Money with a dash of Funny

Friday, 20 November 2015

Nike Spikey!

"The current 8 billion Dollar repurchase program will finish in fiscal year 2016, that is when the next one will start. This is a pretty aggressive buyback by historic standards, the release quotes CEO Mark Parker (not related to Spiderman) as saying the company has returned 23 billion Dollars to shareholders over 14 years. This buyback represents 50 percent of all the buybacks in the last decade and a half."

To market to market to buy a fat pig. It was all go yesterday, on the local front whilst the president was fielding questions in parliament the Reserve Bank governor, Lesetja Kganyago was painting a less "pretty" picture about economic conditions and pending inflation. Whether or not you agree that trying to pre-empt the Fed rate hike is a good or bad idea, with inflation pretty benign and the growth outlook deteriorating, who raises rates now? I guess the weather conditions being what they are, good price inflation could look worse at the end of summer. Ideally if the rain started to fall shortly, in the next few weeks, things would look a little better. Having chatted to a farmer client (about all things from why Malthus was wrong to hike rates), things still look bleak for crops in the KZN midlands, notwithstanding a week of rain up here on the highveld. Which we are really grateful for!

The whole idea that the local reserve bank can influence the currency with a great deal of accuracy remains to be seen. Countries with far bigger arsenals than ourselves have tried and failed, most recently Russia, and Brazil. Fix the economy, make it more business friendly, tax receipts will rise, remain fiscally prudent and budgets will look extraordinary from whence they were. Gear up for full employment, take the road that capital follows and all will fall into place. I suppose in fairness to the SARB, that is something outside of their control. Their mandate is to keep inflation inside of the band, they are the folks tasked with the job, we should all feel that they are best placed to make these decisions. After all, they are the committee that live with their decisions. So perhaps, after giving them stick, they are perfectly inside of their mandate of keeping inflation in check. Tell that to many folks with distressed credit records.

At the end of the trading session here in Jozi, Jozi, stocks as a collective were up nearly 0.9 percent, massive moves from some of the resource stocks prompted that, GoldFields up a whopping (nearly) 17 percent on much more favourably received results than expected, Amplats an equally astonishing 12.38 percent, I did see a broker upgrade suggesting the worst had past. There were strong moves from Sasol, South32, as well as being results driven by the likes of Investec, that roared ahead 7.28 percent, the second biggest winner amongst big caps on the day. The banks rallied sharply, perhaps the extra interest income (25 basis points more, courtesy of the SARB) is being cheered by investors, FirstRand up 4.25 percent, Barclays Africa a smidgen more than that and Standard Bank rallied 3.59 percent. Nedbank lagged their peers on the day, up "only" 3 percent. In fairness to the SARB, the rate hike of 25 basis points yesterday has seen the Rand improve to 14 flat to the Dollar today. Off the worst levels of around 14.40 only a week ago.

The conclusion of this Economist article, Brazilian waxing and waning is perhaps not too dissimilar to our current economic path, and suggests after all the doom and gloom, "As a result, Brazil's economy may take a while to heal." True, we will get there too. Unfortunately it requires the political will to join the global village of economies. And by that I mean reforms, realisations that the world does not end at the Limpopo River. We are awesome, we are not exactly the awesomest.

Over the seas and far away in New York, New York, stocks did little else as a collective other than to hang on to the heroic gains from the session prior. Which I guess is in itself something, right? Whilst the major indices closed all marginally lower, the week thus far has been a good one, notwithstanding the dreadful events that have transpired globally, innocents having been subjected to what are essentially crimes against humanity. Whether you are in Kano or Paris, the outcome is the same and the motives are the same.

Company corner

Naspers released a trading statement this morning. Seeing as the company is always pretty hard to value as a function of the outlandish sized (in Rand terms) position in Tencent (They own 33.85 percent of the Chinese internet/entertainment company), the numbers sometimes don't represent the full picture. Here goes, anyhow, the trading update this morning: "We expect core headline earnings per share to be between 37% (2 093 cents) and 42% (2 170 cents) higher than the comparable period’s 1 528 cents. Shareholders are reminded that the board considers core headline earnings an appropriate indicator of the sustainable operating performance of the group, as it adjusts for non-recurring and non-operational items."

That still means for the "purists", who wouldn't want to own them at 500 Rand, 1000 Rand, 1500 Rand or even the closing price of 2149.18 Rand last evening, that on a 50 plus multiple (if you annualise these earnings) that the stock is still wildly expensive. Interesting to note however that the stock is actually cheaper on a fundamental basis than it was before. In other words, even though the stock price has gone up sharply, earnings have caught up sharply. The full half year results are expected to be released on the 27th of November, next Friday.

There is more in the trading update: "It is expected that earnings per share for the six months ended 30 September 2015, will be between 10% (2 023 cents) and 15% (1 911 cents) lower compared to the prior period’s 2 248 cents." Most of this is likely as a result of heavy spend in their ecommerce business, ramping that up sharply. If you could compare that division to another at a global level, you would have to say Amazon. Amazon are spending like crazy to build a huge network, in order to roll out the biggest retailer known to mankind, it may take another decade and a half, I am sure it is bound to happen, when Amazon profits eclipse those of Walmart. I am not too sure what to make of the numbers, at face value it looks pretty decent. And Tencent is completely flat, so, for all intents and purposes, the move from Naspers today might well actually look directly at these numbers.

Nike had a big announcement last evening, sending the stock up over three and a half percent in the aftermarket. Why, what, where? The release tells you everything: Nike, inc. announces new $12 billion share repurchase program, 14 percent increase in quarterly dividend and two-for-one stock split. The current 8 billion Dollar repurchase program will finish in fiscal year 2016, that is when the next one will start. This is a pretty aggressive buyback by historic standards, the release quotes CEO Mark Parker (not related to Spiderman) as saying the company has returned 23 billion Dollars to shareholders over 14 years.

This buyback represents 50 percent of all the buybacks in the last decade and a half. And more impressive is that 12 billion is to the current market cap of 107 billion a healthy 11.2 percent. Which means that once the shares have been bought back, the company will report results on less than 90 percent of the current shares in issue, if of course they get to buy them at current prices. Whilst the dividend has been hiked to 32 cents, at the two for one split it is 16 cents, an annualised 64 cents on a share price of 65 Dollars (half of the current 130 Dollars), not even one percent yield before tax. You certainly are not owning this business for the yield, rather you are owning the business for the growth prospects. Nike stock will begin trading on the split adjusted basis on the 24th of December this year. An early Christmas present for sure!!

Linkfest, lap it up

As people get richer and as technology improves there are trickle down benefits - Swaziland close to eliminating malaria. Its great to see the progress being made, as malaria mostly effects the poor.

Sticking with our neighbouring countries - Biggest Diamond in More Than a Century Discovered in Botswana.

