To market, to market to buy a fat pig. Markets roared and the bulls ran as if they were possessed, the Jozi all share index nearly scaling 41 thousand points for the first time in four weeks. We are around two and a half percent off the highs, 1000 points or so. Resources of course led the charge, BHP Billiton was up nearly three percent on the day after a better than anticipated production report, at least on the iron ore side that is. The yield is becoming more impressive on a forward basis, which I guess is good news for long suffering shareholders who were always feeling a little aggrieved that the company was not rewarding them for the risk that they were taking.
Over in the US, all the chatter is still around Ben Bernanke, tapering talk and in this case he was presenting a semi-annual report ahead of the House financial services committee. Check out the full prepared speech that includes the outlook: Semiannual Monetary Policy Report to the Congress. Of course the Fed will "watch it" like everyone else and will be data dependant like the rest of us. It is all rather tiresome that this is the main focus of smart people on the screens that I watch, trying to guess one way or another. It was Blondie right, who said: " One way or another, I'm gonna win ya', I'll get ya', I'll get ya'"
So rates are going to go up! If you want the summarised version, these guys at AEI have done a wonderful job: AEI's Fed watchers react to Bernanke's prepared testimony. UPDATE: Key takeaways. And then of course another take away: Bernanke Calms Treasuries After Taper Concern Drove Yield Surge. I ask you with tears in my eyes, how can a single person calm treasuries? How can anyone calm treasuries? Are treasuries some kind of a horse?
Discovery Limited, what happened there, the stock was up 6.63 percent to close out at an all time high of 92 ZAR a share? It is now the 25th biggest company by market capitalisation listed on our exchange. Bigger than AngloGold Ashanti. Yes, really! Interesting coincidence, Life Healthcare is nearly bigger than Gold Fields. New economy globally is trending towards healthcare, as people want to maintain a healthy lifestyle and of course in Discovery's Vitality program incentivising them to do so. For instance in my personal case, I am both a member of their medical scheme as well as having life insurance with Discovery. If you quite simply do a whole lot of tests (easy ones), you can get paybacks for the "health integrator" systems. Significantly more if you lead a healthier lifestyle, as you can see this is great for the company that you are sharing your personal medical details with them. If they can tell that you are healthy, they don't mind incentivising you and giving you rebates on all sorts of things.
OK, that is all rather *nice* to share that with you, but what happened to Discovery yesterday? Why did the price go up so much? A fairly simple announcement: AIA and Discovery announce new joint venture. And quite simply, as per the release: "AIA Group Limited ("AIA") and Discovery Limited ("Discovery") today announced a strategic joint venture to introduce Discovery's successful wellness-based life insurance model to the Asia-Pacific region."
First question, the world is a big place (sometimes), so who are AIA? As per their website: "The largest, independent listed pan-Asian life insurance group in the world." Wow. The company is listed in Hong Kong, you can obtain more information from the Google Finance profile: AIA Group Ltd. It is big. 413 billion Hong Kong Dollars. That is roughly 525 billion Rands. A 90 year old business that uses the payoff line "real life never stops". Quite, this is true!
It is a huge company in a fast growing market in a part of the world where the middle class is growing at a serious click, and this is a major score for Discovery. Innovative is a word that you continue to associate with Discovery, their management team looks like the Saturday morning crowd on the road. But when they meet at the Vida later on, they eat nothing and have a skinny cafe latte without the sugar!
Expensive. And then not so much anymore. Sometimes (almost always) you have to pay up for earnings, provided of course that they are quality in nature. There are some share prices that look perpetually expensive, but they always seem to deliver the earnings to back the share price appreciation. Woolworths is one such company.
The company released a sales update and a trading statement ahead of their results which are scheduled to be released on the 29th of August 2013. This is for the 53 weeks to end 30 June, the extra week does sometimes make a massive difference for retailers. Why would a week make a difference? Well, remember in the US that all the way through to the Friday after Thanksgiving Thursday (which is the third Thursday in November), retailers are "in the red". Black Friday was the day that the companies began to turn positive in their books, and the cream was all the way through to the end of the year. Retailing has never been and will never be an easy business.
