I Can See Clearly Now

“The headline reads: Essilor and Delfin to create a global integrated player in the eyewear industry with the combination of Essilor and Luxottica. This is going to be very big.”


 

To market to market to buy a fat pig Sterling Pounded. Again. Today, all the focus will be on the commentary from the British PM, with a steer of HMS Britannia in the direction of “hard Brexit”. The Sunday Times in the UK reported that Theresa May is set on looking for the quitting option in a hurry, with a speech set to take place this Tuesday. The head of finance in the UK, Phil Hammond , with the official title “Chancellor of the Exchequer”, stated in an interview with German paper Welt am Sonntag that Britain would become something different to Europe. Apparently, by the measure of public spend to GDP, France has the most generous Welfare Program in the world. Greece is on the list of the top 10, it unfortunately has too low an income tax rate to continue to live with all of the benefits. That is my sense, at least. So I am guessing that the UK does not want to be Europe. This relationship is about as old as recorded history in humanity.

The upshot of the leaks of the PM’s prepared statement (according to the Sunday Times), which is due tomorrow, and the comments from old Phil have once again set the proverbial cats amongst the pigeons, at least in the currency markets. Another 31 year low. How is this all going to end for all the people involved, realising that this is mostly about movement of people in the end and that middle income UK has decided that they no longer want the cheaper skills in their country. That is the way that I see it. Those lower wage skills will continue to look for opportunities, you may well find that Europe is the beneficiary of these low wage jobs. Europe itself is fragmented, Italy is not Norway, Bulgaria certainly is not Switzerland. I suspect the way that many have been accustomed to in the past is about to change. Retirement age is going to rise (and is) and benefits will fall over time, as countries adjust their budgetary alignment with the longer term in mind.

What this means for the UK over the “long” run is not entirely sure. Rental markets for key areas have already indicated “slippage” at some level. Read “slippage” as lower already. Ireland may well be the benefactor in all of this, Ireland being the Republic of Ireland. There has been a huge upsurge in the number of applications for citizenship of what is part of Europe. Whether host of CNBC’s Squawk Box in New York knows it or not. True story, he didn’t know that the Republic of Ireland used Euros and was part of the EU. Ha ha!! I would say ….. let’s watch it, UK markets are indicated higher for the time being, another record level in Pounds of course, the Pound is twenty percent lower to the Dollar since the vote in the middle of last year.

The upswing in “nationalism” has meant that far right “ideas” have gained traction across the globe. What was considered impossible in the past, almost improbable, is now possible. I think that being politically correct is no longer something that applies. Sadly. It would be a better world if we were all tolerant of one another, I suppose it would also be a better world if people felt that politicians were not serving their own interests. I saw an interesting, if not one sided tweet over the weekend, that suggested that Rex Tillerson and John Kerry had similar NAVs (out by around 50 million Dollars, so not completely accurate). The point was that one married into it, the other made it all themselves. Well, not all that is entirely true, it makes little sense to “bash” money when you, yourself have tons of it. I suppose the good thing about having very rich politicians (that earned it, or married into it), is that they do the job for the people. Politicians also seemed to have detached themselves from ordinary people too.

OK, no politics in making predictions, definitely not what comes out of Davos. And no need to read currency predictions for me. No need to also read what the economic forecast of X or Y or Z is. They are often ridiculed the year after, and if you were “right”, then it was too boring to tell all and sundry. I am not going to try and predict what is likely to happen with the UK unpicking 40 years worth of trade agreements in a hurry. It may be good for them, it may be terrible for them. All I do know is that uncertainty is likely to always throw up a cautious and panicked approach from Mr. Market, the sell first and then look and see later approach is always followed. Always.

Markets quick sticks, the US markets are closed today first and foremost, for Martin Luther King day. The Dow Jones Industrial Average closed down 0.03 percent, whilst the broader market S&P 500 added nearly one-fifth of a percent on the day. The nerds of NASDAQ added nearly half a percent, on what was the first real day of fourth quarter earnings. Wells Fargo, JP Morgan, Bank of America Merrill Lynch all reported Friday. None of which was sparkling and some red flags raised, yet the market seems to have “liked” the numbers of all of them. 52 Week highs for JPM and BAC, less so for Wells Fargo, they have had other problems with the “ghost account” issues.


 

Locally markets reached the best levels since last September. A pretty busy solid two-thirds of a percent gain for the ALSI, 52794 points. Industrials were on the beat, Woolies was at the top of the pile after their trading update. Mondi and Steinhoff were also the biggest winners on the day, AngloGold Ashanti and RMH investments were the losers. Hey, Truworths were up nearly 8 percent on the day. There were 12 month highs for Capitec and RMB holdings, as well as Sappi. And the newly listed Dischem. The retailers are likely to continue to report 26 or 52 week trading statements to end 25 December. Strange? As we have learnt, a retail trading week ends on a Sunday, the expectations then for the next 13 to 26 weeks should actually be better than some people think. So far, the retail sales updates have looked sloppy, better than the market anticipated though.


 

Company corner

The headline reads: Essilor and Delfin to create a global integrated player in the eyewear industry with the combination of Essilor and Luxottica. This is going to be very big. The two businesses are likely to create a giant in eyewear, sunglasses and lenses. Essilor has a market cap of 22.3 billion Euros, trades on a 28 multiple (historic) and Luxottica has a 24 billion Euro market cap, and trades on a 30 multiple. The all scrip merger (accepted by the Del Vecchio family, through their entity Delfin) is done at the following ratio: 0.461 Essilor share for 1 Luxottica share.

Cost savings of 400 to 600 million Euros over medium term, the combined group plans to move a harder to grow sector, correcting the vision of 2 and a half billion people, who are currently untreated. Be happy for your four eyes, that means that you can afford it, you see? What is most pleasing about this deal is that the controlling family stake on the Luxottica side has lost the overall grip on the business, it will fall to between 31 to 38 percent. We said at the last half year results (Luxottica’s tough first half) – “The governance issues do bother us. The fact that there have been three CEO’s in two years and the major shareholder is meddling and can’t let go.”

This is most pleasing, from that aspect, the Essilor release says the following, from the founder of Luxottica, Leonardo Del Vecchio: “It was some time now that we knew that this was the right solution but only today are there the right conditions to make it possible.” We are pleased that this has transpired. We now await shareholder and regulatory approval and will keep you advised as to what next. The combined entity will only be 10 percent of global frames, 40 percent of lenses (which may, or may not be a problem). Nothing for us to do at all here.


 

Home again, home again, jiggety-jog. It is Davos time again, say that in your Bill Murray voice from Groundhog day. We are lead to believe that this is very important, and it may well be very important. Buffett never goes. Munger never goes. Trump’s team are not going, understandably of course, his inauguration is on Friday. Obama to deliver his last speech Wednesday. Markets are understandably lower as a result of this UK PM pending speech from Theresa May tomorrow. Which may, or may not contain some very useful information about what next.


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

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