Online Travel

“For those of you who are not familiar with the business, they own various travel portals and interfaces, including ones that you may have used often,,, Kayak, Agoda, OpenTable and I am pretty sure that you have used these services at some point if you are familiar with online travel.”


To market to market to buy a fat pig What happened? In Jozi, the all share index was a percent to the good, and then by the close of the day, we were down just over one-tenth of a percent. Markets in Europe were particularly good, US futures had drifted lower by the time we were signing off for lunch, it was the commodity price slide that saw heavyweights fall across the board. As a collective the resource complex were down four and one-quarter of a percent, heavy selling in both Anglo American and AngloGold Ashanti, both down over ten percent. AngloGold Ashanti had results that looked OK at a cost control level, unfortunately not so much at a production level. Notwithstanding a 13.8 percent slide in the share price ADR market last evening, the stock is still up 98 percent year to date.

Sappi was another company that surprised, this time to the upside. Whilst the stock rallied over 15 percent during the course of the day, perhaps a short squeeze of sorts, the gain by the time the bell had rung for the close was still a respectable 5.99 percent. Better profitability off the same (slightly lower) revenues. People like the cellulose business, they like it a lot and think (rightfully) that there are great prospects for that specific business segment. Management must be given an enormous amount of credit for acting on what they said they would do, reduce debt and slim down, selling non-core assets.

They still have a long way to go and the jury is still out (for me), with coated paper still accounting for 61 percent of sales by product and sales by source being 51 percent Europe and 27 percent North America. It doesn’t mean the end of magazine, it just means that they will be consumed on a different platform, see this from Statista -> Consumer magazine circulation revenue in North America from 2008 to 2016, by platform (in million U.S. dollars).

Mind you, over here we have been very wrong to predict the share price going lower, Sappi’s full year revenues last year in September were at their lowest since the 2007 financial year. If this half year is repeated, then expect lower revenues again for this year, perhaps comparable to the 2006 year, a decade ago. The ten year performance, which includes a rights issue at some point (One big one done in the late 90’s too), sees the share price down 25 percent. That is your decade return, if you had followed your rights in full I am pretty sure it would look better than that. Glossy paper future, do you feel positive on that? Or do you think people are going to consume “magazines” increasingly in digital format? I’d be happy to know what your views are. All I can say is that we have gotten this one wrong so far.

Stocks across the seas and far away were a mixed bag, energy and basic materials stocks took some heat, healthcare stocks were at the opposite end of that equation. By the end of the session the Dow (or is that Down?) Jones Industrial had lost one-fifth of a percent, the broader market S&P 500 just managed to squeak into the green. The nerds of NASDAQ added nearly one-third of a percent.

There was a 30 percent premium offered for the shares of Krispy Kreme by privately owned JAB Beech, the owner of Peet’s, amongst some other well known brands. We were shocked in the office to learn that the size of the company was small, with the premium the market capitalisation is 1.31 billion Dollars at the close of trade last evening. That equates to 19.9 billion Rand. For comparisons sake, the market capitalisation of Famous Brands in Dollars is 750 million Dollars, the market rates the business on 22 times earnings, the buyout of Krispy Kreme is double that multiple. In other words, on a comparable earnings basis, the two companies are of a similar size.


Company Corner

Priceline has recently been in the news for the wrong reasons, the CEO resigned a couple of weeks ago after admitting to having an affair with an employee of the business. An improper relationship led to Chairman Jeffery H. Boyd Appointed Interim CEO, Huston had been at the business for years and years. Why oh why can’t people just keep their personal “stuff” away from the business, this happens all too regularly. I guess, who am I to judge these things, it is another reminder that no matter how you may be at the top of your respective industry, a fall from grace is possible at any moment. Big up to the board for having the courage to press on with this action against what is essentially one of the most powerful people in the company. I am pretty sure that Mr. Huston has deep regrets.

The business of business goes on. The company reported Financial Results for 1st Quarter 2016, a 21 percent increase in profits off an increase in first quarter travel bookings of an equal percentage. In constant currency terms revenues were 26 percent higher. The outlook however was muted, with revenue expectations of only 7-14 percent in Dollar terms expected for the full year. Gross profits expectations are expected to be in the region of 9-16 percent, again, this is no mean feat to be growing revenues and profits by mid teens. Most especially in what is very definitely an environment that is seen in part as not exactly friendly. 137 million room nights booked in the first quarter. There are now 31 percent extra hotels and territories, 900 thousand hotels to book from. In 220 countries around the globe.

For those of you who are not familiar with the business, they own various travel portals and interfaces, including ones that you may have used often,,, Kayak, Agoda, OpenTable and I am pretty sure that you have used these services at some point if you are familiar with online travel. Even though the business turns 20 this year, the concept of travel completely online has only taken a true foothold in the smartphone era. It is completely paperless, you can book almost anywhere, in any currency, from your smartphone. Your airline tickets and place of residence will show up as tickets on your smartphone. I still think that people are yet to appreciate the awesome life changing internet. Think about how you booked a holiday 20 years ago, before all of these platforms existed. Physical airline tickets with carbon copies (don’t lose that or you are stranded), remember those?

The stock traded sharply down after the release, the Q1 results were ahead of expectations, the guidance is below. At current levels of 1244 Dollars, with earnings expectations in the region of 55 Dollars a share, the stock trades on 22 times forward earnings for 2016, around 18.5 times forward for 2017. I really think that the company is in a very sweet space, more and more people are travelling around the globe than at any other time. Definitely look to accumulate on weakness.


Linkfest, lap it up

Is this the best example of a company giving people what they want? On the one hand giving them sugar and on the other giving them a way to manage diabetes – Nestle Wants to Sell You Both Sugary Snacks and Diabetes Pills

Africa is the leader in mobile money due to the low number of banked people. In South Africa it hasn’t worked though because more people have bank accounts and because the likes of Capitec have targeted the unbanked – Vodacom to discontinue M-Pesa mobile payment offering in SA.

The maker of the AK-47 is moving into clothing fashionSanctions inspire Kalashnikov move into fashion.


Home again, home again, jiggety-jog. Some bits and pieces reporting today, markets across Asia are on balance higher. We should start on that footing too. Excellent.

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

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