Interesting times Indeed

“US futures are a little higher, European futures are mixed to lower. So I am guessing that ahead of the most incredibly important market news ever (since the last most important news ever) Thursday, we are likely to see Mr. Market in wait and see mode. Will you tune in around 8pm local time Thursday evening?”

To market to market to buy a fat pig. Stocks in Jozi, Jozi closed out the day higher than where they had started, although the rally was threatened to be scuppered mid afternoon. Closing nearly nine-tenths of a percent better on the All Share index, at the wrong end of the stick were stocks like Glencore and Anglo American, at the top of the pile were Capitec, RMB Holdings and Netcare, as well as a recovery from Mr. Price and continued support for Discovery post their recent sparkling results. Good results for that company, they really are pushing the boundaries of innovation, nice to see homespun ideas shaking up the health and life insurance worlds. Funny how a little push goes a long way, in making you want to feel better, eat better and of course compete better generally.

Company corner

Not much on the local front by way of company numbers, interim results from resource holding company Pallinghurst, they own nearly 39 percent of London listed business Gemfields. Gemfields touts themselves as a responsible gemstone miner, owning assets in Zambia, Madagascar, Mozambique, a JV in Sri Lanka too I think. The global ambassador is Mila Kunis, I would have it at a guess that this is the most well known thing about the company. You could argue that the rubies and emeralds are likely to outlast us all, as well as amethysts.

Their design partners, Gemfields that is, are Charles Grieg and Jack Friedman, anyone know their work? Yes/No? The share price of Pallinghurst is exactly flat over 5 years. Since listing back in 2008 the stock has halved. Yip, it has been tough out there, Pallinghurst has to some extent be saved by their investment in Gemfields, that stock in London (add in the depreciating Rand to the Pound Sterling) is up 1600 percent in 5 years. It looked like a near death experience in 2008/2009 though, since listing in December 2005 (Gemfields) the stock has gained a paltry 38 percent. Seen better days!

Comair, the operator of British Airways and Kulula here locally in Southern Africa, reported results yesterday. They seem to be locked into some longer dated hedge (at and around 80 Dollars a barrel of oil) for the better part of next year. I guess that decision would have looked good if the oil price was still at 100 Dollars a barrel, a level it was at not too long ago. It is a very essential and necessary part of the modern travel world that we live in, yet airlines struggle year in and year out.

It is pretty much like owning a Premier League Club, the footballers are the heroes and get paid an enormous amount for their talents (somehow this is bad for CEO’s to earn that money, even if they are more talented in my books), the clubs fans demand top talent, the club is always marginal. An airline may be an amazing experience, I still think the miracle of flight is awesome, not everyone agrees. Year to date Comair’s share price is down 37 percent (nearly 9 yesterday), part the weakening Rand impacting their fuel bill, part the new Visa regulations impacting their business.

I have heard from friends travelling around the country how they met Austrians who were scrambling at the Namibian border to get Gran to fax through unabridged birth certificates to South African authorities here. Really? We desperately need their money here, to promote the country as a tourist destination. Perhaps the powers that be had better travel the world and see what people want, experiences, positive ones and not negative ones.

Stocks across in New York, New York closed lower, off the worst levels of the day. The S&P 500 closed up shop down 0.4 percent. Apple gained a percent, the stock was up nearly three percent in the pre market as this was the biggest ever first weekend for Apple iPhone sales. Bigger than the previous best, exceeding 10 million units. The company was cryptic and vague again, perhaps they get a kick out of it! All they said, not providing a number, was that sales were “very strong”.

The company also stated that they were on pace to beat the 10 million last year weekend number. And strangely, the bigger screened phone, the iPhone 6s Plus sold out online. 30 percent of the demand came from China. It is fair to say that the hyperactive Mr. Market somehow forgot last weeks bad news! Ha, ha, it is really pathetic, I saw headlines on my box flash up last week, Apple Rotten? Idiots, now what?

Truworths announced yesterday that they were considering buying a UK business, with 99 stores, and 48 concessions called Office. Office sells shoes, all sorts, sneakers, heels, the lot. I checked Wiki for shoe styles and there are some real head scratchers there, including Venetian-style loafers, Spectator shoes, the Mary Jane and the Brogue shoe. They all simply look like shoes to me, you learn something new every day. I am a shoe ignoramus.

According to an FT article that I read, current owners are Silverfleet Capital. According to the website (Silverfleet), the company is an independent European private equity firm, which specialises in mid-market buyouts. As per their website, they have owned this investment since 2010 -> OFFICE, describing the business as follows: OFFICE is the UK’s leading young fashion footwear retailer, offering a product range that is mid-priced and affordable. The business sells men’s, women’s and sports footwear and has a broad range of both third party brands such as “Converse”, “UGG”, “Adidas”, “Nike”, “Vans” and “Supra” which it sells alongside its own brands – “OFFICE”, “Ffor” and “Poste”. UGGs? The company does 1.8 billion Dollars in sales per annum, Oprah likes them, that is the only endorsement you need for the sheepskin boots.

Silverfleet bought it for 150 million Pounds five years ago, that is the current turnover (in excess says the Silverfleet website). According to Bloomberg, the deal size is 300 million Pounds, or 6.26 billion Rand at this point. Silverfleet doubles their money in five years and then exits, that sounds like a good outcome for them. That is a little under one sixth of the market cap of Truworths, 16.2 percent to be exact. So where and how do they come up with the money in order to finance this deal? One would think that in a similar way to Woolies, a rights issue in order to achieve this. I don’t see this in the way that many do, de-South Africanising themselves, you cannot ever be confined to 54 million customers, you need to have multiple businesses elsewhere in the world. To minimise the currency risk, most importantly, to grow for your shareholders and deliver them above market returns. Lest you needed reminded, you have many choices in the market. Our preferred out and out retailer is Woolworths.

Linkfest, lap it up

This is a great question and one that I don’t think many people know the answer to. For the FED, they target an inflation rate of 2% and for the SARB we target inflation between 3 – 6%. Is it a problem that we have higher inflation? No. The key with inflation is having stable inflation and less so the level of it. If inflation is stable, market participants can make decisions that maximise their returns. Erratic inflation results in uncertainty and less investment. It is also easier to control inflation than it is to control deflation, so central banks like to set inflation targets that give them a buffer against deflation – Why the Fed targets 2% inflation

Giving access to the broadband spectrum needs to happen sooner rather than later. Having access to fast reliable internet is a very big part of being globally competitive – Icasa to auction broadband spectrum. There seem to be many strings attached to buying spectrum, the ideas seem well intentioned but will probably not have the desired effects. The more strings that are attached will just result in companies bidding less for the spectrum, the strings have costs attached to them.

Now you can understand why these ties sell for $180, they look very nice – How Hermes Makes Its Legendary Silk Ties

This would be a nice problem to haveThe IRS will force anyone paying over $100 million in taxes to file electronically. When was the last time you wrote a cheque (check)? I remember getting dividend cheques in the post, glad that we have moved on from that. This highlights that our banking system is world class and ahead of most nations.

Home again, home again, jiggety-jog. Stocks across Asia are mixed, the Chinese market is lower, the Japanese market is not, they are around three quarters of a percent higher, the Hong Kong markets is a little lower. US futures are a little higher, European futures are mixed to lower. So I am guessing that ahead of the most incredibly important market news ever (since the last most important news ever) Thursday, we are likely to see Mr. Market in wait and see mode. Will you tune in around 8pm local time Thursday evening?

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


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