Nike Spikey!

 

“The current 8 billion Dollar repurchase program will finish in fiscal year 2016, that is when the next one will start. This is a pretty aggressive buyback by historic standards, the release quotes CEO Mark Parker (not related to Spiderman) as saying the company has returned 23 billion Dollars to shareholders over 14 years. This buyback represents 50 percent of all the buybacks in the last decade and a half.”


 

To market to market to buy a fat pig. It was all go yesterday, on the local front whilst the president was fielding questions in parliament the Reserve Bank governor, Lesetja Kganyago was painting a less “pretty” picture about economic conditions and pending inflation. Whether or not you agree that trying to pre-empt the Fed rate hike is a good or bad idea, with inflation pretty benign and the growth outlook deteriorating, who raises rates now? I guess the weather conditions being what they are, good price inflation could look worse at the end of summer. Ideally if the rain started to fall shortly, in the next few weeks, things would look a little better. Having chatted to a farmer client (about all things from why Malthus was wrong to hike rates), things still look bleak for crops in the KZN midlands, notwithstanding a week of rain up here on the highveld. Which we are really grateful for!

The whole idea that the local reserve bank can influence the currency with a great deal of accuracy remains to be seen. Countries with far bigger arsenals than ourselves have tried and failed, most recently Russia, and Brazil. Fix the economy, make it more business friendly, tax receipts will rise, remain fiscally prudent and budgets will look extraordinary from whence they were. Gear up for full employment, take the road that capital follows and all will fall into place. I suppose in fairness to the SARB, that is something outside of their control. Their mandate is to keep inflation inside of the band, they are the folks tasked with the job, we should all feel that they are best placed to make these decisions. After all, they are the committee that live with their decisions. So perhaps, after giving them stick, they are perfectly inside of their mandate of keeping inflation in check. Tell that to many folks with distressed credit records.

At the end of the trading session here in Jozi, Jozi, stocks as a collective were up nearly 0.9 percent, massive moves from some of the resource stocks prompted that, GoldFields up a whopping (nearly) 17 percent on much more favourably received results than expected, Amplats an equally astonishing 12.38 percent, I did see a broker upgrade suggesting the worst had past. There were strong moves from Sasol, South32, as well as being results driven by the likes of Investec, that roared ahead 7.28 percent, the second biggest winner amongst big caps on the day. The banks rallied sharply, perhaps the extra interest income (25 basis points more, courtesy of the SARB) is being cheered by investors, FirstRand up 4.25 percent, Barclays Africa a smidgen more than that and Standard Bank rallied 3.59 percent. Nedbank lagged their peers on the day, up “only” 3 percent. In fairness to the SARB, the rate hike of 25 basis points yesterday has seen the Rand improve to 14 flat to the Dollar today. Off the worst levels of around 14.40 only a week ago.

The conclusion of this Economist article, Brazilian waxing and waning is perhaps not too dissimilar to our current economic path, and suggests after all the doom and gloom, “As a result, Brazil’s economy may take a while to heal.” True, we will get there too. Unfortunately it requires the political will to join the global village of economies. And by that I mean reforms, realisations that the world does not end at the Limpopo River. We are awesome, we are not exactly the awesomest.

Over the seas and far away in New York, New York, stocks did little else as a collective other than to hang on to the heroic gains from the session prior. Which I guess is in itself something, right? Whilst the major indices closed all marginally lower, the week thus far has been a good one, notwithstanding the dreadful events that have transpired globally, innocents having been subjected to what are essentially crimes against humanity. Whether you are in Kano or Paris, the outcome is the same and the motives are the same.


 

Company corner

Naspers released a trading statement this morning. Seeing as the company is always pretty hard to value as a function of the outlandish sized (in Rand terms) position in Tencent (They own 33.85 percent of the Chinese internet/entertainment company), the numbers sometimes don’t represent the full picture. Here goes, anyhow, the trading update this morning: “We expect core headline earnings per share to be between 37% (2 093 cents) and 42% (2 170 cents) higher than the comparable period’s 1 528 cents. Shareholders are reminded that the board considers core headline earnings an appropriate indicator of the sustainable operating performance of the group, as it adjusts for non-recurring and non-operational items.”

That still means for the “purists”, who wouldn’t want to own them at 500 Rand, 1000 Rand, 1500 Rand or even the closing price of 2149.18 Rand last evening, that on a 50 plus multiple (if you annualise these earnings) that the stock is still wildly expensive. Interesting to note however that the stock is actually cheaper on a fundamental basis than it was before. In other words, even though the stock price has gone up sharply, earnings have caught up sharply. The full half year results are expected to be released on the 27th of November, next Friday.

There is more in the trading update: “It is expected that earnings per share for the six months ended 30 September 2015, will be between 10% (2 023 cents) and 15% (1 911 cents) lower compared to the prior period’s 2 248 cents.” Most of this is likely as a result of heavy spend in their ecommerce business, ramping that up sharply. If you could compare that division to another at a global level, you would have to say Amazon. Amazon are spending like crazy to build a huge network, in order to roll out the biggest retailer known to mankind, it may take another decade and a half, I am sure it is bound to happen, when Amazon profits eclipse those of Walmart. I am not too sure what to make of the numbers, at face value it looks pretty decent. And Tencent is completely flat, so, for all intents and purposes, the move from Naspers today might well actually look directly at these numbers.


 

Nike had a big announcement last evening, sending the stock up over three and a half percent in the aftermarket. Why, what, where? The release tells you everything: Nike, inc. announces new $12 billion share repurchase program, 14 percent increase in quarterly dividend and two-for-one stock split. The current 8 billion Dollar repurchase program will finish in fiscal year 2016, that is when the next one will start. This is a pretty aggressive buyback by historic standards, the release quotes CEO Mark Parker (not related to Spiderman) as saying the company has returned 23 billion Dollars to shareholders over 14 years.

This buyback represents 50 percent of all the buybacks in the last decade and a half. And more impressive is that 12 billion is to the current market cap of 107 billion a healthy 11.2 percent. Which means that once the shares have been bought back, the company will report results on less than 90 percent of the current shares in issue, if of course they get to buy them at current prices. Whilst the dividend has been hiked to 32 cents, at the two for one split it is 16 cents, an annualised 64 cents on a share price of 65 Dollars (half of the current 130 Dollars), not even one percent yield before tax. You certainly are not owning this business for the yield, rather you are owning the business for the growth prospects. Nike stock will begin trading on the split adjusted basis on the 24th of December this year. An early Christmas present for sure!!


 

Linkfest, lap it up

As people get richer and as technology improves there are trickle down benefits – Swaziland close to eliminating malaria. Its great to see the progress being made, as malaria mostly effects the poor.

Sticking with our neighbouring countriesBiggest Diamond in More Than a Century Discovered in Botswana.

It is amazing what machines can learn to do. Given the rise in organic branded food, this Robot will go a long way to helping farmers get maximum yield from their land – This robot kills weeds, and could end the need for herbicides on farms

Something light for a Friday. There are few things that are more painful than stepping on a Lego block, now there is a solution – Lego has invented a slipper to prevent injury-by-Lego


 

Home again, home again, jiggety-jog. Stocks across Asia are flat too, I am guessing that is the way that we will start ourselves here in Jozi. Pirates must win smartly this weekend and not concede a goal, it would be awesome to have another star on the jersey! Did you see Jack Dorsey’s other business called Square which IPO’ed yesterday, the stock closed up 45 percent, the company attracted a pretty high profile listing parade, it raised not even one quarter of a billion Dollars. And to think that I read that IPO fatigue had set in, not quite.


 

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

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