StrykerNova

Stryker has bought a small business called NOVADAQ, paying a massive premium, almost double the share price from Friday last. From the all time highs of 22.81 Dollars a share in March of 2014 however, it is half, the share price was 6.23 on Friday at the close. Of course, it is all relative. Still, the price tag is 11.75 Dollars a share, or 701 million Dollars. There is a break fee of 21 million Dollars, if the deal fails.”


 

To market to market to buy a fat pig Stocks in Jozi got a lift yesterday, we closed around half a percent to the good by the time the closing bell had rung. The Rand had a strong 13 in front of it, to the Dollar of course. There was not too much going on from a corporate news point of view, the Treasury was trying to appease wobbly sentiment, as was the Reserve Bank. I am not too sure where the Public Protector comes with the idea that the state managing a countries finance is a good idea, or even that there are a “lot” of authors who advocate this type of strategy. As the governor of the Reserve Bank said, price stability is very important for the most vulnerable in society. I suppose, the ruling against ABSA does involve the Reserve Bank, to be fair to her, she was just making observations. Free market and fierce independence will tell you that she has overstepped the mark in terms of observations.

You read the following two paragraphs and tell me what “leading authors” and what working examples of states that successfully do this, that you know. There are two separate sentences next to one another that have caught the eye of many in financial journalism and indeed across the globe, enough so that the finance minister gave an interview to Bloomberg two nights back:

“It is in this believe that once the state takes control of creating money and credit, numerous benefits aimed at alleviating economic ails of ordinary economically disadvantaged people may be achieved, unlike our current purely commercial transaction system which only seeks to improve a particular financial sector.”

 

And

“Leading authors advocating and promoting the ideology of state banks and nationalisation of monetary currency believe that the notion of last resort’s status that is inherent to central banks internationally would cease to exist if governments take sole power in creating money through the establishment of state banks.”

 

Leading authors have no practical evidence to suggest it works, in fact, the opposite is always true. For working examples of state inefficiencies look across the globe at failed state airlines and hyperinflation when the state “controls” the broader economy. Of course those people who point to Scandinavian countries being very government involved may well be right, small populations (around 27 million combined) and natural resources, with high education levels and zero tolerance for mismanagement. High taxes, big social security net. Population density? About the same as Russia. Bad climate ….. Politics, religion and dinner parties do not mix, we try and keep this message as practical as possible.

Top gainers on the day were the likes of Bidcorp and MTN (an upgrade), Anglo American and AngloGold Ashanti, the top losers were the likes of Vodacom and Old Mutual. Data prices must fall? It turns out that they have fallen. Whilst it is true that we do need to be more competitive, South Africa is a big country with many to cover. ICASA has both suggested that prices have fallen as there is real competition. In fact, by not opening bigger parts of the spectrum, ICASA has been in part to blame for higher prices. The expiration of data, that is another argument altogether. Data doesn’t feel like food!


 

Across the oceans and seas, vast and wide, stocks in New York, New York were again mixed amongst the majors. There was a lot of focus on the box on an unlisted business and their woes, Uber CEO was pushed/taking a leave of absence, Travis Kalanick has suffered some huge personal blows lately. He is young by CEO standards. The internet can be brutal, his current title on his Wikipedia account is “Unemployed”. Ouch! Uber is an incredible application with multiple uses, the internal company “issues” have been laundered everywhere. It has been very bad press and rightfully so, a macho culture belongs somewhere else, not in the modern era, more likely in the trash can. I have a feeling that Uber will emerge stronger and that the ease of use of the application has shaken up a sleepy industry.

Anyhows, the business is not listed, all of our interest in this is just a passing one. For more, the New York Times has a great piece – Inside Travis Kalanick’s Resignation as Uber’s C.E.O. As someone pointed out, no COO, no CFO, no CEO, exactly what you would want from a driverless lift sharing business. As for the cities and countries that pander to the needs of old technology and opaque pricing (I am talking metered taxis friends), their struggle is the same as that of the saddle maker over 100 years ago.

