To market, to market to buy a fat pig. Stocks ended a few points in the red here in Jozi Friday, after a session of ebbing and flowing. Resources managed a half a percent gain, banks, construction stocks and industrials all pulled in the other direction, our overall market is only up a percent so far this year. It was of course a poor week for resource stocks, in fact the last two weeks have been poor for those companies as a whole. In the last two trading weeks, collectively the resource stocks have lost around 7 percent. On Friday this piece of news was hardly encouraging: Amcu absent from Govt. brokered peace pact. Why? Unions and money coupled with the power that they wield over the tripartite alliance. Sending the message I guess that a little competition will be ignored. All I can make from this is that Amcu themselves have gained incredible support in a very short period of time, whilst NUM are clearly the loser here. I am presuming that of course. Understand the tensions when it is about lost revenue. Organised labour is not my favourite topic.
Markets on the other side of the Atlantic, on Wall Street, had different ideas, the Dow Jones topped 14 thousand again, adding a little short of a percent with a big triple digit gain. There was some good news in the form of housing data, but this one in particular caught my eye: Is the USA Facing a Housing Shortage? Inventory is low, for the time being, the thinking however is that the shadow inventory will pick up the slack. Folks who are forced sellers as economic conditions worsen. New home building is being stifled by a lack of willingness to extend credit, that should balance "things" out. Either way, this is what people wanted, a lower inventory.
Falling into a category of I thought that is what everyone wanted, was the automatic spending cuts. Over the weekend the White House release(d) a state-by-state breakdown of sequester's effects. The tricky part to tell immediately will be the impact of the spending cuts and whether or not there will be a limited impact on the US economic recovery. 85 billion is huge, but not so big for the US. The US is such a big economy, in recovery mode this might not have as big an impact.
Unfortunately this morning the Chinese HSBC flash PMI has disappointed, missing expectations by quite some margin and being the lowest number since October last here. China manufacturing 'on track' despite slowdown is straight from the ... err..... mouth of the horse. Just yesterday the WSJ reported on the Hidden Risks of a Hard Landing in China.
Must we sit here and worry about what this means in the short term? Must we sit here and get anxious about Chinese asset prices, Chinese debt levels, too fast too soon? Do yourself a favour and check out the various graphs on the web that show where the Chinese have come from. Pork consumption has more than doubled in two decades. That tells you there are more people who can eat meat. And meat is a luxury. The motor vehicle new sales market has more than doubled in the last half a decade. Individual mobility is directly linked to rising incomes. Annual disposable income has increased nearly tenfold over the last two decades. But the urbanisation trends are amazing. According to data from McKinsey cities with one million folks in China numbered 34 in the year 2000. By last year that number had grown to 102 and the prediction is by 2025 that there will be 221 such cities in China. Amazing. Urbanisation brings along greater consumption trends and more aspirational consumers. And think about it for just a second, a total change in the mindset of the population, away from the "traditional" ways of life and embracing the new urban ways. Let's be honest, if gold had not been discovered here in Joburg we wouldn't live here at all. Reason, the place is not built on a river and is not near the sea. But that is another story for another day. Joburg as we know it is one of 50 odd megalopolises in the world. Feel kind of privileged to live here.
Wow. Results have poured in this morning here in Jozi, Nedbank perhaps the most important, lower down the ranking tables were results from Wilson Bayly and Hulamin. Even lower down from that, and a very strange spike in the share price was Rolfes Holdings. Finger trouble it looks like in that one, the stock up nearly 80 percent in a single trade of 1418 shares. The share price in a hurry got back to the closing price of 562 cents. Wow. I hope for the buyers sake that the trade is unwound and put down to finger trouble. Hulamin, that stock is down 85 percent since the middle of 2007, so any positive market reaction has to be seen against the backdrop of higher costs (electricity, no thanks to Eskom) and cheaper imports. The first part is not going away, and could get a great deal worse for the company. Nedbank, those are interesting results, no, those are superb results relative to their peers. But should one buy banking shares? You might have a short term memory, but let me remind you that Nedbank had to recapitalise their business back in 2004 with a 5 billion Rand rights issue. Somewhere in the region of 45 ZAR if memory serves me right, you would have done really well to have followed your rights back then. Perhaps a little more on Nedbank tomorrow, the stock is leading the banks, up two and a half percent.
It finally happened. Moody's decided late on Friday to downgrade the credit rating of the United Kingdom a single notch, but did place the outlook to stable. Stable is a place you keep your horse, but in this case the horse had bolted already. The expectations ahead of the UK budget were for a downgrade perhaps post the George Osborne presentation to loud heckles and jeering (or does that happen when the floor is open?). That crazy little decades old briefcase held together no doubt with glue and sticky tape. The little red briefcase is known as the Gladstone box, but according to Wiki, the original has been retired. Besides, the key to the original has apparently been lost. What does this mean for Great Britain? A run on the pound some suggest. Really? Not likely. Inflation, because of a weaker pound? That is a reality. Borrowing costs rising? Definitely, but perhaps they did not deserve to be so "low".
