Steinhoff goes back to it’s Roots


“Talking of a lack of uncertainty, this is crystal clear, the company also announced late Friday that their shares are expected to debut on the Frankfurt exchange today. Management are expected to attend. Talk about a bad start and having to try and convince a very nervous subset of German investors, their confidence is shaken in recent times. The German way is one of compliance, high standards and being conservative. “


To market to market to buy a fat pig. A day of two halves for us, watching markets in two different places isn’t normally that different. The timing of the agricultural led idea of daylight savings is not good for Jozi markets during the winter months, we only catch half an hour of trade into the close here, and ten minutes locally is spent in auction. The futures market here locally gets the benefits of around an extra half an hour, in reality however we are really behind. I guess it could be worse, you could be in Asia and not cross over with the US markets ever, so perhaps there shouldn’t be any complaining. No, never complain.

Markets locally tumbled Friday, stocks as a collective were thumped over two and one quarter of a percent. Why? There were some big stories that we will deal with in a moment, Steinhoff was one of them, MTN, we spoke about the NCC flip flopping on Thursday and then Friday again, and then Naspers was sold off heavily as a result of raising more cash through an equity issuance. There was a single stock up in the entire ALSI 40, and that was SABMiller, that company of course has the underpin of the pending deal with AB InBev.

The stock as such will trade in-between now and then (when the deal is closed) and will act more as a proxy of time value of money, relative to the certainty (and as such the closing of the gap between current and the offer price) of the deal happening. And what I mean by that is that the certainty of the deal being closed, i.e. all parties able to jump through the relative regulatory and shareholder hoops. Or clear the hurdles, whichever one you prefer. And of course here in Jozi the currency will be a factor. Over the last five trading sessions, in other words last week, SABMiller in London is up 0.17 percent, in South Africa it is not too different, up a little over one-third of a percent. Over the last five years however, SABMiller has advanced 277 percent in Rand terms and nearly 90 percent in Pound Sterling terms, the rest of the Rand movements attributable to the weaker local (and by local I mean Rand) unit.

Talking of which, Fitch downgraded our credit rating as expected on Friday, with a negative outlook, meaning that a further deterioration in our fiscal position might see us edge down to junk status. Junk is a pretty harsh word, that is where Brazil are currently, I prefer non-investment grade. Either way you look at it, you can stick lipstick on a pig, it is still a pig. For most people the processed product is tasty, for some, not eating for religious reasons and for the tiny minority, people who keep pigs as pets (the famous Youtube star Esther the pig is an example), the pig is always beautiful. There is something for everyone. You know what the saying means, as unattractive as the pig is, putting lipstick on hardly helps. There must be a man reference in there somewhere, around pigs, rather than using lipstick.

As far as the company that we keep goes, a BBB- means that we rub shoulders with the likes of Romania, Russia, Turkey, Indonesia, India, Morocco and Brazil, a country which stinks real bad at the moment. For a full list, check this out: South Africa | Credit Rating, from Trading Economics, and then search for the BBB- rating, to see our neighbourhood. It is not the worst, what is interesting is that this measure includes a Trading Economics (see that TE) measure. By their standards we score a 50, out of a possible 100. Mexico for instance scores a 60, Denmark a 99, Venezuela a mere 6. Thailand a 62, China a 79. Greece scores a 9, which is awful, and to be expected currently. There is very little that you and I can do about our credit rating, so being upset about it may very well be energy misdirected. Rather, and we always say this, focus on the stocks that you are likely to own rather. That matters more to us.

Stocks lifted off sharply in the US on Friday evening, all the major indices were up over 2 percent on the day. Why? Finally good news on the employment front can be interpreted as such, good news. Sometimes Mr. Market tries to pre-empt any sort of move from either the Fed, or what earnings are likely to be, or what the budget is going to look like. And so on. In this case the Employment Situation Summary as it is known officially, the non-farm payrolls number, or jobs number, was a beat.

And revisions were higher, average hourly earnings in the US have risen 2.3 percent over the last year, comfortably ahead of inflation, which is basically non existent anywhere in the developed world. Mining, to put this into perspective, has shed 123 thousand jobs in the US over the last 11 months, total job gains have averaged 218 thousand per month for the last three months. In mining it has been tough out there. Talking of commodity prices, the oil price touched year lows Friday after OPEC failed to meet consensus on output targets. Even though the quotas suggest that the maximum must be 30 million barrels of oil a day, the reality is that they regularly go above that, somewhere around 31.5 million barrels. Tell the governments of those territories that they should cut production.

Someone made a good point on Twitter, oil prices are no longer determined by what happens in comfortable and cushy hotel rooms in Vienna, what matters is what happens on the demand side in China, the flow from the oil fields of the Bakken formation. Different times, the quotas are no longer as important as they once were, the fact may be as the Bloomberg article titled OPEC Unity Shattered as Saudi-Led Policy Leads to No Limits, points out, OPEC may well be dead in terms of their influence. It is gone.