It is amazing what machines can learn to do. Given the rise in organic branded food, this Robot will go a long way to helping farmers get maximum yield from their land - This robot kills weeds, and could end the need for herbicides on farms

Something light for a Friday. There are few things that are more painful than stepping on a Lego block, now there is a solution - Lego has invented a slipper to prevent injury-by-Lego

Home again, home again, jiggety-jog. Stocks across Asia are flat too, I am guessing that is the way that we will start ourselves here in Jozi. Pirates must win smartly this weekend and not concede a goal, it would be awesome to have another star on the jersey! Did you see Jack Dorsey's other business called Square which IPO'ed yesterday, the stock closed up 45 percent, the company attracted a pretty high profile listing parade, it raised not even one quarter of a billion Dollars. And to think that I read that IPO fatigue had set in, not quite.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Wednesday, 18 November 2015

Some Green on the Screen

"Over the seas and far away (from here), stocks rose sharply in New York, New York. The S&P tacked on 1.62 percent, the nerds of NASDAQ flew sharply higher, adding nearly one and four-fifths of a percent. Yowsers, that is a monster day. The Dow Jones lagged a little, that index was up "only" 1.42 percent."

To market to market to buy a fat pig. A down day locally here, most of it was catch up to a worse end on Wall Street in the prior session. The gold price was plumbing five year lows, I guess with inflationary pressures not forthcoming and with the rate hike cycle set to begin in December in the US, these is very little to be excited about for bullion. For me at the end of the day, the fundamentals for the metal price must be driven by a function of supply and demand. With a global population becoming richer as we go on, I would say that the outlook for global jewellery markets and by extension gold and platinum, are positive on a multi decade basis. We would however rather own Richemont, who manufacture and create beautiful watches and jewellery. And their margins are much higher.

Most of the big diversified resource stocks enjoyed a good day, South32 was an anomaly. Woolies had a great time of it, that stock was up 3.36 percent after a strong 20 week trading update. Right at the bottom (or top, which ever way you look at it) of the list of losers was Mr. Price, down five and a half percent on the day. They released results mid afternoon which were, as you can no doubt tell from the share price having swooned, poorly received. This comes hot on the heels of the trading statement five days ago, on Friday. That was well received, the share price popped to 222 Rand, the results themselves saw the price flop by the close yesterday to 202 Rand. See below in company corner for a short review of the results.

PPC released results yesterday, this was for their full year to end September. This is one of the oldest listed companies in South Africa, and the business itself has been around for nearly 125 years (in 2017 it will!). Cement is a vital part of any economy, you need enough of it, cheaply supplied to the building industry in order to make progress on local infrastructure. The company have committed themselves to becoming a continental powerhouse, building plants in Rwanda, the DRC and Ethiopia, as well as Zimbabwe. As such the old PPC you knew, hugely cash generative and a big dividend payer, is changing into a growth business. Even after the five percent gain yesterday the stock is still down 40 percent over a year, over five years the stock is down 51 percent.

Whilst the company is changing and morphing into something that obviously has a higher risk and by extension reward profile, it does not fit our investment profile. If you must own something in the construction space, and you can afford to ride through what are deep cycles, then PPC is definitely for you. The metrics are definitely improving after the management ructions over the last year or so. This is as a result of focussing heavily on cost reduction, those are starting to pay off. The DRC (55 percent complete on 1 million tons per annum plant) is potentially a huge win for them, that country desperately needs all sorts of infrastructure. Cement production across the continent, perhaps the best early investment into the continent.

Over the seas and far away (from here), stocks rose sharply in New York, New York. The S&P tacked on 1.62 percent, the nerds of NASDAQ flew sharply higher, adding nearly one and four-fifths of a percent. Yowsers, that is a monster day. The Dow Jones lagged a little, that index was up "only" 1.42 percent. There were a few noticeable losers, Target slid over four percent after recording sales growth lower than anticipated, one of the bigger stories however was equipment and chip maker Qualcomm, falling nearly ten percent during the session to a five year low. There is a fight going on in South Korea around the licensing practices of the business in that territory and whether they are anticompetitive or not, and more importantly whether they violate law in that country. Tough out there.

There was also the not so small matter of the release of the Fed minutes from the prior meeting. These are part of the clues of the anxious many as to when the Fed will raise interest rates. If only the same people spent their energy trying to figure out the creditworthiness of the companies whose bonds they invest in, or the prospects of that said company, that would be more useful than getting anxious about something beyond our control. Which is actually why people are a lot more anxious about flying than driving, even though they know that flying is a whole deal safer statistically than driving. The control thing, sitting in a car seat I am in control. Sitting at the back of an airplane in coach, you are not in control. Anyhow, most of the committee members are in agreement, barring for an external shock, that December is the right time to raise rates in the US. I recall that the talk in 2010 and 2011 was similar in nature, the rate hikes never materialised then, we are this close.

Less Fed anxiety over the global economy, not an unanimous decision, those are reasons given for the sharp rally in stocks overnight. That has also flowed through to Asian markets, Japanese stocks up nearly one and a third percent as we write this, stocks in Hong Kong are also up sharply, nearly a percent and one-fifth. Aussie up over two percent, thanks in part to commentary from the AGM over in Perth, I saw chairman Jac Nasser taking questions earlier. Very stylish and distinguished chap that Jac.

Andrew MacKenzie the CEO was again very apologetic about the recent Samarco Dam burst, the fine from the Brazilian government could be as much as 2.5 billion Dollars. In Nigeria, the events of yesterday and the day before are simply shocking, dealing and fighting terrorism is a global issue. Not much by way of cameras there, hence the lower coverage, the same suffering for humanity. I feel for all of the people impacted by global terrorism, be they in Beirut, Paris, Kano or Yola.

Company corner

Mr. Price stock as discussed earlier fell sharply on their 6 month results release. Obviously with the half year results there is more information, basic EPS rose 15 percent to 426.2 cents per share, the dividend increased 17.3 percent to 248 cents. There is a pretty hefty 58 percent dividend payout policy. Mr Price revenues grew 9.2 percent to 9 billion Rand, cash sales growing faster than credit sales. Remembering that cash sales represent 81.4 percent of their total sales. If it means cash, it means that the customer pays for it, not necessarily cash, remember. i.e. You can use your bank credit card, that counts as a cash sale for Mr. Price, they get the money in the till.

Loads of regulatory activity in Nigeria impacting on many businesses and no doubt consumers too, Mr Price: "Trading in Nigeria was initially strong, but slowed appreciably in the last two months due to recently imposed restrictions on imported merchandise. Although these are expected to be temporary, the Company's interactions with regulators are focused on urgently re-enabling supply." How NOT to fix your economy, place restrictions on the only people investing in it, SMH.

CEO of Mr. Price, Stuart Bird, had rather more sobering news about the local lay of the land: "The economy is not in good shape and consumer confidence is understandably low, but our resilient fashion value model is built to withstand these conditions". Whilst Mr. Market was obviously looking for an Oliver Twist print (we want more), the results looked good to me. However, when your stock trades on a 25 multiple, the market expects more.

