BHP Billiton barrelling again!
"In fact the quarterly production number of 61.25 million barrels of oil equivalent is roughly half of what they used to produce. The company says that they are on track for 240 million barrels of oil equivalent for the year. To put that number into context, that is roughly 40 million barrels of oil more than South Africa uses. Or around 435 days worth of local usage."
Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. There were a few things that stood out here yesterday, the most talked about in the second half of the session was the resignation of Vikram Pandit, the fellow that supposedly guided Citi through a tough time, from just before the financial crisis to now. From a share price point of view his record looks awful, the stock is down 89 percent from the day that he took over to the day that he departed. He just happened to be appointed in December 2007, just a little after the market topped out in the US. In a way it was a much longer tenure than some thought, he was almost always on borrowed time. The WSJ suggests that he was pushed, which I can believe because his 2IC resigned too, a fellow that has been his shadow for as long as anyone remembers. Pandit Is Forced Out at Citi. I guess you could say that the board have done their job!
It is a fascinating story, his life, how he scored huge as Citi bought a hedge fund that he co-owned, how he came to the US from India (a wealthy Indian background and family) and how he studied like crazy to make progress. I guess he has done very well for himself, and Citi still is here. Possibly the best observation came from Josh Brown who tweeted: "**ALERT** VIKRAM PANDIT STEPS DOWN AS CEO OF CITIGROUP, TO SPEND MORE TIME WITH HIS MONEY, developing..." That captured everyone's attention during the second half of our session here, the first half was dominated with the story that Spain is ready for the ESM money, but doesn't need it. I suppose it is like tight rope walking and now the safety harness works. Only if you fall, you might need it. For the time being the cynics are not convinced (naturally), whilst the optimists are cheering that Europe is nearly saved. I have heard that before. I was quite struck with this simple (very simple) post titled: Out of sight, out of mind. We are at year lows on the search terms "euro crisis", "eurozone crisis" and "debt crisis". It certainly does not mean that they have gone away, it simply means they are less important to the coffee juiced market participants.
The good news from Spain, if you could interpret it that way I guess, and more importantly for me at least was a sign that in Germany the confidence numbers were looking better than anticipated. So, whilst still being negative, they were better than anticipated, check them out here: ZEW-Konjunkturerwartungen - Erwartungen steigen erneut leicht. My German is not good, but I at least managed to understand the introduction: "Die ZEW-Konjunkturerwartungen für Deutschland sind im Oktober 2012 um 6,7 Punkte gestiegen und stehen nun bei minus 11,5 Punkten. Dies ist der zweite Anstieg des Indikators in Folge." 6.7 point rise at minus 11.5. I guess that is all that Mr. Hyperactive needed to know.
This good news coupled with better than anticipated earnings out of the US managed to propel us higher and again into uncharted territory. The Jozi all share finished the day off within a whisper of 37 thousand points. Wow. It was pretty much a broad based rally, all stocks on board the gain train please. If you missed the reasons why our stock market is higher against the backdrop of the strikes and political fumbling (reminds me of the ball catching in our under 9 cricket team) then revisit the message from yesterday: More records in Jozi.
As you can still tell, "things" over at Gold Fields mines are still looking dicey for all participants, but there is Hope at Beatrix as Gold Fields issues ultimatum. There are lots of things I guess that you need to note in this article. The unacceptable levels of violence, intimidation, perhaps I would even go so far as to say that NUM have lost control of their members. Perhaps their members have become disillusioned and having got to first place (NUM), they did little to bed it down. We are all losers here. I suspect once the dust has settled, it will be in time for Mangaung, the place that is associated with an event. In order to drop the association (remember Polokwane), the ANC should look to have their next party conference at the farm Tweebuffelsmeteenskootmorsdoodgeskietfontein.
Right. This is perhaps the most exciting time of the quarter, time to get down and dirty with the BHP BILLITON PRODUCTION REPORT FOR THE QUARTER ENDED 30 SEPTEMBER 2012. As I looked at the production report I was immediately struck with the petroleum division number. In the highlights segment, BHP Billiton say: "Petroleum production averaged a record 666 thousand barrels of oil equivalent per day during the September 2012 quarter as the Atlantis and Mad Dog facilities in the Gulf of Mexico successfully recommenced production.". Excellent, in fact the quarterly production number of 61.25 million barrels of oil equivalent is roughly half of what they used to produce. The company says that they are on track for 240 million barrels of oil equivalent for the year. To put that number into context, that is roughly 40 million barrels of oil more than South Africa uses. Or around 435 days worth of local usage, check it out -> South Africa Crude Oil consumption by year. Excellent.
Disappointments? Well, perhaps Iron Ore. This was as a result of a planned shutdown for inner harbour expansion, which is exactly what it sounds like. Inner harbour? If you remember from late August: WAIO dual harbour strategy. But the company said that they were on track to increase iron ore production by five percent for the year, which implies from the last full year that they should clock 167 million tons. Which is roughly four times the size of Kumba Iron Ore, just that single division alone.