But here it is: Trading update and Trading statement for Woolworths Holdings. Total stores sales increased 23.2 percent. And earnings? "We expect earnings per share ("EPS") and headline earnings per share ("HEPS") for the 53-week period to 30 June 2013 to be respectively 23-28% and 25-30% higher than the corresponding 52-week reporting period last year. The impact of the additional 53rd week has added approximately 2% to earnings."
So what to expect? Sales last year to June were 28.813 billion, so expect a sales number of around 35.5 billion Rand. And expect HEPS to register between 334 to 347 cents, with EPS around 331 to 344 cps. On the 75 percent payout ratio, the dividend for the full year should clock between 250 to 260 cents per share, but that seems too high. I would be more conservative and suggest that somewhere around 230 cents for the full year, 144 cents for the second half. So what does that mean?
Cheap/Expensive? On an earnings multiple at the top of the range the stock is trading at 18.9 times currently (price 6565 at present) and a dividend yield of around 3.7 percent. I think very fair for the growth rates, and the anticipated growth rates too. The growth rates forward I have for the next two years (as good as the analyst community can give me) are in the region of 17-18 percent for HEPS, and around the same for the dividend, means that your yield at current prices for 2014 dividend is around 4.3 percent. And at current valuations, this is as cheap as the stock has been over the last 18 months.
Byron beats the streets
On Tuesday evening we received a sales update from one of our favourite companies which fortunately for us has an ADR listing in New York. Its primary listing is in France and its two biggest shareholders are Nestle (29.3%) and the Bettencourt family (30.7%). Any guesses? I'm talking about L'Oreal.
Sales came in at 11.7bn Euros which was up 5.4% on a like for like basis. Highlights include further market share gains in Europe and North America and strong growth in emerging markets. This however came in below expectations which sent the share down 3% on the open. Then "investors" realised that people around the world do still want to look beautiful and that a little hiccup is not the end of the world. The share closed flat for the day.
I realise it is a lot to take in but below I hacked a table from the sales announcement which came from the L'Oreal website. It tells you what products they sell, where they are selling it and how fast sales are growing per region and per division. The difference between the 10,988 million Euro you see there and total sales is the individual operations, The Body Shop and Dermatology.
As you can see from the table, New Markets are growing fast. Although it is already 39% of sales you can see that this is going to become more and more significant. Africa and the Middle East only contribute 3.6%. Wow that is nothing. I am told that people in Nigeria love their cosmetics, when they become wealthier and can afford the higher end brands of L'Oreal it will become a huge growth market for the company.
L'Oreal remains one of our core aspirational consumer stocks. We will look closer at valuations and other details when the results come out in August. Another interesting story came to my attention via The WSJ after the release. In an article titled L'Oreal Breaks a Nail in the US the author Renee Schultes make an interesting point. Her words, better than mine.
"Of course, unlike its lipsticks, L'Oréal's shares don't come cheap. After this year's 22% rise, they trade at 23.1 times forecast 2014 earnings for just over 8% earnings growth, according to FactSet. That partly reflects hopes of a change in L'Oréal's shareholder structure, where Nestle holds a 29.3% stake. An agreement that gives the Bettencourt family the first option to buy Nestlé's L'Oréal stake expires in April 2014. If L'Oréal bought and then cancelled Nestlé's stake it would be 17% accretive to 2014 earnings per share, estimates Barclays."
It will be interesting see what happens there. Yes it may be a short term kicker if Nestle is bought out, the company has zero debt so this is certainly a possibility. But we are long term holders of this stock and if it happens then great but if it does not, we will not be too upset.
Home again, home again, jiggety-jog. The market has done better in the second half of the morning. Earnings tomorrow, we will look at IBM last evening and Google results tomorrow. Exciting!!
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
011 022 5440
No comments:
Post a Comment