Expectations are for the company to deliver in excess of 10 Rand in earnings for the full year to March, and growth rates in revenues are expected to be in the 12-14 percent range. Earnings are expected to grow by the high teens, percentage wise. As such the current rating looks a little cheap. Whilst we like the company, and the prospects look good (the share price equally looks good at current levels), the truth is with Woolworths and Brait in our portfolios, you cannot own everything. If you are looking for extra retail exposure, this is more than a "decent" company, which we are comfortable to own as supplementary exposure.

Linkfest, lap it up

Being happy at work goes a long way to giving better customer service and increased productivity. Starbucks lands at the top of the retailer list this year and Apple stores, lands at number 4 - The 10 Happiest Retailers To Work For This Year. Great to see two of our core holdings making the list!

This link has a 2 minute video on the history of Tesla. Give it a watch, it is very interesting. I did not know that Musk was not the founder but a very early on investor - Tesla in Talks With Germany Over Possible Battery Factory.

The consumer is always looking for value for money, with the result being that more people are shopping at discount stores. The trend going forward will be small niche stores where you pay a premium for the service and quality of clothes and then large discount warehouses. The companies stuck in the middle are going to struggle as new ways of doing things and increased competition for customers spend, drives prices down - Americans have been developing a new shopping habit for years - and now it's hurting Nordstrom, Macy's, and JC Penney

Home again, home again, jiggety-jog. Inflation numbers were lower here yesterday, which is good news. We should start a whole lot better as a result of the strong rally last evening on Wall Street, some green on the screen!

Sent to you by Sasha and Michael on behalf of team Vestact.

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Steady as she goes

"Equally Benjamin Graham advocated avoiding companies with cyclical earnings, the troughs are too deep, the peaks are too high. To paraphrase blogger Cullen Roche, a bet on commodities is a bet against humanity. The whole idea is that we can continue to do more with less, going into the future. For the time being many commodity markets seem oversupplied and reluctant to cut volumes aggressively. We continue to avoid."

To market to market to buy a fat pig. Another day of heavy selling in the commodity stocks, it seems quite close to the capitulation trade. Amplats were down 8 percent, Anglo American themselves were down six and a half percent, Glencore were down nearly six, and this was in Rand terms. I checked the Amplats ADR price, since their ADR program started in January of 1999 the stock is down nearly 12 percent in Dollar terms. That is right, you have nearly 17 years of history and the stock has returned negative 12 percent. The S&P 500 is up 75 percent in that time, and there have been some pretty horrible patches in-between, the tech bubble, the financial crisis, two of the worst market events in the last generation.

I did notice that a couple of brokerage houses changed their recommendations from either sell to hold or hold to buy, anticipating that this might well be the bottom. Whether or not this means that there is going to be earnings momentum to propel the share prices higher from here, well, that remains to be seen. I would still suggest that there is a long road ahead, the share prices in some instances are suggesting a wipe out. And in some cases you have already been wiped out.

In May of 2008 when there was the previous market high, when commodity prices were driving the local market higher, Anglo American was around 540 Rand, in fact that was in June of 2008. The share price closed last evening at 94.18 Rand. That is about the lowest level in half a generation, again that is in Rand terms. In the London market, in Pound Sterling the price is down 45 percent from their listing date in mid June of 1999. That was round about the time that the Super 6's were taking place during the World Cup Cricket, and that (big sigh) tied semi final. We didn't lose, we tied. I don't want to talk about it. Lance Klusener was pretty amazing, winning 4 man of the matches in the 9 matches he took part in.

Notwithstanding the crash in the commodity stocks yesterday, just to show you how they have fallen from grace, the overall market was up two-thirds of a percent, as a collective the resource stocks were down over three and a half percent. It just goes to show you that our market has shifted significantly away from a market owned by the mining companies to one that is certainly not any more, all this has changed in the last ten years. And yet, many asset managers I see cling to the idea that you have to own mining stocks.

Legendary investor Bill Miller of the Legg Mason Value Trust fame, he beat the market regularly over many years, always ignored cyclical stocks including mining stocks. 15 years in fact he beat the market, that is some pretty mean feat if you think about it. Sam Peters has been running that fund since 2012. Equally Benjamin Graham advocated avoiding companies with cyclical earnings, the troughs are too deep, the peaks are too high. To paraphrase blogger Cullen Roche, a bet on commodities is a bet against humanity. The whole idea is that we can continue to do more with less, going into the future. For the time being many commodity markets seem oversupplied and reluctant to cut volumes aggressively. We continue to avoid.

There were excellent results from investment holding company Brait, Byron went to the presentation yesterday, I read through a magnificent analyst book when he got back, a really detailed booklet with all their operations across the globe. Virgin is interesting, their biggest asset is the New Look stores, they will roll that out sharply in France, Poland and China over the coming years. Their food assets are also interesting, I wonder what input Christo Wiese is putting in there, remembering that he is a significant shareholder of both Steinhoff and Brait, as well as Shoprite. We will have a detailed write up on Brait in the coming days.

Over the seas and far away, stocks on Wall Street closed off the session flat. At the beginning of the session in the lead into midday stocks were up sharply, around three quarters of a percent, sadly failing to hold onto the rally into the close. The energy sector sold off, dragging the broader market S&P 500 down with it. There were some bright spots, Walmart numbers were better than anticipated, the outlook less cloudy and the stock rallied hard, up three and a half percent. Year-to-date it has been ugly however, the stock is down 30 percent from the first trading day of the year, the broader market is about flat for the year, it has been horrible. Most of the divergence has come from the beginning of the year.

Don't feel too sorry for the Walton family however, they may have fallen down the ranking tables as the richest folks in the world, Walmart is still up 3308 percent over the last 30 years when compared to the 935 percent return that the S&P 500 has given. Over the last half a decade when compared to Costco, Target and the index, Walmart stock has been a poor investment, woefully underperforming the index and their peers. Also enjoying a rally was Home Depot, also robust sales chasing away the negative chill just starting to build, the "health" of the US consumer has been questioned lately. These strong numbers from major retailers will go some way to setting the scene for a Santa rally. Remembering as we pointed out that stocks in the US have been completely flat this year. Not moved. Unmoved. Going nowhere. Home Depot is up 20 percent, perhaps a whole lot of home improvements going on, you know, a person's home is his castle.

Company corner

The Mediclinic circular has been posted and if you are a shareholder of the stock you will have the opportunity to vote, the Mediclinic shareholders will vote mid December. I hope that you are all still around. The Al Noor shareholders will also vote on this, the NMC Health deal disappeared on Monday, they announced that they would not be pursuing the purchase of their Emirates rival. The Al Noor information does not appear (as we write) on their website yet, I will continue to monitor. Let us presume that all the shareholders on both sides vote yes (they probably will), the new Al Noor shares (that you will own in the ratio of 0.625 per Mediclinic share you currently own) will be listed on the 1st of February, next year. The business will then change its name to Mediclinic International PLC, and will have the main board listing in London, an inward secondary listing here in Jozi.

