Healthy Numbers

“On Tuesday the company released first quarter numbers for 2017. Sales increased by 1.6% to $18.8bn, $9.4bn of that was in the US, $3.9bn in Europe, $3.1bn in Asia and Africa and $1.4bn in the Western Hemisphere excluding the US. This is a pretty decent sales mix. I always get encouraged when US companies still have big growth opportunities internationally. For a company the size of JNJ and the brand strength that they possess, the world is their oyster.”


 

To market to market to buy a fat pig Our market closed down just a smidgen yesterday, down 0.09%. PSG was up 3.5% after their results yesterday and Naspers was up over 1% thanks to Tencent trading at record highs in Hong Kong. Having a look at the chart for Tencent, the stock is up an impressive 24% year to date and up 44% over the last 12 months! Naspers over the same time periods, is up 23% year to date but only 15% over the last 12 months. Part of this divergence in fortunes comes down to a stronger Rand, which has gained around 8% against the Hong Kong Dollar. Rand strength doesn’t explain all the divergence in fortunes though, it seems South Africans are still skeptical on the Tencent story. Chatting to Byron this morning, we were reminded about when people (“investors”) took Koos Becker cashing in share options as a sign to exit Naspers. The news emerged in late 2015 when the share price was around the R1600 – R1700 level, meaning if you sold then you would have left around 45% on the table!

Gold had a rough day out, with the index down nearly 4%. Having a look at how these stocks have done year to date, I was pleasantly surprised to see that they are up. Sibanye is up 13% for this year but still down for the last 12 months, almost halving for the period. A strong Rand, weak platinum price and their pending purchase in the US being the culprits.

New York, New York The Nasdaq reached a record high yesterday, closing up 0.92%. The Dow and S&P 500 were up 0.85% and 0.76% respectively. The strength seems to be stemming from new tax cut talks in the US, Steven Mnuchin saying a tax reform plan was coming “very soon”. Tesla was down 1% due to them needing to recall 53 000 cars, which is more than half of the cars they will produce this year (Tesla recalls 53,000 of its Model S, Model X cars). The faulty part is a gear in the parking brake, which seems to be an easy fix and doesn’t pose any risk to life.

International news that will have an impact on the global markets going forward is the outcome of the french election. Tomorrow is the first round, where if no candidate gets more than 50% of the vote (very likely to happen) the top 2 candidates go into a second round of voting on the 7th May. From a markets point of view, France staying actively involved in the EU is a good thing. The attacks in France last night might sway some votes more to the Nationalists but time will tell. The polls are showing that Le Pen may get to the second voting round but that she won’t get further than that, same as the polls said no Brexit and a Hillary win.


 

Company corner

Johnson and Johnson needs no introduction. From commercialising first aid kits in 1888 to the $320bn market cap business it is today, the story is extraordinary. Now compromising three core divisions, consumer, medical devices and pharma, the business had annual sales of $72bn last year.

On Tuesday the company released first quarter numbers for 2017. Sales increased by 1.6% to $18.8bn, $9.4bn of that was in the US, $3.9bn in Europe, $3.1bn in Asia and Africa and $1.4bn in the Western Hemisphere excluding the US. This is a pretty decent sales mix. I always get encouraged when US companies still have big growth opportunities internationally. For a company the size of JNJ and the brand strength that they possess, the world is their oyster.

Adjusted earnings per share were up 5.8% to $1.83. Expectations from the company are for $7.00-$7.15 for the full year. Trading at $121 a share, the company trades on 17 times forward earnings which is pretty much in line with market. There is no doubt this is a quality company and quality attracts a premium.

To get a better understanding of their sales mix, take a look at the below image from the results presentation.

Pharma is still the crowned jewel but medical devices had a really good quarter.The medical devices sector is full of innovation and JNJ have the war chest to handpick great bolt on acquisitions. Speaking of which the $30bn Actelion deal has reached agreement and the impact on earnings has already been included. Remember they went after this Swiss business for its leading, differentiated in-market medicines for pulmonary arterial hypertension which already has 65000 patients on board.

The sector certainly comes with regulatory risks. But I think that justifies an investment in JNJ. The business is so big and so well diversified you are protected from certain products facing regulatory scrutiny. The more I follow the healthcare sector the more I realise that although it is a sector you have to be invested in, it is better to go with big conservative businesses. JNJ is the biggest and the most diversified.

Johnson & Johnson remains a core holding in the Vestact portfolio and we are still very happy to be adding at these levels. Scope for global growth is huge and they certainly have the resources to do so successfully.


 

Linkfest, lap it up

The success of Netflix is shacking up the entertainment industry. The big question that still needs answering is how does sport fit into the future of product offerings? – A potential fight is brewing in TV land over an under-20-dollar TV bundle without sports.

Talking of Netflix, their moat protecting their value lies in their line up of Netflix produced shows – Why the Best Is Yet to Come for Netflix, Inc.. Compared to a few years ago when Netflix produced shows were more miss than hit, their current line up of Netflix originals are world class.


 

Home again, home again, jiggety-jog. The All Share opened higher this morning, with the Rand hovering around the same levels as yesterday. Visa had numbers out last night after the market close which were a beat, the stock is set to open 2% higher when US markets open at 15:30 our time. We will give you a better run down of those numbers next week.


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

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