Progress will not be Trumped

“We plan to hold these shares long enough to see multiple presidents and multiple strides in human progress. The Boeing 787 and the Airbus 380 and the magic of intercontinental flight, the smartphones dished up by Samsung and Apple, driverless technologies in electric cars, processing speeds, internet speeds, agricultural machinery improvement, robotic factories. All these things have advanced at such a pace that we take them for granted. If that is what one decade can do, then I can say with full confidence that I am excited for the next.”


 

To market to market to buy a fat pig Whoa! Sell first and then ask loads of questions later. There was a whole lot of everything going on yesterday. Trump this, impeach that talk around each decisions he made. The real rash decision was electing him in the first place, did the electorate think that the behaviour would magically change and that the real estate self confessed awesome frog would change into the proverbial presidential prince? So why do markets care so much? Is the average person going to buy fewer coffees, get less stuff delivered on Amazon, do fewer Google searches, use their smart phone less or buy less food? Nope. Does it impact on sentiment? Sure. So there is an impact.

More importantly, if the leader of the free world is facing a vote of no confidence, it may well mean that the pro-business agenda touted would not transpire. And that is the part that matters for equity markets and the recent higher moves. With a pro-business and perhaps lower tax environment supporting business gone, that means that expectations need to be reeled in. In short, Trump wanted Comey to not pursue Flynn. And if that is the case ….. then he has overstepped the mark. The appointment of former FBI Director Robert Mueller to probe allegations that Russia somehow influenced the elections last time around, will no doubt lead to more worries. I am worried, they will say.

What must you do as a shareholder of all these businesses that were sold off sharply? Nothing. Politics does have an impact on business, it should not impact on your investment decisions. We plan to hold these shares long enough to see multiple presidents and multiple strides in human progress. The Boeing 787 and the Airbus 380 and the magic of intercontinental flight, the smartphones dished up by Samsung and Apple, driverless technologies in electric cars, processing speeds, internet speeds, agricultural machinery improvement, robotic factories. All these things have advanced at such a pace that we take them for granted. If that is what one decade can do, then I can say with full confidence that I am excited for the next.

Not excited was the markets in New York last night. A pretty savage sell off and a shake up of the slow ebb that we have experienced for the last few weeks. Volatility crushed it, spiking nearly 47 percent. Hey, why wasn’t I long that? Nooooo! Equities were drilled, the Dow Jones Industrial Average sank one and three-quarters of a percent, the broader market S&P 500 fared a little worse than that, whilst the high Beta stocks in the nerds of NASDAQ took a pounding, down over two and a half percent as a collective. Apple, Alphabet, Microsoft, Facebook, the pin ups of tech were sold off sharply. Only utilities (understandably) escaped the selling madness. Our advice as ever, is the same, watch, wring your hand and massage your temples, if you will, do not sell.


 

It was also extremely busy on the local front yesterday, bits and pieces of important news flying around. The futures market in the US pointing to a lower day did not seem to phase the local market, by the time the bell for closing time had rung, we were just over twenty points lower and an almost identical day from the prior one. Down 0.04 percent on the All share index. Resources were enjoying a revival of sorts, up nearly half a percent as a collective, industrials managed one-third of a percent to the good by the time we shut up shop. Much of that move can be attributed to Naspers, which rallied after a really swell set of numbers from Tencent. In the losers column were all the ZA inc. banks, Nedbank, Standard Bank, Barclays Africa all off around two percent or more on the day. Banks together lost one and three-quarters of a percent.

There was a mouthwatering presentation from Bidcorp, Byron and I commented that the food in the analyst day presentation release looked so darn good that we couldn’t help agree that this made us hungry. It really did. It was a positive session for most “Euro centric” stocks, Bidcorp had added three-quarters of a percent. All seems to be going well across all their divisions, in fact they see opportunities with Brexit, as a result of higher tourist numbers (and tourists love to eat), as well as more locals eating out and not travelling as much.

