more focused today, there are results from PPC which we will cover, Gold Fields, Tsogo Sun and Investec, those are all very sizeable companies that deserve our attention over the coming days. Time is a bit tight, but we will definitely give those sizeable companies our attention in due course. We continue to be buffered by strong winds coming from the Europe directions, the forecast looks sunny and mild, those storm clouds might blow away, but right now folks are still scared.
Straight into the results from PPC, the regions biggest cement producer, these are of course interim results for the half year to end March 2012. Reminder, the stock trades at 29 Rands a share, the market cap is 17.9 billion Rand. The business is run by Paul Stuiver, 55 years old, who worked at PPC for 18 years in their Lime, Packaging and Logistics divisions. He then left, according to his bio on the PPC website and went to Barloworld and came back to run the business from 2009. Somewhat of a surprise, but he knows the business well. The CFO, Tryphosa Ramano, has only been at the business since the 1st of August 2011, she was the CFO of SAA for a few years, from 2004 to 2006, and more recently was the CFO of WIPHOLD. She has worked for RMB, JCI (Whoa!) and National Treasury. She has been around for roughly 16 years, so my best guess is that she must be close to 40. And judging by Paul Stuiver's comments that he would like to be retired in around 5 years time, she might be a natural successor by that time. But who am I to know how these things turn out. The non executive chairman is Bheki Sibiya, who is better known as the Chamber of Mines CEO. Sibiya has a whole lot of board positions across the South African business landscape, including at Tiger, Brait and Famous Brands.
To the numbers we go. Volumes decreased three percent as a result of weak markets in the Western Cape and Botswana, but this did not stop revenue increasing by 8 percent to 3.529 billion Rand. Average cement selling prices increased by six percent. Costs increased 11 percent, mainly as a result of electricity costs up 30 percent and diesel prices increasing by the same amount. Overall costs were somewhat offset by a better than anticipated coal price negotiations and a smaller salary bill as a result of a job cut program in 2011. Sad face for the employees, but that is the world I guess. PPC say that it pays them to ramp up their inventories just before the winter electricity pricing kicks in.
EBIDTA increased by 5 percent to 1.093 billion Rand. EBITDA margins were crimped to 31 percent from 32 percent in the last reporting period, operating profit margins also fell by 100 basis points from 25 percent to 24 percent. HEPS were up 8 percent to 77.6 percent with the interim dividend slightly higher at 38 cents per share. Payment date is on the 11 of June, just around the corner. The first half accounts for about 40 percent of earnings, so that is pretty easy to work out, somewhere around 195 cents for the full year. With a dividend cover of 1.2 to 1.5 times, expect a dividend of around 130 to 160 cents for the full year. Perhaps another Rand in the second half. That sounds about right. So, on an out and out simple fundamentals basis, the company trades on a forward earnings multiple of less than 15 times earnings and a dividend yield of around 4.5 to 5.5 percent. I reckon around 4.8 percent.
Operationally, PPC lagged the rest of the industry in terms of overall cement sales as they point out market share losses inland as a result of "fierce" pricing from their industry peers. Hmm.... I don't know how I feel about this. PPC Zimbabwe started well and then ran into serious electricity constraints as there was a "major transformer failure during February and March that necessitated clinker imports from South Africa at considerable expense.". Oh dear, power problems in Zim? But PPC reckons Zimbabwe are going to be a good place to be over the next half to a full decade. Botswana was a whole lot worse than last year, firstly because government scaled back on their infrastructural plans, BUT also a long and well documented civil servant strike in that country too. And again, they (PPC) refer to greater competition. And for the record, PPC does not see Botswana coming back soon.
PPC have decided to stick with the quality of the brand, and do not enter into the pricing war that is a whole lot more sensitive at the lower end. They suggested that they are winning clients back on quality and one of their competitors increased their cement strength, which Stuiver suggested was a vote of confidence for their product. That is why they saw market share loss, because the pricing was cheaper by their peers. Stuiver suggested in response to a question that if you cut the price of your product 5 percent, you need to have a 15 percent improvement in volumes, and he expects the prices to improve.
I missed a bit of the presentation because I was not really there, but Byron is and was, he will flesh out what I have done here already. On balance the cycles of building see high peaks and low troughs. As such the earnings are not as smooth as you would perhaps like. I would say that we should be patient for the time being, but there will be a sign to sell them, when we reach a higher point in the building cycle, that is probably inside of the next five years.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. Jamie Dimon continues to take a whole lot of heat, Ken Langone one of the Home Depot founders had only good things to say about the guy yesterday whilst being a guest host on CNBC. In fact Langone said that he wanted Jamie Dimon to run Home Depot. Wow. It is always interesting when you get the human element, the other day another fellow on the box said that his version of Mitt Romney was outstanding. He was a founding member of Bain capital, both Romney and this guy. So, if you know someone personally and you are asked about him on the telly, you are likely to give a very good account of them, not so? There is an interesting piece in Bloomberg titled: The Hubris of Jamie Dimon. Read it.
Market fell away on Wall Street after a great start and bounce, the same issues of course around the world hurting equity markets. In the end we closed down one quarter of a percent on the Dow Jones, nearly two thirds lower on the NASDAQ and 0.44 percent lower on the S&P 500. I said smugly yesterday if you ever wondered what the real safe havens are, check out the three government bonds that have attracted so much money and see close or record low yields. They are US treasuries, UK Gilts and German Bunds. If you ever wanted an example in this recent time as to the safety trade, this is it again. It is not pork bellies or gold bullion. In Britain, the Unites States and Germany we trust, all the rest, well we sort of trust you, or not at all. The real safe havens.
Currencies and commodities corner. Dr. Copper last clocked 350 US cents per pound, the gold price is slightly better at 1546 Dollars per fine ounce. The platinum price is also slightly higher at 1438 Dollars per fine ounce. The oil price is slightly higher at 92.89 Dollars per barrel for NYMEX WTI. The Rand is weaker at 8.33 to the US Dollar, 13.21 to the Pound Sterling, with the Euro at 10.62. The market is a whole lot lower here to start with. Same day, you know same, uhhh-ummm. My eldest daughter turns 7 today! This is awesome news for her and us. Facebook lists tomorrow, and is eight years old this year. Nice......
Parting shot. Scotty Barber, there is a guy that you should be following on Twitter, he has a whole lot of interesting charts. The fellow works for Reuters in London and often Tweets the most amazing graphics that make it all fall into place. First graph which caught my eye yesterday, Greek private sector deposits. A picture tells a thousand words here sports lovers. And it is not good. The next graph that he tweeted was a whole lot better, BUT showed that as much as "things" have improved in the US housing market, they are not quite back where they should be. 717 thousand starts in the last monthly read, but that is far away from the all time high. Check it out: US new housing starts. These two graphs are supposed to represent two things, one (the housing data) is going in the right direction and two, the other dataset (Greece withdrawals) means that people have been taking their money out of the Greek banking system for a while. A friend of mine told me back in 2010 that his Greek father had left the ship already. We wait and see.
Sasha Naryshkine and Byron Lotter
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