Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. Yesterday was a public holiday in both the US as well as in France, and the United Kingdom. Is that right? At the same time we saw that borrowing costs in Spain were rising, and continued to do so through the day, the country is now using government money to shore up a ropey looking bank, yesterday Bankia. Bankia of course was a cobbled together bank and is not even two years old in the current format, and now the main shareholder is government, who plan to inject 19 billion Euros into the struggling entity. More on that later. The Jozi all share index closed the day up 111 points to 33104, up just over one third of a percent on the day. Resources were the same drivers, up 1.2 percent on the day, but as a whole the sector is still down over eight percent for the year, seriously lagging the rest of the market, which is up three and a half percent so far for the year. We are about to finish five months into the year, let us just say that it has been "not good". Platinum miners were on a bit of a tear yesterday, clocking gains in excess of two and a third of a percent, but for the year it still looks ugly, down 15.75 percent, following a 28 percent decline last year.
The reason for a bit of a lift yesterday was put down to the Greek population in polls at least putting the conservatives ahead of the far left crowd. And as I read it, if you win the elections then you get an extra fifty seats. So a win allows you to then team up with someone else and get close to a majority. I think that whilst the far left might gain some short term support, all Greek citizens (or most) polled want to stay inside of the Euro zone. Because falling out is a lot worse for Greece than for the ones inside of the zone. And the sobering thought of hyperinflation and falling (crushed) pensions does a lot to ward off the hard emotions. The lines that I am reading is simple, far left wins, Greeks set up for exit, conservatives win and continue to implement the hard austerity in return for funds, then the Greeks stay. Christine Lagarde (head of the IMF) got a lot of "hating" over the weekend after suggesting that the Greeks should pay their taxes and stop dodging. She then, after getting 10 thousand odd haters on Facebook put out this statement:
- "As I have said many times before, I am very sympathetic to the Greek people and the challenges they are facing. That's why the IMF is supporting Greece in its endeavor to overcome the current crisis and return to the path of economic growth, jobs and stability. An important part of this effort is that everyone should carry their fair share of the burden, especially the most privileged and especially in terms of paying their taxes. That is the point I was emphasizing when I spoke to the Guardian newspaper as part of a broader interview some time ago."
I had heard this before, it came from an OECD Better life survey, it will make you think that those Lagarde comments were perhaps insensitive. Check it out: Greece. "People in Greece work 2 109 hours a year, one of the highest rates in the OECD and much higher than the OECD average of 1 749 hours. The share of employees working more than 50 hours per week is not very large across OECD countries. In Greece, some 5% of employees work very long hours, lower than the OECD average of 9%. Overall, men spend more hours in paid work: in Greece 6% of men work very long hours, compared with 4% for women." Hmm.... so much for being lazy then, but Lagarde was talking about taxes, and not laziness, but sometimes the two go together. In this case, it seems not! But at the same time we are hearing stories about London property purchases by rich Greeks and the British a little resistant to have these new Europeans on their doorstep. Rich people problems.
Adcock Ingram, South Africa's largest supplier of hospital and critical care products, reported results for the six months to end March 2012 this morning. Turnover registered 2.25 billion Rand, an increase of only 4 percent, gross profits were lower by a percent to 1.05 billion Rand. Profits after tax for the period were five percent lower to 341.7 million Rands. Headline earnings per share were ten percent lower at 198.1 cents per share, the dividend actually increased 6.2 percent to 86 cents. I sneakily had a bit of a chuckle with the Adcock Ingram vision: "To be recognised as a leading world-class branded healthcare company." I guess we all have those sorts of ambitions.
Sadly Adcock have been left in the dust by Aspen, in part because they were of course shackled by being owned by Tiger Brands (Adcock) and of course some serious issues at a competitions commission levels, the company incurred fines because of collusion, not good at the time. The company has been re-listed since 2008, when it was unbundled from Tiger Brands. The company is run by a medical professional, Dr. Jonathan Louw, I am not too sure if that is good or bad, but I know that I do like the fact that Dr. Aaron Motsoaldi, minister of health is.
Back to that comparison, I laid a graph of the three (the other is Cipla) companies listed in this space in South Africa. Both Aspen and the Adcock prices hugged each other from August 2008, but there was a major divergence from the same month last year. And even though Adcock shows a great return of 85 percent from August 2008 (when they listed), Aspen has a more eye popping 176 percent return. The other smaller listed entity, Cipla has crushed both, returning 196 percent since then. There is another listed company, Litha, but their market cap is "only" 1.35 billion Rands. Adcock is valued by the market at 11 billion Rands, Cipla has a market capitalisation of 3.33 billion Rands, whilst the big daddy, Aspen, is worth nearly 52 billion Rands.
I really don't know what to think about Adcock as a sizeable business in the healthcare space in South Africa. They are hardly an exciting and fast moving and dynamic company, perhaps they are still working their way into a new culture, that could be a big possibility. Whilst they have a smallish business in India and the rest of our continent, the business is mainly a South African one. Although the plan is to expand into the rest of the continent. I really like the sector, I think that whilst the company is "finding their feet". We will continue to invest in Aspen as our preferred company in the sector.
Bankia. We have spoken about the entity before, like we said it was a cobbled together regional bank merger. Mostly Caja Madrid and Bancaja. The issue was not so much a clash of corporate culture but rather the simple fact that Bankia is the single largest holder of Spanish real estate. It is no laughing matter that Bankia's head office is the one side of the Gate of Europe towers, which is a couple of towers leaning towards each other. Which look like they are about to fall onto the road. Which is not a good thing! I suspect that the Spanish government will continue to do what they have to, but if this is a sign of things to come, then I am not too confident. But expect shock and awe. Of course, there is a pride thing at stake here too. The current Spanish government does not want a "bailout" of any sort, that was their promise as far as the FT article that I read suggests. So, like all politicians inside of the area, they will do it their way. Meh.
At the same time we have seen the worst set of Spanish retail sales since they started keeping figures. Eeek, I hear you say (and you are right to be distressed), but the figures only go back to 2004. Scotty Barber (from Reuters) put together a great graph of retail sales in Spain relative to consumer confidence. Check it out:
No confidence. No sales. High unemployment. But hey, at least the streets of Madrid and Barcelona are feeling a whole lot better than Cairo or Damascus. Even though Damascus is apparently the oldest continuous inhabited place, it is a complete mess now. I suspect it is MUCH better to be in Spain and unemployed than unemployed in Damascus. Again, whilst these problems seem insurmountable, and the fact that Spain as far as I read it has outstanding debt and interest payments of 876 billion Euros as at the beginning of the year. Of course not all of that is due in the short term. I calculated from a download that as at the beginning of the year (that is when the data set is from), in the next seven months Spain will have to repay 105 billion Euros in interest and principal to their bond holders. That is about the amount of debt forgiven for the entire Greek last "bailout".
Currencies and commodities corner. Dr. Copper last traded at 351 US cents per pound, better on the session, the gold price is last at 1573 Dollars per fine ounce. The platinum price is also about flat on the session, 1432 Dollars per fine ounce. The oil price is last at 91.26 Dollars per barrel. The Rand is steady, I guess, last at 8.34 to the US Dollar, 13.06 to the Pound Sterling and 10.44 to the Euro. We have started marginally better here, US futures are better.
Sasha Naryshkine and Byron Lotter
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