Murray and Throberts

“One of the companies immediately fingered in the construction of that particular structure and therefore responsible in some way is/was Murray & Roberts. It is incredible how quickly the market works, the structure collapsed at around three thirty in the afternoon, by 4pm the stock started falling, and by the end of the day was down 7.3 percent. The company now has a market cap of less than five billion Rand, the slide this year to date is 47 percent, over five years the stock is down an astonishing 74.66 percent.”


To market to market to buy a fat pig. What a day, most especially away from the markets here in Jozi. Student protests at Wits on increased fees, the suspension of the Police commissioner and then possibly impacting on all Joburg resident, the tragic loss of life when the scaffolding next to Grayston Drive offramp collapsed. Tragic. And it is a reminder of how important infrastructure is, traffic snarled up across the city as a result, today the city will make buses in and around the impacted areas free of charge, well done, good response chaps.

One of the companies immediately fingered in the construction of that particular structure and therefore responsible in some way is/was Murray & Roberts. It is incredible how quickly the market works, the structure collapsed at around three thirty in the afternoon, by 4pm the stock started falling, and by the end of the day was down 7.3 percent. The company now has a market cap of less than five billion Rand, the slide this year to date is 47 percent, over five years the stock is down an astonishing 74.66 percent.

Even over a longer period it hardly looks pretty, down 40 percent in ten years. The share price is one-tenth of the highs from October 2007. The last time the share price was at this level was in the 2004 financial year. As a result of the cyclicality of the building cycle, I can see that at one stage the Murray & Roberts share price was as high at 28 Rand in 1996 financial year, as low as 190 cents in the 1999 financial year. Too cynical for you? I don’t blame you, one of the main reasons why we don’t own many of the quality (and highly skilled and necessary) businesses that operate in this sector of the economy. We are unable to reliably predict earnings. And the company did a serious rights issue in the 2012 financial year.

The main shareholders as at the end of June 2015 are as follows: Allan Gray at 18.86 percent, the Government Employees Pension Fund owns 17.75 percent, the PIC then owns another 13.44 percent, Coronation owned at that stage 11.1 percent and Sanlam owns 7.03 percent. The collective ownership of the business by these five shareholders is an astonishing 68.18 percent, with government employees pensions owning nearly one-third of the company. 310 shareholders own nearly 94 percent of the business, with a mere 72 owning 78 percent. The good and bad news is that the risks to the overall holdings (of government employees) is much smaller, as a result of having performed so poorly. What will this mean for their business? I fear very bad things. Worse things have happened to the victims families however, never forget that.

Hey, talking of things that did not turn out as planned, why did the share price of Mediclinic go up sharply at the beginning of the session (up at nearly 124 Rand at one stage) and then the stock by the end of the day was down nearly three percent, to close at 113.81 Rand? We know why the price went up sharply, remember from yesterday, a refresher Mediclinic and Al Noor to tie up. Why the stock went down was as a result of the NMC Health chaps (we spoke about that earlier) not taking no for an answer, who believe that their bid for Al Noor is superior. It has (in their words) “the strongest strategic and financial rationale for all stakeholders. We reiterate our commitment to this opportunity despite the lack of meaningful engagement from the Board of Al Noor.”

Now remember we highlighted the 20 percent shareholding by Ithmar, the private equity guys, they have not signed an irrevocable undertaking to vote in favour of Mediclinic. This could be one of two things, one that they are looking for more (we all want more Oliver Twist time) or two, they are hedging their bets for now, choosing to entertain the fellows from NMC Health. I think that an Al Noor shareholder may well be happy with being part of a giant structure that includes operations in Switzerland, the UK and of course South Africa. And more to the point, they would have doubled their money in a mere two years of having been listed. A 40 percent premium since the beginning of the month.

Al Noor actually traded higher than the offer price of 11.60 pounds (which includes part shares and a special dividend), up to 12 pounds. Perhaps some expecting NMC to counter with a higher price. I suspect that it may be a bridge too far for NMC, much smaller than Mediclinic and more importantly, if they wanted to do a scrip deal it would have to dilute them significantly (their stock is expensive). I guess that Ithmar may be swayed one way or another.

To off this little segment, the market in Jozi, Jozi traded down 4 whole points. Flat. Over the seas and far away, in New York, New York, stocks closed much lower, a big component of that move was as a result of a 10 percent drop in Walmart. In the CEO, Doug McMillon’s piece titled Why Walmart is Positioned to Win the Future of Retail, he says the following: “Earlier today we had the opportunity to connect with members of the investment community about our company’s future. The reaction by the market – while not what we’d hoped – was not entirely surprising. We’re making significant investments in our people and technology.”

The stock traded around 10 times what they normally trade, in terms of volumes. Perhaps Doug is right, this is an overreaction. They need to be in catchup mode, I have often said that I think if anyone could make use of their giant network and evolve into a business similar to Amazon, it could and should be them. I can’t think of too many retailers who sell to 260 million consumers around the world and have a physical store presence, they need to shift quickly to keep up with their customers.

Walmart had annual revenues of 485 billion Dollars last year, they are planning to add 60 billion over the next three years, which is not much less than Target annual revenues. The company has a price to sales ratio of 0.44 times, compare that to the fast growing Amazon, at 2.88 times. Amazon is a bigger company by market cap to Walmart, they are continually eating their lunch. And supper. The one thing Amazon do not have is the people of Walmart. The people of Amazon hide behind their cell phones. As you know well, we prefer Amazon.


Company corner

Yesterday we had numbers out of the US’s biggest bank by mortgage assets, Wells Fargo. As far as banks go this is one of the most boring out there, no big line items for fines, lawyer costs and trading loses. The result is the company chugs along, growing revenue and profits one quarter at a time.

Here are the numbers: Revenue of $21.8 billion up from $21.21 billion, profit up 1.2% to $1.05 a share or $5.8 billion, loans up 7.7% (YoY) to $903 billion, deposits up 6% (YoY) to $1.2 Trillion.

Some of the numbers beat expectations where others missed, the end result, shares basically flat for the day. Going back to August though the shares are down around 10% since then. Why? August was when people started talking about rates possibly not rising this year and the banking sector had been bought up in anticipation of a rates rise leading to higher profits for the banks.

The one negative aspect in the numbers was the increasing concern about loans extended to the energy sector, which in Wells Fargo’s case it is only 2% of their loan book. Wells Fargo has increased their provisions for possible bad loans to the sector, you would rather have the cover set aside than be in a situation where you need more cover than expected. This is still a stock that we are adding to, given it’s size it won’t shoot the lights out but will steadily grow as the US continues to get bigger.


Linkfest, lap it up

Great to see local players making waves. Having a fast stable internet connection is something that is increasingly important in our modern day and age – Investec invests in local fibre player

Without the possibility of losses there is no possibility of gains – Why the stock market has to go down. When governments want to meddle in the markets to try stabilise them, it creates incentives for people to take on more risk than they normally would have.

If you are on Twitter here is an account that you can follow – The winged terror of runners’ nightmares is back-with a parody Twitter account


Home again, home again, jiggety-jog. Stocks across Asia are higher, Shanghai is up sharply, as are Japanese stocks. Hong Kong stocks are up over two percent. Which is good news, we should expect a better outcome here today for stocks in general. Remember of course that we don’t own stocks in general.


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

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