You can download the Scheme Circular from the Mediclinic Investor Relations page, it is 300 pages plus of legal work, investment banking work, company IR work, there are tons of contributors there. RMB and Morgan Stanley for their work on the scheme get 167 million Rand apiece, good work if you can get it. Slaughter and May in the UK get 85 million Rand, the whole scheme will cost 468 million Rand. I would say that it is at the end of the day, well worth it in the long run, if not balking at the price in the very short run. That is your money shareholders. This is an organogram of how the combined entity will look like:

I see Jersey, the Netherlands and the Cayman popping up there, all favourable tax destinations. I guess in this modern world, this is how businesses are structured. The question that private client shareholders are likely to ask is, what must I do with 300 pages of reading material? Nothing, if you are our client, we will elect on your behalf, the shares in the combined entity. Remembering that directors and more importantly, Remgro as the anchor shareholder (over 43 percent) have given irrevocable undertakings to vote in favour of the scheme. The shareholders currently are as follows:

We will watch and continue to advise on the transaction as it unfolds over the course of the next two and a half months, all the way into Valentines Day, when it is expected to be concluded. More or less then. Mediclinic, the combined entity will have access to global capital markets, they will then have access to cheaper funding in order to build what will no doubt be a bigger entity in a fragmented healthcare market. We continue to recommend the stock as a buy.

There was a Woolworths trading update released after the market closed last evening. This was for a 20 week period, the first of the current financial year and the lead into the stronger 6 week trading period to the day after Christmas. Group sales increased by nearly 18 percent, when compared to the comparable period in 2015, excluding David Jones group sales showed a more modest 11.7 percent increase. David Jones sales increased 12.2 percent in Aussie Dollars, Country Road sales down under (Aussie) and in the land of the long white cloud (Aotearoa or New Zealand) grew 14.2 percent. In Aussie Dollar terms. Most of that was as a result of space reallocated from other brands in David Jones stores, out with the old brands and in with the Woolies brands.

Locally food sales were up 11.7 percent, sales in comparable stores increased less than 5 percent. Store space continues to grow, up over 9 percent, that is most pleasing. Woolies food rocks, although you would have noticed serious shortages on the shelves recently, not so? Still, the selection is so grand and there is plenty to choose from. The clothing division grew sales by 12.1 percent with price movement (inflation, higher prices for your Woolies winter woolies) of over 6 percent. The results seem decent at face value if not a huge blow out, ready ahead of the biggest time of the year. Results are expected to be released in the first two weeks of February, we still continue to recommend this company as our number one retail holding for local accounts.

Linkfest, lap it up

This is taking social media to a whole new level! Not sure I would spend millions on a property that I have never seen - Chinese nationals are buying multi-million dollar US homes using the country's most popular instant messaging app. Next we could see people buying things using virtual reality glasses.

Josh Brown talks about being consistent as the best way of achieving long term superior gains. You only have to be slightly better than the average many times over to be way ahead of the average over a 10 year period. The result is that you will miss some flyers but you will also miss some stinkers! One of our main jobs is tear you clear of landmines - To be great, you must first learn to be good

Over the last few years, technology in renewable energy has made huge progress. The result is that it is becoming more cost effective to go green with the consequence that dirty energy is fast becoming a thing of the past. Not great long term prospects for coal prices - In Coal Setback, Rich Nations Agree to End Export Credits

It is always interesting to see how our knowledge base as a species is growing - Researchers just unearthed a lost island in the Aegean

Home again, home again, jiggety-jog. Jonah Lomu has passed away overnight. My favourite Lomu moment has to be running over (and not around) Mike Catt at the semi-final of the RWC in 1995. Catt tried in vain to tackle the human tank and failed -> Jonah Lomu in pictures. As an old varsity friend said, when you were bounced in a tackle, you got "Mike Catt'ed". Lomu changed rugby, whilst he never won a world cup he was the man who appeared on the early EA Rugby software, he was a superstar and apparently a really nice man off the field. He will be missed.

Stocks across Asia are mixed to lower, I suspect that the same will be the case here after the heroic rally on the part of the industrial stocks yesterday. Locally we do have CPI data, if inflation is looking benign for the time being, the Reserve Bank does not need to raise rates. And more to the point, growth rates are so anaemic, there is no need to raise rates. We will see!

Sent to you by Sasha and Michael on behalf of team Vestact.

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Monday, 16 November 2015

Tiger mulls and mills Nigeria

"The stock ended the session up five and a half percent after they announced they have "decided not to provide further financial support with respect to its investment in Tiger Branded Consumer Goods plc of Nigeria. Tiger Brands is currently exploring various alternatives with respect to its shareholding in Tiger Branded Consumer Goods plc." In other words, the investment in Nigeria was a disaster, they have basically written it off, and now they are not funding it any more. More tomorrow I guess, the results are then."

To market to market to buy a fat pig. It was a sombre day to begin with, the terrorist attacks in Paris from Friday evening dominating the discussion. The G20 meeting in Turkey focused squarely on the events over the last few weeks, the Russian passenger jetliner being brought down by what is widely considered a bomb, the attack in Beirut and then of course Paris. As many folks point out, the activities of this radical group are not isolated to these events.

I often wonder what gives rise to such radicalism? Are people marginalised that much, that they need to finish themselves and others around them? I can't and won't understand it, it is best left for people with far better skill sets than myself, let me stick to my world. Which consists of companies, their prospects, their numbers, deal making activities ongoing, pending or potential. Companies doing different things, creating new products and new services, that is what we emerge ourselves in each and every day. We are lucky in that no two days are ever the same in our job, we don't have to churn out 20 widgets a day. Great job. Do what you love and you will never work a day in your life.

Yesterday was a wild crazy busy day, results from all quarters as well as some pretty interesting announcements. All stocks rallied during the course of the day, all major indices "doing better" after a bit of a tough time lately. After the dust had settled, stocks as a collective had risen just over two-thirds here in Jozi. Resource stocks added over a percent, Glencore on the wrong end of the scoreboard again, at the top was Tiger Brands.

Why? The stock ended the session up five and a half percent after they announced they have "decided not to provide further financial support with respect to its investment in Tiger Branded Consumer Goods plc of Nigeria. Tiger Brands is currently exploring various alternatives with respect to its shareholding in Tiger Branded Consumer Goods plc." In other words, the investment in Nigeria was a disaster, they have basically written it off, and now they are not funding it any more. More tomorrow I guess, the results are then.

There were results from Telkom, Mr. Market seemed to like it, revenues were flat, they are still losing headway in their old businesses, fixed lines and minutes spoken fallen. They are to a certain extent controlling costs, another 3100 odd folks let go during the period, salaries still up around 10 percent. ADSL makeup slowing, they have more than 1 million connections, apparently the excitement was around Telkom Mobile, our Telkom LTE router gets all of zero bars at the office.

And it gets about as much attention from Telkom, their technician was here for all of 20 odd minutes. My gripes are a separate issue, I recently have had more favourable dealings with Telkom. The fundamentals don't look that bad, I just see more competition and the company continually having to evolve. Plus there have been more once offs than most other listed businesses here locally, Benjamin Graham always said beware of the company with recurring once offs. As they are no longer once offs. We have been wrong on the share price, we will continue to avoid.

