iDidi

“Didi says it works with more than 14 million drivers in 400 Chinese cities and has 300 million users who place 11 million ride orders a day.” Wow. Just wow.”


 

To market to market to buy a fat pig We sold off pretty heavily here in Jozi, much of the slide coming in the last few hours of the session, we closed up shop down 1.29 percent. The worries about the local economy have intensified in recent days, as a result of some very shabby looking unemployment data. The answers are as of yet unforthcoming from civil society on how to solve these issues. Nobody has come forward and said, right, this is how we are likely to solve problems of unemployment and by extension alleviate poverty. Civil society needs to give it a bash. 5.7 million people in South Africa have no work. And as Michael said this morning, around 400 thousand people are set to finish school this year, they will no doubt be looking to study further or look for jobs themselves.

I can see why leftists policies appeal to young people. The idea of sharing wealth that was created in a generation before (or five generations, you know what I mean) is appealing, it means that immediately you have resources. Except there is no working model. The Venezuelan vice president was in town this week and was telling everyone how awesome their model was. Except he forgot to add that one of the opposition leaders had been assassinated last week, he forgot to add that inflation is likely to breach 700 percent this week, he forgot to add that there are severe electricity and food shortages. The model of price controls is the worst of the worst. You disrupt supply, you tell the supply side what they must and must not do. And then you destroy what is at the core of us, being able to make headway as individuals. There are moments that the collective work well, in the business of business, I guess it doesn’t. You can’t eliminate greed, fear and oneupmanship.

As we have discussed many times, we try and steer clear of politics. And religion. My mum always said that they weren’t up for discussion at a dinner table, I suspect that these shouldn’t be up for discussion in a blog setting. A newsletter setting. This is both. There are always going to be people who believe that their views are better than someone else’s. Look at Donald Trump and his supporters, I think that they are nuts, that is my view, he wouldn’t have attracted the support that he has if that didn’t appeal to some segment of the population. Discussion over, OK, let us stick with Mr. Market.

At the top of the leaderboard and there were some, the gold stocks had a good day, AngloGold Ashanti is improving again after a tough week prior, with their numbers. South32 bucked the trend, at the other end of the spectrum there was Anglo American and BHP Billiton as well as Glencore that were looking weak. Those stocks are wildly volatile, I am sure that someone is trading the volatility around commodity/materials stocks and doing pretty well at the moment. Next in line with the winners was Mondi, they released a trading update for the current half year that we are in. The company has done superbly well since being unbundled from Anglo American. It has been a superb ride for shareholders, remembering that you got some shares for your holding in Anglo, the stock wasn’t unbounded in the normal fashion, you got fewer Anglo American shares with the continuing assets.

Anglo American has a market capitalisation of 8.4 billion Pound Sterling, Mondi has a market cap of 6.65 billion Pound Sterling. An amazing journey for shareholders that now had a management team that were masters of their own destiny. Where is the growth likely to come from? One avenue will no doubt be increased, ecommerce in a European context. There must be some scope for packaging growth in that segment. Anyone who has ever received a package from an online order must know what I am talking about. You can’t own everything. There was no mention of the ongoing competition issues facing the company in Russia, as far as I could tell from the annual report, their lease (on the land that they grow and manage the trees) in Russia still have 35 odd years left to run, around 50 odd years here in South Africa.

It is also a reminder that sometimes when a company is unbundled the energy and talent that it attracts can sweat the assets a whole lot harder, execute better than a gorilla silverback shareholder can. Can you think of any other recent examples? I suspect that Sibanye and Gold Fields are another example in the local market. Which begs the question, with the Bidvest unbundling process pending, what does that mean for both parts? A separate rerating? Will the respective businesses be more nimble operating in separate management structures? It is not exactly a secret that there have been some ructions at a Bidvest board level. Perhaps energised separate businesses with clear paths may well have better separate prospects. We don’t have to speculate here, the separation of the two businesses is close, for now the BidCorp shares will list on May 30, the shares will likely appear via the settlement process the following Tuesday, June the 6th. In this case D-Day really is D-Day for Bidvest shareholders. We will monitor this on your behalf and continue to advise accordingly on what to do.

