“Having said that in terms of the global accommodation market, all the Priceline brands don’t even account for 10% of it. Currently they have 1.2 million properties registered which gives them access to 25.5 million rooms, an increase of 36%.”


To market to market to buy a fat pig The Rand continued to strengthen through the day yesterday, mostly as the Dollar continued to lose ground. Ain’t nobody got time for political interference. This was a drag across the board, only the gold index had a good day (weak Dollar often equals strong gold price), after the closing bell the All share index had given back one-quarter of a percent. Gold stocks up over two percent, AngloGold Ashanti at the top of the leaderboards, two and two-tenths of a percent better on the day. Shoprite was also amongst the top performers, that stock added one and three-quarters of a percent by the time the closing bell rang. In the losers column was Capitec, down two and three-quarters of a percent. Sappi also slid, having benefited from the weaker Rand and clocking new 12 month highs (over and over), the stock now is at levels last seen two weeks ago. Ha-ha!

There were new 12 month highs for the likes of Telkom and more interestingly, CMH. Over the last 12 months, Combined Motor Holdings (CMH) has added 32 percent to their market capitalisation. That hides a longer dated picture, in ten years the stock is up only 16 percent, having been ripped limb from limb in the financial crisis. Three Rand and 60 cents is what you could have bought the stock at back then, 23 Rand is what it is now. It looks cheap, the only problem is how is Mr and Mrs/Ms Consumer doing out there? Colloquially, it is a tough old street being followed day in and day out, new cars are a luxury, are they not?

Telkom? What is that about? A trading statement mid-afternoon has plenty of moving parts, excluding the voluntary severance packages and voluntary early retirement packages, earnings are expected to be between ten percent lower and ten percent higher. At face value the stock looks cheap at 10 odd times earnings. The problem with looking at a company that has a long history of once offs is that they are exactly NOT that, they are not once off charges. Including the charges, the stock is a whole lot more expensive at 20 odd times. Beware the company with multiple and frequent accounting issues. That said, I have been so wrong on this one, I admit that.


Across the oceans, in New York, New York, where volatility is at a quarter century low, stocks reversed the worst of the start through the day to end marginally lower. Once again, there were many people who were a little bemused that the political shenanigans had little to no impact on stocks. I will tell you why, it is about earnings ultimately. Session end the Dow Jones Industrial Average has lost a little over one-tenth of a percent, whilst the broader market S&P 500 and the nerds of NASDAQ gave up a little over one-fifth of a percent each. Snap was crushed, down over 20 percent. Byron retweeted this fellow’s tweet, world class:

Pain therapeutics is a listed business, on the NASDAQ. As the name suggests, they are researching a drug that will help with chronic pain. You will not believe that post their results a few days ago the stock was down 20 percent plus. Any others? Pain, Snap, Hertz and Yelp. What are the chances? Apple was a standout again, the suggestion is that the new iPhone (we are all presuming that it is coming) will be a crackerjack. The stock rose nearly nine-tenths as Mr. Market figured that the new iPhone and associated leaks would be a blockbuster and attract a price tag in excess of 1 thousand Dollars a pop. Now, depending on where you live and what duty (of the import kind) is levied, the phone may be a lot more expensive than that. We shall see.

Another “thing” worth noting was that the Macy’s share price plunged 17 percent. The destination for luxury is not Bloomingdale’s or Macy’s (or any other of the department stores), it is either direct to their website (the luxury stores), or Amazon. Amazon is the new Department store. Note, Barron’s had an article about the 20 year listed history of Amazon, that started out as an online physical bookstore in which you could order books and get them posted. Like Netflix, remembering that they had (still do) a DVD service. Macy’s is less relevant in 2017. In that 20 year time horizon of being listed, Amazon has gone from 2 Dollars to nearly 950 Dollars a share. Macy’s may have doubled in share price from 1997 to 1998 when Amazon listed, since then the stock is (listen in) down 8 percent. Yes, in 19 years Macy’s is down 8 percent and Amazon is up over 13 thousand percent. So there.


Company Corner

On Tuesday The Priceline Group Reported Financial Results for 1st Quarter 2017, which were a mixed bag but ultimately lower than the market was expecting. The share closed down 4.5% on the day. Priceline is another one of those huge companies that most people have never heard of. The current market cap is just short of $90 billion, about the size of Ghana and Tanzania combined. That is a large company whose investors have high expectations, currently trading on a P/E of 42 but if all goes according to plan trades on a forward P/E of 21.

With those high expectations in mind here are the numbers. Revenues were up 12.6% YoY to $2.4 billion, on bookings of $20.7 billion up 28% and from that $456 million fell to the bottom line, an increase of 22%. That is very strong growth on what is not a small absolute number. Management are expecting booking numbers to be up between 16% – 22% for the next quarter. Having said that in terms of the global accommodation market, all the Priceline brands don’t even account for 10% of it. Currently they have 1.2 million properties registered which gives them access to 25.5 million rooms, an increase of 36%. For the quarter they had 174 million rooms booked an increase of 27%. Going forward there should be growth on two fronts, the first is growing market share as more properties move online and the second is through growth in the travel industry itself. Their strong growth should continue for the foreseeable future.