Like a lot of industrialized nations, the UK has a high debt to GDP ratio, not too dissimilar to that of the United States. What is not immediately apparent is how the UK are going to work their way out of this current conundrum. The US leads with innovation, whilst the UK perhaps is struggling between an entrepreneurial and big financial sector mindset whilst sharing the socialism of Europe, with a big portion of the population dependant on big government. An ageing population. Household debt of around 100 percent of GDP. All in, including government, corporations (100 percent plus of GDP), financial sector (200 percent plus of GDP) and households, British debt is 500 percent of GDP. Stop hyperventilating there. Most important question, who owns Gilts? Turns out it is a little less complicated than you might think. As at September last year the Bank of England owned around one quarter, Insurance companies nearly one quarter whilst foreign holdings were around 30 percent. Banks and building societies make up the balance of just less than 10 percent. In many ways their dire situation is not too dissimilar to that of Japan. No, really. Check out this, exhibit A (rather old, but you get the trajectory picture) from Economics Help, via this fairly recent post: UK National Debt.
So, what is the solution? There are many, and unfortunately not many of them are pretty. Making people work longer for starters, so that they can continue to contribute to the states coffers, that does however have a direct impact on youth employment. The answer is to try and create a culture of saving (the UK has a similar low savings dynamic not too dissimilar to the US), but more importantly try and create a different climate for investment and innovation. Pensionable age is going to have to rise. This is a great document, titled PENSIONABLE AGE AND LIFE EXPECTANCY, 1950-2050. In Norway you could retire only at the age of 70, 40 odd years ago, that is now a more reasonable 67. The governments of France (60.5 years), Greece (57 years) and Italy (59 years) are all going to have to give their many civil servants a huge wakeup call soon. Retirement duration (the golden years) in the OECD countries is expected to rise from 13.4 years in 1938 to nearly 20.3 years by 2050. Naturally one is going to have to work for longer in order to save more for a longer retirement. A fascinating document, with useful insight. And all the reason why you should start saving as soon as possible, as young as possible. Forget the fancy "stuff", start saving like crazy.
- Byron beats the streets. On Friday we received results for the year ending 31 December 2012 from Curro holdings as the company for the first time since listing, made a profit. I still wouldn't be worried by profits at this stage, they are in huge expansion mode. See below from the presentation which pretty much sums up what has been a very good year for the company.
"Curro listed on the Alt-X just more than 18 months ago. On listing, the Company had 5 557 learners in 12 schools. In the pre-listing statement the Company envisaged that by the end of 2013 it would have 17 schools with 9 594 learners. To date the Group has grown to 26 schools and 20 840 learners across 7 provinces."
The reason for the growth they say is a massive demand for affordable private schooling. That makes sense. The faster they can roll out schools the better because at this stage demand far outweighs supply. During the year they spent R223 million on existing campuses, developed 4 new campuses in Bloemfontein, Cape Town, Krugersdorp and Centurion at the cost of R237 million and bought 8 schools around the country for R322 million. They managed to raise this cash through us the shareholders (R800 million) and the OMIGSA partnership (R440 million) which I have spoken about in detail before.
Revenues more than doubled to R356 million which resulted in a headline profit of R15 million or 7.1c a share. Trading at R18 there is no point valuing this company on an earnings basis. There is a decent property underpin of R1.2bn but that is still far off the R4.3bn market cap.
It is all about the future for this company and how quickly they can roll out schools to meet that massive demand. To do this they need financing which is why listing has been so beneficial for these guys. On releasing these results they announced another rights offer.
"Shareholders are hereby advised that Curro intends to raise R605 879 376 by way of an underwritten renounceable rights offer ("the Rights Offer") of 50 489 948 new Curro ordinary shares ("Rights Offer Shares") to qualifying shareholders at a subscription price of 1200 cents per Rights Offer Share, in the ratio of 21 Rights Offer Shares for every 100 Curro ordinary shares held on the Rights Offer record date, being Friday, 12 April 2013."
Yes you are getting diluted as a share holder but at least you know your money is being put to good use. I really do feel the potential for this stock is massive. There are many independent schools out there which can be bought and the there are millions of potential learners, desperate for quality affordable education. I know it is sad but this is where the private sector can benefit for the state's failure. We have seen it with the private hospitals, medical insurance, Multichoice, the network providers and many more. If you are already a shareholder I would advise you follow your rights, PSG who own 52.84% have already committed. If you are not a shareholder, I would be happy to add to this stock at present levels, but you are going to have to roll with the punches.
Crow's nest. Markets are rocking globally. If you get anxious, check this graph out, with the heading that tells it like it is: World industrial output reached a new record high in 2012. Sigh. I miss Nouriel and his bearish predictions, stocks were so much cheaper when he was calling it worse.
Sasha Naryshkine and Byron Lotter
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