Joffe and Buffett


“And then the all important Foodservice business, which grew revenues by 14.6 percent to 68.2 billion Rand, 30.3 billion Rand of that is the UK (up 27.3 percent increase on the comparable half), 14.4 billion Rand is Europe (up 13.4 percent), whilst Australasia was disappointing, revenues falling 2 percent to 14.5 billion Rand. The balance is the emerging market segment, which includes China.”


To market to market to buy a fat pig Leap day finished, I don’t know any leapers, those are folks that have their birthday on the 29th of February. A friend of mine got close, a couple in fact are born on both the 28th of Feb and 1 March. Nothing on the 29th. It is a problem when you have very few real life and even fewer Facebook friends. Poor me. My rule of thumb on Facebook is to make sure that you must go out of your way to at least wish your “friends” happy birthday. Yes.

Stocks in New York, New York slipped from their best levels in the middle of the session, where they were around four-tenths of a percent higher to slip into the close, down around three-quarters of a percent. Dragged lower unfortunately by healthcare stocks, namely one big biotechnology stock in the form of Valeant Pharma, that companies share price sank 18.44 percent on the day as news arrived that the company was restating results, plus the CEO had returned from medical leave. They had also canceled their conference call to discuss their results. And then the bombshell -> Valeant Under Investigation by SEC. I wonder what is going to happen now. Valeant on a price to sales metrics looks cheaper than many of their competitors, this may well be a defining moment in their history. Eish. Unfortunately this had a negative impact on all the stocks across the sector.

Fun arose during the course of the afternoon yesterday, Warren Buffett following on from the Berkshire results gave an exclusive to CNBC from his home town. Him and Charlie called politicians on both sides of the fence crazy. Warren Buffett CNBC Transcript, Feb 29, 2016. It is long and fragmented, it is however always worth a read. He always has some juicy pieces in there, and always takes his history into the equation:

“And– just take the 20th century. Stocks went from $66, the dollar average, $66 to $11,497 and– and you were getting three times as much in dividends as the whole average were selling for at the start. And you had– you had two world wars and you had a Great Depression, flu epidemics, all kinds of things. Yeah.”


It is always going to look average in the moment, when you take a longer date timeline, which you should, returns are always more significant than they were. Buffet is amazing, the clout that he has over ordinary people quite simply when he says the same thing. It is funny like that, loads of people might say it, when Buffett says it, it is almost gospel.

Locally, in Jozi, Jozi stocks ended about flat. Barclays Africa Group have been under scrutiny from the market yesterday, that rolls into today, where the parent company have said that they are going to be selling their stake. In the Barclays (Parent) company’s results this morning: “Intention to sell down stake in Barclays Africa Group Limited (BAGL) to a level which permits accounting and regulatory deconsolidation over the next two to three years” I guess that means that they are going to sell them to suitors, or to sell them in the market. Which explains why Barclays Africa (the old ABSA) was down nearly 6 percent yesterday. Jumping all over the place today, R141 a share as we write. On nearly 17 Rand worth of earnings and a dividend (pre tax) of 10 Rand a share. Wow. Makes you wonder where the floor is. Time will tell.


Company corner

Bidvest reported numbers yesterday morning before the market opened. We laughed in the office, there are supposedly so many similar characteristics when comparing arguably the best allocator of capital ever, Warren Buffett and Bidvest founder Brian Joffe, one of the best allocators of capital this country has seen. At least for the last generation, he has certainly done an amazing job, Joffe. The two companies reported on the same weekend, that can’t be a coincidence, it was meant to be, hence the fact that we were having a good chuckle, Joffe often is called South Africa’s Buffett.

Some of the numbers quickly, this was for the first half of their 2016 financial year, ending 31 December. Turnover for the half was 114.5 billion Rand, an increase of 9.6 percent, headline earnings per share increased 13 percent to 1001.5 cents. The dividend increased by marginally more than that, up to 482 cents per share. Net asset value (NAV) climbed 22.2 percent to 128.97 Rand a share. The Buffett metric that he always uses is that if the share price of Berkshire falls to less than 120 percent of book value, he is happy to buy shares back. NAV and book value are two very different things. It is however not unusual for quite a few holding companies to trade at a premium to their NAV. In this case, with the Bidvest share price closing at 357.29 Rand, the stock trades at a significant premium to their NAV.

Segmental breakdown quickly, firstly in terms of sales from South Africa, which contributes 45.2 billion of group turnover, automotive had understandably a tough year, registering a fall of 1.1 percent to 12.149 billion Rand. That division includes dealerships for almost every brand South African motor vehicle enthusiasts could ever think of, from Alfa Romeo to Toyota, Ford to BMW. It also includes Burchmores and McCarthy. The biggest business in terms of revenue contributions on South Africa is Freight, again this business had a real tough year, up only 1.7 percent when measured against the prior half year. As a separate division, the South African business managed to increase revenues by only 3.1 percent for the first half.

