Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. We finally had a day when the buyers exceeded the sellers and markets locally actually closed in the green. It wasn't anything to write home about but it has been a tough couple of months so a 0.1 better close felt kind of good. The all share ended at 33117 points mostly led by the resource sector which was up by 1 percent while financials were flat and industrials slightly down, 0.1 percent lower on the day. All this was on the back of a rand that strengthened 0.8 percent on the session to the US Dollar.
Most of the positive news came from speculation that the Fed was going to implement a more aggressive stimulus plan following the latest negative economic data. This is also the case for both Europe and China. Again these are short term sentiment swings, you know the usual risk on and risk off. There is a European Central Bank monthly rate-setting today and Ben Bernanke makes a testimony before a congressional panel tomorrow. Both will gives us more clarity on any policy actions.
Company news. The biggest news of the day, from our perspective anyhow, was the update on the MTN allegation. The Hawks are now getting involved sparked by former executive Chris Kilowan having now admitted to bribing Yusuf Salojee, South Africa's former ambassador to Iran. Remember that Mr Kilowan is the disgruntled former employee who gave the docs to Turkcell in the first place. Again we are watching this very closely, the market did not seem too bothered with the share down only 0.3%. Here is Times Lives coverage of the update
I (Sasha here, that was Byron above) was actually on the radio, SAFM, this morning directly after Chris Kilowan was being interviewed. I was sitting in my car in the parking lot of my eldest daughters school, ha-ha! I listened to Kilowan and quite clearly it sounds like he is implicating himself. He paid the money on the basis that he said MTN would pay him back at some stage. Sounds just all fishy to me, and where there is smoke there is almost certainly fire. But where did the fire start? And even if worst case scenario for MTN, how would the US force MTN to pay Turkcell? This is presuming that a US court found in favour of Turkcell, presuming the court case still goes ahead. Presuming that MTN do not have their noses completely clean. A lot of presumptions, and for the moment everything is murky.
Edcon. Something I guess finally happened you could say. The announcement starts by saying that Edcon are pleased to announce that they have entered into an agreement with ABSA into selling their accounts and receivables (their book) for around 10 billion Rand. A retailer masquerading as a bank, that was I guess how people used to say over a decade ago. Edcon delisted on the 25 May 2007, so a little more than five years ago. With the benefit of hindsight perhaps not the best timed deal, but I am pretty sure that they were not the only one, African Bank also bought Ellerines at perhaps not the best time. But that is water under the bridge, it matters what you do with the business now and not then.
Back in February of 2007 I had this to say about Edcon:
- Edcon (ECO) finally coming to the table with the deal that has won the hearts and pockets of the board. The offer recommended by the board is from a crowd called Bain Capital and the offer is the single largest buyout of a South African company yet, the offer is all cash and for 46 Rands an Edcon share. A massive premium it must be said, many doubted whether it would be anywhere near forty at one stage. But excellent for existing shareholders and a big vote of confidence in the retail environment in South Africa. Or is it excellent for shareholders?
Because at this price the stock certainly aint a bargain in the true sense of the word, but if you dig a little closer and look a little longer perhaps you are buying fashion a few seasons in advance. For the full year to March 2007 the analyst community were looking for around 350 cents per share for the stock, at 46 Rands that would make the stock on a forward PE of 13 and a bit. Two years out and that price reverts back to a ten at 46 Rands per share, so any of the short term gains you are likely to pocket now, you definitely are likely to miss out going forward.
So if it were a real premium in the sense of the word premium, one of the definitions of the word premium is "a sum above the nominal or par value of a thing". I guess it all boils down to what you would call premium then, if selling the stock on a 13 forward PE to March is indeed a premium then by all means go for it, but my sense is that it is a bit cheap and there will be an awful lot for the chaps buying it.
They are of course at pains to point out that at the announcement of the first cautionary middle of October last year the offer is well over 50 percent higher than where the stock was trading. So, in short you are being handed a fat premium. But inside of their own sector Foschini (FOS) trades close to a 13 times earnings multiple and Truworths (TRU) is way higher than that, nearly a 19. I guess the outlook for the sector a mere five months ago was not exactly the most favourable, folks worried about the tightening cycle, recent inflation numbers seem to suggest that we might be near the end.
Either the timing of this offer for Bain, in terms of the first SENS release makes it look like a nice juicy steak (of course if that is your thing), or are shareholders really getting the best ever deal and being dished up something that resembles a diner short order cook offer?
I do not even know what to say all these years later, who did better, the shareholders exiting for a premium or Bain for having to sweat it through this rather tricky period. Very tricky period. Although retailers have done really well, other than in '08 and '09 and perhaps the timing thing was not on their (Bain's) side. We think that Bain has been forced here.
Currencies and commodities corner. Dr. Copper is last at 338 us cents per pound, the gold price is much higher at 1637 Dollars per fine ounce. The platinum price is also getting a lift, last at 1460 Dollars per fine ounce. The oil price has recovered sharply to 85.35 Dollars per barrel. The Rand is much stronger as the buyers have come back. 8.41 to the US Dollar, 13.01 to the Pound Sterling and 10.49 to the Euro.
Parting shot. I think that the ECB are going to cut rates today, or perhaps should cut rates today. But that is just me agreeing with Christine Lagarde, and in fact CNBC suggested that 62 out of the 73 analysts polled suggested that rates will stay on hold. Why? Well, let me put this into context, we see "falling off a cliff", "standing on the edge", "staring into the abyss", "Eurozone falling apart" and all the other sorts of scary headlines in the major publications on a day to day basis. So if someone (something) is falling apart, or staring into an abyss then you would expect economic growth to look completely ugly, not so? Yes, I would have expected with all the headlines that I am reading to see far worse GDP contraction than what we have seen this morning from the Euro Zone. The Euro zone read was flat, quarter on quarter. Falling off a cliff? Staring into the abyss? Sounds like what I would call a landing, a steady landing, but that is just me, because zero means you are on the ground, which is zero? Yes? No?
But that is the first quarter, the current quarter is worse, because the data suggests as much. German Industrial Production month-on-month is down 2.2 percent. So I am thinking that the ECB can act, and act a whole lot faster than folks think. I saw pop up on my screen that traders and not investors are looking for a rate cut. I tell you, I would not be at all surprised. We will see, my sense also is that if there is a hold on rates, this rally could fizzle a little. So far we out the blocks strongly, thanks to decent enough Australian data. Err... and then of course the Fed announcing that they may be more active. Twist II or QE 3 or perhaps something different. I certainly do not have the answers, and as much as I like Barack Obama, I am starting to think that the Republican best could be the better guy for markets. Sies, I can't believe I said that.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
011 022 5440
No comments:
Post a Comment