Anglo Mondi Parity

 

“Now here is the amazing part, fast forward to present day where Mondi Plc and Mondi Limited has a collective market capitalisation of 118 billion Rand, Anglo American has a market cap of 124.6 billion Rand. Your 91 Anglo American shares (at 88.71) are worth only 8072.61 Rand at last evenings close, your 25 Mondi Plc shares (321.70 Rand a share) are now worth 8042.5 Rand, whilst your 10 Mondi Limited shares (at 319.85 Rand a share) are now worth 3198.50 Rand, collectively the Mondi shares are 11241 Rand, your Anglo American shares are worth a whole lot less I am afraid to say.”


 

To market to market to buy a fat pig. We closed higher yesterday locally, not by much though. Up nearly one-fifth on the day, there really was a massive divergence between the stocks that were up and those that were down. Again, there was sector specific selling in commodity stocks, Anglo American was at about the lowest price in Rand terms for a decade and a half, I think. I can’t recall seeing an Anglo American price below 90 Rand, not in the time that I have been in this industry.

I recall in May of 2003 saying to a then colleague, quickly, get them, they are below 100 Rand. Since then they have unbundled Mondi, though the company acquired a large stake in Kumba Iron Ore. I am not too sure, talking of Kumba Iron, that you can see such a change in fortunes for a specific company. In 2014, the company paid around 35 Rand in dividends. The share price is currently 47.35 Rand. And no, expect not a single cent in dividends this year. And none on the horizon, the iron ore price is visiting lows last seen in 2009.

The short term graph of iron ore prices looks ugly, the price this morning of iron ore indicates more pain, there is a story from the Sydney Morning Herald that has a headline that looks all wrong to me: ASX falls on global unrest, record low iron ore prices. Record low? Err …… No. The price of iron ore was fluctuating between 11 and 14 Dollars a ton from the early eighties for a period of twenty years. Mind you, the commentary from the quoted person in the article around trading ranges, the Christmas effect, low conviction as a result of lower volumes. It really is SMH (Shake my head).

The most amazing thing in all of this for me is the Mondi unbundling from Anglo American in the middle of 2007, and I will tell you why in a second, see this document from Mondi -> Anglo American plc demerger of Mondi. For every 100 Anglo shares you had (old), you got 91 new Anglo shares and 10 Mondi limited, as well as 25 Mondi plc. 100 Anglo shares in the middle of July 2007 were worth 470 Rand a share each, so about 47 thousand Rand at the time. The 25 Mondi Plc. shares would have been worth 1621 Rand at the beginning (at around 65 Rand a share), the 10 Mondi Limited shares were worth just short of 800 Rand, not exactly a kings ransom here.

Now here is the amazing part, fast forward to present day where Mondi Plc and Mondi Limited has a collective market capitalisation of 118 billion Rand, Anglo American has a market cap of 124.6 billion Rand. Your 91 Anglo American shares (at 88.71) are worth only 8072.61 Rand at last evenings close, your 25 Mondi Plc shares (321.70 Rand a share) are now worth 8042.5 Rand, whilst your 10 Mondi Limited shares (at 319.85 Rand a share) are now worth 3198.50 Rand, collectively the Mondi shares are 11241 Rand, your Anglo American shares are worth a whole lot less I am afraid to say.

A tale of two very different companies in two very different operating environments, where just a decade back they were one and the same. Still, your 47 thousand Rand has turned into less than 20 thousand Rand in a time that the index has definitely done better. Ironically, if you had to ask now which company has the better prospects, I would think that paper and packaging has a better fist of it in the short to medium terms.

And then when you see stories like this one, perhaps a kite flying expedition, reported on Bloomberg: De Beers IPO Could Fetch $10 Billion for Anglo, HSBC Says. As HSBC say, Anglo are waiting for a cyclical recovery before they proceed. Which leads me to believe that dividends from all the majors are under threat.

The market is telling you exactly that, with BHP Billiton trading on a historic dividend yield (in London, in Pounds) of 9.6 percent, that seems too good to be true. Clearly if Mr. Market believed that next year, in a zero interest rate environment, that the company would give you 1 pence for every ten invested, the stock would be snapped up quickly. With predictions of iron ore prices in the 30’s (Dollars per ton), the progressive dividend policy is likely to be slashed. I am thinking that BHP’s ability to meet some sort of dividend is far superior than Anglo, we continue to however avoid the whole sector. It may take a number of years before the pain passes, it will have to mean many closures for smaller operators, including in the steel industry. Sigh, the deep cycles, when you are at the highs, nothing could ever go wrong.

Over the seas and far away, in New York, New York, blue chips and the broader market really ended flat. Really, they did. Often you can say mixed and lower, in this case you really, really can. The Dow Jones Industrial average closed up 0.01 percent, the broader market S&P 500 closed 0.01 percent lower. Tech stocks, the nerds of NASDAQ, added one quarter of a percent. There was still much global geopolitical risk watching, the exchanges between Turkey and Russia are still front and centre. The French president has been in Washington, he is off to Moscow today as far as I understand it, to deal with the same issues plaguing much of the world, terrorism. Calm has obviously been the order of the day, good news. I had noticed that both Allergan and Pfizer both advanced nearly 3 percent, will the deal happen? The market tells you that there is uncertainty, that seemed to be the most action in a relatively quiet day.


 

Linkfest, lap it up

It would seem that history points toward a good time for stocks after an interest rate hike. A rise in interest rates normally is coupled with a strong underlying economy. Another reason is from a phycological angle where once the interest rate rising cycle starts, it creates some form of certainty for investors. None of the current back and forth of “Will they, Won’t they?” – What History Says About Fed Rate Hike Cycles And Stocks. The circumstances in days gone by when interest rates were hiked previously are by no means the same as they are now, as Sasha always says: “How many iPhones did they sell back then?”

This will be huge for renewable energy and more so for coal producers – Solar power may be cheaper than coal in India by 2020. India is the second biggest country and there is a quiet hope that they will manage to straighten a few things out and get the huge growth that we have seen from China. Based on current trends, it would seem that the growth will be powered by renewable energy and that a huge spike in coal prices is not on the cards.

What consumer technology are the people at Apple dreaming up with the purchase of this company – Apple confirms it bought a motion capture startup used in Star Wars. The company does real-time facial animation, where the camera takes your facial expression and imposes it on an animated character. My guess is that Apple has a plan for the facial recognition part of the software.

Is this one way to bring down health costs? Having 4 birds take a look at the images, they managed to have 99% success rate. The article does not give what the human success rate is but even doctors make mistakes – Pigeons identify breast cancer ‘as well as humans’. Would you be happy for a bird to decide if you have cancer or not?


 

Home again, home again, jiggety-jog. Stocks have started better this morning, stocks across Asia are mixed to better. The futures market is slightly higher, which is where we would love the cricket match to be. Everyone is bleating about that pitch. I have read literature about uncovered pitches, the equipment is better. It can’t always be suited for batters, not so? It is Thanksgiving today, I do not plan on eating any turkey, it is not part of my scene. Black Friday tomorrow, perhaps that is many peoples scene, shopping, people love that stuff. I did notice that several of our local online retailers started pushing Black Friday. It is going to be quiet out there, on account of US markets being closed today and then half day tomorrow.


 

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

Email us

Follow Sasha, Michael, Byron and Paul on Twitter

078 533 1063

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s