“there are few places in life where you get an opportunity to own a little piece of genius, alongside founders and business champions, than in the equities market. Think about that, you can for a mere 137 Dollars, own a piece of Warren Buffett’s empire in a Berkshire B share. Where else can you participate?”
Don’t forget to get your Blunders fix for the week, the fourth instalment is about Barclays Plc., Walmart, Telkom and KFC -> Blunders – Episode 4. All rather fun, don’t you think!
To market to market to buy a fat pig Jozi, Jozi, what a heart stopping rally, another day of significant gains for the local equity markets, part results driven and part general mood driven. And of course, that factor that always currently makes markets go up, the oil price. The price of Brent and Nymex is clawing its way back from being, I don’t want it, to I can’t get enough of it. All the while folks are finding some pretty genius places to store large quantities, the newest is using the railway transportation. Still, we need the stuff each and every day, it is still the most important commodity for all of us globally, even if down here we are not all aware of Palm Oil or Cassava as being another folks staples.
Stocks here ended 1.6 percent better, we are now comfortably in the green for the year. The market acted favourably to a bunch of Standard Bank results that perhaps looked iffy at first glance, coming off a lowish base, that stock was sent much higher, up 6.3 percent by the close of business. A friend of mine in the industry expressed his surprise, asking me if he missed something. I answered less bad news, average is the new good. No negative surprises, they put on a brave face, and whilst the attendance at the results presentation didn’t seem completely full, the other one ongoing had our attention. In fact there were two other ones that grabbed our attention more than Standard Bank, namely Aspen Pharma in the afternoon and MTN during the course of the morning. We will chat about Aspen today and then sit and stew over the MTN results, at first glance it looks like they are dealing with the problems as best as they can.
Over the seas and far away, it was like deja vu (haven’t I seen you before?), stocks selling off and then rallying pretty sharply into the close, a two-thirds of a percent swing from the low point of the day to the close. Today of course will be the February non-farm payrolls numbers, at the point of release (and make sure your arm is bent less than 15 degrees – poor Aaron Phangiso), I am expected to be in the heart of the Kruger Park. Why? On my way to Byron’s wedding, that is right sports lovers, by this time on Sunday, Byron will have enjoyed his special day (more special for the new Mrs Lotter) and be relieved that everyone had a good time. As a community, we wish him all the best, exciting time. He will be away for a couple of weeks, back the Tuesday before Easter.
After the dust had settled, the Dow Jones had rallied one-quarter of a percent, the nerds of NASDAQ had snuck into the green with a very modest gain and the S&P 500 had added just over one-third of a percent to 1993, what a year! The market in the US is now down two and a half percent for the year, a decent jobs report would allay fears of a slow down in the US economy, the last time the S&P 500 had a 2 in front of it was January 5. Which in market terms, at the trading end of the spectrum is millennia ago. The depth of despair this year was February 11th, around three weeks ago, when the S&P was below 1830, the rally from there has been pretty breath taking. What to do? The usual, hold the line, keep the quality. Repeat.
Aspen Pharma released numbers yesterday afternoon, remembering that we covered their trading update a while ago -> Aspen Trading statement. That was pretty detailed, for a trading update. I guess the reason why we went into all the detail was simple, the stock has really performed badly. And often people refer to the company and the stock price as one and the same, we are all guilty of that. So, I guess when the share price is sliding away, there is something “wrong” with the company, when the stock price goes up, it has to be a “good one”. Human nature dictates this to be so, for many of us.
Herewith the Aspen Unaudited Interim Financial Results – Six Months December 2015 download, it certainly looks a whole lot better than the SENS release, which looks pretty average I’ll have you know. I wonder why the Stock Exchange News Service posts the message in such a garbled old manner, it really looks like 1970’s style publishing. Anyhow, that aside, Aspen Pharma is a company that has certainly served their shareholders well over the years. The transformation is nothing short of magical.
Over ten years, the stock is up around 639 percent. Stephen Saad in his personal capacity has become (on paper), along with old pal and co-founder (and CFO), Gus Attridge, a real wealthy man. As far as I can tell, Gus was actually Stephen’s team leader when they audited together, the roles have certainly changed a little. Gus is 54 and Stephen is 51. They are still pretty young in terms of the fact that they are founders, and seeing over as CEO and CFO of a 140 billion Rand business.
