The next instalment of Blunders hit the screens on Friday, it includes Barclays Plc., Walmart, Telkom and KFC -> Blunders – Episode 4. Remember to subscribe to the blunder alert, so that you can get these first.
“Jobs number quickly, a beat at the headline level in terms of jobs created, the marginally disappointing number was the wage “growth” number. The Labor department calls it the Employment Situation Summary. Mining and manufacturing shed jobs, healthcare was another huge winner, along with the rest of the services economy. Food services, retail and then another big one, private education.”
To market to market to buy a fat pig First and foremost, damn that auto spell checker. Nobody noticed it seemingly, the Buffett in the headline on Friday was the one you eat, not the sage of Omaha. Whilst we love to eat (it is cheating), the other Buffett has global investors eating out of his hands, all of the time. My favourite Buffett factoid is that he “made” 99 percent of his wealth after his 50th birthday. Meaning that it takes a long time to build up the base and then compounding interest takes care of the rest. Compounding interest as you know is the 1st wonder of the investing universe. If you had to think of 7, what would they be? Surely dollar cost averaging, margin expansion, dividend flows would be in there too. Think folks, email me your 7 wonders of the investing universe.
I was deep in the Kruger Park when the jobs number hit the screens, signal was non existent in many parts of the drive. Signal was more abundant than rain however, it looks dreadful up there, hippos out of water in the heat of the day, looking for water. The wedding was amazing, we wish the Lotters all the best, remember that Byron is away for a couple of weeks on honeymoon, he will return on the Tuesday before Easter, be sure to communicate with the rest of us, OK? Howie and Mavis were lucky enough to see (Mavis’ first time in the park) a leopard. Wow. My little family after years of searching saw one too, a different one. Good work, it is always a reminder that South Africa has plenty to offer tourists, there were certainly plenty around.
Jobs number quickly, a beat at the headline level in terms of jobs created, the marginally disappointing number was the wage “growth” number. The Labor department calls it the Employment Situation Summary. Mining and manufacturing shed jobs, healthcare was another huge winner, along with the rest of the services economy. Food services, retail and then another big one, private education.
I wonder whether or not the future of learning is still in the physical, if you know what I mean. I suspect that people will still want to be associated with institutions, places of learning that have many many years of history. The oldest existing university is the University of Karueein, which is in the city of Fez in Morocco. It was founded in 859 and still operates to this day. Another contender is the University of Bologna, in Italy. That institution was founded in 1088. Is UCT the oldest in South Africa? As an institution it was founded in 1829, long before Jozi was even a dream. Udemy was founded in 2010. The whole idea of MOOCs is less than 10 years old. I suspect that they have to be commercial ventures. In a sense all correspondence universities have been doing this for years.
Back to a markets wrap quickly, stocks in New York, New York reacted positively to the jobs numbers, the S&P 500 closed within a whisker of 2000 points (up one-third of a percent on the day), after having been much higher earlier in the session. 1999.99 was where the broader market index closed, you can’t get much closer to that level. The Dow Jones Industrial average closed above 17 thousand points (up nearly four-tenths of a percent) and the nerds of NASDAQ added one-fifth of a percent. Once again strong moves in energy and commodity prices saw stocks in energy and materials up sharply.
Keeping local lekker, markets in Jozi, Jozi headed in the right direction (for the bulls) again on Friday, stocks locally closed above the 52 thousand mark for the first time this year. Gold stocks were on fire. Do you know that the gold index has doubled since the beginning of the year? Over ten years the index is down 13 percent. Over five years the index is down 19 percent, some of the recent gains have been absolutely heroic. It may well be a precursor to all the work that the platinum producers are doing, the painful choices that they are making now, may well yield positive results in the future. We will still avoid, I suspect that the commodities recovery seen recently may turn back to a story of supply and demand.
