This Elephant can Dance


To market to market to buy a fat pig. Earnings galore coming from the US. What a time to be alive! Not because companies are releasing earnings, they do that every quarter. But because the earnings coming through are looking fantastic. Alphabet (Google) grew sales by 24% off a massive base. This equated to operating income of $8.8bn for the quarter. Just phenomenal. That stock is up 3% on the news

Amazon also reported cracking numbers. Revenues grew 33.7% to $43.7bn. Wholefoods contributed $1.3bn of that. People are loving their cheaper avos. The Amazon share price soared 8% on the numbers.

The Vestact brains trust will be working hard to get these numbers to you in more detail throughout next week.

Unfortunately south of the Limpopo, things are not looking as upbeat. We can no longer blame slow global growth for our woes. In fact, if things were bad globally we would be in a lot more trouble. The Rand got klapped. There is no other better way to explain it. We are now at R14.25 to the dollar.

Market Scorecard As you know, the market doesn’t mind a weaker Rand. The all share closed 0.8% thanks to many of the larger dual listed stocks having a good run. SA inc stocks like the banks and retailers did not fair as well. In New York the S&P increased 0.1%. Those big moves mentioned above happened after the close, they will impact positively on today’s open.


Company corner

Bright’s Banter

– $30 Billion acquisition of Actelion was successful and benefits are flowing in already.

– Completed the sale of Codman to Integre for over $1 Billion.

– Janssen Pharma has been busy getting clearance for new drugs and acquiring new businesses.

– JNJ declared a $0.84 dividend.

JnJ shares were up 2% after the company posted another strong quarter. This was thanks to the strong performance by the pharmaceuticals business and the Actelion acquisition as well as other small recent acquisitions. JnJ also had a few sales of non-strategic businesses within the JnJ portfolio.

How did the company do compared to Wall Street’s expectations?

1) Third-Quarter Sales of $19.7billion an increase of 10.3% which was a $370m beat

2) Third-Quarter Earnings Per Share was $1.37

3) Adjusted Third-Quarter Earnings Per Share of $1.90 an increase of 13.1% which beat expectations by $0.10

The consumer business did fairly with $3.4 Billion in Sales for the quarter, showing an increase of 2.9% with the most growth coming from non-U.S. sales. Baby care products took a hit but that impact was not felt much because the portfolio is well spread out. OTC products like Tylenol, an analgesic product, international smoking cessation aids, OGX, and Neutrogena beauty products continued to perform well in their categories.

Pharmaceuticals business was by far the biggest winner. During the quarter JnJ sold their brand Compeed to HRA Pharma. Pharma sales were up 15.4% to $9.7 Billion where Actelion contributed 7.9%. Strong growth came from the sale of new drugs such as Darzalex which treats patients with multiple myeloma and Imbruvica which is an oral treatment for certain B-Cell malignancies, a type of blood cancer. Other drugs that contributed to the growth were Stelara, Xarelto, Zytiga, Invega, Sustenna etc. These drugs treat everything from immune-mediated inflammatory diseases, metastatic cancer, prostate cancer, all the way to schizophrenia.

The medical devices business was another strong performer with Sales of $6.6 Billion for the quarter, an increase of 7.1%. Both U.S. and non-U.S. markets growing at 4.6% and 9.6% respectively. The growth in this portfolio was driven by the electrophysiology products in the Cardiovascular (heart related) business and Acuvue which is the contact lenses brand in Vision Care business.

The company acquired TearScience a company that manufactures products dedicated to meibomian gland dysfunction, and Sightbox which is an e-commerce business that makes vision care affordable by providing a subscription service that connects consumers with eye care professionals for their contact lens needs.

We like JnJ here at Vestact as an anchor position for our offshore portfolios. We think this giant still has legs to run; especially the Pharma and Medical Devices businesses. This Elephant can dance baby!

Linkfest, lap it up

One thing, from Paul

Vestact’s most recent investment recommendation for SA portfolios was private education group AdvTech. They are a very promising business, with solid assets in both secondary schooling and the tertiary sector (colleges and universities). Remember that a tiny fraction of school goers and undergraduates in South Africa attend private institutions, but that is set to grow. State-run schools and universities are taking strain!

Private educational institutions are at the forefront of adopting internet technology to supplement in-class activities. Online lectures, assignment management systems and web-based examination processes are proliferating. Are 100% online courses the way to go? Certainly, not having to build a campus upfront is a massive capital saving!

Not so fast. This article from the Brookings Institute was based on a study at Stanford University. They found that in a large, for-profit college, online courses are a poor option for the least well-prepared students. Online students did substantially worse than students in the same face-to-face course: They earned lower grades, were less likely to succeed in subsequent courses, and more likely to drop out. Clever kids, of course, did well and liked not having to go to lectures – Who Should Take Online Courses


Home again, home again, jiggety-jog. Stocks in Asia are up this morning after the good results coming through from the US. Remember that these US businesses are global. We have had a muted start. The Rand hedges still looking solid.


Sent to you by Team Vestact.

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