Brait in Iceland

“Just a refresher, for their Pepkor stake, the 37 percent interest that Brait held, they got 15 billion Rand in cash and 200 million shares in Steinhoff. The shares have been sold for around 16 billion Dollars. About 80 Rand a share. They are going to use the funds to settle their 14.2 billion Rand obligations.”


To market to market to buy a fat pig. Oh dear, what happened to the hosts? That is a first as far as I understand it, the English are left out in the cold, out of the world cup. Elsewhere things were great if you were a bull in equity markets, thanks (or no thanks) to the “jobs report” on Friday. This was a case of when bad news was first interpreted as such, being bad news, and then the Fed watchers (they really have nothing else to do) started to say, oh, the Fed are not going to raise rates this year. And that is apparently very good for equity markets, so we got an almighty rally on Friday, with a 58 point swing on the S&P 500, which closed at the best level in a couple of weeks.

Hey, talking of good or bad notes, did you get a chance to see Ben Bernanke was on the box yesterday, on USA Today. Why? His book titled “The Courage to Act” has been released. He wanted individuals jailed for the financial crisis, he spoke of damage control and not doing enough to explain to ordinary people that if they did not do what they did, then the outcome would have been very, very different. We often said around here that the extraordinary and unpopular methods of the Federal Reserve and the US government through that period led to confidence being restored and more importantly, made sure that trust amongst the financial institutions was restored. Spreads blew out, it was a time of trust nobody, they are all untrustworthy.

Watch the clip Ben Bernanke: More execs should have gone to jail for causing Great Recession. What a great man, and another reminder that there are incredibly smart people large and in charge. So you really, really do not have to worry about what the Fed does, they will do what they think is right and in a measured way.

Back to the Employment Situation Summary, the jobs report. The headline number missed by around 60 thousand jobs, the revisions for the two prior months were lower, and whilst the unemployment rate remained unchanged (technically it fell a little), wage growth expectations were dashed, that too was lower. An average report, kind of like expected a B or B+ on your report card and this was a solid C or C- and not what Mr. Market wanted.

Initially the price of gold, the whole commodities complex rose, whilst the Dollar weakened (which meant that the Rand strengthened) and the futures market sold off. And then the speculating started, the Fed are going to do X or Y or Z, even if Janet Yellen said that rates would go up this year. I guess we will get a better view on Thursday when the Fed minutes are released. Oh, and I saw a tweet that suggested that prices of TV’s had fallen 48 percent over the last five years. What? So things are not so bad.

So the Fed saved the world and our TV’s got cheaper as a result of improving technology, it makes you think that the industry has almost become utility like, selling something that almost anyone can make. That is just another example of how the world has changed, check this old TV advert: RCA Victor 21 inch TV for 495 Dollars. Nowadays, 60 years later, you can buy an RCA 24 inch HD TV from Walmart for 149 Dollars. The equivalent of 495 Dollars in 1956 is the same as 4337 Dollars in 2015, on an inflation adjusted basis, according to a new inflation calculator I found (sorry Westegg).

In fairness, that was probably the best device that money could buy back then, a TV, on the Walmart website, you can buy a 80 inch Visio M80 for nearly 4000 Dollars. Not the most expensive, that belongs to a Samsung 75 inch TV, a cool 7000 Dollars buys you a 1080p LED 8000 Series Smart TV.

Locally, if money is no object, you can own a LG 84 inch (210cm) 3D UHD LED TV for 175 thousand Rand. Yes, more money than sense. You can also buy the cheapest TV, a mere 1599 Rand will get you a SINOTEC 19 inch (48cm) HD Ready LED TV.

Enough of TV’s and the Fed, all I am trying to point out is that a) the Fed are on top of things, don’t you fret and b) technological advances have squashed inflation, you can get amazing technology for very little money. The world has evolved and is much better than 60 years ago, many people will tell you that it isn’t, don’t listen to them, OK?


Company corner

Brait announced on Friday that they had sold their stake in Steinhoff and that they had upped their stake in Iceland Foods. That was pretty quick, I actually lost 50 bucks to Michael, I would have thought they (Brait) would have held the Steinhoff stake into a Frankfurt listing and beyond into next year, just to get a PE unwind and lift quickly. Just a refresher, for their Pepkor stake, the 37 percent interest that Brait held, they got 15 billion Rand in cash and 200 million shares in Steinhoff. The shares have been sold for around 16 billion Dollars. About 80 Rand a share. They are going to use the funds to settle their 14.2 billion Rand obligations.