Barloworld had results too, again a tough environment for them. Siberian sales crushed in Dollar terms, Iberia is showing signs of life for the first time since 2008. Their second hand and rental car business was the only real bright spot, indicating that Joe Consumer must be looking long and hard at the more sensible option. Buying and financing a new car is one of the least smart things that you could ever do, talking investments. And I have read that the feel good factor disappears after a number of months. Whereas a life experience lingers for a year and a half, this is just what I have read. So, rather buy the shares. The stock may look cheap, it may struggle in a tough economy and as such we will still avoid it.

Tongaat and Astral both warned of the dire impact of the worst drought in Mzansi for a LONG time, obviously the feeds business of Astral will be impacted, as well as regulations around brining. You know, salt water injected into your birds, and then it is frozen. I met Chris Schutte, the Astral CEO, in passing at the CNBC studios at lunchtime yesterday. I had mentioned that by holding the company you were going to have to roll with volatility over a long period, he is a pretty big guy and shook my hand furiously and said, what volatility? Nice man, I have met him a few times, with a farmers suit he might actually look like the legendary Farmer Brown. Remember, they taste so good, 'cos they eat so good? That guy.

Tongaat Hulett warned of a lower sugar crop here in South Africa, I don't necessarily buy the long term story, once all the land is sold, you are owning a sugar company. With the WHO warning of the impact of sugar, surely that is not an industry that you want to be in long term. I have read loads of literature on sugar and it seems that although we are still early stages, the longer term impact will start to be felt with richer consumers. We will also continue to avoid.

Reuters is reporting that the regulators in Nigeria, the Nigerian Communications Commission (NCC) said that the 5.2 billion Dollar fine would stand, the appeals just impact on the payment deadline. We will wait for more news from the company, a client sent me a statement, it went like this: ".... telecommunication will serve as the new cashcow for the country and I'm going to pursue this....." - Adebayo Shittu, Newly appointed Nigerian communications minister. That sounds, well, not so clever. We will continue to monitor this and advise accordingly.

Lastly, Famous Brands have announced this morning that they have secured a 10 year licence to operate French bakeries brand PAUL. Heard of them before? Not our Paul, who sits next to me, rather a 120 year old family business, with tons of outlets. A lot more than you might imagine. It is nice to see that not all emerging markets are finished, the president of PAUL is quoted in the release as saying: "South Africa is one of the most sophisticated, diverse and promising emerging markets globally. In addition, Famous Brands, specifically, appealed to us as a partner because the Group is Africa's leading branded foodservice franchisor with an enviable track record and extensive experience of the industry and market." Great space, all the local listed quick service restaurant groups are doing just fine in this tough economy, Taste and Spur included. Seeing as I have stopped eating pastries, cookies and the like, I shall have to get Michael to taste their food when it arrives.

Over the seas and far away in New York, New York, stocks took off, all the broader indices rallied hard. The broader market S&P 500 ended nearly one and a half percent higher, the Dow Jones industrials added 1.38 percent and the nerds of NASDAQ lagged a little, up 1.15 percent. Marriott announced that they were buying Starwood for a whopping 12.2 billion Dollars, their presence (out of 1722 places to stay) here in South Africa is restricted to Ten Bompas (yes!), the Westin in Cape Town and the Sheraton in Pretoria. I once stayed at the Westin for a friends wedding, it was marvellous. That was a long, long time ago when I used to attend the wedding circuit. Mind you, Michael got married this year and Byron is getting married next year, it is all rather exciting!! Babies are still a way off, I am afraid, in case you ask.

Linkfest, lap it up

This is great news for the local economy, both in terms of jobs and the spill over effects from increased demand down the supply chain - BMW to spend R6bn on factory

I have heard rumours of robo advising coming to South Africa soon. Robo advising is where you replace your financial advisor with a computer, you tell it your risk tolerance, time frame and some other generic information. The robo advisor then spits out a portfolio for you, which maths says is the best suited to you over time. Sounds like a good way to keep costs dwn and emotions out of investing, I'm not convinced that humans have no future in the industry though. Here is the year to date performance - Checking In On The Robo Advisors

Yesterday a client told me they have a high risk tolerance and want to invest mainly in our 'out there' ideas. I think they were confusing high risk tolerance with profit incentive, which are two very different things. High risk would mean that your portfolio has the ability to drop 20 - 30 % in a very short space of time and that is not what the client has in mind. Remember everything in investing comes with some form of trade off and normally to do well you have to avoid the land mines instead of consistently hitting the home runs - Regret Minimization

Energy drinks are not great for your health and even worse when consumed in conjunction with alcohol - What slamming an energy drink really does to your body. I was not aware that they have such a big impact in elevating stress hormone levels.

Home again, home again, jiggety-jog. Stocks across Asia are really strong, Hong Kong is up over two percent, Shanghai just a little over a percent and Japanese stocks are up one and two-thirds. We continue with local results. Mitch Johnson will no longer strike fear into the hearts of batsmen on the international front, he is throwing the towel in at the age of 34. I am sure that Ryan McLaren is happy to hear this news.

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Phuthuma wins some time

"Although the Nigerian Communications Commission ("NCC") set a deadline for payment of the fine by Monday, 16 November 2015, shareholders are advised that the Nigerian authorities have, without prejudice, agreed that the imposed fine will not be payable until the negotiations have been concluded"

To market to market to buy a fat pig. I was not sure how to approach the message today. My mother's family all lives in Paris, they are all fine and well, a little shaken up, I guess that is to be expected. These attacks are well co-ordinated, they could have been a lot worse if it wasn't for some smart security work. I have little to say on the matter other than that humanity always seems to both uplift you and hit you with the same heavy hammer.

The French people showed solidarity last evening, in the memorial events, defying the government's wishes that they stay indoors. People solve peoples problems, this one is trickier. It is of course not just Paris, it is the bomb attacks in Beirut too, the bomb on board the Russian jetliner. All attacks on civilians designed to strike fear into the hearts of all. It is understandable that in a time like this people are scared, people feel helpless, and angry. And as such people want maximum force to be met with maximum force. You can't mix religion and violence, at the heart of all religions is respect, humanity and peace.

The number 13 rocks up in each and every month, all 12 have a 13th. An airline, theatre or building might not have the number 13, this is a superstition that is intertwined with religion. The fact that at the last supper there were 13 people at the table, and Jesus was of course betrayed by Judas. I recall as a teenager sitting a teddy as a 14th guest at Christmas dinner. In order of course to not have 13 folks at the dinner table.

The unlucky number 13 may well go back further than that, with the oldest laws known to mankind, the Code of Hammurabi. Something about the 13th law being omitted. Apollo 13 mission (I read that book, wildly scientific, fun though). Why Friday and the 13th of the month are bad together I have no idea, a Norse god by the name of Frigg is supposedly where the day Friday comes from. Frigg is the wife of Odin and is the god of wisdom. Friday, wisdom and unlucky, do those things go together? For Frigg's sake, now you know where that comes from.

