Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. It was slow going here in the city founded on a "whole bunch of gold", as we were stuck in the liquidity doldrums, the Americans were on holiday celebrating their independence from the British. The only excitement across the screens was the build up to the Bob Diamond hearings in London in front of narcissistic types the Treasury select committee. It made for interesting viewing, because there is always the sense that the politicians are mostly there for political point scoring and the bank chiefs are mostly trying to deflect attention, say sorry and get out of there as soon as possible. A waste of time, because surely questions can be submitted in an orderly fashion and answered in good time too. Or is the purpose supposed to be a televised headmaster/pupil type session? Whatever the case, it made for good TV. Self important politicians, aren't they all like that? Don't get me started.
The Jozi all share index rose marginally, adding just 34 points, or 0.1 percent on the day to close at 34020 points. Banks continued to sink post the ABSA trading announcement shocker last week, down nearly one percent. I did see that the SARB annual report was released yesterday and subsequent interviews where officials from the central bank stressed that in light of this Libor scandal, that they were happy with the way that the interbank rates are/were set here. We have often said that our banking system is a very well structured, perhaps largely due to the restrictions placed in terms of exchange control, but that is not fair, that sweeping statement.
Massmart released a 52 week sales update yesterday, and I guess Mr. Market was marginally pleased with it. It looked better than I had anticipated, that is an upside surprise! Firstly the 52 week cycle that retailers have do not coincide with normal year ends (for other companies), because a month does not end on a Sunday all the time, the end of a retailers trading week. This particular 52 week sales period is to 24 June 2012. Really Sunday the 1st of July, that is so inconsiderate of you. But in a way this is a good thing, because that means that next year could possibly have a week longer and that is good for sales.
There are four divisions over at Massmart, Massdiscounters, which includes DionWired and Game stores, Makro (Masswarehouse), which is self explanatory, Massbuild, which consists of the "Builder's" brands, the Warehouse, Express and Depot, all of which I am sure that you know well. The ones that perhaps you do not know as well, is the last division, Masscash which consists of CBW, Jumbo Cash & Carry and Shield. And more recently the addition and roll out of Cambridge Foods, Byron visited one of these on a Massmart site tour not so long ago. The major difference between say for instance Game Foodco (the new retail offering) and Cambridge Foods is offering to different LSM groups, with Cambridge servicing 2-6 whilst Game Foodco's will service 5-10. For a simple explanation, I found one on the web, here goes, The 4 Lifestyle Levels. Which one are you?
Into the sales numbers, which are broken down by each division, straight from the release:
* Massdiscounters increased by 11.0% (4.4% comparable) with deflation of 3.3%;
* Makro increased by 20.1% (11.6%) with inflation of 1.9%;
* Massbuild increased by 13.0% (9.3%) with inflation of 1.4%; and
* Masscash increased by 16.5% (11.6%) with inflation of 6.1%. Total sales growth has been boosted by the inclusion of Rhino from 1 March 2012.
Total group sales for the period reached a record 61.2 billion Rand, showing an increase on last year of 15.5 percent. In terms of who is the most important division across the group, the Masscash division represents the most important part of the business currently, taking these increases into account, that division should roughly be 37.4 percent of overall group sales. Makro makes up roughly 25 percent of the group sales, whilst Massdiscounters represents around 24.2 percent of total sales. Whilst Massbuild sales are the smallest division (13.4 percent), they still manage to clock nearly 8.25 billion Rands worth of sales. That Builders Warehouse, you can never walk out with just one thing! Results are expected on the 22nd of August, we will as always be watching.
Vodacom have announced this morning that there is going to be a change in directorship at the very top, Pieter Uys is stepping down after having been at the company for two decades, and the Group CEO position will be assumed by Shameel Joosub, who rejoins Vodacom. Joosub of course, if you had been following has been working for parent group Vodafone in Spain. Nice, must have been fun there. Joosub knows the Vodacom business well, he has extensive experience and has lived through the business roll outs. I suspect that this news is about neutral, the appointment would have been by Vodafone with consultation with some of their other big shareholders, including Government and the PIC, the "other" shareholders of size and scale. The free float realistically of Vodacom is much smaller than you think, with around 84 percent in "safe" hands. The price at the get go is unchanged.