I suspect that there have to be losers in that equation, perhaps the places that the average British holiday maker goes to? British people, from a low grader web search, get two days less holiday than the average European. Another higher grade search (from a business that we own, Kayak is a subsidiary of Priceline – Where will Brits be going for summer 2017?) reveals that Croatia is on the up, Spain is a loser. Eish. The biggest loser is the US though: “We noted that searches to the USA dropped after the new president came to office – but it seems like this is a longer-term trend.” Anyhows, Bidcorp is a great business and we are happy to be a shareholder.

A SENS that came after the market close is no doubt going to have a big impact on what transpires next, Steinhoff plan to list their African business on the JSE main board. The release came just after the market closed, and follows hot on the heels of the failed put together of Shoprite and the Steinhoff African assets. They really want to get this done. These assets will be Pepkor South Africa and rest of Africa, JD Group, Unitrans Automotive, Steinbuild, Poco South Africa and Tekkie Town. For the time being they are calling this business Listco, not the most original name, practical for the time being. Steinhoff, the parent company will own a significant and controlling interest in this business.

The rationale is simple, they want to separate the two business, the African footprint and the developed market business, which have different strategies. If this does happen, it will happen in the third quarter of 2017, in other words as little as two months time. Market conditions and regulators will have to be factored in. A capital raise to achieve a wider public shareholder base, in which Steinhoff would still be a significant shareholder and retain control over Listco, would then take place. They really want to get this done. I cannot say how the share price is likely to react, I really can’t. I can see the benefits for the European shareholders, and by extension ourselves, and having the entity in a traded vehicle separately. We shall see.


 

Company Corner

Tencent reported numbers in the late morning yesterday. Tencent is difficult for most investors to understand. I don’t talk for all investors, perhaps investors spend more time reading than they do partaking in role-player or single shooter games either on their PC or on their mobile phone. Plus, many investors in Naspers/Tencent do not get to experience the entire experience from the company, as it is in a different language and in many respects a closed off internet society, if that makes sense.

The numbers for revenues and profits sharply exceeded expectations, Tencent has responded in kind this morning with a roaring nearly four percent gain. And that must be received against the backdrop of global markets all selling off sharply. I suspect that with the weaker Rand and with this share price movement, that Naspers may well be comfortably ahead of the rest of the market today, as some selling pressure may transpire from “other quarters”.

For such a large company it is pleasing to see them grow comfortably into their earnings, revenues were 55 percent higher than the prior financial year, 7.182 billion Dollars for the quarter. Basic earnings per share were 1.54 Renminbi, which translates to 1.74 Hong Kong Dollars. Expectations this year are for above 7 Hong Kong Dollars worth of earnings, at 270 Hong Kong Dollars, the stock trades almost constantly higher at 35 odd times forward. Expectations are for EPS growth of 30 percent this year and then nearly the same the year after, still, this is a tricky stock to value. Entertainment in China, that is what the long term future of this business is. I reckon that there is great scope for growth and we maintain our buy (indirectly) of Naspers, even at higher and elevated levels.


 

Linkfest, lap it up

Here is how the US Dollar has evolved into what it is now. Note how wealth was destroyed by governments during war times due to the excessive printing of money to fund guns and bullets – 31 Fascinating Facts on the Early History of the U.S. Dollar

Here is how the Tesla Solar Roof compares to your alternatives – Tesla’s Solar Roof Pricing Is Cheap Enough to Catch Fire. Not only is the Tesla option cheaper it looks much, much better than the current panels available!

Interesting map. These words point toward each of these countries histories, appropriate that the US has the word ‘war’ ? – Most Recurring Word On Each Country’s Wikipedia Page.


 

Home again, home again, jiggety-jog. It is going to be an interesting day for the local bourse. Tough in some parts, others with a weaker Rand and higher commodity prices will benefit. We shall see, one thing for sure, the snap of the lull came at quite a pace and perhaps from a quarter anticipated (not expected).


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

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