Notch up Friday's moves as wildly vicious. Not necessarily unlucky though, stocks globally fell over concerns of global growth which fed again into commodity prices. Locally stocks fell sharply, down one and two-thirds of a percent. For the week oil prices have fallen over 6 percent. It was not however the commodity stocks at the head of the losers on Friday, it was the stocks that had moved sharply over the last few weeks, stocks like Capitec and Naspers, PSG and Discovery which were hit hardest. Emerging market selling of the high flyers. Emerging market flavours on Friday were insipid at best, downright stale and un-tasty for a while now I am afraid. All tarred with the same brush.

Over the seas and far away, in New York, New York stocks sank sharply, tech stocks heavily beaten up, the nerds of NASDAQ sank over a percent and a half, the Dow Jones lost nearly one and a fifth percent, the broader market S&P 500 down by 1.12 percent. The stronger Dollar weighed on global emerging market currencies, we are not alone in that regard. All the majors were slammed, I am afraid that there was very little to be excited about, unless of course you were comfortably short the equities market.

Some of the stocks that had decent results recently and had been on a tear all came under serious pressures, I think that at the fringes it may well be very much to do with the pending Fed rate hike. This is not too dissimilar to the August wobble, although everyone seems "fine" with a rate hike in the month of December, the chances continue to improve, ironically with all the good data. The US is seemingly alone in that regard, the Japanese just racked up their second successive quarter of negative economic growth, i.e. not growth. And the technical definition is a recession. That won't help the mood.

Company corner

MTN have released a SENS this morning updating shareholders on the ongoing negotiations around the fine in Nigeria. The middle part reads as follows:

Shareholders are advised that the Executive Chairman of the Company, Mr Phuthuma Nhleko, has personally met with the Nigerian authorities to continue the ongoing discussions with them regarding the fine of N200,000 for each unregistered subscriber ("the fine"), the equivalent of US$5.2 billion imposed on MTN Nigeria by the Nigerian Communications Commission ("NCC"). These discussions include matters of non-compliance and the remedial measures that may have to be adopted to address this.

Although the Nigerian Communications Commission ("NCC") set a deadline for payment of the fine by Monday, 16 November 2015, shareholders are advised that the Nigerian authorities have, without prejudice, agreed that the imposed fine will not be payable until the negotiations have been concluded.

You can read into that however you want. One, you can say that the delay means that there could well be a lower fine instituted on the company, as the negotiations are ongoing. Two, you could read into this that the Nigerian authorities are standing firm, and MTN are scrambling for more time. I was taken to task by some fellow on Twitter who obviously thought that my objections to the Nigerian fine as being overreaching, heavy handed and downright dumb for long term investors was one sided, pointing out that the BP fine was taken in its stride.

I was then feeling a little vindicated and almost fed the trolls when I saw this Bloomberg story: MTN Suffered 'Shake Down' by Nigeria Regulator, Wells Fargo Says, in which the fund manager is quoted as saying "MTN Group Ltd. has been the victim of a "shakedown" by Nigerian regulators" and (t)he fine "is outrageous by any rational stretch of punishing the company". Exactly. And, wait for it, the point I was trying to make all along this has "seriously negative investment implications" for the country. Whilst I agree that all companies must abide by all the rules of the lay of the land, it is possibly more than a little dumb to cook, hang, draw and quarter the golden goose.

There are signs that the powers that be are thawing a little, the vice president was making noises about how important telecommunications were to taking the economy away from the reliance on oil revenues. Agreed. Time to make all companies more successful and collect more revenues for infrastructural development, that will facilitate the way forward. I am sure that many entrepreneurs in Nigeria wish for all of the above. We continue to watch, we continue to advise shareholders to do nothing with the shares until we have something concrete.

Linkfest, lap it up

It has been a while since I have seen someone say that we need to return to the gold standard and given that the FED is going to raise rates, it won’t be coming up much. Many people on the street still think that money needs to be linked to something like gold. Money is just a way to speed up trade and make the exchange of goods ands services easier, the result is that linking it to something just makes money inefficient and ends up damaging the economy - Why No One Should Support the Gold Standard

It is always interesting to see how human biases have a huge impact on the decisions we make. Most of the time we do not realise that we are doing it - What Interest Rates Can Teach Us About Behavioural Biases

Home again, home again, jiggety-jog. The G20 met in Ankara in Turkey over the weekend, pledging to target the IS money sources, black market oil. Who buys the oil? Who then sells the arms? I guess those are fair questions. Markets are understandably lower across Asia and called lower across Europe too. As well as US futures, we should start lower here to begin with.

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Friday, 13 November 2015

Dr. Copper = Dr. Flopper

"The copper price reached a multi year low, back to July of 2009. The gold price was at a five year low, the oil price was zeroing in recent lowest prices in about six years. Copper is often referred to as Dr. Copper, with a Phd. in the health of the global economy. The weaker the copper price, the less the building going on. The less building going on, the less demand for Dr. Copper. Let us just say that we currently looking at Dr. Flopper."

To market to market to buy a fat pig. You were reaching for the barf-bag yesterday if you were deep in resources, those stocks were seeing their Christmas stockings stuffings disappear in a hurry. Emptying out, nothing left, the Grinch came early. The copper price reached a multi year low, back to July of 2009. The gold price was at a five year low, the oil price was zeroing in recent lowest prices in about six years. Copper is often referred to as Dr. Copper, with a Phd. in the health of the global economy. The weaker the copper price, the less the building going on. The less building going on, the less demand for Dr. Copper. Let us just say that we currently looking at Dr. Flopper.

The Bloomberg commodities index, a tracker of 22 commodities (according to this FT article: Fresh wave of selling engulfs oil and metals markets) is at the lowest level since the financial crisis. Whilst iron ore prices are below 50 Dollars a tonne, Twiggy Forrest, the Fortescue metals boss is warning his country, Australia, of darker days for iron ore.

The upshot of it all was unsettling equity prices, Anglo American trading at their lowest ever London price, since they listed in mid 1999. The price locally in Jozi fell below 100 Rand, the last time I remember that happening was in May of 2003, I think. The ten year return for Anglo American (sans dividends) in Rands is minus 51 percent. In London the return over the same period is minus 77 percent. Once the crown jewel of the South African market, the stock is now unfortunately deep in the midst of a continued drawdown in commodity prices not seen for quite some time.

In fact, the Anglo listing in London coincided with the biggest ever industrialisation plan we have seen in our time, Chinese thirst for commodities and their infrastructural roll out was like something we have never seen before on that sort of scale. And now that the country shifts towards a consumption based economy, singles day (four 1's next to each other apparently look like bare branches) was a wonderful reminder of how their economy has morphed into something different. The top items selling on singles day, baby related products, both clothing, items and nutritional, and then one for the singles, Levi's jeans and Nike sneakers. Adding to a massive singles days boost was that October retail sales were 11 percent higher than the year before, beating expectations earlier in the week.

