“The company has more cash than any of their peers, 40 billion Dollars relative to a market cap of 318 billion sounds a little like a tech business, not so? And a bit of a “lazy” balance sheet. The conclusion of the piece is that the shift towards the biggest division, the pharma division, is happening already.”


To market to market to buy a fat pig Up, up and away for the Jozi all share index. We closed 0.7 percent higher yesterday, driven again by the resource stocks that have had a rip roaring three months, some of the returns garnered in that time are sometimes what investors see over a five year period. Granted that some of the share prices still sit at very depressed levels, I am sure that there are many collective sighs from many heavyweight investment managers across the breadth of South Africa.

We have this “thing” for resources, it makes sense, we are brought up with it all around us, just take a trip into OR Tambo and look out the window as you are landing. Whilst those mine dumps represent the past mostly, they certainly tell us where we came from. Jozi, the city founded on gold. The word Gauteng is over 100 years old, according to the research that I did yesterday. Essentially a word documented from Sesotho transcripts.

Just under 200 years ago, Mzilikazi used to dominate these parts, before the advancing Boers pushed him further north. Before that the San people used to wander these parts. Of course the discovery of the ancient bones of our ancestors tell us that hominoids have been around these parts for over two million years. I wonder if the thunderstorms were as impressive for Mrs. Ples as they are for ourselves, the climate was possibly very different back then. None of our early Gautengers mined gold though.

The supposed founder of the great reef, Jan Gerritze Bantjes, is said to have identified the gold reef in June of 1884. The rest, as they say in the classics, is history. According to an extract from the piece titled Discovery of the Gold in 1884 “Even after it was realised that the gold reef ran both deep and wide, and the introduction in May 1890 of the MacArthur-Forrest cyanide process made recovery of gold excavated at deep levels economically feasible, the general consensus of the time was that Johannesburg’s life span would not exceed 25 years. Thus, initially at any rate, life in the new mining town was one of uncertainty and, for a number of years many of its early buildings retained their prefabricated iron-and-timber character.”

OK, enough, let us move on here. Yesterday the stocks rocking were the gold miners, up three and one-quarter of a percent, and their brothers and sisters in the platinum mining sector, which were by far and away the stand outs. As a collective those stocks were up over nine and a half percent. Lonmin rallied by a little more than that, Amplats added five percent, Impala Platinum went up sixteen and two-thirds of a percent. What? That is simply astonishing, the market cap is at 41 and a half billion Rand now. Why? The platinum price was on an absolute tear, a pretty thin market at best, up 45 Dollars a fine ounce in two days. And now comfortably having four digits, 1025 Dollars. What a cracking day!

Over the seas and far away, stocks in New York, New York, slipped off their best levels in the last hour, still ending in the green though. The S&P 500 ended barely in the green, I guess we will take it as a #winning day. The Dow Jones Industrial Average added around one-quarter of a percent, the nerds of NASDAQ eked out a 0.16 percent gain.

Coca-Cola slipped nearly five percent after results disappointed, Argentina, Brazil and Russia (as well as Venezuela and other emerging markets) dragging earnings lower. Currency headwinds, Venezuela was particularly bad. Venezuela, the inflationary problems are compounded again and again by dumb economic policies. Those can be corrected, not any time soon I imagine. Berkshire’s two stocks, IBM and Coke have had a couple of stinking days here, sigh. Barron’s have an interesting opinion piece summary -> What Coke’s Q1 Says About Emerging Markets.


Company corner

Johnson & Johnson reported numbers for their first quarter of their 2016 financial year, two sessions back. These were released just prior to the market opening in the US. Forgive us, there has been loads going on, we are pretty early, in terms of earnings season reporting thus far. Sales, although flat year on year at 17.5 billion Dollars for the quarter, were a meet, the bottom line was a comfortable beat. Net earnings clocked 4.3 billion Dollars, diluted earnings per share were 1.54 Dollars.