Over the seas and far away in New York, New York, stocks closed mixed on the day after a much better start initially. Stocks however were comfortably off their worst levels of the session, the Dow Jones Industrial Average snuck into the green, whilst the nerds of NASDAQ dropped nearly one-half of a percent. The broader market S&P 500 ended marginally lower, just a tad. There were some concerns around retail again, Kohl’s corporation was crushed over 9 percent, Macy’s fell again as concerns around retail. Eddy Elfenbein, as Byron pointed out, echoed my thoughts from yesterday. In his Friday weekly message, he said: “One area of concern for the economy and the market is consumer spending. This week, several retail stocks fell sharply after Macy’s and Nordstrom reported disappointing sales. The easy explanation is that these companies are getting Amazon’ed.”

Eddy continues and chats about the fact that the “The Amazon Effect clearly exists, but that’s not everything that’s going on. Consumers are willing to spend money, but they’re looking for bargains and things they can’t easily get elsewhere. It’s an old question, but these retailers must face reality: “How replaceable are you?” If the answer is “very,” then they may want to think of a Plan B.” I am in Eddy’s court here, I suspect that watching retail sales closely will reveal whether or not this is the case, Amazon eating the lunch of others. They are starting to become a sizeable part of the landscape, yet they will represent a small amount of total US sales, from a single retailer perspective they are huge.


 

Company Corner

And then possibly the biggest news of the day yesterday, Monsanto is supposed to be in the sights of Bayer, the German healthcare and agriculture business. Monsanto stock rallied hard in the pre market session, and then opened stronger, only to fall away a little in the normal session. The initial readings from my side suggested it may have been another German company, BASF. Bloomberg had a story early: Bayer Said to Explore Bid for $40 Billion Seed Company Monsanto. The old (150 year plus) German company is unlikely to raise equity.

As Reuters points out Monsanto, once M&A instigator, now in awkward role as possible target. And as we have no real news on the story, we suggest that this may well be an opportunity to cash in the shares, whilst the company is certainly quality, it has disappointed as an investment. There is also large societal pushbacks against their products, my view is still simple. Whilst billions of people go to bed with empty stomachs, our job is to feed those hungry people first before the morality issues are raised. That should stand at the front of the moral arguments. And I am likely to come under attack for this view, we can agree to disagree.


 

And then some pretty big news in the wee hours of this morning, here is the WSJ (subscription only) that reports that Apple Invests $1 Billion in Didi, Uber’s Rival in China. As you can see, Didi is valued at 25 billion, so that must mean that Apple only owns 4 percent of the company in the recent funding round. And this is less than half a percent of their cash resources. In the history of Apple however, this is the second biggest deal ever, Beats by Dr. Dre still being the biggest. Autonomous cars and car hailing app? Sounds all too familiar, right?

Anyhow, we are yet to see anything concrete, Byron pointed out that millions of people book and pay for hailing rides each and every day through WeChat, and most of our clients have investments in Naspers. This should be a great outcome for them too. This is an LA Times article: Why Apple is investing $1 billion in Didi, China’s version of Uber. This one paragraph basically tells you it all: “Didi says it works with more than 14 million drivers in 400 Chinese cities and has 300 million users who place 11 million ride orders a day.” Wow. Just wow.


 

Linkfest, lap it up

The Amazon Echo is an exciting product, with a “JARVIS” voice controlled computer system slowly becoming the centre of households – Google’s answer to Amazon’s Echo is code-named ‘Chirp’ and is landing soon

A big cost of space travel is the costs of building new rockets so being able to reuse rockets is a big step to opening up space to a larger customer base – Watch never-before-seen footage of SpaceX’s most impressive rocket landing to date. It is impressive to see the control over all that energy as the rocket comes down.

This graph highlights Facebook’s value. Twitter on the other hand has a good presence with advertisers, they just don’t have the user numbers or user growth – Which Social Networks do Advertisers Rely On?

Infographic: Which Social Networks Do Advertisers Rely On? | Statista

You will find more statistics at Statista

Financial theory 101 will tell you that higher returns comes with higher risk, in reality that can be different though. Given our behavioural biases, logical flaws and emotions we tend to go for higher risk investments that don’t have the potential for higher returns – Moderate risk taking wins.


 

Home again, home again, jiggety-jog. Futures in Europe are pointing a little lower, just a little in fact. And we have started lower here too.


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

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