At the closing bell, with energy dragging the market lower again (oil prices falling regularly), the Dow gave up one-quarter of a percent, the broader market S&P 500 lost 0.06 percent, whilst the nerds of NASDAQ rallied three-quarters of a percent. Healthcare and tech ruled the roost, it was “newer” tech that rallied, the likes of Apple, Alphabet (Paul refuses to call it that, keeps on saying Google), Microsoft and Facebook. As well as Alibaba, Jack Ma is always busy! Amazon and Nike will do business directly for the first time, the Foot Locker share price took that one badly, down 5 percent on the day. This is not new, the Foot Locker share price has lost one-third in three months, new retail avenues (online) is worrying for brick and mortar stores. The Foot Locker Larry Bird 4 I said facetiously, with reference to Under Armour Steph Curry and the Nike Jordan. It turns out that Larry wore Converse, which is owned by Nike.


 

Company corner

Stryker has bought a small business called NOVADAQ, paying a massive premium, almost double the share price from Friday last. From the all time highs of 22.81 Dollars a share in March of 2014 however, it is half, the share price was 6.23 on Friday at the close. Of course, it is all relative. Still, the price tag is 11.75 Dollars a share, or 701 million Dollars. There is a break fee of 21 million Dollars, if the deal fails.

Mr. Market thinks that the deal will close, the current price is trading above the offer price …. in fact, Mr. Market thinks that there may well be someone else interested, if even marginally. Or the shorts closing out? According to Novadaq Technologies Inc Short Interest information from the NASDAQ website, at the end of May, there were 28 days current volume to cover short interest. i.e. it would take the shorts 28 days to buy back the shares at the daily average volume.

Forget that, what does NOVADAQ do and why would Stryker find this an interesting purchase? NOVADAQ has multiple technologies, including something called Spy Elite, that enables surgeons to make better decisions using imaging technology. Both in the actual surgical situation and assisting the healing, leading to quicker turnaround times for recovery and more importantly for all concerned, reducing unnecessary costs. The basics of it are as follows (I hope I am explaining it properly), when closing a skin flap, the surgeon needs to be sure that the skin won’t die, or the skin that is being closed has superior blood flow. With this technology, they can ensure that there are steady blood flows and as such the necrosis rates are greatly reduced. I hope I understood that properly.

The procedures for these technologies are covered on the website, and include Breast Reconstruction, Cardiac Surgery, Colorectal Surgery, Laparoscopic Cholecystectomy, Limb Salvage and Diabetic Foot Ulcers. The Stryker release describes it more eloquently than I could ever: “NOVADAQ is a leading developer of fluorescence imaging technology that provides surgeons with visualization of blood flow in vessels, and related tissue perfusion in cardiac, cardiovascular, gastrointestinal, plastic, microsurgical, and reconstructive procedures.”

Some of these technologies complement the existing Stryker portfolios, some are new. There are great cross sale opportunities across the existing portfolio. Whilst this is by no means a “big deal”, it is a mere percent and a half of their market cap, this is the style the company follows. Find a great technology, buy it and roll it out on a bigger scale. All for the advancement of humanity. That is the kind of business that one wants to own! Profitable, cutting edge technology meets critical healthcare needs. We continue to accumulate and stay the course.


 

Linkfest! Lap it up

Tencent is in becoming more mainstream as Wall Street understands the company better – Tencent’s Startup Investment Frenzy Now Reaches Outer Space. I think as South Africans we are incredibly fortunate to be able to invest in Tencent through Naspers.

Byron found this great piece on the future of trucking. The one section that looks very interesting is the ability for trucks to travel in convey, very close to each other thus reducing drag and saving on fuel – Here’s how Tesla, Uber, and Google are trying to revolutionize the trucking industry.

As the saying goes, being early is as good as being wrong. Vestact has been early on our Tobacco call, things might be changing though – Quitting Tobacco Stocks Is Easier at These Prices.


 

Home again, home again, jiggety-jog. On the news front we have initial jobless claims out of the US today, a number that is becoming less and less significant as the US job market has reached full employment. Bigger news to look forward to is the FY numbers out of Naspers tomorrow.


 

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

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