They have then turned around and bought another 38 percent (to take their full stake to 57 percent) in Iceland Foods for 172 million Pounds, or nearly 3.6 billion Rand. Not huge, around 5 percent of their current market cap. And they will fund the acquisition with the recently announced convertible bond issuance, remember that -> Brait convertible bond. And they will still have around half of the money left. So is it fair to say that Brait may have sold a quality asset and bought more of a less exciting business, they certainly have been great allocators of capital. And of course, when invested in a Investment Holding vehicle, you want access to the smart folks who can see the opportunities and have a tolerance for owning unlisted entities (and by extension less liquidity). As Warren Buffett said, you should be prepared to own a company on the basis that the equities market closed tomorrow for five years.

This is a positive for Steinhoff, the overhang of a big shareholder has been removed, 200 million shares have no doubt been placed in the hands of longer dated institutional investors, you would think. The shares of Steinhoff rallied nearly one and a half percent, Brait shares fell over a percent. We want gearing, I hear you shout. They are just being prudent after a very short and sharp period of major asset gathering.


Richemont have announced this morning that the merger between their Net-a-Porter and Italian online luxury company, YOOX has been completed. That took more than six months, if you need the refresher of how the investment is going to work, cast your mind back to late March and when we wrote about it: Net-A-Porter merges with YOOX. What Richemont (and by extension, you the shareholder) gets is 65,599,597 Yoox Net-a-porter shares in the bigger company, one that holds both platforms now. That is half of the business.

It will be interesting to see how the combined company trades today, double the number of shares in issue and a merger of equals to some extent. For the existing shareholders of YOOX, nothing really I suppose, they get to be diluted out of sight, yet they will get another whole business. It is early days for online luxury, yet businesses like Tesla (repeat after me, a car is not a watch or piece of jewellery, those are more likely to appreciate in value and be around for ever) sell items for over 100 thousand Dollars online. Good move, separate the two and get a dedicated person to run that business as their core focus.

Lastly, did you notice on Friday that the Swiss government took extras on your Richemont dividend? It was not the normal dividends withholdings tax of 15 percent, it was 35 percent. The company will post you in the coming months (or longer) the process of how to go about “getting” that money back, it involves going to your local SARS office and submitting all your documentation. Stand by, due to the double taxation treaty that South Africa has with Switzerland, you can (as a Global Depositary Receipt shareholder in Johannesburg) apply for that differential back. Understood?


Linkfest, lap it up

If you have a spare $7000 lying around you can also get a beard transplant to look like the lumberjack hipster standing next to you in the coffee shop line – Baby-Faced Men Opt for Beard Transplants.

Having a look at the stats in this article where 47% of people think that young people in the US have a dimmer future than their parents had at the same age, you can understand why when politicians say things like “Make America great again” which resonates with people – Young Americans Are Giving Up on Getting Rich. Rich is a very relative term and research shows that we compare ourselves to people who we interact with on a daily basis instead of looking at things in a more global perspective, we also forget what things were like 50 or 100 years ago.

Have a look at what the financial position of people interviewed looked like. I think people either don’t know how much they save or they are answering what they would like the answer to be. Research done 4 years ago found that only 36% of Americans had $1000 in savings that they could access immediately.

The globe is getting smaller and one of the results is that people now don’t always live in the city where they work. In South Africa I know there are executives who live in the Cape and work in Johannesburg during the week – Extreme commuting: When a 10-hour transcontinental flight is just another trip to the office


Home again, home again, jiggety-jog. Stocks in Hong Kong, China and Japan are all higher, US futures are marginally higher. The World Bank, for what it is worth, has downgraded Chinese growth for this year to 6.9 percent. That is still a whole lot bigger and better than Europe, the UK or even us here for that matter. Good news, according to the same World Bank, who have adjusted the world poverty level to 1.90 Dollars a day per person, we are now set to be below 10 percent of the globes population. 700 million people who live below the poverty line, they don’t care about the 1.90 Dollars level.

Glencore shares were up nearly 70 percent in Hong Kong, another mother of short squeezes probably, as a weekend report suggested that they may be open to takeovers. The more likely scenario is that they could sell their entire agricultural business for 7 odd billion Dollars, according to a FT article this morning. The stock is up now “only” thirty percent, Glencore said that they were/are unaware of why the share price should go up so much. Volatile, very, very volatile. That should lend a hand to give us a boost this morning, plus the better close Wall Street Friday.


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

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