The other very important division, or let me rephrase, segment inside of a division is their copper business. Byron re-tweeted a Joe Weisenthal comment, in which he sarcastically said, who would have thought: "I'm surprised. Chinese copper imports are on track for a record year.". With the photo: China copper imports: On track for a record year. Other than the graph being upside down the signs are clear, copper consumption per capita increases as consumer consumption expands. More washing machines and refrigerators. Back to BHP Billiton specifically, they say: "Escondida copper production remains on track to increase by 20 per cent in the 2013 financial year following the completion of scheduled maintenance and tie-in activities in the September 2012 quarter." Yes! And remember that the copper price has been holding up quite *nicely*, here is a one year graph courtesy of the freebies available at Kitco:
BHP Billiton stock is up 1.15 percent in Sydney post this production report. Whilst the stock has had a marvellous run in Rand terms since the middle of July, In Aussie Dollar terms the stock is up "only" ten percent. Over the last year in Aussie the stock is down 11.1 percent. The reasons are clear, the worries over Chinese consumption and iron ore prices having been volatile have meant that Mr. Market has only been able to give the stock a modest valuation. On a longer dated basis the stock looks cheap. It is a buy at current levels.
Digest these links..
If you were still doubting, here is still some "good" news for those looking at the US housing market: 2012: The year of the housing recovery, updates. But why does this matter though? Why does it matter that we keep on highlighting the US housing market as a gauge for a US recovery? Well, it may not be the same as it was in the past, but this blog (sort of) tells you like it is: The US housing market is not "a chicken-and-egg problem". I am going to from a distance suggest that the confidence factor is more important than the actual values now. Even folks on the street accept that the housing prices from before were stupidly high, but that we have seen prices bottom out. And six straight months of recovery. And seeing as most people still accept this as one of their most important assets, rising prices equals a better outlook for the worlds biggest economy.
As I expected, the analyst community is normally too bearish when times are tough, normally too optimistic when the market is flying. Expectations have fallen in recent months, but I suspect that we might be in for a better earnings season than we anticipate. My feeling. Barry Ritholtz tees it up so far: Here Comes Earning Season!
And then Eddy Elfenbein tells us What I'm Watching this Earnings Season. That last point is always something that I don't get, and something I have seen a lot from US based commentators: "What's the damage from Europe? This was another major theme during Q2. Do U.S.-based firms still have large exposure to the economic chaos there?" Of course, it is not like US based companies are suddenly in a quarter or two going to reduce their exposure to what collectively is the world's biggest economy. Yes, the European Union has a larger collective economy than that of the US. So of course US companies are going to have a large exposure there, if anyone had global ambitions, that is the place they would have gone first.
A couple of unflattering pieces on Vikram Pandit that I read. My perspective is that he did the best at the time that he could have, or perhaps that anyone could have. Check it out: Will Pandit really collect nothing? And, This is what the Vikram Pandit era looked like at Citigroup. Not good. He leaves the company and we are left with the same feeling as the movie ending half way through a B grade Chuck Norris masterpiece, we know Chuck will win, we just don't know how. Ironically, the former CEO (same first name as Norris) Chuck Prince was nowhere to be found. Perhaps he was on the sun-bed.
- Byron's beats
Yesterday we had results from one of our recommended stocks in New York, Coca-Cola. No explaining what they sell but do you really know what they do? It's simple, they only manufacture the concentrates, beverage bases and syrups which they sell on to their 250 bottling agents. They are also responsible for the marketing of their 3500 beverages which are sold in over 200 countries worldwide. The company has been in business for 126 years, employs 146 200 people and has maintained 50 consecutive years of dividend increases.
Because the business is so simple gross profit margins came in at 60.7% which was up from 60.2% last year. That is huge. The increase was as a result of input costs declining. Earnings per share for the quarter came in at 51c which was in line with consensus. This was off the back of 4% global volume growth and 6% revenue growth if you neutralise currency swings. Analysts expect $2 a share for the full year which puts the stock on a 2012 valuation of 19, currently trading $37.90.
The company is as global as they come. Here is what they say about their regional operations. "The Coca-Cola Company reported strong worldwide volume growth of 4% in the third quarter and 5% year-to-date. Volume growth in the quarter was well-balanced around the world, with growth in all geographic operating groups as well as growth across both developed markets (+2%) and emerging markets (+7%). The Company reported solid growth in key developed markets, including North America (+2%), Japan (+2%) and Europe (+1%), which reported growth across all business units in the quarter. In addition, the Company delivered strong volume growth in key emerging markets such as Thailand (+19%) and India (+15%) in the quarter. Our China business delivered 2% volume growth in the quarter and 6% growth year-to-date."
This confirms a big slow down from China which is used to double digit growth but again good numbers from the US. This is a theme we have seen a lot during this results season so far. Like I said yesterday, I would not be too concerned with this trend, it is not for the long term. The company still has big plans to further develop in China and other developing nations while their new focus on the under penetrated India is showing good results.
The stock is certainly not cheap but we still like it at these levels. This consistent growth will carry on in the years to come as the company leverages off probably the most well known brand in the world. Populations are growing, developing nations are getting richer and Coke will carry on growing sales. It is not going to be a ten bagger but a solid addition to any portfolio.
Crows nest. We are flying here. Optimists everywhere. Spain is getting the lions share of attention, saved. The Dollar is moving weaker to the Euro and Mr. Risk-back-on is visiting today. We have again reached another all time high here, the all share index has rocketed through 37 thousand points. Err.... yes, Europe is finished.
Sasha Naryshkine and Byron Lotter
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