All foam and no beer

“Phew, I don’t know, the board might be putting on a brave face here, the main shareholder, Altria, have told the board they support the take over. Perhaps this is just grandstanding, trying to eke out a little more. It could end badly however.”


To market to market to buy a fat pig. Another day of gains for the local exchange, this time it was led largely by the resources, those company share prices were flying. Admittedly off a lower base. Anglo American was up over 11 percent, Glencore up over nine and a half percent, BHP Billiton up nearly five percent, it was all happening for the mining houses. Year to date however, the picture is still looking pretty bleak, Anglo down 36 percent, Glencore has had their fair share of problems, down 51 percent year to date and lastly of those stocks, BHP Billiton the best of the bad bunch, down only 7.6 percent. If only really were only.

Lonmin shares were up an astonishing 27 percent, yet amazing (and true) they are still down 78 percent. Why were these stocks up so much yesterday? Particularly in light of worse than anticipated German numbers? Is it really as simple as the US Fed keeping interest rates on hold? If that is the case, that hardly seems like something has fundamentally changed overnight and someone has flicked a switch. Supply is plentiful, demand remains, it is however not growing at the same rates as in the past. I saw Glencore urging the competition to close uncompetitive mines. I wish it was that easy, for the sake of price stability and price discovery. Nobody wants to turn off the taps, it is only when “things” get desperate that this is likely to happen. And until such a time, we will remain in a lower-for-longer price environment.

Impala Platinum referred to this yesterday, as they revealed that their placement of 102 million shares had raised 4 billion Rand, at a low price of 39 Rand. I guess when they first announced it, the lowest price was somewhere in the region of the mid twenties. I wonder who participated in the 16.2 percent new shares? The money will be used to complete shafts 16 and 20 at the Impala Lease Area. These shafts are part of the future of the business, known as the “triple build-up” and include shaft 17, these are not too far north of Rustenburg. Headwinds from all directions have forced the company to raise money at depressed prices, something all of their competitors have had to deal with. They have to press on regardless, even if the future of the diesel motor is being questioned.

The main news of the day however was the announcement of the Rejection of proposal from Anheuser-Busch InBev SA/NV by the SABMiller board. Quite simply the board said “it still very substantially undervalues SABMiller, its unique and unmatched footprint, and its standalone prospects.” You know what happens when the bid falls away? Remember Syngenta and Monsanto? Since the bid fell away, the stock is down about 18 percent. And Syngenta trades on a 21 multiple, at the higher bid price, SABMiller would be trading on a nearly 30 multiple with volume growth of 2 percent. Phew, I don’t know, the board might be putting on a brave face here, the main shareholder, Altria, have told the board they support the take over. Perhaps this is just grandstanding, trying to eke out a little more. It could end badly however.

Over the seas and far away in New York, New York, stocks enjoyed a surge from energy and materials, that sent the broader indices all comfortably higher. General Electric had another great session, the bluest of blue chips, lean in a little here, is up 11.32 percent over the last five sessions. At the opposite end of the spectrum, deep in loser territory (on the day, for stocks) Yum! Brands were absolutely crushed, the main problem was that their KFC brand in China showed only 2 percent growth, Pizza Hut was marginally lower in terms of sales. Ouch, the stock down 18.88 percent. This does raise concerns about the broader concerns around Chinese growth, consumption was supposed to lead us higher. Although, Nike were amazing in their recent sales update from China, could it be part of some of the issues that the brand has had with their chicken? Not sure, we will just have to wait and see.


Company corner

A pretty innocuous announcement from Bidvest yesterday that possibly has longer lasting implications for the future of the business is definitely worth dissecting. I for one, at a separate level, am so glad that the succession arguments have gone away. For one, Buffett and Munger have a collective 175 years between them, Brian Joffe is only 68. And whilst Berkshire is 50 years old, Bidvest is “only” 27 this year, having started with food businesses Chipkins and Sea World. Yet the team, led by Joffe has managed to build an empire that is now worth 115 billion Rand, something that is really sizeable, with annual revenues in excess of 200 billion Rand.

As long as the board want Brian Joffe, as long as he wants the job, we should expect him around for a few more years at least. You could argue that any of the lieutenants could do a good job, David Cleasby, the financial director has been there for nearly a decade and a half, he is in his early 50’s. Bernard Berson has been at Bidvest for nearly 2 decades, he is just 50. There is also Anthony Dawe, his is nearly 50 and will have run the Bidvest Freight division for 10 years next year. Plenty of talent around.

That also includes Mpumi Madisa, a rising star at Bidvest, she is in her mid thirties, she has only been at the group for a couple of years. Another lifer at the business Lindsay Ralphs is possibly around 60 (he runs the South African business) too old, with all due respect. What do I know, the release suggests that Lindsay and Bernard can express their “entrepreneurial flair and take direct responsibility and accountability for the performance and growth of their companies” Perhaps Lindsay gives it horns day in and day out.

The announcement I am referring to is titled The Bidvest Group Limited formalises internal restructuring. It is simply splitting the business into three segments, Bidvest Industrial Holdings (BIH), which houses the current Bidvest South Africa and the Namibia interests. At the full year stage this business as a collective would have revenues of 91.3 billion Rand and trading profits of 5.546 billion Rand.

Then there is the more sizeable Bidvest Foodservice International Limited (BFI), which has all the foodservice businesses, local, Europe, UK and Asia Pacific, as well as recent South American forays. Total revenue at the full year stage for the Food Services business was 116.5 billion Rand, with trading profits of 3.986 billion Rand. Lastly, there is a business called Bidvest Capital Proprietary Limited (BC) which are the South African properties and all the companies that Bidvest does not have a majority stake in. Adcock, Comair, Cullinan and Mumbai Airport.

What is all this for? For the past few years the company has been reporting almost in this manner. Is this part of a bigger push and a chance to be more aggressive in defined areas? Some changes are just cosmetic, I suspect that this is the complete opposite, a re-energised Bidvest board, more focused strategies and more responsibilities for what has been one of the greatest entrepreneurial South African company stories of our time. We continue to accumulate Bidvest.


Linkfest, lap it up

Having a look at photos from days gone by helps us put things into perspective – Yale just released 170,000 government photos of the Great Depression.

This is why regulators and tax authorities will always be one step behind – The inaugural Luxembourg tax-avoidance power rankings. There is currently a big push from the international community to standardise tax codes around the world, which will make many of these tax structures ineffective. Loopholes exist because tax codes for each country were developed in isolation of other countries. This has resulted in mismatches of clarification and treatment of many things.

As an Apple shareholder, headlines like this naturally catch my eye. The analyst has gone into some detail about the watch and what its future may look like. I have no doubt that wearable tech will start to play an ever increasing role in our lives, especially when it comes to health data being collected by the device. The big test for the Apple watch going forward will be its longevity, spending $350 on a watch that can last 5 years seems a bit more reasonable than spending $350 on a watch that only lasts 2 – Apple Watch Is Being Severely Underestimated

One of the reasons that dividend yields have kept up with share prices is because of the increase in profits. Having a look at profit margins for the US economy in aggregate they have been on the rise – Why Are Corporate Profit Margins So High?


Home again, home again, jiggety-jog. Chinese stocks are up like crazy, Japanese stocks are down a percent, as are the stocks in Hong Kong. There is a small matter of the Federal Reserve minutes release a little later this evening, for the markets that is far more important than the Springboks advancing to the next round of RWC. Well done to KES’ finest, Bryan Habana, who equalled Jonah Lomu’s record of WC tries. The purists will argue that Habana has had an extra World Cup, they can also go and see how many world cups Lomu has won, whilst they are at it, ok?


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

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