Frothier body for SABMiller

“The Sunday Times in the UK was reporting yesterday, suggesting as much as 106 billion Dollars. That is a huge number and represents a significant premium on an already inflated price, as much as 15 percent. That would see the takeout multiple of around 30 times! Yowsers, that is expensive, and as the Reuters article (AB InBev could bid $106 billion for SAB Miller: Sunday Times) points out, will create a 275 billion Dollars beast.”


To market to market to buy a fat pig. A holiday and an extension of the weekend means that for some, the markets closed a lifetime ago. I spoke to an old friend who told me that a fellow computer programmer had written a binary options forex program with a maximum trade time of 60 seconds. So if he were away from the markets for a week, it may well feel like a thousand years. Things change a lot in terms of the process, for the underlying businesses that operate on a day to day basis, not much changes minute by minute. So whilst everyone wants the same thing (i.e. to make money), we often try and stress that there are very different and competing strategies. For us, ultimately it all depends on earnings from these businesses that we own for our clients.

Talking of which, the internet meme going around captioned the new Nike logo, Nike, Just buy it. The stock, and not the shoes or apparel. Although that would be more helpful for the stock, the one would be an extension of the other. Nike stock closed at an all-time high on Friday evening, up 8.9 percent on the day, now up 30 percent year to date. Earnings are primed for perfection, the stock trades on a 30 multiple, not cheap at all. Mind you, neither are their goods, the one thing you can almost always be sure of is that quality is almost never cheap. The market cap of Nike is now 107 billion Dollars, Adidas is only 16 and a quarter billion Dollars, whilst Under Armour is 22.3 billion, that stock trades on a current year estimate multiple of 93 times! Next year that unwinds a little to 71 times, it still seems wildly expensive, earnings are growing like gangbusters, however. The analyst community is either hold or buy on the stock, a lone soul standing out with a sell.

Locally on the markets Friday the news that Tiger Brands CEO was stepping down (and there was a message to suggest that a replacement CEO was on the way) sent the stock higher, up over four percent on the day and at the top of the ALSI 40. At the other end of the spectrum was another horrible no good day for the resource companies, Glencore down 9.4 percent, Anglo American down nearly 6 percent and at another multi year low. After all was said and done in Jozi, Jozi the all share closed down one-tenth of a percent. Over the seas and far away, stocks closed mixed on Wall Street, the surge from Nike sent the Dow Jones up over 100 points on the session, the broader S&P 500 closed a fraction lower whilst tech stocks slid lower, down a percent.

There has been a recent selling of the heavy kind in Biotech companies, the “Bio Therapeutic Drugs” index is down nearly 17 percent in a mere five days, last week. Relative to the S&P 500, which is down 1.36 percent in that time. Amgen, Celgene, Gilead, even the index IBB (which is the broader based index, the whole Nasdaq biotech index) has been sold off. IBB was down 13 percent last week. Having said all of that however, the index is up an astonishing 256 percent in five years, the different and revolutionary therapies are certainly exciting investment avenues.

Recent comments by what may be likely to be the next president of the US, Hilary Clinton, who referred to their pricing as “price gouging” are concerns, the story was specific to a 62 year old therapy that went up in price from 13.50 Dollars to 750 Dollars a tablet. Not over five years, rather overnight! The New York Times published a less than favourable report on the company and therapy concerned (Turing Pharmaceuticals acquired Daraprim in August). What does not help is that Turing is founded by a former hedge fund manager, Martin Shkreli, easy targets for politicians. The story is worth a read: Drug Goes From $13.50 a Tablet to $750, Overnight. Not a good headline for essential companies to society.


Company corner

I have seen news circulating that suggests that a formal proposal may be put forward by AB InBev for SABMiller. The Sunday Times in the UK was reporting yesterday, suggesting as much as 106 billion Dollars. That is a huge number and represents a significant premium on an already inflated price, as much as 15 percent. That would see the takeout multiple of around 30 times! Yowsers, that is expensive, and as the Reuters article (AB InBev could bid $106 billion for SAB Miller: Sunday Times) points out, will create a 275 billion Dollars beast. Perhaps Altria have lent their support for such a deal, they are the biggest shareholders and no doubt need the cash! Talks have begun, as per the article, and they are apparently friendly. Whether or not they meet in the middle on price, a big premium again could see 50 percent more for SABMiller shareholders pre bid. That should have a positive impact for the JSE today!


Linkfest, lap it up

Here are some interesting pictures from the outer edge of our solar systemPluto’s surface looks like “dragon scales” in NASA’s new high-res colour photos

Up until the 90’s, the way that film was produced and developed favoured lighter skin tones. It wasn’t until furniture makers and chocolate makers complained that film wasn’t capturing the difference in wood tones and chocolate types, that things started to change – A brief history of colour photography reveals an obvious but unsettling reality about human bias.

Further to what we spoke about on Friday. The new focus on diesel cars will most likely result in the death of Diesel cars much sooner than expected, which is not great news for the platinum industry – VW Scandal Will Speed Up Diesel’s Demise.


Home again, home again, jiggety-jog. Markets are mixed across Asia today, US futures have “gotten better” over the course of the morning, even after some more iffy looking Chinese numbers.


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

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