Turn Down For Watch


Market Scorecard

Yesterday Brent Crude broke above $80 a barrel for the first time since 2014; mostly due to supply-side constraints, think Iranian sanctions and a failing Venezuela. Looking to Washington, where a Chinese delegation is meeting with US representatives, the rumour is that China has offered President Donald Trump a $200 billion reduction in the bilateral trade gap with the US. Good news I would say.

Yesterday the JSE All-share closed down 0.75%, the Dow closed down 0.22%, the S&P 500 closed down 0.09%, and the Nasdaq closed down 0.21%.

Company Corner


One thing, from Paul

Richemont just reported its results for the financial year ended 31 March 2018. It managed sales of EUR 10 979 million (up by 3% at actual exchange rates) and profit for the year of EUR 1 221 million (up 1%). Double digit sales growth was maintained in mainland China, Hong Kong, Korea and Macau.

Remember that Richemont’s ‘A’ shares are listed on the Swiss Exchange. We own Richemont SA Depository Receipts, which are listed on the JSE.

The business is run very conservatively, which has always been Johann Rupert’s style. Strong cash flow from operations swelled net cash to EUR 5.3 billion. The dividend was hiked by 6% from last year’s payout. They could afford to be more generous, in my view.

Richemont’s products are in high demand, and have great margins. For example, consider Van Cleef & Arpels’ Alhambra line of jewellery.

The four-leaf-cloverlike design was launched in 1968. Necklaces are the core product, but the format has been extended to earrings, rings and watches.

To celebrate Alhambra’s recent 50th anniversary, Van Cleef & Arpels created four limited-edition designs which were launched at select flagship stores around the world. Alhambra pieces generally are snapped up within 24 hours of posting. If you can get one, prices range from $6,350 to $63,500.

The Richemont share price is down this morning by around 6% as some investors probably expected stronger numbers. We like this high-quality business and remain loyal investors. Today would be a good day to buy some more for your portfolio.

Our 10c Worth


Byron’s Beats

The more I look at this Starbucks – Nestle deal, the more I realise how good it is for Starbucks. The deal will bring $7.2bn in upfront cash, but Starbucks will still retain around 35-40% of the economics of the business due to the royalty agreement. That just shows the strength of their brand.

Starbucks plan on repurchasing some shares which should result in net earnings per share increasing, even though they are selling a portion of a profitable business. With the rest of the funds, they plan on rolling out stores more aggressively in China.

Currently, there are 3 300 stores in China compared to 12 000 in the US. The original goal was to have 5 000 stores in China by 2022. That has been increased to 6 000 because of this nice cash injection.

Nestle still dominate the ‘Coffee to go’ segment in China but with the Starbucks Brand and Nestle’s distribution expertise that too shall change.

This Bloomberg article delves into the details nicely. Flush with Nestle Cash, Starbucks Unveils Bold China Plan.

I believe this a very good opportunity to buy Starbucks before a potential rerating. The stock has been flat since late 2015, and the fundamentals look good.


Michael’s Musings

I’m glad to see institutional investors starting to take a more active role in voting at AGMs. Directors should be held accountable by shareholders, and that can’t and won’t happen until the big players start using their votes. In the spotlight over the last few years has been management remuneration; making sure they are correctly incentivised and paid enough to make sure rivals do not poach them. At the ABSA AGM this week, there was significant pushback to their remuneration structure – Barclays Africa slammed on remuneration.

I think that paying up to attract the best talent is probably prudent. When does pay get excessive though? Given that it is shareholders who ultimately pay the salaries, they should decide. The only way we find what the correct level should be, is if all shareholders voice their opinions.

Then just to add another dimension to this argument, the following WSJ article caught my eye – The debate about executive pay versus performance has raged for years, but there really is no connection. So why pay so much?.


Bright’s Banter

Kantar World Panel has released their Brand Footprint report 2018 edition, and the results are quite fascinating. Undefeated champion Coca-Cola is still the most chosen consumer brand in the world, six years running, with almost 6 million reach points in 2017. This means that over 1.9 billion servings of Coca-Cola are enjoyed in more than 200 countries each day. Coca-Cola products were picked 5.8 billion times last year, reaching more than 40% of the world’s population.

Other top brands include Colgate which makes sense, we all have to brush our teeth at least twice a day. Nestle’s Maggi 2 minute noodles came in as a surprise. However, it makes a lot of sense because Maggi is the fastest-growing top 50 brand with a global presence – it had 14% growth in Consumer Reach Points. You’ve got to love capitalism, Japanese invented noodles, and the Swiss bring it to the world!

The chart below shows how often consumers around the world have picked products from the most popular consumer goods brands in 2017.

Infographic: The World's Most Chosen Consumer Brands | Statista You will find more infographics at Statista

Linkfest, Lap it up

The forecasted change in advertising spend is good news for Facebook. I’m surprised to see cinema spend forecast to be higher, I thought Netflix was killing expensive movies? – Money Follows Eyeballs – Mobile Ad Boom Continues.

Infographic: Money Follows Eyeballs – Mobile Ad Boom Continues | Statista You will find more infographics at Statista

It is world whisky day tomorrow, in celebration how does $17 000 for a single tot of Scotland’s finest sound? – A wee dram of this Macallan whisky could set you back nearly $17 000.

Vestact in the Media

Byron talks about the investment case for Naspers, and its current monster discount to NAV – Naspers: So many points of dispute

This week on Blunders, German fans on fire; bankrupt Toys-R-Us has web domains to sell; ‘Floating feet’ mystery continues to grip Canada; and Robin Hood is now a billionaire – Blunders: Episode 101

Signing off

After some delays, Cerner finally signed their $10 billion deal with the U.S. Department of Veterans Affairs last night. Part of the reason Cerner missed estimates in their previous reporting period was that this deal hadn’t been inked. Cerner is up 8.6% in after-hours trade on the news. Enjoy the Royal wedding this weekend; I see a recent poll found that 66% of Brits won’t be watching. Is that a high number or a low number, I can’t decide.

Sent to you by Team Vestact.

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