Doubling down on the sun

“As Musk points out, it would create the world’s only integrated sustainable energy business. Energy generation, storage and then conversion to mobility (panels to batteries, batteries to motor vehicles) would see an all in one solution. The installation cost per Watt produced continues to fall, the sad truth is that Musk is a dreamer (like Bezos), profits come later. He believes that they will come.”


 

To market to market to buy a fat pig Up, up and away. Records all around, as Wall Street climbed higher Friday as a result of a well received “jobs report”. Officially the report is known as The Employment Situation. You can read it and see that the US economy, according to the Labor Department (without a “u”) added 255 thousand jobs for the month of July, just past. Healthcare and services related employment in the biggest economy in the world, remain strong. There were revisions for the two months prior, both in a positive direction.

I am not the biggest fan of this report, this is, it must be remembered, the market go-to report each and every month. The most highly anticipated report since the last one, that is always how it turns out. This one is so important, blah-blah-blah, the multiple folks on the box tell you. I always ask people when they highlight the importance of this report: “what was the headline number 6 months ago”? The answer is almost always a blank stare. Round these parts we like and prefer companies and their results/news. I did see something that validated the strong jobs report, speed read it: Chemical activity hits a new high.

A strong report of course sees the likelihood of a rates increase sooner. That is best left to the Fed to decide. Speculating on that is like posting your favourite Springbok or Bafana Bafana lineup on Facebook. The truth is that whilst someone may care (and strongly disagree), the selectors and coach don’t give a rolling donut what you think. Good tweet over the weekend (poor Lions, it was always a tough call), it went like this: “If only the Lions had their phones on the field, then they’d be able to see all the helpful advice on Twitter from the real rugby experts.” Replace Lions, field and rugby with Fed, (in) monetary policy meetings and economy.

At the bell the Dow Jones industrial average was up just over a percent, ditto the nerds of NASDAQ (5227.23 is your all time high). The broader market S&P 500 closed at the all time high, ending the session up over four-fifths to 2182.87. Records, as we know, are meant to be broken. Even steroid infused ones from yesteryear. Wow, the Olympic Games are awesome, every four years I find myself watching and enjoying volleyball, handball and a multitude of interesting looking sports that are only watched with that regularity. Sadly.

Back on the local front, where Mzansi didn’t know that they would wake up Monday morning with a silver medal (Cameron van der Burgh you good thing), let alone who would be running some of the major metros across the depth and breadth of the country, stocks didn’t act accordingly. A stronger local unit had everything to do with it, I guess. This morning the Rand is at 13.70 to the US Dollar, 17.89 to the Pound Sterling and 15.21 to the Euro. Yes sports lovers, get your hands on some forex, invest offshore if you can, if you spread warrants it. Over the last year, the Rand is still around 8 percent weaker to the US Dollar.

At the bell, the Jozi all share index had closed just over one-third of a percent weaker on the day. Industrials lost over half a percent on the day, stocks like AngloGold Ashanti, Amplats and Bidcorp were the worst three of the majors, BHP, Glencore and Shoprite (new 52 week high) were the best of the top bunch.

There was an FT article (that Bright alerted us to) over the weekend, indicating that Steinhoff were looking to make a go for US retailer – Steinhoff targets US with $3.8bn deal for Mattress Firm. Subscription only, sorry, that FT. The official release from Mattress Firm is here – Mattress Firm To Be Acquired by Steinhoff International for $64.00 Per Share in Cash. They continue to “bed” down deal after deal. They are looking to get into bed with majors across the globe. Steinhoff continue to acquire where they see value. Whilst this seems an excessive price (and it is), the stock is trading today at the same price as in January 2012. The premium is where the stock traded at in October 2014, same price. Since then the going has been tough.

