Slasher's coffee beans

Jozi, Jozi. Yesterdays graphic of the overall market was pretty much like a side view of the berg. Up, middle of the day or so we snuck into the green after a poor start, but then some average jobs numbers out of the US saw us end up at the bottom of the mountain and back at base camp. Session end the Jozi all share index closed down 201 points to 26731. It was a bit of a mixed bag really, but mining stocks, who rule the roost here in this mining town, dragged us lower.

PPI released yesterday, for the month of January. At the end of February, is that good enough? What is PPI? Well Investopedia has some of the best explanations, so lets go with them on that:
What Does Producer Price Index – PPI Mean?
A family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller.
Investopedia explains Producer Price Index – PPI
The PPI looks at three areas of production: industry-based, commodity-based, and stage-of-processing-based companies.

OK, so the other definition often given is also the prices at the factory gate. After they have been back to local here, where the PPI number came in hotter than anticipated, the January year on year change was 2.7 percent higher, and much hotter month on month. Largely due to a big increase in mining and quarrying, and coal and petroleum products. Agricultural products lower. That is good for food price inflation feeding through, not so?

The split between the agricultural and manufacturing sectors is roughly two to one, 30 percent to 60 percent and the last ten or so percent is electricity. Although as a single one item, electricity has the second biggest weighting overall to metal ores, for domestic output. A really fascinating report to read through and one that often gets around a 1 rating when compared to the around 5 rating that the consumer price index gets. I suppose because interest rates and monetary policy are set according to the consumer and not the producer, that is where it all lies for the reserve bank. And hence us too, and that is why we look at that.

Not very clever and I am talking about the fellows over at Pioneer Food Group, who initially have fought the competitions authorities on the 196 million Rands fine, yesterday Pioneer indicated that they intended “… to bring the bread matter and other matters before the Competition Commission to a swift close.”

And because of the delay by the company, there will perhaps be an administrative penalty levied on them too. Because of this fine, earnings are expected to be between 25 to 45 percent lower, a huge range by any stretch. But they aint letting it go, it seems like they may pay the fine and then proceed as per the statement: “The Company has resolved that it is in its interests to oppose the Competition Commission’s appeal and to lodge a cross appeal which, if successful, may have the effect of the penalty being reduced.”

Whoever their legal advisor person is, they just wont let it go. Good luck with that lower stuff. And they are going to have a much bigger fight on their hands because the competitions authorities are seemingly going to levy a fine of 1.5 billion Rands. So, thanks for making the provision, but the competitions authorities got tired of you.

Spur. I don’t go there. Almost never, in the last decade I can count on one hand the number of times I went there outside of an airport, and when it was not some kids birthday party that there was no way of saying no. Perhaps twice I went there voluntarily. OK, who cares when I went, there are lots of people who love Spur. I do go to one of their franchises, John Dory’s, every once in a while. And their other one of course is Panarottis. It is a franchise model, so the company earns their money by royalty payments to the group that sits above the franchise owned stores. You uphold the brand, more franchise owners then right? 275 Spurs, 59 Panarottis and 25 John Dory’s in total. Great footprint, starting to grow internationally.

Numbers, for the six months the group earned 45 million Rands. Or 50 cents a share. 32 cent dividend. Stock trades at around 11 bucks. Does not look expensive by any stretch. Their view on the local consumer: The past few months have seen improving consumer sentiment owing to lower interest rates, stabilising inflation and higher real wage increases. Many economists do not expect a meaningful upturn in consumer spending for the balance of the year in anticipation of consumers exercising prudence due to economic pressures, such as rising energy costs. Still under pressure, but signs of recovery, that is how I read it.

In Defense of Much, But Not All, Financial Innovation. This is some serious weekend reading, only if you have the time and only if you need to be tested. As the heading suggests, the author explores the world of CDO’s, CDS’s and most financial innovation. And we have often been of the view here that although financial innovation was largely to blame for many of the problems, it was not the engineering that was at fault, but perhaps the under regulation that was exposed. Like I said, this is for the serious reader only.