The bulk of their money comes from the booking of rooms, even though you can also book flights and cars on their sites. Car rentals were up 15% for the quarter but the number of flights booked through their sites has been dropping for the last 2 years. I think on the flight side of things, given that most of us have rewards programs linked to particular airlines we go straight to those particular airlines instead of an aggregator like KAYAK.

The company’s biggest expense is in advertising, where they spent $980 million for the quarter. Google will be on the receiving end of a sizeable chunk of it. Have you noticed where you type “Drakensberg accommodation” into Google and then for the next few weeks most of the ads you get served when browsing the internet is for accommodation in that area? While consumers are getting used to booking travel online, it is very important to be the fist site in mind when you want to book, hence the huge advertising budget. Once you have those customers you need to hold onto them through top class customer experience and ease of use site.

As millennials become the largest demographic globally, travel is a sector you want exposure to. Current trends have millennials prioritising experiences over “things”. Added to that, as the global middle class grows so does travel numbers. Like most tech companies, Priceline is also cashflow positive, meaning they don’t need large amounts of CAPEX (like we spoke about with Tesla yesterday) and debt to keep the growth going. It is a company we like as investors and customers. The current valuation is justified as long as the growth numbers stay strong and their customer satisfaction levels stay up, we will continue to monitor both.


L’Oreal, the giant cosmetics and beauty care firm delivered a sales update a number of weeks backQ1 2017 sales. Sales grew 7.5 percent for Q1 (relative to this time last year), to top 7 billion Euros. This is a beast, a big machine that operates across the globe. Makeup and beauty care is both a luxury and a necessity. It is an industry that fascinates me, beauty and the application of the associated products has been around for thousands of years. The application of cosmetics is quite simply to change or alter the appearance of the body, most noticeably the face. Way back, fragrances were used to mask the fact that people bathed less often.

All that said, cosmetics, hair care and fragrances are now available to the masses, the middle classes can now (thanks to technological advances and lower manufacturing costs in bulk) enjoy the same products available to nobility and the upper classes of yesteryear. Most of the majors of today were founded just before the first world war, there are always newer entrants, consumers will go with what they trust. Of course there are advancements in the products, science is always pushing the boundaries.

These companies, including L’Oreal, have massive marketing budgets, telling you how awesome their product is. How it slows the signs of ageing, using xyz scientific formulations and the like. The advent of the front facing camera and the “selfie” means looking good has never been so important. Most especially if being beautiful attracts tons of follows and potential revenue in the form of advertising. So ….. we know the story, we know the investment thesis. Emerging markets, scientific progression and stickiness of their customers (who wants to look less glamorous?) means continued revenue growth in emerging and developed markets.

Of all the divisions, only professional products was a drag, no thanks to their home market France which has been tricky at best. I wonder if the recent political “good outcome” will lead to a more positive consumer? Emerging markets and particularly ours (the Middle East and Africa are lumped together) have been poor. Herewith a breakdown of the product sales and the regional sales, in order to give you a better idea of what the breakdown is:

These quarterly sales were ahead of expectations, the stock price has steadily increased to close at an all time high in recent days (in Euros and Dollars). What to do now? I think that for all of time now and in the future that their products will be relevant, they will also innovate and attract new customers. To think that only half of the global population is a potential user of their products also means that newer societal norms could see their product range grow for men. We continue to recommend holding this business.


Linkfest, lap it up

The more confident people are about the future, the more they invest and the more they invest the bigger the economy becomes which creates wealth and another opportunity for people invest again, then repeat the cycle – 5 Ways Capitalist Chile is Much Better Than Socialist Venezuela

As people get richer, they need toys that show their wealth. They don’t only buy more cars but top end jewellery and anything linked to an exclusive brand – Super Luxury Car Sales Are Booming. The growth in billionaires is impressive.

Infographic: Super Luxury Car Sales Are Booming  | Statista You will find more statistics at Statista

Even though smoking has dropped by 37% in the US over the last 15 years, investing in a tobacco company has worked out well. Thanks to the huge pricing power these companies have. As smoking levels drop, prices increase to compensate. When will the breaking point be reached? – US Smoking

Wow. I am feeling kind of left out here. It sure is another entertainment form, according to NVIDIA, the gaming industry at 100 billion Dollars per annum is the largest entertainment industry in the world. And here is the evidence – Nielsen: 64% of Americans age 13-and-older are gamers.


Home again, home again, jiggety-jog. Stocks across Asia are certainly mixed, the Japanese markets are lower, the Chinese markets are higher. Richemont has released their annual numbers, it looks disappointing, how disappointing, the markets will tell us in a bit.


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

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