Smitten with Britain

“Anyhow, there is no use wondering or speculating, let the vote happen first in nine days time and let us see the outcome of it. The upshot of this all is a spike in gold, a rush at already depressed yields. And like we said, a sell off in riskier assets, including equities, the stuff that is our bread and butter. Or in this day and age, our full cream yogurt, cashew nuts and berries. Does that sound about right?”


 

To market to market to buy a fat pig Oh dear, stocks were sold off aggressively across the globe. Out of risky assets and into bonds that yield zilch, zip, zero. Brexit fears. Yes. Even as we explained yesterday those Paddy Power odds (which have narrowed a bit) suggest that the likelihood of a vote against the European common economic zone is lower than the polls. Question. In light of a vote from nearly a year ago in which the people of Greece wanted to exit their austerity path, and voted NO to more of that, politicians overturned the vote. Instead, Greek politicians used the vote as leverage against the rest of Europe. Might this well be the same? I mean, who actually gets the final say here? Who has to decide that the United Kingdom no longer wants to be a member of the European Council.

The UK is not a founder member of the European Union (Belgium, France, Italy, Luxembourg, the Netherland and Germany are), they are second round members from 1973. Along with Denmark and Ireland. How do you unpick all of the agreements that have been signed over the years? I haven’t seen anyone practically put forward the practical unwind of the membership. Luxembourg aside, on a GDP per capita basis, the UK is near the top of the list of rich folks amongst other rich folks.

They (the UK) are the second largest economy in the zone, after Germany, and marginally ahead of the old enemy, France. Only Italy and Spain are the other member states that boast GDPs in excess of one trillion Dollars. The UK has as many member votes as France, Germany and Italy, 29. That is the maximum, and it is purely based on population. Malta, with only 440 thousand people (the area from here to Sandton I am guessing) has only 3 votes, out of the 345. A rounding error sadly. Looks like a lovely place though!

I am simply making the point that, should the public actually vote to exit, how would that actually work? Not that I think it would happen, surely there would be a timeline thing happening here. Would all member states have to “un-sign” the treaty of Lisbon? Or sign a new one? I read yesterday that 1.5 million Britons live in continental Europe.

As far as I have read, Poland and the UK have an opt out over the Charter of the Fundamental Rights (the ordinary rights, dignities, freedoms, equalities, justice and general provisions of citizens across the zone) across their respective territories. Too complicated and giving me a headache here just thinking about it. All I know is that the benefits far outweigh the bigoted views of narrow minded groups. Would the ancient types even approve that nation states (and not kingdoms) fraternise with one another? Of course not. The treaty was designed to end centuries of conflict, normalise affairs and integrate each others cultures. Embrace differences, small minded people can’t think beyond their personal borders. Think global idiots.

Anyhow, there is no use wondering or speculating, let the vote happen first in nine days time and let us see the outcome of it. The upshot of this all is a spike in gold, a rush at already depressed yields. And like we said, a sell off in riskier assets, including equities, the stuff that is our bread and butter. Or in this day and age, our full cream yogurt, cashew nuts and berries. Does that sound about right? Across the seas and far away in New York, New York, stocks sold off, the Dow Jones down three-quarters of a percent, the broader market S&P 500 down four-fifths, with the nerds of NASDAQ falling nearly a full percent. Apple and Facebook were the biggest losers there, some interesting “stuff” coming out of the Apple annual developers conference, we will cover that in a touch. The biggest news of the day was the news that Microsoft was buying LinkedIn for just over 26 billion Dollars.

Locally stocks sold off just over one and one-quarter of a percent. Aspen and MTN continued to gain against the backdrop of news related activities, see here on Aspen – Aspen debt raise & deal with AstraZeneca, and MTN – MTN fine resolved. The rest of the market, resources sank over one and three-quarters of a percent. Stocks with a European and British feel were sold heavily. Reinet down 2.9 percent, Steinhoff down 2.28 percent, Capco down 2.1 percent, Investec Plc. down 2 percent, Old Mutual, Intu and Brait down just over 1.9 percent. So there you go, at the top of the list, along with some resource stocks, are European flavoured. Sell first, ask questions later.


 

Company Corner

So LinkedIn is going to fall into the mitts of Microsoft. Not so much fall as shareholders of the largest self promotion business connection platform need to accept the offer of all cash at 196 Dollars a LinkedIn share. How big is this for Microsoft? At their (Microsoft) closing price of 50.14 Dollars last evening, the market capitalisation of the creator of the “Office” products was 393 billion Dollars. 26.2 billion Dollars in total. That is 6.67 percent of the Microsoft market capitalisation. Even with the 50 percent premium that they offered. I suspect that Microsoft are looking for a greater web integration into their office suite. If you think about it, and Paul often says it, the spreadsheet, email clients and editing tools such as Word have boosted productivity immeasurably. The world has changed for the better.

Not much will change on the LinkedIn front, for the time being, as per the Microsoft to acquire LinkedIn release“LinkedIn will retain its distinct brand, culture and independence. Jeff Weiner will remain CEO of LinkedIn, reporting to Satya Nadella, CEO of Microsoft. Reid Hoffman, chairman of the board, co-founder and controlling shareholder of LinkedIn, and Weiner both fully support this transaction.”