Who is Mattress Firm? In the Fact Sheet about the group, there is a projection, and perhaps that is why you can see Steinhoff wanting to pay this premium:

Mattress Firm, firm offer, firm plans, there is no Hoff like the Steinhoff. As the release says: “The merger agreement, which has been unanimously approved by the Mattress Firm board of directors and the management and supervisory boards of Steinhoff, will create the world’s largest multi-brand mattress retail distribution network.” Wow. Not bad for some humble beginnings down at the bottom end of Africa. Steinhoff now operate in 30 countries with 40 brands. And are not sitting still any time soon. We watch with more than a little interest, this is becoming a more and more important holding for our clients.


 

Company corner

MTN Group reported numbers for their half year to end June this morning (Friday morning). It has been a tumultuous time for the mobile operator, lurching from one problem to the next, Iran and the hyperinflation (and sanctions, inability to externalise money), Nigeria and the whopping (if not borderline stupid) fine, price wars in the local market. There is a time when one questions the thesis over and over.

Hindsight is better than Maverick and Goose’s flying skills (C’mon, you know you loved that movie), it would have been better to own Vodacom. And Telkom at some level. Water under the bridge, the price you see in front of you today reflects the ability of the business in the future, as reflected by the shareholder base at this point.

It is far easier to report back on a business when the stock price does well. Too often, the chattering classes draw conclusions between share price performance and the company. Including on whether the quality of the management team is good or not.

As a result of having incurred a hefty fine from the Nigerian authorities (whether they called their bluff or not is another matter), and huge loss of value for the asset management community, suddenly casts a negative light on the management team. With an element of righting that wrong, management ultimately is where the buck stops. Sifiso Dabengwa fell on his sword, Chairman Phuthuma Nhleko took over the reigns and more recently the management team has been strengthened with a quality team that looks distinctly like the colour of investment banking (and deal making).

The fact that data continues to grow sharply (at the expense of voice and by extension EBITDA margins) is a testament to management’s willingness (and shareholders to part with the capital) to aggressively roll out the infrastructure in order to meet quickly changing handset requirements (Capex spend was R13.77 billion). Mind you, this is definitely not a company specific thing.

I saw an astonishing moving .gif the other day, from a tweet, of the populations of Nigeria and the USA over the coming decades, as well as the decades past. This is how #Nigeria will overtake the US as the world’s 3rd most populous country (Currently 7th).

That is all very nice to suggest that population projections result in ARPU increases in a hurry. The currency has being weighing heavily and I am sure that many investors are getting impatient. We will continue to evaluate the results and provide shareholders with the feedback and guidance they deserve.


 

Tesla reported numbers for their Second Quarter 2016 last week, as we were voting and worried with the weighty matters of democracy. Tesla are equally worried with the weighty matters of sustainable energy and climate change. One of the best and most sensible things Elon Musk said was that the best and most reliable energy sources known to mankind was the sun, yet we hardly enhance the full potential.

As you would know, Tesla is currently in the process of acquiring SolarCity, another Musk associated company, for 0.11 Tesla shares per SolarCity share. Which roughly values, or valued SolarCity, at 2.6 billion Dollars when the final deal amount was announced. The expected ownership of the “new” Tesla will be approximately 6.5 percent of the SolarCity shareholders (which include Elon Musk) and 93.5 percent the balance of the Tesla shareholders. The deal is expected to close in the fourth quarter this year.

As Musk points out, it would create the world’s only integrated sustainable energy business. Energy generation, storage and then conversion to mobility (panels to batteries, batteries to motor vehicles) would see an all in one solution. The installation cost per Watt produced continues to fall, the sad truth is that Musk is a dreamer (like Bezos), profits come later. He believes that they will come. Now, when you run a public company and you are responsible for other peoples money, you will draw major criticism from all quarters. Including the naysayers, it can’t be done they will say.

He (Musk) has done a lot already. He has changed the mindset of humanity and their adoption of electric vehicles (EV’s, the only acceptable acronym, OK?), yet one feels that we haven’t quite scratched the surface yet. Heck, Tesla only delivered 14,402 vehicles last quarter. Less than the 17 thousand they targeted. If you needed a reminder, the global sales number last year was (according to The International Organization of Motor Vehicle Manufacturers annual sales table – French acronym OICA) 89,677,983 in 2015. That is either a lot, or not that many, depending on the way you look at it. I plan to have as few motor vehicles as possible in my life, they are a tool, not a necessity, say, like a shower or bed.

