Since Sliced Bread

“Who are Puratos? As they say in the release, this is a bakery solutions business. I snooped out their website a couple of days ago, Puratos (a Belgian based business) supplies chocolatiers, bakeries and patisseries with ingredients.”


 

To market to market to buy a fat pig Wow. That was pretty impressive for stocks here locally, up over two percent on that day, or over 1000 points on the Jozi all share index. The gains were wide and deep, there were new 12 month highs for the likes of Anglo and BHP, as well as Invicta that continues to power ahead. Imperial, that also touched a twelve month high, as did Barclays Africa The Foschini Group and Telkom. So you see, a pretty broad based recovery across many stocks that represent many different and diverse sectors of the economy. At the opposite end of the spectrum, in the 12 month low segment was UK Pound Sterling and European property stocks Hammerson (although they did close up on the day) and NEPI – New Europe Property Investments. I suspect that depending on what you are trying to achieve determines whether or not you would own property stocks en masse, or be comfortable with property you own in your personal capacity. A different kind of argument on a per client basis.

Steinhoff once again roared ahead, the stock was up another 6 percent (and a bit) on the day. Clearly Mr. Market enjoyed the results from the retail giant, those were released two mornings back, if you are looking for a refresh, here it is – Steinhoff numbers – beat expectations. Glencore also ramped up 5 percent, along with the Qatar sovereign wealth fund are buying an 11 billion Dollar stake in Russian oil company Rosneft. The two entities (Qatar and Glencore) will split the 19.5 percent stake. There are all sorts of “things” at work here, firstly, this is the biggest deal done in Russia since the sanctions post the Ukraine crisis. This is part of the process of privatising Russian entities, Rosneft churn out just less than 5 million barrels a day.

Why Qatar and Glencore? Remember that Qatar are the biggest shareholders of Glencore, and must be keen to look for deals together. An oil deal in Russia though? Business is business, what do I know? Qatar (the country acting in their capacity of oil ministry in the recent OPEC talks) was apparently the go between and the glue that held them all together, being instrumental in the “agreement” to cut oil production. Whether the oil production cuts will work or not (methinks that the Frackers and others will pick up the slack) is debatable. Russia gets money and a partner, Qatar cements their ties with a key friend of OPEC and Glencore …. they are wily old cats.

Sasol, staying on the subject of oil markets, announced that they would be entering into some oil hedges. In other words, wanting to secure a floor to their price received – “we have entered into hedges against the downside risk in the crude oil price to increase the stability and predictability of our cash flows.” 48.68 Dollars a barrel for 7.6 million barrels, for the current quarter and then 47.06 Dollars a barrel for 16.8 million barrels for the following two quarters (the second half of their financial year). And as the company says, they are currently reviewing other commodity (I guess natural gas being one) and currency hedges. My experience with these things are that they are binary, if it works, you are a genius, if it doesn’t, then you were stupid. And if there is no change, or little change, nobody notices. All the company is looking for is predictability, which can be incredibly difficult to achieve with volatile commodity and currency prices.


 

Over the seas and across the oceans, in New York, New York, stocks rallied again to close at some all time highs. Again. Sounds like groundhog day, right? The broader market S&P 500 tacked on 0.22 percent, the Dow Jones added 0.33 percent, whilst the nerds of NASDAQ rallied into the close to end the session 0.44 percent better. Sounds good, right? 0.22, 0.33 and 0.44 percent. I suspect that there are many reasons why stocks continue to rally, you must expect that regardless of the political affiliation of Wall Street money managers, they for one are glad that the election noise is out of the way and that they can allocate capital in a less hazy environment, two and more importantly, the mood of business has changed. Regardless of whether or not reality dictates otherwise, confidence in putting money to work and making decisions flows back to reality. In other words, the more confident you feel about the future (getting great “again”), the more likely you are to make investment decisions.

Cullen Roche also came up with this little nugget to explain something that many would grapple with – Repeat After me: “Bonds Don’t Necessarily Lose Value When Rates Rise”. He uses a practical example, herewith the following explanation that you may want to use. Again, it all depends on where you draw your line in the sand: ” …. if interest rates rise then bonds prices fall in the short-term. Take, for instance, the case of a 5 year bond with a face value of $1,000 paying 2% per year. If interest rates rise by 1% every year that bond still pays you 2% every year plus you get your principal upon maturity. Here’s how the value of that bond looks over the course of your 5 years:”

Why is this important? Since Trump became the President elect, equities have been bought and bonds have sold off to an about equal 2 trillion Dollars. Does that mean that the bonds will lose their value permanently? No. Bonds are issued for a multitude of reasons, some people think that debt is a horrible and no good thing, some people think that debt is very useful for cashing in on the future at current rates. Regardless of where you sit, the money that South Korea “borrowed” from the US to build their economy post the war that still to this day separated their countries, was a bargain. In fact, that may not be a very good example, obviously the US has intentions of keeping communism at bay, and by extension did all the free market capitalists of the world a huge favour. Thanks. Huge aid flowed to South Korea from the US, official US aid to South Korea from 1953 to 1960 was 1.745 billion Dollars. Roughly 15 billion Dollars on an inflation adjusted basis. Of course it depends what you do with the money at the time.