Forward guidance for the year, based on current exchange rates (which have been more favourable) was sales in the region of 71.2 to 71.9 billion Dollars and adjusted diluted earnings range of 6.53 to 6.68 Dollars. At the opening price of 112.67, the stock trades on a forward multiple range of 17.25 to 16.86 times. Whilst that hardly seems like a bargin, it certainly has delivered on the earnings that may have flattered to deceive in the past. The current yield before tax is 2.66 percent, certainly very attractive for the risk profile that you assume. It is one of the most reliable and trusted businesses on the planet.

JNJ have three main divisions, namely their Consumer division (Consumer products like mouthwash, plus over the counter products), their Pharma division (prescription and OTC medicines) and lastly their medical devices business. As a standalone, that medical devices business is bigger than any of the other global business, this is as a result of the combination of Synthes and DePuy. Herewith a wonderful graphic from their investor relations release on what were the specific drivers for each segment.

As you can see, this is a pretty sizeable spread and whilst expectations would be for all divisions boats to be floated, some are pretty robust through the cycles. You are not going to skimp on your medicine now, are you? There are various parties shouting from the rooftops suggesting that the company should unlock value and unbundle some of the businesses. Paul sent us a Bloomberg Gadfly opinion piece two days back, written by an insightful chap by the name of Max Nisen -> Johnson & Johnson’s Slow-Motion Shift.

As the article points out, there is lots in the pipeline, 10 blockbusters with billion Dollar sales potential expected to be released within the next three years. The company has more cash than any of their peers, 40 billion Dollars relative to a market cap of 318 billion sounds a little like a tech business, not so? And a bit of a “lazy” balance sheet. The conclusion of the piece is that the shift towards the biggest division, the pharma division, is happening already.

JNJ is a very sound business, even if it lacks excitement that investors often desperately want in equity markets, and that can be a really good thing. The price is about perfect, if you hold this business, continue to do so. Quality at this level is something that is hard (or nigh impossible) to replicate. Whilst upside may be limited for a while, this is a top drawer keeper. The Berkshire favourite holding period of forever applies here.


Linkfest, lap it up

Would you use this? A new feature from Facebook’s messenger allows you to “conference call” your contacts, as many as 200 at a time. I guess it could be quite an important business tool, as long as the chatter is only one way, right? Facebook Rolls Out Group Calling Via Messenger.

When I read the headline, I didn’t think it would be what it turned out to be. Byron’s favourite childhood movie, he can recite many lines from the movie, you should try him out – The 10 highest-grossing animated movies of the modern era – No. 1 is not what you think. Shrek dominates, Toy Story is releasing number 4 next year I think.

I would say that this is a huge fail on the part of Coke. The latest poll numbers suggest that 5 in 10 Brits don’t know that Coke Zero in fact has zero sugar, not great if your customer does not know your intended selling point – Coca-Cola Zero Is Rebranding Itself in the UK As Britain Adopts a Sugar Tax. The company is embarking on a rebranding campaign, renaming the drink “Coke Zero Sugar”.

It is amazing to see what the human mind can do with training – Ronaldo Playing Soccer in the Dark

Predicting the future is a fools errand, especially when people start to predict a couple decades out – 18 spectacularly wrong predictions made around the time of the first Earth Day in 1970, expect more this year. Interesting to see how a large chunk of those predictions were about how the globe was going to run out of food. It seems that there will always be pessimistic predictions about the future.


Home again, home again, jiggety-jog. Oh drat, we got it wrong, those big results Visa, Google (Alphabet) and Starbucks are all expected tonight and not last night. That is a bit of a bummer. I just said bum, that is a poor showing. Stocks across Asia are in general on a tear, Hong Kong up one and two-thirds of a percent, stocks in Japan up 2.7 percent and stocks in Shanghai (drumroll) are (dot dot dot) flat. Yes. Futures are higher in the US, we should and could expect a higher opening here.

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

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