Even if Musk reaches what looks unobtainable, 90 thousand this year, Tesla would still only be 0.1 percent of global production. It is not surprising that one doesn’t see these vehicles on the road, you have to visit high net worth global areas. It is not as if the company sits still, hell no, they are busy adding a new retail location every four days in the next two quarters. The plan is to generate huge interest and the ability to meet it will be ramped up over the coming years.

In the mass car department, Musk updated the audience in the shareholder letter –

“We have completed the design phase of Model 3 and released Model 3 for tooling, production planning and validation. The Model 3 capacity expansion will reflect our initial efforts to apply our “machine that makes the machine” philosophy to vehicle manufacturing, and demonstrates our intense focus on volumetric and capital efficiency. Some Model 3 production equipment is already on line, including initial capacity in our stamping and paint centers. Later this year, we plan to begin construction of new Model 3 body and general assembly centers.”

 

If you are owning this company, you are essentially owning an option on the future, a changing consumer pattern and adoption of EV’s (all of which look intact) and a huge bet on the masterplan. The GigaFactory is a sight to behold. Musk showed an aerial view of the progress, the inside (you have seen the pictures) is more impressive:

The outlook segment is pretty hard running, Musk wants to produce 2200 cars a day for the third quarter and 2400 a day for the fourth quarter, in order to reach that 50 thousand run rate for the second half. The company is still planning on investing 2.25 billion Dollars in capex for the full year, that new production line and solar factory battery producer don’t look cheap. Whilst revenues grow like gangbusters, so do costs. Musk and Tesla have grand plans, humanity needs people like this.

With a market capitalisation of 33 billion Dollars, the company is certainly expected by the investment community to do amazing things. They, not unlike another technology company that sells hundreds of millions of iPhones, make beautiful products. Which are easy to use and simple looking and quite simply have awesome features. Know that the investment is not for everyone, you need a high tolerance for risk. Musk himself stuck his own money in at the beginning as he wasn’t sure it was going to work. The biggest ever weekend of initial sales of a consumer product (the Model 3 launch) in history tells you the consumer is chomping at the proverbial bit. Accumulate as a high beta stock at the fringes of your portfolio, if your risk tolerance is up for it.


 

Linkfest, lap it up

Amazon’s air fleet takes to the skies. Being able to do more of the delivery work themselves will help them bring down their operating costs – Amazon Reveals ‘Prime Air’ Cargo Jet. It is a very nice paint job.

We have spoken a few times about the rise of bottled water, most of our conversation has centred around the move to water because it is healthier than soft drinks. It seems that water infrastructure is another reason, old pipes are leading to tap water not being safe to drink – Bottled Water to Outsell Soda for First Time This Year

Not all accents were created equal when it comes to speech recognition software, Google is trying to fix this – Google is seeking thick Scottish accents

There is Olympic fever in the air, I think the article’s title speaks for itself – A refugee who was swimming for her life to escape Syria one year ago is now swimming in the Olympics


 

Home again, home again, jiggety-jog. My personal favourite is when sports fans shout at the tv and tell the players how rubbish they are. I can’t help myself and I laugh furiously. The one being paid spectacularly for their talents is the one tasked with the job. Imagine if your u16c team at school (the last time you partook in that particular discipline) had three minutes against the other team. More importantly, imagine if crowds of people watched you from a distance at your workplace and criticised your work in the same way? Ha ha, that is the evolution of Big Brother, Endemol should give that one a go!

Stocks are mostly higher across Asia, Japanese stocks have rallied hard, up over two and a half percent. US futures indicate another better open for them on that side. We should catch a bid here today. Do not attempt to ask me about politics, I have no idea. That is the domain of those with sharp tongues, short memories with teflon coated skin. Nothing sticks.


 

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

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