And then the all important Foodservice business, which grew revenues by 14.6 percent to 68.2 billion Rand, 30.3 billion Rand of that is the UK (up 27.3 percent increase on the comparable half), 14.4 billion Rand is Europe (up 13.4 percent), whilst Australasia was disappointing, revenues falling 2 percent to 14.5 billion Rand. The balance is the emerging market segment, which includes China. This business is going to be separately listed on the JSE after being unbundled from Bidvest, shareholders and the regulators have to give it the stamp of approval. From a profits point of view, the South African business, as you can see has lower revenues, higher trading profits. Here is the segmental breakdown of trading profit. It is important to note that the overseas businesses were flattered by the Rand weakness, relative to the Euro, the Pound and of course the Dollar (Asia).

The first thing I noticed is that relative to some of the other foodservice businesses, the Australian one is very profitable. It has higher trading profits than the UK business on less than half of the turnover. Equally the emerging market segment is quite profitable. So is the South African business. Which one has better growth prospects, however? Obviously the global Foodservice business, and I think that as a separately listed entity it may garner a higher multiple.

Does Bidvest however have peers in the global foodservice business? In the US there is a business that is roughly three and a half times bigger than Bidvest, Sysco, which trades on quite a demanding multiple of above 30 times historic, that unwinds to 22 in the current financial year. The yield is not bad at 2.8 percent currently. And forward to next year the multiple unwinds even further to less than 20 times. There is an unlisted business called Dot Foods, revenues of more than 5.5 billion Dollars makes them bigger than Bidvest. Unlisted however. There is another business called Houston’s Inc. in the US that is also a competitor. Unlisted again. Equally, another business called Lagasse, Inc. the same applies, in the US and no listing. Wow. Makes you wonder whether or not Bidvest can do this expansion, if they want to have a go in the US. Big market though!

There is a big business in Europe (it is quite global too) called BRF, it is a Brazilian business in terms of its roots. The ADR listing according to Google finance says that the company trades on a 18 multiple, the market cap is over 10 billion Dollars, it is bigger than Bidvest. The share price in Dollar terms for BRF is down 44 percent over the last 12 months. I guess all of these businesses compare favourably to Bidvest, they do have on their side the ability to grow in Europe and Asia, which are different for two reasons. One, formal food services businesses have loads of room to grow, and secondly, perhaps there are cheaper businesses in Europe that are up for grabs. i.e. Cheaper prices, as Bidvest have demonstrated they can obtain.

Brian Joffe is however going to step down as CEO of Bidvest, he no doubt will be there in the background in a Jannie Mouton is to PSG type mould. Lindsay Ralphs who is head of the South African business is going to lead the new company, he is not that much younger than Brian Joffe, less than a decade. Joffe will stay on as an executive chairman in the foodservice business (and a non-exec in the Bidvest local assets), dealing with acquisitions as and when they arrive. Here goes a CNBC interview, where Bronwyn Nielsen interviews Brian Joffe -> Bidvest’s founder Brian Joffe explains his future role in the group. Our first instinct is to hold the Foodservice business when it is unbundled and scrutinise the local business, seeing what value unlock there could be in the short to medium term.


Linkfest, lap it up

Africa is leading the way with mobile banking, Kenya already does 1/3 of their GDP over mobile money platforms. Somalia is the next African country to go mobile – More phones, few banks and years of instability are transforming Somalia to a cashless society. Data collected indicated that 40% of adults have a mobile money account. I was shocked to see that the GDP of Somalia was only $5.7 billion, to put that into context RSA has a GDP of around $300 billion and Buffett just reported a profit of $24 billion.

Information security is a growing space, with one of the big problems being insecure passwords. Biometrics allows us to bypass passwords (so no need to remember them or have weak passwords) and goes straight to your unique features – MasterCard Wants You To Pay For Stuff With Selfies. I think I will stick with a fingerprint scan for now.

I remember when Android came out it was a bit of a non-event due to the dominance of Blackberry – Android and iOS Are the Last Two Standing. Even though iOS only has around 16% of the market, Apple makes over 90% of the profits in the smartphone industry.

Infographic: Android and iOS Are the Last Two Standing | Statista
You will find more statistics at Statista

Google’s self driving car got into an “accident”, or a scrape really. Nobody was hurt or injured. The car did all that was asked of it, trying to get into a space that easily complied with the algorithm, the bus driver behind just had no manners and bumped it. The FT explains in this post: Google driverless car in road accident. Google said that they had updated their code to more deeply understand that buses and other large vehicles are less likely to yield to the driverless car than other ordinary passenger vehicles. Be nice out there, see!


Home again, home again, jiggety-jog. We will cover Steinhoff, their results were favourably received yesterday, “things” are going just fine for the time being. Stocks are mixed at the open here, stocks across Asia have done far better, Chinese PMI data was the worst in around half a decade. Yesterday the PBOC was in the business of easing, by cutting the Reserve Ratio Requirement. For the time being, a little wobble here, I do think that global confidence is returning a little.

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

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