That is what happens with monopolies like OPEC, people find other ways to either use alternatives or use less of the same thing, or extract it themselves. And if there is little evolution in terms of your strategy, then this happens. Pump baby until the others fall over. The problem is that you equally have budgets to balance. For the consumer using Dollars, this is wonderful news, an abundance of oil. Sadly for many emerging markets, they have not seen the real benefits as their currencies have been pounded. India are a huge benefactor of lower commodity prices. I wish we were.


Steinhoff stock was slammed Friday, the company put out a SENS early on what must have been one of the best kept secrets in a while. The stock was down seven and one quarter of a percent. Here goes, let me do a copy and paste: “In connection with tax investigations, the Westerstede offices of Steinhoff Europe Group Services GmbH (SEGS), a German subsidiary of SIHL, have been searched on November 26, 2015. The authorities are reviewing the balance sheet treatment of certain transactions involving transfers of participations and intangible assets among SEGS, additional subsidiaries and third parties pursuant to 331 HGB. The investigation focuses on adherence to an arms’ length valuation and proper accounting pursuant to German GAAP. SEGS is fully committed to support the authorities, and has begun to take immediate steps, in clarifying and resolving these matters.”

Westerstede looks like a nice little town in Lower Saxony, right in the North East of Germany, not too far from the border with the Netherlands. There is a very famous 4 yearly festival called the Rhodo festival, a springtime celebration of the rhododendron. Which as the avid gardeners amongst us know is a beautiful flower. Not such good smells emitting from the SENS announcement, equally a bad looking one at that. The group does state that they are cooperating and clarifying with the German tax authorities, I suspect that we should see some more in a while. Sooner rather than later, there is nobody I have ever met who likes uncertainty.

Talking of a lack of uncertainty, this is crystal clear, the company also announced late Friday that their shares are expected to debut on the Frankfurt exchange today. Management are expected to attend. Talk about a bad start and having to try and convince a very nervous subset of German investors, their confidence is shaken in recent times. The German way is one of compliance, high standards and being conservative. One would hope that there is nothing untoward in Steinhoff’s accounting methodologies, this is not something that is not known to the market. Markus Jooste is a driven individual, who wants to conquer the world, he works very hard on the business. And knowing that Christo Wiese has thrown in his lot with Marcus, that is pretty comforting for all shareholders. Christo Wiese just clocked the top of the richest list in South Africa. Whilst one should tread with caution, this is certainly an opportunity.


Naspers sold off sharply on Friday, the stock was down four and a half percent by the close. The first announcement regarding the capital raise was released on Thursday, you can find it here: Launch of an accelerated bookbuild of up to US$2.5bn, the second one was an announcement in no time at all, before the market opened on Friday.

You can find it in the same place, it was the conclusion of the capital raising: “Naspers is pleased to announce that it has successfully priced the Placing, raising gross proceeds of US$2.5bn. A total of 18,167,848 new Naspers N ordinary shares (the “Placing Shares”) were successfully placed with qualifying institutional investors at a price of ZAR 1,975 per share. The Placing Shares being issued represent approximately 4.3% of Naspers’s issued N ordinary share capital prior to the Capital Raising.”

There you go. That was the reason for the share price falling. I think that it is a good and bad thing. Using equity that is expensive, relative to what the markets thinks, feels not that great, being able to get it away in a heartbeat (before the market even opens) is a wonderful thing and represents a certain positive demand. We continue to recommend Naspers, good company making great progress.


Linkfest, lap it up

One of the best performing stocks this year, Amazon are pushing further to grow their distribution network. The Amazon stock is up 116% YTD which is an indication of their underlying growth and future growth expectations – Amazon Buys Thousands of Its Own Truck Trailers as Its Transportation Ambitions Grow

I’m not sure how you would do this practically if you want to watch TV/ movies in a group – The BBC wants to make movies that adapt to your interests. This may be a great market for Oculus virtual reality where people could watch a movie in the same room but have slightly different scenes.

This headline highlights the fate of Postal ServicesThe United States Postal Service will now email you your mail. The major growth area for postal services is the delivery aspect for online retailers, for the South African postal service it would mean that we have to get quicker, less handling damage and then delivery to your door step.


Home again, home again, jiggety-jog. All is never settled in the world, if you are going to wait for a moment to invest, you never will. I am reminded that recently Berkshire Hathaway in August embarked on a deal to buy Precision Castparts, in a deal valued at 37.2 billion Dollars, their biggest ever. That deal was announced on the 10th of August this year, the S&P 500 is at this level now that is was back then. So if the investment company that Berkshire own embark on their biggest ever (yes, biggest ever) investment at a premium back then, surely this trying to time the market thing is tiring?


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

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