Adcock's red hot Chile
"The biggest news of the day hands down is the news that a Chilean listed business, CFR Pharma have made a non-binding cash and stock bid for all or part of Adcock Ingram for 73.51 Rand a share, valuing the bid at 12.875 billion ZAR in full. The stock of Adcock has not absolutely blown their boots this morning, and in fact trades at quite a big discount still to the potential offer price."
To market, to market to buy a fat pig. We drifted around yesterday after a power session prior, the gold stocks were the only ones that had any momentum during the course of the day. Retail stocks tacked on some good gains, as did the platinum stocks, but a firming Rand held back the advancing of the industrials and after all was said and done we closed down just a touch more than one fifth of a percent. The news that the Portuguese finance minister had resigned and that Greece had been given another ultimatum must have given Mario Draghi a headache. Equally Mario Monti was threatening to leave the coalition government in Italy because of the slow pace of reforms weighed a little. Gosh, he is Italian, he should understand bureaucracy more than anybody else around there!! But what he wants is hard to stomach for ordinary citizens, pension reforms, labour reforms and tax hikes and spending cuts. I am not too sure that there are many who understand the evil necessities of those reforms and welcoming them with open arms.
And if that was not enough the Egyptians filling up the TV screens with their mass rallies across the country again, the army there having issued a 48 hour ultimatum that expires this afternoon. Now I guess there is a case to be made for not having implemented the reforms necessary, but he, Mohamed Morsi and his party were elected right? So what gives? What has changed so much in a year. What I do know is that there have only ever been five presidents in Egypt. The prior president, Hosni Mubarak served five terms. Great. Sounds like democracy is a pipe dream around there. And adds more ammunition to the fact that their best moments were thousands of years ago. Hey, but who am I to judge the country and their progress, the people must decide.
All these new anxieties could disappear (or be compounded) by the simple precursor to the jobs report this Friday in the form of the ADP employment report which is released the Wednesday before that major Labor department release. Expect that at around 14:15 our time here locally, the expectations, if you are keeping score, is for 160 thousand new jobs. I have absolutely no way of knowing what the reaction will be from Mr. Market. The so called stimulus junkies might decide that bad news is good news. Or good news might be interpreted as good news. Who knows!! The Friday report and the unemployment rate is perhaps a better indicator of what the Fed and the FOMC are checking out. We wait as the spotters line up.
The petrol price in South Africa hit a record high at a second past midnight this morning. I heard on the radio yesterday people phoning in suggesting that someone should do something, especially the government. Well, you could argue that not the friendliest business environment is one of the reasons that the Rand has weakened. But that is another story entirely, in truth we are held captive by global markets and the currency. The price of a barrel of oil is set in US Dollars. We have to pay Rands for what we import. Which is an enormous amount to shell (excuse the pun) out.
As per the Department of Energy's website when explaining the Fuel Price Structure: "The petrol price in South Africa is therefore directly linked to the price of petrol quoted in US dollars at refined petroleum export orientated refining centres in the Mediterranean area, the Arab Gulf and Singapore." Factors of which we have very little control over.
And the reason that we somehow think that we need the pricing to be adjusted by a group of people is as follows, according to the department: "This means that the domestic prices of fuels are influenced by (a) international crude oil prices, (b) international supply and demand balances for petroleum products and (c) the Rand/US Dollar exchange rate. The import parity (BFP) principle is an elegant, arms-length method of basic fuels price determination to ensure that local refineries compete with their international counterparts."
Is it the most elegant solution? In a world where people love to think that the government should control everything, the truth is always that the most elegant solution is that the market should set the price. Which I suppose it does, monthly. So what do you pay for a litre of fuel? Well, this lays it out for you: PETROL LEVIES, TAXES AND MARGINS 95 OCTANE (UNLEADED PETROL). For every single litre of petrol that you pay for, 212.5 cents is petrol tax, possibly the most efficient way for the government to collect taxes. A further 96 cents goes to the road accident fund. That amounts to 308.5 cents. A further 4 cents customs and excise, another 0.15 cents petroleum products levy, a demand side management levy (what does that even mean?) of 10 cents and then a Incremental Inland Transport Recovery Cost of 3 cents is added. Wow. Sounds like a whole lot of levies and taxes, adds up to 325.65 cents per litre of fuel here on the Highveld.
