Vodacom goes on Safari

“Come a little closer partner was the message. Why? Vodacom will acquire a 34.94 percent indirect interest in Safaricom, by acquiring a 87.5 percent stake in Vodafone Kenya, from Vodafone Plc. Vodafone Plc. will retain a 12.5 percent stake in Vodafone Kenya, giving them (Plc.) an effective 4.99 percent in Safaricom.”


To market to market to buy a fat pig Market levels turned tail from a good start to lose steam as the Rand strengthened through the day, only turning as US markets opened stronger and were heading higher. In the end we closed in Jozi (Jozi), a smidgen lower, a whole 11 points lower from where we started. Resources enjoyed a strong day, up three-quarters of a percent by the time all was said and done. Amplats and Bidvest were the two biggest winners on the day, Aspen and AngloGold Ashanti were the two biggest losers. The day was basically shared amongst winners and losers, an even 1-1 inside of the majors. In other words, for every stock down in the ALSI 40, there was a stock up. And hence, no surprises that we ended the day flat!!

There were tons of results, Aspen sold off heavily initially, and then recovered a bit, on a short note on the European Commissions proceedings announcement. Basically ….. the EU commission is investigating Aspen and their subsidiaries across the continent, the company cannot comment at this time and they support fair and open competition in all markets. They take the law seriously and will work with the authorities. And most importantly, all information, as and when available, will be communicated through SENS.

It is a tough operating environment, Europe, there are many regulatory hurdles and said authorities take their work VERY seriously. Bureaucracy and Europe go hand in hand. Session close Aspen was trading down 3.6 percent at 275 Rand a share. There is very little earnings related news until mid-September, and the trading update before that. We will just have to sit tight for now. I guess if you had to choose between operating in a corrupt basket-case country like Venezuela, over bureaucratic jungles like Italy, you would choose the richer and more stable (relatively speaking) European country. It is about the efficiency of doing business, the easier it is to do business, the better for all the citizens. Somehow ordinary citizens think governments are for their interests and well being, whereas in reality, number one looks after number one the best, if you know what I mean.

Talking number one, Vodacom obviously being first to market here in South Africa always had the numbers and the cream. MTN being unshackled was able to spread wings across the continent and beyond, which allowed them to capture a far greater subscriber base. Vodafone, being the majority shareholder of Vodacom, put territorial shackles on the South African based company, which was not able to operate in directly competing countries. No Vodacom and Vodafone in the same territory, ok? The announcement yesterday may have changed and shifted that approach a bit.

Come a little closer partner was the message. Why? Vodacom will acquire a 34.94 percent indirect interest in Safaricom, by acquiring a 87.5 percent stake in Vodafone Kenya, from Vodafone Plc. Vodafone Plc. will retain a 12.5 percent stake in Vodafone Kenya, giving them (Plc.) an effective 4.99 percent in Safaricom. These two will be shareholders of nearly 40 percent of the Kenyan telecoms powerhouse. Vodacom will issue 226.8 million shares to Vodafone. At the current share price, that is 34.668 billion Rand. Which means that the whole of Safaricom is around 100 billion Rand, is that about right?

There are currently 1.488 billion Vodacom shares in issue, post this transaction, there will be 1.715 billion shares. At the current price (all things being equal), the market capitalisation would be 262 billion Rand. Which would make the company in market capitalisation bigger than Anglo American at the close last evening, nearly the same size as Sasol and breathing down the neck of FirstRand. And definitely bigger than MTN. Vodafone will now own, when the deal is complete, 69.6 percent of Vodacom. For them I can understand why this is a win, one tradable entity in one place and currency, and a small minority stake elsewhere.

I wonder what the Kenyan government (35 percent shareholder in Safaricom) thinks of all this? More importantly, what is happening with Vodafone? This FT article suggests that by cleaning up their fragmented portfolio, this may be a step closer for Vodafone to merge with Liberty Global, who is the owner of Virgin Media in Europe – Vodafone transfers stake in Kenya operator Safaricom to Vodacom. For that …. we will have to wait. First things first, get this deal done. Over the next 24 months, as per JSE regulations, the Vodacom free float will have to be beefed up, and that will mean that Vodafone will have to sell some of their shares. Currently Vodacom have signed a two year exemption with the JSE, expect Vodafone to sell some shares in the coming 12-18 months.


Over the seas and oceans, stocks rose into the close of a record session, at least for the broader market S&P 500 as well as the nerds of NASDAQ. Session end both had printed new closing and intraday highs, the S&P 500 added nearly half a percent to close out the session at 2402, whilst the nerds of NASDAQ tacked on 0.46 percent to end at 6149 points. The Dow Jones Industrial Average added just over four-tenths of a percent. The charge by equities was in part first buoyed by rising oil prices, the Saudis and Russians agreed to further longer dated cuts in output. Johnson & Johnson got a lift from a broker upgrade from JP Morgan, moving their rating from neutral to overweight and raising their price target to 140 Dollars, for what it is worth.