The company reported operating profits before tax of 43 percent more than the prior corresponding period, the half year to December. Revenues were marginally lower. The capital distribution to shareholders is still very modest, yet we should expect more in time. The group needs to pay down debt (that they are restructuring), and will continue to identify doable transactions. Normalised Headline Earnings per share (HEPS) is the measure that the company uses when measuring performance, that increased 14 percent for the half year to 655 cents per share. The stock, at a little over 300 Rand is certainly not cheap, if you annualise that, you get to 23 times forward.
The future? Well, if you dig into the results you will see that the company is targeting another 2.5 billion Rand in EBITA by 2019, that is three years down the road. If you put that into context, that is two and a half time the current contribution from the South African business, no mean feat at this stage. We continue to believe in the passion of the management team, there are few places in life where you get an opportunity to own a little piece of genius, alongside founders and business champions, than in the equities market. Think about that, you can for a mere 137 Dollars, own a piece of Warren Buffett’s empire in a Berkshire B share. Where else can you participate? Equally, we continue to believe that Aspen is a very attractive investment, notwithstanding the tough operating environment in some of their territories (Venezuela gets a big look in in these results, we knew that). We continue to accumulate.
Whilst we will review the MTN numbers on Monday in closer detail, there are a few points worth making before then. Subscriber numbers did improve by around 4 percent, notwithstanding about the same percentage increase being disconnected, mainly in Nigeria and then also in Uganda, the same issues around registration of the Sim cards. The company did make a serious provision for the fine, it seems way less than the billions of Dollars the Nigerian Authorities want to fine them, the provision is around 9.2 billion Rand. Data is still growing like gangbusters, that will continue to drive the network, revenues from voice will continue to register lower and lower. Talking of which, since 2002, competitor (to some extent) Telkom has seen their fixed lines in South African decrease (i.e. uninstalled) by one-third. Yowsers, when did we stop “talking” to one another. Thanks to Facebook, WhatsApp, Twitter and so on, we communicate more with one another, less so by voice. Only your gran phones you nowadays, right?
The stock rallied hard, the dividend in the year ahead is likely to be around 7 Rand a share (a deep cut, almost half of last year), which at some level represents that Mr. Market has gotten the share price (current) about right, a five percent yield forward. If the future starts reflecting that the likelihood of the fine is to be reduced and that MTN fall back into friendship (no love there) with the authorities, and business as usual returns, I expect an uptick in the price. There are loads of moving parts and much to consider. We continually review and paint scenarios in our office. Stand by Monday.
Linkfest, lap it up
Cullen Roche shares three things that are currently on his mind – Three Things I Think I Think. The consumerism story may be slowing in the developed world but it is just getting started in the developing world. Another point that he makes is that US debt is considered the closest to “risk free” as you can get. The result is that US can borrow large sums of money at low interest rates meaning it is “cheap” for the US to stimulate their economy if need be.
To cap off the week with Warren, here are a bunch of bite sized clips on a whole bunch of topics that he covered in his interview on CNBC – Warren Buffett said everything on CNBC. One of the clips is called, “Negative effects of low oil” and another “Economists don’t make money buying and selling stocks”.
South Africa is considering doing the same thing – U.S. Imposes 266% Duty on Imports of Steel From China. The term dumping referred to in the article is where foreign goods are sold in the local market at below cost for a sustained period. The foreign firm can do this because they have subsidies from their government or because the market they are exporting to is a small part of their business. The end result is that local industry goes out of business because they can not compete and then the foreign firm increases their prices because they have no more competition.
It is amazing what people can dream up and create, enjoy – Music Machine Powered By 2,000 Marbles And A Hand Crank Is Insanely Ingenious
Home again, home again, jiggety-jog. Mitt Romney lashed the Donald. Calling him a fraud and so on, telling the American public to fire him. What worries one, is that the Donald seems to have support, from whom may one ask, his “policies” are nearly borderline crazy for 2016, they seem more Neanderthal. I can’t and won’t understand what people want, it is energy best spent elsewhere. Japanese stocks are up a touch, in Shanghai stocks are lower, whilst Hong Kong stocks are up over half a percent. Things could change, and they really will heat up this afternoon, turn on your favourite business TV at around 15:25 Jozi time (watch for ten minutes), you will see what I am talking about.
Sent to you by Sasha and Michael on behalf of team Vestact.
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