The upshot of a stronger Dollar against most currencies globally and a slowing Chinese economy has translated to a weaker commodities complex. Stocks as a collective in Jozi, Jozi sank over a percent, the stocks at the top of the losers headboard included Anglo, Glencore, South32 and BHP Billiton, all the heavyweights with exposure to most bulk commodities. At the top of the leaderboards and bucking the trend and the only real standout was Naspers, up over a percent as the afterglow of the good Tencent results still continue to leak through. Stock earnings osmosis we can call it.

Stocks over the seas and far away, in New York, New York got a solid drubbing, selling off furiously into the close, the S&P 500 down 1.4 percent on the day, the nerds of NASDAQ down nearly a percent and a quarter, the blue chip Dow Jones Industrial Average the worst of the three, down nearly a percent and a half. Why? Anxieties around rising interest rates again. I am afraid that we are all going to just have to live with this, volatility into the Fed December meeting and what is now the inevitability of a rate hike. What makes this rate hike so unique is that the time from the first hike in the Greenspan era to now is a period of ten years. See this graph take from the St. Louis Fed, from 1954 to present.

If you are around 26-27 years old and you have been working in financial markets for your whole, yet short career, you would not have ever seen a rate hike. In fact, Ben Bernanke only ever had to hike rates once during his tenure. Do you see that last hike in September of 2006? That was Ben Bernanke, during his tenure as Fed chair. And from there until now, we have got used to the idea of a near zero rate world. I still maintain that the rate cycle at the top will be a "lower high". What to do with the pending Fed hikes and multiple Fed folks speaking? Nothing. Market participants with diverging time frames will act irrationally in the very short term, stay the course, stocks can fall ten percent in a short period of time as you saw in August/September, markets then recover thereafter.

Company corner

The other day we wrote about Tencent, you will recall this message, Tencent Q3 Numbers. In which I wrote: "... the Hong Kong Dollar market cap by the exchange rate (back to Rand) and you get a smidgen over 907 billion Rand. Ummmm. . . why is the Naspers market cap this morning, on opening just under 880 billion Rand? This implies that the local market gives Naspers a discount relative to the rest of their holdings and the rest of their assets, which includes a growing satellite TV business that is still growing strongly. Perhaps the best and cheapest way to own Tencent is through Naspers.

A reader of the newsletter, from one of the big four accounting firms put me in my place:

I'm not so sure about the logic of your reasoning about the valuation of Naspers with respect to Tencent. Naspers is not just equity funded, so the market cap is not a complete picture. Their latest financial statements (March 2015), indicate that they carried about R47b in debt. R27b of that covers the Tencent valuation shortfall, leaving R20b for the remainder of their businesses. This may be a low valuation (I don't know), but it is certainly not negative.

This is like saying that if you have R100 to invest, then borrow another R100 and invest the R200, you would have a net worth R200. Not really, your debtors would have a claim on half of the holdings. You, the equity holder would still only be worth R100.

Quite right. I replied: "The point I often make is that they have loads of other assets, including Multichoice which could be as much as 200 billion Rand, let us call it 150 billion Rand for comparison sake with their developed market peers. Their ecommerce business is growing revenues by 40 percent per annum, it is not too dissimilar to another global giant (Amazon) which still loses money as they expand their network, does one value this on a revenue only basis, stripping out investment spend (like Amazon)?

Tencent and Naspers are both listed, their share prices and by extension market capitalisation reflect the future earnings prospects, we can agree on that. Both sets of businesses have their respective assets and liabilities, Naspers have interest bearing liabilities of 37 billion Rand as of June 2015.

Surely the rest of the business, knowing what we know is not worth minus, including the liabilities (that are known). Perhaps I should have been more eloquent with my beef with the big discount, I often hear the asset management community tell everyone on the screens how Naspers is way too expensive. Certainly by earnings measurement, perhaps, certainly not in a sum of the parts, and their respective earnings."

To which the same reader replied:

I understand your point about Naspers trading at a discount and I don't disagree with that. I just think it is a bit dishonest to ignore the fact that Naspers is leveraged (albeit not very aggressively) when you make the point. We don't have to consider Tencent's debt, because we are really only interested in the value of Naspers' equity holdings, which the market cap gives us. Tick that. However, Naspers' market cap should reflect the value of it's assets (Tencent holding + all the other goodies) minus the value of its' long term debt and yes, I agree that this should reflect the future earnings prospects for its equity holders. My point is that simply comparing a company's market cap to the value of its assets (Tencent holdings in this particular case), while ignoring its debt, is a bit dodgy.

The point our accountant friend and reader was making is that my simple calculation of saying, hey, Naspers' stake in Tencent is worth more than their entire market cap is not the whole picture. My point is that you get the rest for free, including some sizeable businesses, and that means that Naspers still trades at a significant discount to the sum of the parts. This is what makes a market, two people who own the same stock, both of them, who have a different view on the valuation in its entirety. And sometimes these views are easier to put into context when one person says sell and other says buy. Keep the interactions coming, we love it!

Linkfest, lap it up

The numbers are in for singles day sales for Alibaba and they are huge! - Alibaba's Singles' Day shopping total was bigger than Facebook's revenue last year. This is another reminder of how the Chinese consumer is coming into their own and how online shopping is the way of the future.

Following on from our link yesterday about the really really expensive wine. It turns out that most people can't truly tell what the quality of a wine is. Even the pros gave different ratings to the same wine but in different bottles. It seems that when we think we are drinking expensive wine, our brain becomes more stimulated and voila, it tastes better - Expensive wine is for suckers

A big part of attracting investment and helping business thrive is to create certainty and protect property rights. In this case we are talking about space, where if you start mining an astroid you get property rights to it. I'm not sure anyone reading this message will be alive if/ when we start winning astroids but giving some form of certainty will speed up R&D to make this technology viable - Democrats and Republicans agree: If you can mine it in space, it's yours

Bill Ackman is a very smart man, he also seems to be involved with stocks that cause a stir. At the moment it is his stake in Valeant, who are known for buying drugs and then pushing up their prices - Ackman v. Berkshire: Whose Holdings Are More Immoral?. Here is what he said about Coca-Cola, "Coca-Cola has probably done more to create obesity and diabetes on a global basis than any other company in the world".

Home again, home again, jiggety-jog. Stocks across Asia are all softer, the late sell off on Wall Street means we all have to catch up today, there may be another bout of selling here today. Although, having said that, commodity prices still under pressure. The copper price is at a fresh recent low. Dr. Copper went to Gloucester, in a shower of sellers. He fuddled through a muddle, right up to his middle, And vowed never to own those again. Alas, loads of South Africans are up to their eyeballs in commodity stocks.

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Thursday, 12 November 2015

Mediclinic looking healthy

"Currently the revenue split is 34.55 percent South Africa, 52.7 percent Switzerland and the balance, 12.76 percent the United Arab Emirates. Of course with the 30 odd percent of Spire and the pending purchase of Al Noor, that could all swing quite sharply, being a heavier weighting towards the UAE, more importantly getting a foothold in private healthcare in the UK will add another territory. In terms of operating profits, Switzerland contributes 43.3 percent, South Africa 41.6 percent and the Emirates the balance, both South Africa and the UAE are obviously more profitable for the group."