NVIDIA rose another five percent to beyond 134 Dollars, benefitting from a Goldman note that reiterated that the stock was a “conviction buy”, see the Barron’s story (subscription only) – Nvidia: Take Advantage of Short-Sighted Investor Worries, Says Goldman. All this after meeting the company last week. The analyst upgraded the stock price target (again, for what it is worth) to 165 Dollars a share.

Hey ….. what about those people at Nomura? Check this out from February – Nvidia Shares Plummet as Analysts Downgrade High-Flying Stock. Jeepers, they must be getting totalled! Mind you, they may have changed their minds in the interim, perhaps I wasn’t paying attention. Talking of which, this is useful – Market Punished Earnings Misses More Than Average for Q1

Hey, how about that virus, that was thwarted by 22 year old Marcus Hutchins, that thought through this thing practically? The BusinessInsider has a great story about the fellow – The 22-year-old who saved the world from a malware virus has been named. The grand total of 22 odd thousand pounds worth of Bitcoin has been paid. And the price of Bitcoin was down. And then up, and then down.


Company Corner

Richemont, the luxury goods producer, released results for their full year last Friday. Sales had fallen as a result of a tricky operating environment. Asia Pacific was flat, it still constitutes 37 percent of the overall business by sales, Europe is 29 percent, having fallen recently, much of that due to the recovery of the Americas (which is now 17 percent of all sales). There were pockets of strength, Mainland China, Korea and the UK, as well as the US.

Sales were 4 percent lower to 10.647 billion Euros, gross margins were collectively 40 basis points lower, operating margins fell 200 basis points to 16.6 percent, a much sharper slide. Profits and earnings per share were 46 percent lower to 1.21 billion Euros and 2.141 Euros respectively. To translate that back to Swiss Francs at the prevailing rate, you get 2.34 Swiss Francs worth of earnings per share. The dividend was hiked by 6 percent to 1.80 Swiss Francs.

At the current level of 82.25 Swiss Francs that translates to a multiple of 36.8 times (very rich as a result of the plunge in earnings), the dividend yield (pre a hefty 35 percent Swiss dividend withholding tax) is around 2.2 percent. The stock looks expensive. The yield may be above the Swiss Treasury yield. Anything is above negative. True story, currently the Swiss Generic Ten year bond is 0.054 percent MINUS. Yes. You pay the Swiss government to park your money. In the Swiss Central Banking system we definitely trust …. at least that is what the market is telling you – Switzerland Govt Bonds 10 Year Note Generic Bid Yield.

There have been a number of management changes recently. The CEO will be up for election in a separate capacity, the new management team is fresher and a whole host of people will not be available for re-election, including some long standing board members. New ones include Anton Rupert (the son of Johann Rupert, the chairman), clearly the best person for the job. Enough sarcasm, there has been plenty of continuity in looking after the hefty family stake. I suppose …. nobody looks after number one like number one, right?

The outlook is worth interrogating. In his prepared remarks in the results, Chairman Johann Rupert had the following to say, it is possibly worth ALL copying and pasting:

“Volatility and uncertainty in the geopolitical and trading environments are likely to prevail. Our attention is focused on transitioning the Group to adjust to operating in a more sustainable growth environment, by adapting our product offer, communication and distribution to new consumption patterns while allocating resources primarily towards research and innovation, digital marketing, online sales platforms and training in all of our Maisons.

Richemont has a strong cash flow and a strong balance sheet that enables us to focus on value creation for shareholders over an extended time horizon. This approach allows our Maisons, which have significant brand equity and heritage, to plan and grow in what we continue to believe is a unique business with excellent long-term prospects.”


Agreed. They are just transitioning and their watches business is clearly under pressure, it will stabilise at some level. For now, we are holders of the premier jewellery business, knowing that this industry is millennia old. It is not going away. Not in ten years time, not in a century time.


Linkfest, lap it up

As life expectancies rise retiring at age 60 and doing nothing is fast becoming a thing of the past – China’s seniors are lining up to go back to college. The great thing about these classes is that it gets people out of their homes, they are more active and they get to socialise which all comes together to make the older people happier and healthier.

There is still much trial and error, when it comes to urban farming. One of the biggest costs is the “land” or square meterage needed to grow plants on mass. I do think that at some point companies will find the right mix to be profitable urban farmers – A Farm Grows in the City.

When your Instagram page doubles up as part of the future and creates huge interest. Elon Musk debuted the electric sled that barrels along at 200km per hour on his feedThis is a test run of our electric sled.

Staying with electric moving transportation, this bike of the future (that may retail around 1200 Dollars when finished) is the MOAR (pronounced Mo-Are) eBike. This is incredible. Equally, they have raised the necessary funding – Fat Tire, Folding Frame, Electric Bicycle. Watch the video.


Home again, home again, jiggety-jog. Stocks across Asia are mixed to better, Tencent is flat. A weaker Dollar equals a stronger Rand. Which is not always good for our exchange, very good for imported inflation.

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

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