Tiger Brands have reached an agreement in principle, after much talk, to buy a 63.4 percent stake in Dangote Flour Mills from parent company Dangote Industries. Aliko Dangote, who is the richest fellow in Africa, is obviously getting the parent company to cash in here. Dangote is still the chairman of the Flour Mills business that has his name, but perhaps for not too much longer. As far as I understand it, Dangote Industrials will continue to hold a 10 percent stake in the business, should the deal be concluded. Now, as far as I can understand from the Bloomberg information on Dangote Flour Mills: Dangote Flour Mills PLC (DANGFLOU), the market cap is 29750 million Naira. Or 29.750 billion Naira.
Currency conversion time, officially one US Dollar is 162.8763 Naira, so this means that the whole business is worth 182.65 million Dollars. Which is roughly 1.48 billion Rands. And at the ruling price for Dangote Flour Mills, Tiger Brands would be paying 0.938 billion Rands, or 938 million Rands. Tiger Brands entire market cap is nearly 49 billion Rands, so this deal is worth roughly 2 percent of the market cap of Tiger. From their last set of numbers, West African sales were 336 million Rand, with EBIT of only 18 million Rands. This purchase (if closed) will raise West African sales significantly, in the 2011 financial year Dangote Flour reported sales of 66.281 billion Naira, or 3.3 billion Rands. So roughly 2.1 billion Rands, this is a significant jump in their presence in the region. The business that Tiger are buying into seems to have a creaking debt load, I am trying to find out more about that from a Nigerian source directly.
Byron's beats takes a look at possibly one of the many market moving events of the day, the ECB rates decision. There are many tools that they can still use, including sovereign bond buying, that could help ease the yields, just this morning we have a sovereign bond auction in France. And Ireland are close to coming back to the market, for 500 million Euros, welcome back. Spain had an auction this morning, which sadly meant higher borrowing costs, 6.43 percent for their ten years'.
- Today we have an interest rate decision from the ECB which for the first time in a while has a forecast of a cut. Just to keep you in the loop this is how Forexpros describe the decision and its significance.
"The six members of the European Central Bank (ECB) Executive Board and the 16 governors of the euro area central banks vote on where to set the rate. Traders watch interest rate changes closely as short term interest rates are the primary factor in currency valuation. A higher than expected rate is positive/bullish for the EUR, while a lower than expected rate is negative/bearish for the EUR." Interesting.
Remember last month when we discussed why they didn't cut rates earlier? They were using the cut as a potential silver bullet in case the Greece election ended for the worse and a possible exit from the Euro. That of course has not happened but, the region can do with as much stimulation as possible. Rates are currently at 1% and are expected to be cut to 0.75%.
Following the rate cut decision we have the ECB press conference. Again Forexpro has a good description. "The European Central Bank (ECB) press conference is held monthly, about 45 minutes after the Minimum Bid Rate is announced. The conference is approximately an hour long and has two parts. Firstly, a prepared statement is read, then the conference is open to press questions. The press conference examines the factors which affected the ECB's interest rate decision and deals with the overall economic outlook and inflation. Most importantly, it provides clues regarding future monetary policy. High levels of volatility can frequently be observed during the press conference as press questions lead to unscripted answers."
So basically we are getting the ECB's views of the region and what they expect going forward. Expect lots of central bank lingo which often needs Google translate to decipher. We watch these things when they happen but you normally have to siphon through the important information. Like the rest we expect and hope for a rate cut. If you have room to cut then why not? Following the recent PMI data coming from Europe, a weaker Euro plus cheaper borrowing rates will help. Every bit counts.
Currencies and commodities corner. Dr. Copper is steady, last at 350 US cents per pound, the gold price is flat at 1617 Dollars per fine ounce. The platinum price is last at 1480 Dollars per fine ounce, slightly lower on the day. The oil price is higher, it has shot up, there are various bits of news and clarity regarding the Norwegian oil workers strike AND what the extent is of Iranian crude tankers circling not far from home. I read this morning that tankers are being repainted, or simply idling whilst waiting for orders. Kenya cancelled an order because of pressure from the English authorities. A small one, but pressure is being placed, and perhaps this will lead to something concrete from the Iranians with regards to being more open about their nuclear ambitions. The oil price is last at 88.21 Dollars per barrel for NYMEX WTI. The Rand is steady-ish, 8.16 to the US dollar, 12.70 to the Pound Sterling, 10.24 to the Euro. We are higher to start with here. LOADS happening today, ADP, weekly jobless claims, services ISM all happening in the US.
Sasha Naryshkine and Byron Lotter
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