Oh …. before we forget, the ECB met yesterday, the WSJ has a *nice* summary – ECB Extends but Tapers Stimulus Program. It seems like more of the same from the European Central Bank, there has been a cut back in the stimulus from April, there has been a date put on the review, through to this time next year.


 

Company corner

Bidcorp made a relatively low level announcement two days ago, one that possibly has further reaching implications in time. The SENS announcement is as follows: BidCorp Food Africa and Puratos establish a joint venture. Who are Puratos? As they say in the release, this is a bakery solutions business. I snooped out their website a couple of days ago, Puratos (a Belgian based business) supplies chocolatiers, bakeries and patisseries with ingredients. In other words, in the busy lives of a bakeries, you need and want a proper partner to deliver your key products on time and make sure that they are of a very high standard. Puratos supply everything from glazes to fillings, emulsifiers (not the favourite of everyone), bread improvers and the like. Good looking bread is sometimes better tasting bread, is that right?

This is just the South African businesses getting together, with the possibility to expand and partner together globally. I guess. Bidcorp’s business here is previously well known to all and sundry as Chipkins, and has a long history here in South Africa, nearly 100 years. Nowadays is it referred to as the Bidcorp Food’s Bakery Solutions Division (BBS). For Puratos, this gives them a wonderful opportunity to find a reliable partner on a continent that has loads of potential. The combined entity here will now be known as Puratos Chipkins. Food is an emotive issue for many, most especially those who may be at the bread line.

Bernard Benson, the Bidcorp CEO is quoted as saying: “The proposed transaction provides BBS with an opportunity to grow its existing business and to develop new products and tailor-made solutions for the baking industry Employees will be exposed to new skills and job opportunities, innovative products and international best practices.” Nice, good work. We really like this investment theme of food being made easier inside of urban living that has become tougher, from a time perspective. Whether the consumer wants more bread, more fresh fruit or vegetables, all neatly packed, fresh and healthy, that is what businesses like Bidcorp will deliver over time.

We continue to accumulate what we think is a fantastic opportunity. There will continue to be multiple opportunities in many geographies for the group to consolidate and follow the classic model of bolting on businesses that make sense, year in a year out.


 

Linkfest, lap it up

Where is the best place to work? Well, not the South African list, rather where is that place in the USA. According to Glassdoor, The Best Places to Work – 2017 Employees Choice is in order, Bain and Company, Facebook, Boston Consulting, Google and then World Wide Technology. Bain ….. really?

The deepest gold mine in the world is here in South Africa, a mine called Mponeng (translated to English, “Look at Me”), owned by AngloGold Ashanti. 4 000 employees travel one and a half hours a day to get to the “coal face”. In an elevator that has a maximum speed of over 60 km per hour, faster than the speed limit in urban areas. It is the tallest (deepest) elevator in the world. At 2.5 miles, or 4 kms under ground, one gets to a 75 centimetre gold seam, that is it. And in getting so deep, a rare bacteria called Desulforudis audaxviator was discovered. A wonderful piece from the Visual Capitalist – Descend Into The World’s Deepest Gold Mine.

PlayStation2 sold 158 million units. Version 4 has just clocked around to 50 million units. They (Playstation) have four out of the top seven consoles ever sold – PlayStation 4 Hits Milestone, Still Trails Its Predecessors. Would you own Sony shares though? Over a period of ten years the Sony share price in Dollars (the ADR) has managed a minus return of 27 percent. It turns out that wasting your time engaging in EA FIFA was better than owning Sony shares over the last decade. The one you engaged in an entertainment form, the other …. you lost money.

Two articles about the fact that other technology startups are contributing to the role of big pharma. Firstly, via Byron – Why is Johnson & Johnson getting into startups? And then ….. via the WSJ – Big Pharma, Short on Blockbusters, Outsources the Science. Peter Thiel, Google, Mark Zuckerberg and the like all looking to move their technological skills to solve big pharma problems. All the better for humanity I say. A whole lot of money is spent on R&D (12-15 percent of total revenues typically) when the truth is as follows:


 

Home again, home again, jiggety-jog. Stocks are mixed. We have started lower here today, Naspers lower as a result of TenCent being down two percent in Hong Kong trade. The Rand is a little weaker, that is giving some of the other Rand hedges a bit of a lift. Oh …. and the South Korean parliament have impeached their president.


 

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

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