Whilst we are on the subject of serious, what do you think about the credit rating agencies looking at Greece’s sovereign rating? Give me a break guys, if they were ahead of the curve then they would downgraded their debt rating long before the bomb exploded. Debt bombs are the worst kind of bombs, they cause more long term destruction. Seems the Greeks on the ground are saying no thanks to all the planned cuts, riots are better. No you pay for it. Sorry, you means you and not Germany. The alternative is bankruptcy. Austerity. Ask your grand-parents and parents.

Pay attention. Always. There is a classic example of what you should be doing when buying a stock and their product at the same time. I am talking about Palm, which I remember a decade ago people really wanted the Palm pilot. A PDA, it synced with your computer, it told you about your life, but sadly the other guys with bigger budgets smoked them. Sadly for Palm and their shareholders. Check out these two articles from the Business Insider: Palm CEO Explains To Employees Why The Company Is Toast and CHART OF THE DAY: The Rise And Fall Of Palm

All I am trying to say is that technology advances made a decade ago and the more recent trends by consumers, moving to smart phones, means that Palm have been handed off. By Apple, Research in Motion and Nokia. And as an investor if you were not paying attention you have been taken out. Don’t fall asleep and in love with an investment, because the consumer likes and dislikes gadgets in minutes.

What is this about? Cisco to unveil network boost for Internet – source Read the article. Then read this from our friends over at the Business Insider: Cisco Making ‘Major Technology Announcement’ To ‘Forever Change The Internet’ On March 9. The Business Insider says 9 March, the Reuters story says 17 March. Seems like the answer is 9 March according to this story: Cisco Leaks Vague Plans To Upstage Google Fiber

Initial claims jumped. Some blamed the snow from the previous week as folks waited to file but could not get out of their houses. And as such that is what is being blamed for the higher jump. Durable goods orders were much better than anticipated, almost double the expectations, but everyone was agonising about the jobless recovery, blah, blah.

Tobacco. I know, I know, we talk about this one all the time and why we don’t like it, but you have to admit those results from British American Tobacco were very good. Favourable exchange rate translations saw revenue jump 17 percent. Profits up 20 percent. HEPS up 19 percent to 153 pence, a dividend of 99.5 pence for the full year, 71.6 pence for the second half. So that is around 1814 ZA cents worth of earnings, 1180 ZA cents in dividends. 260 bucks is where the share price is at. So, it trades on an earnings multiple of 14 times, a dividend yield of 4.5 percent. Seems good.

And here is the part that most worries me about these cigarette investments, volumes. On an organic basis down three percent. And inside of that is the biggest problem that I see, increased regulation and increased taxation on the product. Make no mistake though, tobacco tax collection is a great place for governments to collect a lot of money. A lot. This is a great bounce page to collect all the facts that you might need on cigarettes. Increased taxation will lead to lower volume growth. And that is bad long term.

New York, New York. A lift off in the second half of the session whilst other major global markets could not participate did not do enough to see markets end in the green. Still, that is a better outcome than having been in the deep end for the first part of the session, down one and three quarters of a percent at the beginning of the session, ending down .2 on the broader measure I guess was a good outcome. Session end the Dow closed at 10321, down 53, the nerds of NASDAQ about flat, down 1.7 points to 2234 whilst the broader market S&P 500 closed 2.3 worse at 1102.

The oil price last crossed the screens at 77.94 Dollars per barrel, lower. The gold price is last at 1113 Dollars per fine ounce. Copper, slightly better, the price that is, last at 323 US cents per pound. The platinum price, 1538 Dollars per fine ounce, the palladium price, 429 Dollars per fine ounce. The Rand firmer, 7.75 to the US Dollar, 11.85 to the Pound Sterling and 10.52 to the Euro.

A better start anticipated on account of a late lift Wall Street and a steadily improving commodities complex.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. Hey. Nersa announcement moving markets? Nope, baked in the cake. More likely lower commodity prices. And when the US markets opened, surprise, we took our direction. Perhaps we should just open during their hours. No really. The best part of this all is that 14 March the clocks in the US are moved an hour ahead and we get an extra hour, a precious hour extra of US trading in our day. In the UK and Europe it is an extra two weeks, 28 March that they turn their clocks forward and then we will be online with them. And then the first hour won’t feel like a dead spot. Because direction is taken from Europe. Session end we closed at the top end of the day, but still 122 points lower on the Jozi all share index to 26933.

