Market Scorecard

Markets are in a buoyant mood again as countries continue to open, and death rates in Europe are sliding. In an interview over the weekend, Jay Powell told people to not bet against the US economy. He added that the recovery may be slow but that the Fed still has extra ammunition if needed. The opening up of the global economy has also seen the oil price increase as demand starts to pick up again. Given the glut in oil at the moment, it will probably be a while before prices go back to $60 a barrel; good news for keeping inflation low in South Africa.

An industry that is struggling at the moment is airlines. It is rather challenging to keep your distance from others when you are stuck in a cramped space, with hundreds of others for many hours. Showing how tough things are at the moment, Emirates announced that they might have to retrench 30 000 staff, around a third of their workforce. Other global airlines have also retrenched people or have asked employees to go on unpaid leave.

On Friday the JSE All-share closed up 1.05%, the S&P 500 closed up 0.39%, and the Nasdaq closed up 0.79%.

Company Corner


Michael’s Musings

Last week MTN released their quarterly update for the period ending 31 March. The share has been battered this year due to a weak oil price. The company has significant operations in Nigeria and Iran, two countries that rely on oil production. Looking at high level numbers, they added 6.6 million customers – taking their customer base to 257 million, revenue grew 11% and their EBITDA profit margins expanded. Looking at a country level, most operating regions saw double-digit revenue growth; unfortunately MTN SA saw revenue go backwards by 6.2%. Part of the reason for the drop in local revenue is due to a change in their roaming agreement with Cell C.

The exciting growth for the group comes from their data and fintech divisions, which saw revenue growth of 26.4% and 26% respectively. In South Africa, there was a 53% increase in data traffic, which translated into revenue growth of 7%. As those numbers demonstrate, usage is increasing at a quicker rate than prices are falling. In Nigeria the figures were even better, revenue increased 59% and data traffic was up 130%.

Creating a network to handle all that traffic costs a huge amount of money. Originally MTN planned to spend R28 billion this year on building their network, due to Covid-19 disruptions that number will drop to around R21 billion. Still a significant number. The positive of the lockdown is that more people are using data. MTN said they saw a surge of 30% in their April data usage.

Due to the tough environments that MTN operates in, the share looks rather cheap. One problem is that they struggle to get profits out of Iran and Nigeria. If you think the Rand has been weak recently, over the last year the Iranian Rial weakened by 47% to the USD. Those risks are offset by the opportunities that 250 million customers bring to the group.

Our 10c Worth

One thing, from Paul

The index that we benchmark the performance of our US portfolios against is the S&P500. That is a capitalization-weighted index that measures the ongoing stock price movements of the 500 largest companies listed on stock exchanges in the United States. The weighting means that larger companies are much more important than smaller ones.

The S&P 500 is maintained by S&P Dow Jones Indices, a joint venture majority-owned by ratings firm S&P Global. Its components are selected by a committee. The index is about to be refreshed and up to 30 companies may get the boot. They will be replaced by other companies which are thriving, and now have larger market capitalizations. As it stands, a company must have a market-cap of at least $8.2 billion for S&P 500 consideration. Here are the current issues: Drastic Makeover Looms for World’s Most Followed Stock Index.

For the record, the average annual total return of the S&P500, including dividends, since inception in 1926 has been 9.8%. Keep in mind though that there were several years where the index declined by over 30%.

The S&P 500 index is hard for asset managers to beat over a long period. This is because leading companies are getting bigger and making up more of the index and this process is dynamic, so if a fund or portfolio is missing a big mover it’s hard to catch up. Secondly, dead wood is constantly being chopped away by the committee, so fund managers that fall in love with yesterday’s heroes can easily fall behind. Thirdly, asset managers often charge fees which are too high, which slows down net returns to clients.

Here is some good news. Vestact’s model portfolio (a real account with real costs, including monthly advice fees) has easily beaten the S&P500 over the last 10 years. To the end of 2019 the compound annual return of the index was 10.9%. The Vestact portfolio romped in with a return of 16.7% for the same decade.

So far in this difficult year of the pandemic, 2020, the S&P500 index is down 12.1%. I just checked and the Vestact model portfolio is actually up 1.1% so far. That’s due to our preference for technology and healthcare stocks, which have held up best. Also our fees are low, at just 1% per annum. Hooray!


Byron’s Beats

Every now and then I like to showcase a local business in my opinion piece. Who knows, maybe a reader needs the product? Getting the word out there for small businesses is key. This one below is close to my heart because it helps create efficiencies in a very crucial service, food security. These words were sent to me by the founder Greg Whitaker, take a look.

“Founded in 2018, start-up tech business, AgrigateOne, launched its seamless trading platform that integrates all aspects of the fresh produce value chain into an easy to use technology. It has a proven capability of bringing sellers and buyers into a closed loop ecosystem, drives transparency, accountability and creates cost efficiencies to all parties involved, from farm to fork. The software matches supply and demand: integrating compliance and logistics moving parts and summarising all data into one dashboard. Trades are private: only involved parties have sight of those between one another.

Historically, growers have taken on a lot of the risk. As all commercial and quality claims ultimately come back to the farmer, it seems sensible that they are empowered to understand better what happens beyond their packhouse. AgrigateOne shifts emphasis of answerability throughout and engenders credibility for all players in the market. The system is designed to plug into existing IT systems that growers have on farm. For traceability, it is also linked to port systems, logistics companies, and cold storage facilities in relevant countries. With maintaining the original buyer and grower relationship.”

Technology has a big role to play in all industries. The more efficient farms are, the less land we need and the more people we can feed. Giving the farmers more transparency in the supply chain and linking them directly to the sellers through a safe platform seems like a great way to speed up the process. Here is a link to the full article about the business. And here is a link to their website.


Bright’s Banter

​According to a report by Axios, Facebook is said to be buying the GIF-making and sharing platform Giphy for $400 million, with plans to integrate the GIF repository into Instagram and other apps that Facebook owns. Giphy is by far one of the biggest GIF repositories on the internet today which helps offer tools to create, share and remix GIFs.

According to Facebook, over 50% of Giphy’s traffic comes from its apps such as Instagram, WhatsApp, Messenger, and Facebook. If the deal is successful, Giphy will form part of the Instagram team, with the long-term goal of making it very easy to GIF your life away on Instagram stories and DMs.

“People will still be able to upload GIFs; developers and API partners will continue to have the same access to Giphy’s APIs; and Giphy’s creative community will still be able to create great content,” Vishal Shah, Instagram’s VP of product, said in a blog post announcing the news.

No need to worry if you enjoyed using GIFs on platforms such as Twitter, Pinterest, Slack, Reddit, and others because Facebook said the supply of GIFs won’t stop. The issue will come down to the fact that Facebook does compete with a lot of these social media and collaboration companies and we know Facebook doesn’t like competition.​

Linkfest, Lap it up

Humans are social beings. As a result we don’t enjoy being the only people in a restaurant or playing sport in an empty stadium. One solution is to use mannequins – Mannequin customers are taking over the business world.

It is great to see how businesses adapt. In this case, a livestock auction moved to WhatsApp, where there were 168 participants. The auction was so successful that it broke a 15-year price record for a Nguni bull – Nguni bull sells for record R310 000 on WhatsApp auction.

Signing off

In the week ahead South African companies continue to release their earnings. In the US, we have a straggler in the form of Nvidia reporting on Thursday. Also on Thursday, the MPC is expected to announce another interest rate cut locally. The JSE All-share is higher this morning and the Rand is holding steady at $/R 18.50.

Sent to you by Team Vestact.

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