Tencent and Tesla Dream Team

“Tencent are now officially a five percent shareholder of Tesla, which is cool from our perspective down here in South Africa. Why? As a Naspers shareholder, who owns around 34 percent of Tencent, you now indirectly own a stake in Tesla.”


 

To market to market to buy a fat pig A much weaker local currency over a period of two days equalled a much stronger market, the Rand hedge stocks caught a bid, resources added nearly two and a half percent. The Rand is back at levels …… seen two weeks ago. It is hardly a “plunge” or a “crash”. Equally, the president can make up his mind on any matter at any stage. If it suits investors or not, then so be it.

There is no use wringing your hands and feeling anxious, all good investors should find themselves diversified at all times, to reduce political risks and the like. Remembering that currencies, economic policies, governments, you have no control over those factors. Be it that you find yourself in Turkey, the UK, China, Japan, the USA or South Africa. Politics and economic policies have a bearing on wealth creation. And if the government of the time are not friendly to capital creation, there are many choices that investors have.

What a sunrise this morning in Jozi, or should I say, pre-sunrise. It was one of the most beautiful that I have ever seen in my time here (18th year now), where sunlight rays meets blue (very blue) skies. It is another reminder that the sun rises in the morning, and a new day and new opportunities are always formed for all to grasp. Thank your lucky stars that you live in a democracy, where capital markets are deep and liquid, where choices can be easily made on what you can and cannot do. Sometimes I think people are very insular in their thinking (Brexit, Le Pen, Grillo and the like), thinking that the investment world ends at their borders. This is 2017. That is not the case. You have access to the world.

OK, back to the local scoreboard here quickly. Stocks as a collective ended 1.13 percent better on the session, the biggest winners were Kumba Iron Ore, Sasol, Amplats, Naspers and BHP Billiton, no guesses why! In the “down” column were the likes of Woolies, Barclays Africa, Remgro, AngloGold Ashanti and FirstRand, as well as Tiger Brands and FirstRand. What could be termed as SA inc. stocks. Some of the gold stocks gave back the session prior gains. Capitec reported numbers that continue to impress all and sundry, the stock still attracts a market rating that is more than double that of their peer grouping, FirstRand and the like. The truth is, they are a newer age bank without the legacy systems. Although the stock didn’t close in amongst those making new 12 months highs, it has been a regular in there for a while.


 

Over the oceans in New York, New York, stocks came back from a lower open to end in the green. There was talk of another Dow Jones red day, that would equal a streak not seen since 1978, which would be quite something. It truth, whilst there has been a sell off, the Dow at the close last night is 460 points off the highs seen March 1, around 2.3 percent. That hardly sounds like a vicious sell off, now does it? Up 150 points, which is around three-quarters of a percent, by the close. The broader market S&P 500 added roughly the same amount, the nerds of NASDAQ closed the session up six-tenths of a percent.

It was a case of a consumer confidence release reaching levels not seen since pre-iPod. A fed official toned down the rate hiking trajectory. An amped consumer bodes well for a country that has an economy that is well geared towards consumption, whether a whole host of laws are implemented or repealed may be of little consequence. It may well be that rising consumer confidence equals rising US onshore revenues, which may translate to higher profitability during the period in which costs were contained. Which may well equal margin expansion and multiple (share price) expansion. We remain fully invested.


 

Company corner

A 13-G announcement from Tesla seemed innocuous at first glance – SCHEDULE 13G. However, if you dug a little deeper, you suddenly discovered that the investor was none other than Tencent, the Chinese business that we know very well, through our investments in Naspers. So how much is this exactly? We worked it out, they paid for the full stake (8,167,544 shares divided by 1,777,842,836 Dollars) 217.67 Dollars a share. At the closing value last evening, the stake is worth 2.266 billion Dollars. Tencent are now officially a five percent shareholder of Tesla, which is cool from our perspective down here in South Africa. Why? As a Naspers shareholder, who owns around 34 percent of Tencent, you now indirectly own a stake in Tesla.

So how much? Well ….. Tencent has an ADR listed on the US exchanges. It has a primary listing in Hong Kong, there are 9.477 billion shares outstanding, at 227.6 Hong Kong Dollars a share, the market cap is 2.156 trillion HKD. Which in turn, translates to 277.55 billion US Dollars. The Tesla stake, at the close last evening, relative to the Tencent share price currently, is 0.81 percent of their entire value. So whilst this is a “big thing”, and probably indicates for both businesses a commitment of intent, it is from a monetary standpoint, not huge for Tencent. What the tie up may mean is that Tencent (who have a massive presence in the most populous country in the world) could become just the partner that Tesla needs to expand further in China. We hold all three businesses, directly and indirectly, and there is no plan to sell any of them.


 

Another announcement that has to do with the shares that we own is that Souq finally sold to Amazon, even though the founder could have extracted more for his efforts. See the announcement on the Souq website – Joining the Amazon family. Ronaldo Mouchawar is an interesting guy, for one he is born in Aleppo, a city that has heartbreaking before and after pictures. He is tall, a former basketball player in his earlier days. He could have accepted a higher offer from another suitor, feeling however that the Amazon offer would do good by the customers.

Is that what they call pure capitalism, or naivety? I am not sure, as shareholders of Amazon, we are glad they have a presence (and a good one) in the Middle East, as shareholders of Naspers (who have a stake in Souq) we are not that pleased that they hadn’t managed to squeeze out more. I suppose for Mouchawar, getting a great partner in the form of Amazon may actually reach his goal of improving the lives of all the people in the region, access and speed and quality.

The suggestion is that Amazon paid 650 million Dollars, the other suitor may have paid as much as 800 million Dollars (See this Barron’s piece – Amazon Clinches Souk.com (sic?), Snubbing Dubai Bidder). I suppose that all will be revealed in time, Naspers will let the market know what they managed to get out of the ownership of Souq. It is one of the cases when all you “wanted” was a fair price, for the company you own that is the seller and for the company that you own that is the buyer.


 

Linkfest, lap it up

This is more than a little cool and futuristic, it may actually be the start of something new for air travel – Why Airport Runways Should Actually Be Circular. What the …. ? Imagine taking off at an angle (I know some basic physics), pilots out there, how would this work?

We have spoken about eSports many times, it is an entertainment category that many people don’t understand – Competitive video gaming will be a $1.5 billion industry by 2020, researchers say. As Naspers shareholders we directly benefit from this rapidly growing industry.

Based on this graph Starbucks still has huge growth potentialEurope and North America’s Top Coffee-Drinking Nations. Google tells me that 1kg of beans makes around 120 cups of coffee!

Infographic: Europe and North America's Top Coffee-Drinking Nations | Statista You will find more statistics at Statista

I’m surprised that Twitter hasn’t explored this earlier. The company is in serious need of revenue growth now that the subscriber numbers have flat lined – Twitter exploring premium subscription service


 

Home again, home again, jiggety-jog. Big data today out of the US, they show their oil inventory levels giving us a better idea of supply and demand dynamics in the industry. The Rand is slightly weaker this morning, trading above that $/R 13.00 phycological level, the MPC announcement on interest rates tomorrow might also have an impact on our currency. Looking to the East, their markets are a mix between slightly up and slightly down. The main stock there though for us is Tencent, currently up around 0.7% which points to Naspers having a stronger day today.


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

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