To market to market to buy a fat pig. Locally in Jozi, Jozi, we managed to squeak into the green for the day, it was a real mixed bag on the Top40, stocks like PSG, Discovery and SABMiller at the top of the leaderboard, way down and at the bottom was BHP Billiton, having slipped below the 200 Rand mark, FirstRand in some trouble, down 2 percent and Sasol right at the bottom, no thanks to sliding oil prices. What was quite unusual on the day where the market ended 0.05 percent up was that for every loser on the top 40 there was a winner, i.e. 20 up and 20 down.

Naspers stock hit an all time high, over 2100 Rand for the first time, thanks to the Tencent results being sparkling, more on that in a moment, an interaction between myself and a reader of the daily postings. Is it a blog, a daily post, or a newsletter? I suspect all of the above. We have a wonderful mature client, she calls them daily love letters, I like that! Tencent is up another one and a half percent this morning, I suspect that baring something "bad" I am guessing another good day is in store for the Naspers stock.

The Rand has taken a hammering to the Hong Kong Dollar, in part as a result of the closeness of the Dollar to the Hong Kong Dollar. How long do you think that the Hong Kong Dollar will remain as a separate currency to the Chinese Yuan? Surely it has to be one and the same at some stage, even if you travel across Europe you can use the same currency, regardless of whether you are speaking Greek, Spanish, Italian or German, French, Dutch or take your pick. What I always find interesting is that the goto language in Europe is English. I suppose it is a universal language.

Perhaps the biggest news yesterday was all about beer, Europe may not have exactly all the same languages, the people in the North love to drink beer and the people in the South love to drink wine, perhaps climate has everything to do with that! The northern beer drinkers and the southern wine drinkers possibly have a little of each. AB InBev had until the close of business yesterday to make a formal bid to the shareholders of SABMiller. Herewith the release: AB InBev announces its intention to launch a voluntary cash offer, for all of the shares and other securities giving access to voting rights in Newco.

I guess the logistics are simple, 44 Pounds a share is the offer currently. The shares and cash offer is limited to 326 million restricted shares, or 41.6 percent of the SABMiller shareholders, which roughly suggests that Altria and the Santo Domingo family will be the bulk of that, if not all of that. And there is likely to be an AB InBev listing here, an inward listing in which the locals can take stock in the biggest beer entity on the planet. I guess the discount between the current share price in London 40.77 Pounds, relative to offer price 44 Pounds is a combination of the two biggest shareholders taking cash and shares, time value of money until the deal closes (it could take 9 months, a year) and obviously the combined entity having to jump through regulatory hoops. I almost said hurdles, it would be harder to jump through hurdles, you might have to be really flexible to do that.

In the mean time, SABMiller are set to sell their North American operations. And then they released the six month results this morning: SABMiller delivers good underlying performance. I guess until the deal closes nobody will be too excited about the earnings, the SABMiller shareholders that is, the newest and most excited shareholders in town, who don't own the shares yet, AB InBev, they would be more excited about these numbers than anyone else.

Company corner

Mediclinic have released their half year results to end September this morning. Revenue up 16 percent to 19.5 billion Rand, normalised EBIDTA up 16 percent, margins stable at nearly 20 percent. Adjusted basic normalised HEPS up 19 percent to 214.1 cents, the interim dividend was 16 percent higher to 36 cents, hardly a kings ransom, the company has been growing aggressively and has just asked their shareholders to shell out serious money in order to acquire a 29.9 percent stake in Spire Healthcare (10 billion Rand rights issue), the dividend is going to be not the reason you own this stock currently.

Once they have bedded down some bigger transactions, I do not think that they are near finished, even after completing the pending Al Noor transaction, see Mediclinic and Al Noor to tie up, they may first be in a position to service debt aggressively and then become a bigger dividend payer. That deal (to buy Al Noor) is still set to be approved by both sets of shareholders, I suspect it will go through.

In the analyst presentation, there are two slides that sum up how the transaction with Al Noor is likely to proceed. Al Noor shareholders are likely to get 11.6 Pounds per share, which consists of a 3.28 Pound per share special dividend. What you will get as a Mediclinic investor is 0.625 Al Noor shares (in London), the company will then rename to Mediclinic International, primary listing in London, secondary listing here in Jozi. Mediclinic existing shareholders are likely to own between 84-93 percent of the combined entity, depending on how many of the existing Al Noor shareholders take cash. Outside of the United States this combined entity by sales will be much bigger than you think, true story, see one of the images from the presentation:

The deal is expected to close early 2016, according to the presentation.

Currently the revenue split is 34.55 percent South Africa, 52.7 percent Switzerland and the balance, 12.76 percent the United Arab Emirates. Of course with the 30 odd percent of Spire and the pending purchase of Al Noor, that could all swing quite sharply, being a heavier weighting towards the UAE, more importantly getting a foothold in private healthcare in the UK will add another territory. In terms of operating profits, Switzerland contributes 43.3 percent, South Africa 41.6 percent and the Emirates the balance, both South Africa and the UAE are obviously more profitable for the group. More costs in Switzerland with the smaller operations and higher cost of doing business, obviously, that territory has one of the highest standards of living in the world.

The CEO Danie Meintjes sums it up perfectly in the SENS release, ahead of the presentation at 10am this morning: "The Group continues to deliver against its key performance indicators with high levels of cash generation, growth in patient activity, stable margins and effective cost control. This is against a market backdrop of increasing demand for our services providing geographic expansion opportunities. With both a strengthened balance sheet via a successful rights issue, and capital investments made during the period, Mediclinic remains well positioned for future growth."

With Remgro as their anchor shareholder (they have even applied ), Mediclinic will continue to grow their business. They will continue to look for opportunities as and when they present themselves, as well as grow their existing businesses. Expanded healthcare is an important investment theme globally, we continue to feel that Mediclinic ticks all the boxes. We will review the results along with the presentation, and deliver exactly the same conclusion, we continue to accumulate Mediclinic.

Linkfest, lap it up

Over the short run valuation metrics mean very little. Emotions drive stock prices over the short term where fundamentals are what count many years down the line - Valuations are irrelevant to stock returns over one-year time frames. The data showed that over a 10 year period, buying a high P/E stock resulted in lower average returns but buying a high P/E stock resulted in better returns over a one year period. I suppose that over a short period of time, people can't but help buying the stock that is going up and it becomes a self fulfilling prophecy.

As investors sometimes we need to be reminded of the power of compound returns. It helps us keep our eye on the end goal, long term numbers - Underestimating the Power of Compound Interest

I can't say I understand the huge amounts paid for art or the likes of wine. Surely the value in the bottle lies in that it tastes better than the next? Im not sure that anything can taste so good that it costs the same amount as a car? It is an interesting investment and comes with some fascinating history - This Bunker Holds $1.5 Billion of Wine

Home again, home again, jiggety-jog. Markets have started lower here, again it looks like most of the pain being felt is across the commodities complex. Earnings season is not quite finished in the US, we are however coming to the end. Sigh, the road to the Santa Claus rally.

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