Under Armour slam dunks the NBA


“The American sports & apparel company is a strong competitor to Nike and Adidas especially on the footwear side of things thanks to Stephen Curry. To those who don’t know the guy, he is the professional basketball player in the NBA playing for the Golden State Warriors, the reigning Most Valuable Player of the NBA.”


The very new blunders video is out: Blunders – Episode 9. Paul has a look at the African deal of the year, two high fashion sisters who run gold mines and then a law facially rename fail. To never miss an episode, subscribe to the Blunder Alert!, and get the mail delivered to your inbox.


To market to market to buy a fat pig Mr. Market was slip sliding away the whole day here in Jozi, Jozi, stocks closed near their worst point on the session at the bell. Pretty much a broad based sell off, SA inc. related to retail, finance and banking were again under the pump. Sanlam, FirstRand, Standard Bank and the like felt the heat, also in the losers column were the resource stocks again, Glencore and South32 amongst the stocks sold on the day. We prefer companies to stocks, we know that companies profits ultimately determine where stocks end up. It is very hard to separate the idea that those “things” are two very different “things”. In the same way that the economy is definitely not the stock market, the stock market is definitely not the economy.

A company is not the stock price, the stock price is merely a reflection of the prospects of that specific company, what earnings are likely to be and where it should be priced at this point. That is the hardest part of the job, a company may make awesome products, their market could be saturated, their product not “liked”, their prospects muted. GoPro is a pretty good example, the products are great, is the market just too small to ever be mainstream? Do they need to make better and better devices to go with the times. Sure, the stock has been beaten up, the market cap is a little less than 2 billion Dollars, earnings are patchy.

Twitter is another one of those stock prices that has done poorly, is the product good? Hell yes, the product is just as useful as Facebook to me, it somehow has failed to monetize their platform as effectively, it does have a smaller user base, relative to those massive machines that Facebook has across multiple platforms, including the good old big daddy, WhatsApp (with more security now), Instagram and Messenger. Twitter just hasn’t managed to find the happy medium. Over the past 12 months, Facebook stock is up nearly 40 percent relative to Twitter, which is down 66 percent. Ouch, two different companies and two different stock prices. The market doesn’t “like” Twitter, Sheryl Sandberg, the Chief Operating Officer of Facebook is credited with modernising the social network and forcing the company to modernise their ways, to be a business. People matter just as much, if not more than the businesses that they work at. Companies need to be good places to be, to attract talent.

Quick scoreboard check before we get too deep here, the Jozi all share index by the close was down 0.07 percent, financials down over a percent as a collective, banks down 1.85 percent, general retail off over a percent too. Gold miners soared three and one-third of a percent, resources as a collective were up over a percent. And as Forrest Gump said when asked about Jenny, in his deep southern drawl “And that is all that I have to say about that”.

There has been marginally improving economic news, business sentiment in March bouncing from some multi year low levels, credit demand has looked OK, although Standard & Poor’s as mentioned yesterday are wagging their finger. We are a resilient bunch down here. The stock market here is definitely not the economy, the other day I was looking at the top ten, five and three listed businesses here by market capitalisation, and many stocks listed here have very few operations here. Capital is a strange beast, it follows opportunities, no matter what.

Over the seas and far away in New York, New York, stocks slid sharply, giving back the Fed minutes inspired rally in the prior session. I see this morning that higher crude oil prices are being attributed to “improving demand” from the US. The slide last evening was largely led by financials, technology was also hard hit. According to Google finance, there are 2916 listed entities in financials, there may be some double counting, all I know is that you are spoilt for choices. Stocks across Asia, over to where the sun rises, are under pressure, Shanghai being the worst of the lot, down over a percent. A stodgy week, the Yen rally from the middle of February has dented those markets badly, the expectations are for that (the Yen rally) to unravel soon. The Nikkei is down over half a percent. In Hong Kong, stocks are also off slightly.