That customs charge of 4 cents has been the same for a decade plus, but the fuel tax used to be 90.6 cents back in 2000. So it has been creeping up, one could argue not so slowly. A litre of fuel to me is a litre of fuel to your motor vehicle, even though massive strides have been made with motor vehicle fuel efficiencies. I fill up with 93 Octane, so the percentage of taxes at 13 ZAR a litre is just over 25 percent.
And then you hear the same old line, "oh, Sasol should do more, check their shareprice, they make so much money, blah, blah, blah." All true. Become a shareholder if you believe that you are getting ripped off. But what you don't hear is that when Sasol release their last set of interim results, take note of this line: "During the period, we paid R15 billion in direct and indirect taxes to the South African government. Sasol remains one of the largest corporate taxpayers in South Africa, contributing significantly to the South African economy." Exactly. Sasol have no way of knowing which way the crude oil price is trending (OK, they have a better idea than most) and have very little control over the currency. I am pretty sure that Sasol feels that as one of the biggest tax payers in South Africa that they pretty much do their bit.
If we really wanted to improve the situation we could by doing what the Americans have done. You want energy independence? Then start fracking and improve energy relations with our neighbours to the North (Botswana) and East (Mozambique) and reduce your reliance on oil imports. Mineral imports, as per the monthly trade statistics are 22 percent and were a whopping 17.8 billion Rands last month. Check out the MERCHANDISE TRADE STATISTICS for May from the SARS website.
The other solution is and will be for consumers to be much better at how they manage their fuel consumption with more focus on smaller vehicles. I get the sense that is happening already.
The biggest news of the day hands down is the news that a Chilean listed business, CFR Pharma have made a non-binding cash and stock bid for all or part of Adcock Ingram for 73.51 Rand a share, valuing the bid at 12.875 billion ZAR in full. The stock of Adcock has not absolutely blown their boots this morning, and in fact trades at quite a big discount still to the potential offer price. Around 7 odd ZARR lower this morning on a down day at the start of the market. So that tells you something at least, in fact right at the end of the statement you get the line: "The Independent Board cautions shareholders that there is still no certainty at this stage that a firm offer will either be proposed or implemented.". An old client once used to say to us, a deal is not a deal until the money is in the till. Yes. Of course he was right, and that is why shareholders are urged to continue to be "cautious".
The proposal includes stock, and the suggestion is that CFR could have a secondary listing here on the JSE. All good, it is better as an investor to have options. But there are many hurdles, including the board, the shareholders, the various regulatory authorities, governments and so on. The first hurdle for me always are the board and the shareholders, the latter being the most important. For after all, it is they who own the business and ultimately should have the say. Even though somehow commentators seem to think one thing or another.
OK, so who are CFR Pharmaceuticals? As per the about us section: "CFR Pharmaceuticals S.A. (CFR Pharmaceuticals or CFR) is a multinational pharmaceutical corporation with a leading position in Latin America and operations in 15 countries in that region (mainly Chile, Peru, Argentina and Colombia), as well as in Vietnam, Canada and the United Kingdom. The Company specializes in the research, development, production and sale of off-patent and locally unpatented branded specialty pharmaceutical products and complex injectables."
Their stock price seem a little overvalued at just shy of 24 times, the company has not actually been listed that long (2011), but has a 90 year history with the Weinstein family at the helm, this is the third generation. Interestingly for CFR, they would look to shift production facilities to India and South Africa, I can imagine the DTI getting excited about that. Like everyone we wait and see, I suspect that Bidvest might be thinking that this is a lost opportunity of sorts but perhaps no use of crying over spilt milk.
Home again, home again, jiggety-jog. Global markets are selling off anxiously again, the Portuguese market is in another crisis mode, the index down 6 percent, the ten year yield climbing to the worst level since December. Crisis, what crisis? Never let a good crisis go to waste. Stocks for starters are lower across the board.
Sasha Naryshkine and Byron Lotter
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011 022 5440
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