To market to market to buy a fat pig. Wow! Do you remember the frenzy around Black Friday last year? How you couldn't go near anything that resembled a shop and how all the online retailers made you queue!? Yesterday, Stats SA released their Retail trade sales report for November. Retail sales were up 8.2% thanks to the Black Friday (24 November) boost. The last time retail sales were up over 8% was in 2012.
Here is a table from the report showing where the growth came from:
You may be thinking, what is 'All other retailers'? Well, here is the definition from Stats SA:
In the numerous trading updates from retailers, none of them have mentioned Black Friday. Maybe they will when they release their half-year numbers? For many South Africans (and the global population in general) we don't have spare cash saved specifically for these sales. A steep increase in sales is probably coupled with an increase in credit card debt; not good for retailers long-term.
Consumers may have used the specials at the end of November to buy Christmas gifts a month early? Given how full the shops were on the 24th December, I doubt many people thought that far ahead. Time will tell if there are any long-term negative impacts on the retailers. For now though, trading updates are positive and business confidence is on the rise.
Market Scorecard. Potential government shutdown, what potential government shutdown! US Stocks surged last night with both The Dow and S&P 500, closing above 26 000 and 2 800 respectively, for the first time. The Dow was up 1.25%, the S&P 500 was up 0.94%, the Nasdaq was up 1.03%, and the All-share was up 0.45%.
Company Corner
Byron's Beats
Last week Friday we received fourth quarter and end of year results from JP Morgan. This is the first results release since we put JP Morgan on our buy list. US companies usually disclose more details on the quarterly movements. I will therefore give a summary of the annual results and then focus more on the quarterly numbers in detail.
For the financial year 2017, revenues came in at a whopping $103.6bn; $51.4bn of that was net interest income and $52.2bn was non-interest income. After all costs, net income for us common shareholders equated to $22.6bn. That equates to R278bn in profits, bigger than the entire market cap of MTN (R252bn)!
Per-share this equated to $6.87 excluding once offs. Trading at $112 a share the company affords a historic PE of 16.3. This is lower than the general market but historically high for a bank. The price is factoring in the higher interest rates as well as the tax cuts. Earnings for next year are expected to be substantially higher (up 25%) at $8.60. Putting the stock on a forward multiple of 13.
Another important measure for banks, is their return on equity (ROE). For the quarter, JP Morgan reported an ROE of 13%, well above the average of around 10%.
Segmental analysis for the quarter.
I have plugged the numbers from the report into a spreadsheet to make things simpler (I hope).
As you can see, the business is very well diversified across everything and anything a bank can make money from. It is not too reliant on Investment Banking, but it still makes a big chunk of cash from that division. Investment Banking can be volatile; those profits should be taken as an added bonus. They even mention a $143m loss within their Equity Markets division from a single client margin loan, AKA Christo Wiese.
The cream of this business for us is the retail banking division (consumer banking). This division equates to 47% of revenues and 40% of net income. It stands to benefit from three major factors.
1) A growing US economy
2) Slowly rising interest rates
3) The ability to cut costs through new technologies.
The tax reform is also an added bonus.
We are strong buyers at these levels because we believe that these three factors are underestimated by the market, especially factor three.
I will leave you with what CEO Jamie Dimon had to say about 2017.
Linkfest, lap it up
One thing, from Paul
Vestact has held Apple shares for clients in New York portfolios since November 2008. That was before they introduced the iPhone! At that time they traded on a (split adjusted) price of $13.70. Now they trade at $179.10 per share. That's a lovely "tenbagger" for those early investors.
Over this period, the company has grown into the giant that they are today, the world's most valuable corporation. Apple only started to pay dividends in August 2012. Interestingly, they mostly paid those each quarter from the proceeds of debt raised in US capital markets, and retained a giant pile of cash offshore. Of course that offshore cash came from selling iPhones, MacBooks and Apple Music subscriptions to people like you and me, outside of America. Here's how that capital structure looks in a cute graph:
If you want to dive into the details, check it all out on Asymco:
Last night's news was that Apple will now repatriate the bulk of those non-US cash savings, an amount of over $250 billion. This is because within the Republican tax package passed in December was a special provision to reduce the tax rate on repatriation transfers to a flat 15.5%. Apple is expecting to cough up about $38 billion to the US Treasury in the process.
It looks like Apple is bringing back home nearly all of its $250 billion in foreign cash
Michael's Musings
It is not new news that in developed countries, population pyramids are starting to invert. I didn't realise how quickly was happening though - Over the Next Year, Germany Will Hit a Scary Demographic Milestone. The key problem here is that the older the people get, the more they cost the state. If these people have retired, they aren't paying income tax.
Vestact in the Media
Byron chats to Business Day about South Africa's great retail sales update - Black Friday boosts November retails sales to 8.2% - surprising economists
Home again, home again, jiggety-jog. Asian markets all started off much higher but during the course of trading have slipped. We have also just received Chinese GDP data, which showed growth of 6.8%, slightly better than expectations. Then later today, the MPC tells us if our bond repayments have changed.
Sent to you by Team Vestact.
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