Company corner (this is Bright’s first contribution to the daily message)

Kevin Plank started Under Armour (UA) in 1996 in his grandma’s basement with a goal to create workout and performance wear that’s much better than cotton T-shirts. His first prototype was a sweat-wicking compression shirt. Today it has gone further than active wear with added products such as MapMyFitness & MyFitnessPal into their product portfolio.

The American sports & apparel company is a strong competitor to Nike and Adidas especially on the footwear side of things thanks to Stephen Curry. To those who don’t know the guy, he is the professional basketball player in the NBA playing for the Golden State Warriors, the reigning Most Valuable Player of the NBA. He has set the basketball world alight with his amazing scoring ability in recent seasons and according to Wikipedia he is the best shooter in the history of basketball (who would beg to differ because the numbers don’t lie.)

UA footwear business now contributes 17% of total business. The company made $677.7 million in revenues representing a 57% jump year-on-year in the 2015 year end. Analysts (Sole) estimate that Curry adds $14 billion to UA’s market-cap, and could even rival Michael Jordan’s worth to Nike, according to Business Insider. Just to put things into perspective UA’s shoe sales have increased over 355% YTD and Stephen Curry signature shoes business (Curry one & Curry two retailing for $120-$130) is already bigger than those of LeBron James, Kobe Bryant, Kevin Durant, and every player in the NBA except Michael Jordan.

UA also have sponsorship agreements with Tom Brady, Lindsey Von, Jordan Spieth, and Dwayne “The Rock” Johnson, but now we all know which one brings home the bacon!

After Under Armour’s great run the CEO Kevin Plank and his team decided they will have a share split on the 7th of April 2016. The split will be a 2-for-1 meaning the for every 2 Class A shares you will get 1 Class C shares. The Class C shares will trade under the share code UA.C, these have no voting rights, and the Class A shares will continue to trade as UA.

UA is currently trading at a historic price to earnings ratio of 81.6, pays no dividend and has a market capitalisation of US$38.26 billion. This means Mr. Market expects Kevin Plank and his team. . . pardon me I meant Steph Curry, Tom Brady, Jordan Spieth, The Rock, and team to grow earnings sharply in the near future. I guess this is not impossible for a company that is expected to grow at around 25% for the next four to five years. Their earnings call is due on the 24th of April, this will be a great indication if the company can maintain the plus 20% expected growth going forward.

UA is definitely not cheap at current levels compared to Nike which has a business thats almost four times bigger, pays a dividend of 1%, and has a much broader geographical reach and brand loyalty. Nike trades at a price to earnings ratio of 28 and is also growing earnings around that double digits range. However we continue to hold UA as a second tier position in the name of growth, especially as they start diversifying out of the U.S market. This is a good one for the long-term as we get more active in the quest for better health and longevity. UA is up a mind blowing 365% in the past 5 years, with that said note that we buy Nike first before venturing into UA.


Linkfest, lap it up

As Venezuela Declares Every Friday a Holiday to Save Electricity, Mark Perry reminds us Why socialism always fails.

One of my favourite blogs, A Wealth of Common Sense had a look at the link between profit growth and share price growth – How Much Do Profits Matter To Stock Market Returns?. The conclusion was that there isn’t a huge correlation, with the following conclusion:

“Maybe the biggest takeaway here is that investors have a hard time figuring out how much to pay for future profits.”


The stock market is near an all time high but we still find people complaining. Josh Brown concluded that on average people like to complain and find something wrong – Why Bull Markets Make Everyone Miserable


Home again, home again, jiggety-jog. Ha-ha, yesterday we missed something crucial. In the links segment, read numerous times, we suggested that over 100 million people went through Atlanta airport daily, it should have been yearly. We were just checking that you were all awake, OK? Not OK, we like to get things right around here, sorry. As someone pointed out to us, if that were the case, the entire human population would pass through here several times a year, roughly once a quarter. Four times a year. Which I suppose there are people who do that beat, pass through the same airport once a quarter.

Stocks are likely to trade lower today, and end the week worse.

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

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