MTN had results on Thursday, these were for their full year to end December, in what has been their toughest year in a decade and a half. I remember all those years back when they seemingly overpaid for a licence in Nigeria, only for it to turn out to be genius. We looked, we watched and we tried to understand what the market is making of the fine, the unresolved issues. I have chatted to many people about South African businesses going about their work in that territory, let us just say that it is strained at best. It is a bit like that here, somehow we pretend to stand together as a continent, in reality however the situation is different. Each territory has their fair share of challenges, each territory has a separate regulatory environment, in fairness all trying to achieve maximum coverage at a fair rate for their people.
Here are the numbers, let me take the slide from the presentation in order to give you the breakdown of all the moving parts.
There are many factors here that have contributed to the pretty average year. Economic slowdowns in many of their core territories, Nigeria has had a very bad time of it, weaker oil prices have contributed negatively to their general outlook. The budget is under immense pressure in Nigeria, recently “things” have improved. Equally in South Africa it has been tough going. For a company that has been under significant pressure however, they were able to roll out nearly 30 billion Rand of capex. They have to invest heavily in their network, data revenue is (as you can see) the future of the business. See the image below.
The trick is in the interim to be able to offset shrinking voice revenue with sharply growing content hunger from their customers. What is true however is that data consumption is still very low in developing countries, most especially where MTN operates. It still amazes me how much the network sucks up with regards to handset subsidies, the company spent 10.8 billion Rand on handset costs and other accessories. People obsess with their handsets.
The fine is important to talk about. Remember that the company has paid a goodwill 250 million Dollars to the Nigerian authorities. The company took a 402 cents per share provision for the fine (9.287 billion Rand). That is not the full extent of the fine that the Nigerian authorities are looking for, so why make a lower provision? That is around 600 million Dollars, comfortably short of what the Nigerian Communications Authority are “looking” for.
There has certainly been recourse against the folks who have dropped the ball, obviously Sifiso Dabengwa being the highest profile. The currency issues in Nigeria concerns me too. The official rate from the government (the unicorn rate I call it) is around half of the real rate (others call it the black market rate). This indicates that nothing is working properly. The company does plan to list some of the entity in Nigeria, I am guessing that will appease some of the folks in Nigeria, direct ownership changes everything.
Nigeria worries me as a territory to do business in the short term, in the long term I think that the story is still intact. There are millions of people across MTN’s operating territories who have poor mobile connections (for data), average handsets and limited resources. This is however improving, the company is sinking billions of Rand into their infrastructure. As these countries grow at above global growth rates (it will return), the average person will use more of the likes of MTN’s services.
There is NO fixed line infrastructure to speak of across the continent, very few landlines. In the very short term the picture looks muted, growth is not there, the dividend is unlikely to be sparkling this year (the company guided to around 7 Rand for the full year) and their operating countries economies are struggling, relative to where they were. Whilst one could possibly “do better” in the short term, if you hold them, keep the stock, the company will resolve their issues and they are definitely still in a growth industry.
Linkfest, lap it up
If you are an American visiting Cuba you are not allowed to go to the beach. Why? The only visa’s granted by the US is for education and cultural exchanges. There is a problem now though, Obama visiting the island in March means that Americans are being relocated from Havana to a beach resort – Cuba sending Americans to the beach during Obama visit
Can you call something made by a machine art? – Google’s Computers Paint Like Van Gogh, and the Art Sells for Thousands. The argument can be made that it is art created by the programers of the machines?
Having a social/ work network in large corporations will help with information sharing – How Facebook’s Social Network For Work Will Change Business. There are a number of organisations that already offer a product similar to what Facebook Work will be able to do, I think having the Facebook brand will help push exponential growth for the product though. Over the longer term we may even see Facebook encroaching into the LinkedIn territory.
Home again, home again, jiggety-jog. Stocks are a little mixed on the start, the Rand is firmer. Bob Diamond and the Atlas vehicle that he is associated with pops up from time to time as a potential suitor for some of the stock going in Barclays Africa, they have nowhere near enough money in the kitty. Or at all. The Old Mutual news is interesting, the splitting of the business, is the timing sinister in any way? It has taken years and years for something of this sort to finally happen, we will see what transpires.
Sent to you by Sasha and Michael on behalf of team Vestact.
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