Cash is a Luxury for Richemont

 

Market Scorecard


Markets had a great day out yesterday; the biggest jump in six weeks. All the green is thanks to positive news on a vaccine test from Moderna, an American biotechnology company. The test was an early trial, where the primary focus is on testing the safety of the vaccine. The vaccine proved safe and it showed that participants in the test had more antibodies than people who previously had Covid-19 and then recovered. So things look promising. It is worth noting that the early trial was only on 45 people. Larger scale testing on thousands of people will take place in July. Stay tuned.

Yesterday the JSE All-share closed up 3.53%, the S&P 500 closed up 3.15%, and the Nasdaq closed up 2.44%.

Company Corner


 

Bright’s Banter

Luxury goods company Richemont, reported its full-year numbers with a surprise dividend cut and a 19% drop in revenues. The Rupert run business also sold about EUR2 billion worth of bonds, in order to bulk up its balance sheet as a hedge against the uncertain future we find ourselves in at the moment.

The company’s full-year revenue figure came in at EUR14.24 billion, a 2% increase year-on-year, but profits were down 67% to EUR931 million. This is all partly due to store closures in main hubs like Hong Kong where sales dropped by more than two thirds due to the earlier lockdown.

The maker of Cartier is not so optimistic; Chairman Johann Rupert said that the economic disruption from this pandemic could last for as much as three years even though 462 of its stores have started reopening in China. However, this won’t be enough to help the company return back to its growth as overseas spending by Chinese tourists will be non-existent until flights are back in the air and operating at full capacity.

Watches and Jewellery tend to get hit the most during times of economic crises, as compared to fashion items and leather goods. However, the big positive for Richemont is that it consolidated the Yoox-Net-A-Porter businesses at a perfect time because this pandemic can only accelerate the shift online, and Richemont is ready to make those sales. Under ‘normal’ circumstances, this shift could have taken as long as 5 to 10 years to materialise

Richemont has over EUR2.4 billion in cash on hand, and Rupert says this is enough liquidity to last for three years. Here at Vestact we still like Richemont a lot, and it has been one of our investments that has been very stable during this pandemic thanks to the managements defensive stance as well as their well-timed bet on “online”.

Our 10c Worth


 

One thing, from Paul

This is my favourite thing on the internet this week, by far: a fake word generator. A machine learning algorithm has taken word fragments that sound like they could belong together and made up new words, and even come up with their legitimate sounding definitions. What a wonderful contraption!

This could be useful for coming up with a new name for a business, drug, child or pharma product. Best of all, these words are probably not yet registered on the dot.com domain system. The opportunities are endless! Go and give it a try here: ThisWordDoesNotExist.. Click on where it says ‘New word’ and keep scrolling through the options.


 

Byron’s Beats

This article didn’t get much airtime, in my circles anyhow. US Throws Down Gauntlet to China With Mozambique LNG Loan.

The US Export Import Bank has approved a $4.7bn loan for a Total led project. I am not concerned with the China US rivalry. I am more interested in the economic boom this will create for Southern Africa.

I already know various South African companies with huge supply contracts pending on this project. Not to mention the access to the gas, which is a much cleaner source of energy than coal. Having a thriving neighbour is also very good for us. Mozambique is desperate for a break. The ripples of this project will hopefully uplift millions around Southern Africa. This loan approval is one step closer to reality.

In the image below, the blue section is the gas fields.


 

Michael’s Musings

Investopedia ran a pole during April, asking people of different ages if they were bearish or bullish about the future of the stocks. They found that 60% of the bearish people, were also over 55 years old. It was Millennials and Gen Z who were bullish about stocks.

I suppose it is not surprising that the older you get, the more bearish you get about asset prices. As an investor, you have less time to make your money back if the market collapses. Add in a dose of cynicism developed over time, and the result is a bearish outlook on life.

Michael Batnick makes the point that maybe some of the older, well know investors are suffering from the same bias? You know the headlines I’m talking about; ” Super investor XYZ is bearish on stocks, should you be too?”. Our advice is to keep your head down during the storms and add money on a regular basis.

Here is what Batnick wrote – Young Bulls and Old Bears.

Linkfest, Lap it up


Instead of business travel, we can now use an app and the internet. It sounds like a much better use of resources? – Zoom is Now Worth More Than the World’s 7 Biggest Airlines.

Amazon has teamed up with Vogue to sell high-end fashion – Amazon to the Rescue of the Fashion World!

Signing off


US futures are very slightly in the green at the moment, indicating that the market will hold onto yesterdays gains. Data out today includes unemployment figures from UK for March. The JSE All-share is higher this morning and the Rand is stronger, currently at $/R 18.35.

Sent to you by Team Vestact.

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