Nedbank results this morning for the full year to end December 2009. They note an improving credit loss ratio in their second half of the year, indicating that there is some stability returning. Nedbank has increased their reserves ratio to 14.9 percent. For the full year headline earnings were 4.826 billion Rands, translated to per share 983 cents.

Business banking still very profitable. Nedbank retail smashed, actually made a loss, but those numbers at retail include Nedbank Bancassurance and Nedbank Wealth. Impairments up just over 35 percent in that retail division. Total loans advanced across all business divisions, 450 billion Rands, up 3.7 percent 2009 versus 2008. Nedbank capital up sharply, 16 percent, Nedbank business banking down by 9.4 percent. Total loans advanced to Nedbank retail, 157.5 billion Rands. The other big loan book, Nedbank corporate, at 137 billion Rands unchanged on the year.

Total deposits, 469.4 billion Rands at the end of the period, slightly better than at the end of 2008. Second biggest deposit taker in the country. Outlook, measured really, like everyone expecting the economy to advance this year, that 2.2 percent target for the South African economy looks slightly low. Consumers are expected to start feeling better towards the end of the year. Average, but hugely profitable.

Exxaro out with their full year results to December this morning too. Only, and I say this is the nicest possible way, see revenue decrease by 8 percent. Headline earnings per share much lower. Down 30 percent to 729 cents, dividend for the full year 200 cents. Higher debt. Outlook: The group expects the global demand for coal to increase with the demand for local power station coal anticipated to remain strong. The domestic demand for steam and metallurgical coal is however expected to be firmer but still to remain subdued in 2010. Coal exports may be affected by the availability of rail and port allocation at RBCT.

Massmart, our favourite retail stock over here at Vestact with results this morning, 347 cents per share worth of earnings, 252 cents per share dividend, better on revenue, lower on earnings. Sales growth across all their business divisions, strong growth across their Massbuild division interestingly, but Masscash did really well. On a comparable basis though, those are stores that were in operation at the same time, half a percent lower on all sales.

It is the “Game” brand that will grow strongly across Africa, the Massdiscounters group, opened 6 Game stores, closed one and opened 4 Dion Wired stores, I quite like them. 10 in total now. Massbuild, think the Builders Warehouse divisions, 88 stores in total. Yowsers. 290 stores across the entire group with trading space, floor space at a whopping 1.164 million square metres. A rugby union field has a maximum size of 7000 square metres. How many fields will fit into the Massmart trading space?

OK, so what are their prospects for the full year: For the 34 weeks to 21 February 2010, total sales increased by 6,7% and comparable sales increased by 0,4%, showing an encouraging turnaround that seems to have commenced in mid-December 2009. These recent sales trends suggest that the worst is behind us, and should the current trends and currency values continue, Massmart could comfortably grow operating profits, before foreign exchange, in the second half and perhaps even for the 2010 financial year.

Sounds like Massmart are a little more upbeat on the consumer than the fellows over at Nedbank, who seem to indicate that the consumer has a longer road to travel. We seem to think that the big box retailer model is unstoppable. Why would you want to go buy A4 paper and camping chairs and birthday stuff at different places? All in one place here. People with less time on their hands will pay a little more for convenience, at these shops you don’t pay more, the pricing is very competitive too. I think over the next five years distribution centres will be more key, a bigger online presence too.

Discovery Holdings results yesterday. Very impressive. One important note that post the budget speech, the risks in the short term of the NHI have declined. Essentially Discovery are the leading healthcare administrator in South Africa, the chief Adrian Gore is really well regarded, seems a really fit fellow you would say. I suppose if you are the face of the business, then you had better look healthy. The market liked the results. Quite a lot really.

Dear Eskom. Get lost. Thanks so much. Oh, and the one thing that we are all desperate to know, how are you going to deal with your internal inefficiencies? You know, I knew a management type for Eskom on the South Coast of KZN who played golf five afternoons a week. Not quite, but a lot. And got paid a lot of money to do it, i.e. do very little. You will be happy to know that he moved to Australia. I know a fellow who does contract work for Eskom in Jozi and he says you can bill them twice what is the acceptable. And then he laughed.

Staying with laughing. Ha-ha. From the Businessday: COSATU spokesperson, Patrick Craven says, “It will have a very serious effect on the economy and on individuals. While we note that Eskom’s outrageous 35% increase has been rejected, 25,8% is still more than four times the rate of inflation and is therefore totally unacceptable.”

OK, I thought you (yourself and COSATU) want inflation targeting scrapped. So why would you care if it is four times the rate of inflation? Or is this logic unfair? Perhaps. I said that I thought that nobody would be happy with this result. Not business, not the consumer and not Eskom, because they would want a great deal more, remember that initially Eskom applied for 45 percent per annum.

Because Eskom needs to embark on a 385 billion Rands expansion plan, this needs to be funded by ours truly, it would be disastrous for government to have to part with their stake in the energy provider.

OK, but lets actually go to the release from the National Energy Regulator with a long winded title: NERSA’S DECISION ON ESKOM’S REQUIRED REVENUE APPLICATION – MULTI-YEAR PRICE DETERMINATION 2010/11 TO 2012/13 (MYPD 2)

The average residential tariff is going to go from 60.6 cents per kilowatt hour in 2010/2011 to 78.62 cents per kilowatt hour. That sounds like a lot to me. You know, the one thing that everybody always discounts is the consumers ability to adapt to certain situations. I suspect everyone will now be forced to save money and as such Eskom efforts that have not succeeded previously will start to bear fruit.

New York, New York. A good session for the street, Ben Bernanke testimony calming the views of those that thought that higher rates might be around the corner. Not to be guys. Low rates for the time being. And the deficit, that is a big problem. Toyota president, Toyoda, breaking down in front of a senate grilling. Bernanke dead pan must have thought that his grilling was like speaking to a bunch of four year olds. Session end the Dow Jones Industrial average added 91 points to 10374, the nerds of NASDAQ added 22 to 2235 and the broader market S&P 500 was able to tack on 10.6 points to 1105 points.

The oil price last crossed the screen at 79.55 Dollars per barrel. The gold price was last at 1091 Dollars per fine ounce. Platinum, slightly better at 1509 Dollars per fine ounce. Copper, the price lower at 320 US cents per pound. The Rand is trading weaker at 7.79 to the US dollar, 10.52 to the Euro and 11.94 to the Pound Sterling.

Expect a worse start here, a lower commodity complex.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. The rally was scuppered yesterday by a couple of things, firstly the largest economy in Europe, Germany, had a business confidence read that was less than anticipated. It did not even matter that we had better than expected South African GDP, the fact that we are all linked to the global moves is a part that folks can’t quite grasp sometimes. Session end and at the bottom of the trading range on the day we closed at 27055, down 228 points.

South African fourth quarter GDP yesterday, manufacturing, general government, mining and quarrying all made a big come back. As per the publication by StatsSA: Real gross domestic product at market prices increased by 3,2 per cent quarter-on-quarter, seasonally adjusted and annualised. The unadjusted real GDP at market prices decreased by 1,4 per cent year-on-year

Cool, so better than expected for the quarter, better than expected for the year. When all was said and done, nearly a million jobs were lost, and the economy contracted by 1.4 percent. How come the two are so divergent from each other? Just a question.

Again I can’t stress that we have a well diversified economy, when compared to some other emerging markets. Check it out:
Structure of the economy:
The largest industries, as measured by their nominal value added in the 4th quarter were as follows:

• Finance, real estate and business services – 21,1 per cent;
• General Government – 16,1 per cent; and
• Manufacturing – 15,5 per cent.

There you go, as you can see our equity market and the economy are not very closely correlated, our market has a strong resource bias. But then you must also remember that the manufacturing industry in this country traditionally was always geared to the mining economy. As were all the other services that went with it. Other noteworthy contributors: Wholesale, retail, motor trade and accommodation (how wide is that) contributes around 12 percent to the economy, Transport, storage and communication, another broad sector, contributes 8.5 percent to the economy, whilst Mining and quarrying contributes 8.75 percent overall.

Righto, highlights package from the GDP release:

• Nominal GDP estimated at R2,4 trillion for the year 2009 (that is roughly 309 billion US Dollars)
• Our economy by Rand value (2.4 trillion) is 90 percent bigger that what it was in 2003 (1.27 trillion)
• Manufacturing has only increased in Rand value by 47.5 percent from 2003 to 2009
• Finance has increased by 105 percent from 2003 to 2009
• General government has been inline with the whole economy, up 93 percent from 2003 to 2009
• Construction, which is only 3.5 percent of the overall economy, has grown 250 percent from 2003 to 2009.
• The mining and quarrying sector has grown nearly 150 percent from 2003 to the end of 2009

Then there was a table that fascinated me, Quarterly compensation of employees at current prices (R million). simply because it showed which sector of the economy has the biggest wage bill. And I know that this is a very simplistic take on it, what percentage your sector contributes to the economy versus what your percentage is of wages, but I guess it comes as no surprise that the finance, real estate and business services sector wage bill has increased 136 percent in the seven years from 2002 to 2009. General government over the same time period has increased 115 percent, whilst spare a thought for the manufacturing sector, only an 84 percent increase.

The last quarterly labour force publication, for the fourth quarter 2009 showed that manufacturing had lost ten percent of their jobs in the sector, whilst finance had added 7 percent, community and social services jobs had been cut by 1.2 percent. Absolute numbers in the manufacturing workforce according to StatsSA in 2009, 1.742 million people. Finance, 1.759 million people. Community and social services, that number was 2.628 million people.

Sadly this report from StatsSA is new, luckily for us historical revisions have been done, and a report Labour Force Survey: Historical Revision, September Series, 2000 to 2007 we can get some historical data. Hurrah. OK, so lets rewind to 2002. Manufacturing jobs as per the table 4: Sector and industry, suggests that there were 1.824 million people in the industry. Huh, down 100 thousand over seven years? Yip.

Construction jobs on the other hand, 642 thousand in 2002, 1.085 million at last read, end of 2009. Finance, 1.193 million jobs in 2002, 1.759 million jobs end of 2009. Mining jobs, 615 thousand at the end of 2009, 417 thousand in 2002. Wholesale and retail trade, 2.5 million jobs in 2002 and now there are 2.8 million jobs, 3.5 at the high in 2005.

I am trying to pick up a trend here, the trend that finance and construction jobs have become much more important, mining and retail jobs are growing and much bigger contributors, manufacturing is falling as a percentage of the overall work force. Going backwards. To unlock the answer to the jobs in this country would unlock our own Pandora’s box. Create a job and suddenly there is respect for each other.

South African CPI today. Which will be completely dwarfed (I mean vertically disadvantaged) by the NERSA announcement on what they plan to give Eskom, by way of a rate push through. Remember that Eskom led with 45. Then 35. So at 26, 27 percent people might well say, ah, that is not so bad. Regardless of this increase, all parties will say that they are outraged, Eskom will say way too little, business, consumers, they will all say way too much. We wait, 11:30 for the inflation number, 12 midday for the NERSA announcement.

Shoprite results for the half year yesterday morning after the markets had opened. I don’t know, annualised they look like they can make around 440 cents this year to June 2010. At 75 bucks that means that they are pretty stretched there. 17 times forward earnings. I remember that Pick n Pay used to trade at that level comfortably, the market always used to pay a healthy premium to their peers. If the analyst community expects around 5 bucks to June 2011, then they still look like they are on 15 times forward.

Pick n Pay trades on around 17 times earnings, Spar seems cheaper at 14 times forward to September. Clicks group, 14 times forward to August 2010. Wow, what is with the sector and people willing to pay that much higher multiples than the rest of the market? Perhaps the simple answer is that defensive companies such as these attracted a higher rating because the analyst community could trust the numbers. Perhaps now though will be a time where they struggle to get further traction.

Happy 100 years to PPC listed on the bourse. What did Jozi look like 100 years ago? According to this Wiki article about the JSE the floor was on Hollard Street at the time. Here is a crusty old picture of Pritchard Street, undated, but you get the picture. 1910, when the old Wanderers ground was exactly where Park Station is now. Got any old pictures?

New Visa advert. Visa is one of our recommended stocks over in the US. If you are in a position to, you should really try and get funds there, I know you have to do all the leg work, but really, it is good to be able to own stocks like Visa. Visa as you will well know, they are one of the big sponsors of the 2010 FIFA world cup. Check out the new advert, it is quite funny and very well done.

New York, New York. Down. Down. Down. All three indices. Some pain still on the housing front with a Case Shiller pricing index showing that there is still a steady decline in housing prices across all the zones. The Greeks, well they are still there. In your best 300 voice: GREEK…DEBT…IS…A…BIG…CONCERN. But ultimately it was a lower read on confidence, economists had missed the mark on that read. It is called a present situation index. Check out this view though, I thought that it was hilarious. It’s darkest before the dawn, Commentary: Bull markets often begin before consumer confidence hits bottom

Session end the Dow had lost 101 points to be trading at 10282, the nerds of NASDAQ were worse for wear by 29 to 2213 whilst the broader market S&P 500 were under the cosh, down 1.2 percent or 13.4 points to 1095.

Some positive news post market, Janet Yellen, president of the San Francisco Fed, said that this is not the time to be tightening monetary policy. Not at all. Thanks Janet. She also said that she thought that the economy would underperform for the time being. Come on. But those anxious about higher rates in the short term, Yellen dispelled that.

The oil price last traded at 79.02 dollars per barrel, the gold price last at 1102 Dollars per fine ounce. The copper price last crossed the wires at 322 US cents per pound. Platinum, the price thereof, 1514 Dollars per fine ounce, and the palladium price was last at 430 US Dollars per fine ounce. The Rand is weaker as money flows to the US Dollar, last at 7.77, 12 exactly to the Pound Sterling and 10.52 to the Euro.

Nope, red for starters on the screen lads and lasses. And if you thought that lass was disrespectful, this is where I got it from.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. A good day that could have been a lot better, but at the end of the day we will take the levels where the Jozi all share ended at. Session end the Jozi all share index closed at 27284, up 215 points. Resource stocks up a percent, platinum and gold stocks not joining in. Most of the hurrah yesterday was the happiness that inflation was not a problem, well, the last read in the US anyhow.

We live in a world of choices. Investment choices too, albeit not a lot, a lot more than many other people around the world. I often tell myself that we are in a fortunate enough position to be able to invest in one of the world’s 20 largest bourses by market capitalisation. And in terms of resource exposure, right up there with the best. Right up there with New York, Sydney and London.

OK, so then when African Rainbow Minerals came out with their results yesterday I had better have a look. And the earnings volatility reminded me that it is sometimes better to be in the bigger more diversified companies, as single commodity companies can have seriously wild swings in earnings. To be fair though, we experienced a downturn that for many folks was a once in a lifetime event, the great credit crisis of the late 2000′s. Which still presents us with some knock on effects in the form of sovereign debt now being heavily questioned.

So what are the numbers that ARM threw at us? Well to me it seems all about Manganese, in terms of the contributors. Manganese is closely linked to steel and aluminium production and I don’t have to tell you how cyclical those two businesses are. Check out the presentation yesterday, you can even pretend you were there enjoying little sausage rolls (vegetarian ones), but without wasting time in getting there and back. In a world of choices we would rather go for a bigger more spread business in BHP Billiton. More diversified, better managed, rode the storm better.

Check out this story on Mining Weekly, Shareholders threaten to quit ARM over Motsepe’s nationalisation prevarication. Patrice Motsepe can most certainly ramble and might have boxed himself into a corner when he responded to questions around nationalisation last year, so shareholders have a right to know about how he feels about it. Nationalisation is not good for shareholders, ask those folks who still own Citi or Bank of America from five years back. Diluted out of sight. And that was out of necessity. Just saying, world of choices.

Is this just somebody looking for something to do, or is this for real? Rumours, speculation, that Old Mutual might be looking to offload their US life business. The company of course can’t say anything because they are in a closed period. If they had to sell the US life business it would be because they did not exactly know what they were buying, but hey, that happened to a lot of people.

Methinks that shareholders have been asleep very patient. Total return in London, excluding dividends, since the stock has been listed mid 1999, well around minus 20 percent. Does not exactly sound like a good outcome to me. March 2006 the stock topped 2 pounds, in March of 2009 at the bottom of the market, the stock traded at around 30 pence a share. Yesterday it closed at Nelson, 111 pence a share. How and why anyone can get excited about this company escapes me. Bad decisions. Trying to exit South Africa at all costs, that is what it seems like to me. The reversal on Mutual & Federal tells me that fear might have abated.

A deluge of results today and yesterday, plus trading updates thrown at us too. This morning I can see Northam Platinum, for their six months to December. Sales up nearly 8 percent, profits 42 percent lower at 216 million Rands or 59.9 cents per share. 20 cents per share dividend declared, gone are the days of everything out, because remember that Booysendaal needs to be developed.

July 2010 is when the mine construction is expected to start, after all the ground work (a mere 340 million Rands worth) is completed. Prospects muted, not willing to wade in and say that they see a full recovery. Stocks trades at 4850, annualise earnings and you get to 120 cents per share, although it is probably going to be closer to 160 cents for the full year. All these platinum stocks are pricing in a 30 to 40 percent earnings increase on these years numbers for the next two years. That is why the prices trade much higher.

Wilson Bayly Holmes Ovcon, or just WBHO with interim results to December this morning too. An earnings increase of nearly 19 percent to nearly 840 cents per share. For the half year. And a dividend of 110 cents. On a share price of 100 bucks. What is the market telling you here? Why are people realistically only willing to pay very low single digit PE multiples for these companies? Construction companies, in case you missed what it is that WBHO do.

Perhaps it is the prospects column in which the answer lies: Globally there are signs that the recession is ending and that the economy is recovering as commodity prices move upward. In South Africa business confidence is low and there is speculation that the rate of recovery will be slower than that of the USA and Europe. We have experienced a slowdown in the number of contracts awarded even though there has been a reasonable pipeline of work. And even perhaps more telling: The order book at the beginning of 2010 is R13,1 billion compared to R15,3 billion at 30 June 2009.

Aveng, also in the same sector as WBHO, but the companies are very different operationally. So the same type of dynamics impact on them, but they are different. Aveng has a manufacturing division, they make steel products. For Aveng, their six months to end December 2009, the company is expecting 30 to 35 percent less in earnings per share than the corresponding period last year. Lines that wont sit well: demand for cementitious products also remains depressed and steel prices in the comparable period had not yet been trashed.

The outlook muted and the stock at 38 bucks still seems cheap. The market often gets these valuations right in the short term, so pay attention, the stocks in the sector are cheap for a reason.

South African GDP data out today, we are looking for 2.6 percent growth for the fourth quarter, manufacturing, mining expected to show a strong performance, as well as retail. For the whole year, 1.8 percent lower than the previous year. Is that bad? Perhaps not in a global context, even less so in an emerging market context. In order to add jobs back quickly though, we have to grow as fast as our sub Saharan peers. 6 percent. That is going to be tough.

New York, New York. A to and fro session on Wall Street, nobody willing to take a stand one way or another. I am gonna get you? Or is it getchu? Energy stocks lost favour as the underlying price slipped off 80 bucks a barrel again, there was a big deal announced in the oil and gas services industry with Schlumberger buying Smith. Schlumberger, one of the hardest names to pronounce in the American, the punters always get this one wrong. What is in a name though? Schlum ber zhay. Much easier to say 11 billion Dollar deal.

Other than that piece of 11 billion Dollar news, not much else around. The Toyota plot thickens and the credit card rules could be changed, but I guess those pieces of news are baked in the cake already. A pro consumer bill set to be tabled. Session end the Dow closed 19 points lower to 10383, the nerds of NASDAQ down by nearly two to 2242 whilst the broader market S&P 500 lost just over a point to 1108.

The oil price last crossed the wires at 80.26 Dollars per barrel, flat on the session, the gold price slightly better at 1118 Dollars per fine ounce. The platinum price also higher at 1539 Dollars per fine ounce. Copper, the price that is, last crossed the wires at 332 US cents per pound. Palladium, the price last traded at 441 Dollars per fine ounce. The Rand was last at 7.68 to the US Dollar, 10.48 to the Euro and 11.94 to the Pound Sterling. A better start expected here.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. A bad day at face value, but we ended at the highs of the day. Which just happened to still be down by 211 points down on the Jozi all share to 27069, construction stocks still taking a lot of tap, that sector down by three and a half percent. The reason why the markets improved were the better than anticipated US CPI numbers out in the afternoon, pre market their side.

And then a lame article from Friday. Really. MTN Group to leave SA? Huh? What nonsense is that? Is that some people just bored and nothing to do Friday? Read the story and let me know what YOU think. This whole story of MTN maturity and their South African exposure is starting to make me mad.

Here is a company that had 3.5 million subscribers in 2001. 23 million in 2005. 90 million at the end of 2008 and at the September 2009 period, 108 million subscribers. There you go. Got that? South Africa, 17.2 million subscribers here at the end of the half year to June 2009. As per their half year reporting presentation: “The disappointing increase in subscribers was due to a combination of factors including challenges on the network and supporting systems, slowing GDP growth, pressure on consumer spend, and competitor activity in the first half of the year.”

Postpaid subscribers increased 4 percent to just 2.9 million. Out of 17.2 million. To call this a mature market misses the point entirely, because you most probably believe that voice is the be all and end all. It is all about digital convergence. Ten years ago you sent an sms. Now you browse on your phone. The very high brow waiter serving me this weekend, a football junkie, when I asked him a score checked his phone for a score. That is right, he dialled up in front of me and told me. He is smart, he just waits tables as a result of the genius job creation that Bob to the north put in place. Not.

OK, the point I am trying to make is two-fold, one, the South African market is nowhere near mature, turning pre paid into full post paid customers on data bundles is a challenge that seems years away. Secondly, this notion that South Africa is not important to MTN is misunderstood, it has become less important from a subscriber and profits point of view, but the base and higher ARPU’s means that there are more valuable subscribers. The average ZA customer has an ARPU of 15 US dollars, the average Iranian subscriber is 8 US Dollars per month. You tell me which one you would rather have right now. More on this, we are building to something.

Oh, and whilst you are at it, check out how MTN have rolled out their MTN Mobile money product in Rwanda. Money transfer via mobile phones is huge in East Africa. Some of the best and most advanced systems in the world, it works really well there. Check out this article from the East African publication, Business Week, MTN Mobile Money goes live in Rwanda

And then this other one. SA being the worlds biggest welfare state. OK, President Jacob Zuma made a point in his rebuttal to the reaction from the opposition, a point well worth repeating: “Around one-third of all South Africans are under the age of 15. Half of all South Africans are under the age of 25. And nearly 70% of all South Africans are under the age of 35, according to Stats SA.” released in July last year there are over 20 million people under 19 in this country, 25 million under 25 and around 29 million under 30. And born frees, under 15, 15.3 million people. Phew. so around one third of all South Africans only have their parents connection to the past ills of this country. If anything a point to be made, that child grants are not forever, the more important debate is how to get jobs lined up for these people.

So all those folks receiving child grants are by far and away higher than the other grants, by numbers, not so? These people will grow up. It is not like these people stay young forever, so the folks getting the grants up to the age of 17 and 364 days do turn 18. The child care grant recipients are 9.4 of the 13.9 recipients.

Point, those people are not going to be under 18 forever. According to the last population survey,

Niger. What, who cares? Well, we should care, because folks still think Africa is one country. Oh, that Africa place where you go on Safari. Yes, there are folks who still tar all Africans with exactly the same brush. