Steady as she goes


To market to market to buy a fat pig. Just as you think all the scandals and messy sideshows are over then another thing pops up. I’m talking MTN, who were named among some other big South African companies in an investigation into the legitimacy of their BEE structures (Major names in BEE investigation). The stock had a great day yesterday up 3.5%, some much relief for long suffering shareholders. The investigation news broke after the market close, I expect a red share price on the open this morning because if found to be in violation of the BBBEE act a fine could be as big as 10% of annual revenue. Sigh.

Other companies on the list include Eskom, SASSA, Netcare and Nokia, good to see that the public sector is not immune when it comes to the law. In the case of MTN the investigation will focus on their Zakhele and Zakhele Futhi BBBEE schemes, which in my option have been a success. The Zakhele shares reached maturity last year and despite the major crash in the share price, still created R6 billion in value for Zakhele shareholders. This is value created for thousands of South Africans, not just a handful. Having a look at the last set of full year numbers from MTN, the company took a R1 billion hit due to the issuing of new shares to the Zakhele Futhi scheme, on top of that though the transaction costs came in at R173 million (cash money). That R173 million would have been paid to lawyers and consultants to make sure that the BBBEE structure was correct. These investigations normally aren’t done overnight, so for now we wait.

The Dow closed in record territory for the ninth day in a row last night, up 0.12%. Low volatility is the name of the game at the moment, with the S&P 500 not moving more than 0.3% in a particular day for the last 13 trading sessions. Financial journalists tell me that this hasn’t happened since 1966. On one hand low volatility is great because you don’t have an emotional roller coaster ride following the market. On the other hand though volatility normally results in lower market participation and lower multiples. In the world of finance, volatility is the measure of risk. Higher the risk, higher the expected return and lower asset prices. Which would you rather have?

Locally another strong showing from the ALSI, finishing in the 56 000’s for the first time. The Rand firmed on the news of the secret ballot from around $/R13.35 to around the $/R13.20 levels. In my opinion the vote won’t pass, the market seems to be of the same view based on a few Bloomberg polls. I am aware to never say never when it comes to the political space, a la Brexit and Trump, so if the vote does go through expect a large amount of volatility in our financial markets. As long term investors though politicians will come and go many times, Buffett’s main concern with politicians is the chance of nuclear war (which would leave very long term ramifications) otherwise they are not a factor in his investment decisions. As South African’s we have access to great multi-national companies on the JSE or you can just invest offshore directly rather painlessly, don’t pay too much attention to the political wrangling. Keep on keeping on.


Linkfest, lap it up

Michael’s Musings

Thanks to the surge in the Tencent share price Pony Ma (Tencent founder), was briefly the richest man in China – Jack Ma was briefly dethroned as China’s richest person – meet the man who replaced him

Netflix just bought a comic book company to add content to their ‘Netflix Original’ library – Netflix Acquires Millarworld. The quality of content is the moat that separates Netflix from their competitors, so making sure that they keep creating hours of quality content is vital for the company.

The everything store is stocking up on brands so that the consumer has a wider choice when they are shopping – Amazon owns a whole collection of secret brands.

We all know about OPEC and their influence on oil prices, it seems like there is a cartel in the US which is controlling the supply of potatoes – Potato Cartel Forced Americans to Pay Higher Prices for Their Fries

Speaking of OPEC and oil here is a look at countries who didn’t diversify their economies away from oil enough – The Price of Oil Dependency.

Infographic: The Price of Oil Dependency | Statista You will find more statistics at Statista


Bright’s Banter

In San Francisco, California , its cheaper to buy a street than a house. A husband and wife investor duo bought Presidio Terrance – a private street in a wealthy suburb of San Fran – for only $90 000 at a city run auction – San Fran Street Sells For $90k. Neighbours aren’t happy.


Home again, home again, jiggety-jog. Brait released their NAV calculation this morning as R74.14 per share, 5% lower than they reported in the previous period. It looks like the bleeding hasn’t stopped yet in the value of their assets. The market has sold the stock down 8.5% to the R58 levels (20% lower than that reported NAV number). MTN is up this morning, so much for my prediction. The Rand is holding steady around $/R 13.20 ahead of the vote.


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