Using Office 365, the cloud and now LinkedIn, Microsoft plan to take on more business users with a wider network. As the news release shows, and to anyone who has been following LinkedIn will know, the company has been growing pretty quickly. 433 million users. What does strike me is that there are still very few job listings, only 7 million active job listings across the network over the last year, growing 101 percent year on year. I had to chuckle a little, each tech organisation recognises their own weaknesses and strengths, a sign of maturity, the announcement was uploaded via the Alphabet (Google) platform YouTube.

At the end of the day, Microsoft wants to make people more productive, connecting like minded skill-sets via the Office Suite certainly makes perfect sense. As long as that paperclip thing doesn’t suggest so and so, who is constantly self promoting, right? I have already seen a little pushback, you will always get that with deals of this nature. At 59 Dollars a LinkedIn user, is this cheap for Microsoft, or expensive? This is around 8 times annual revenues, that sounds really expensive. As is human nature, people are comparing this to the Skype transaction. Microsoft bought the telecommunications company back in 2011 for 8.5 billion Dollars. Skype into LinkedIn to get researchers to solve their problems in real time in a face-to-face environment, via their Virtual Reality headsets? Not too far away I suspect, using a Amazon Alexa or Apple Siri prompt command, why not?

So whilst it seems expensive, how much more expensive would it be for Microsoft to not integrate this type of technology into their Office Suite, if they had to spend the time and effort developing something similar. And then get all the users to migrate across. You may well ask, is 59 Dollars a lot to pay for the CVs of all the professionals in the world, most of whom are all online? Not that all of them keep a great profile, we showed you Standard Bank co-CEO Sim Tshabalala’s LinkedIn profile the other day, remember? Here it is – Sim Tshabalala. Seems, judging from that, he is very happy in his job, and you would hope so.

Not everybody then uses the service actively, this is a clear sign. Sim has a great job and gets paid handsomely to be on call (on behalf of the shareholders) 365 days a year, 24 hours a day, it comes with the territory. At that price of 196 Dollars a share, and with the LinkedIn management guiding in April (results presentations) to 3.30-3.40 Dollars non-GAAP earnings per share, the deal gets done at above 57 times earnings.

This is not a service that you use daily, or weekly, unless you are actively looking for a job or a job is looking for you. As the recent JOLTS report showed, the jobs are there, the skills needed to fill the jobs are lacking. What better than the most complete collection of online CVs to help solve the problem. It may seem hellishly expensive NOW for Microsoft, on a per user basis I think it is dirt cheap at the price. And will prove to be in the long run.


 

Apple! What a company. Their WWDC 2016 started yesterday. Huh? For those of us who will only frequent stores and not attend the Worldwide Developers Conference in 2016, or any other year, we need to look at these events in relation to our products and more importantly, the future revenue streams of the business that are likely to be generated via better products. And services. You can check out all of the updates pending – Apple Special Event. June 13, 2016.

iOS 10 is coming to your iPhone, provided that you are lucky enough to have one. MacOS Sierra is coming, provided you are lucky enough to have a Macbook or a Mac. The Watch operating system gets an upgrade too, making it more useful. The TV operating system also gets a huge update too. All your usernames and passwords don’t have to be stuck in all of the time. And then something called Swift, where you can learn code on your iPad. Will the coding encourage you to buy an iPad and get your kids to code like crazy? Everyone can code, they say and everyone can develop an app with Swift. That is pretty cool, not so? Apple Pay, HomeKit, SOS, Unlocking your Mac with your Watch, and so on, these were all pretty well received by the community. Excellent news.

CNET as ever has a cool look at all things Apple – Apple iOS 10: Will it make you love your iPhone again? And then from the Verge – The 13 biggest announcements from Apple WWDC 2016. When is all this available? In a few months, you are going to have to wait until the “fall” in the Northern Hemisphere. Noooooo.

What about the share price? I sent an email to a client about the company, here is an excerpt:

“Sir Jony Ive is still the best technology engineer in the world. He is the guy who designed and MADE the devices that Jobs thought of. I am sure that there are a number of products in the pipeline, including project Titan, the car.

You will recall that Google had a similar funk for a while, people worried about it being a one trick pony.

Of the 536 billion Dollars market cap, 235 billion odd is cash. Or 44 percent of the share price currently. With earnings of close to 8.27 USD a share, ex cash, Apple trades on 5.2 times earnings. Dirt cheap.”

 

That should answer the question that everyone is asking, right?


 

Linkfest, lap it up

As renewable energy becomes more prominent the deal sizes are increasing too. India is hoping to double it’s current renewable energy by 2030 – Tata Power’s acquisition of Welspun unit just turned up the heat in India’s renewable energy sector

Running communication through Twitter has saved this town money. It has also improved the interaction between officials and residents – The Spanish Town That Runs on Twitter.

There is no doubt that as 3D printers become cheaper, they will play a more dominant role in our lives. The one constraint on 3D printing at the moment is that what ever you are printing needs to be smaller than the printer you are using, here is one potential solution to that problem – Siemens is building a swarm of robot spiders to 3D-print objects together


 

Home again, home again, jiggety-jog. Stocks are lower again. Hey, the Fed meet tomorrow! That should be exciting. More exciting than Brait numbers? No. We can cover those in the newsletter tomorrow!


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

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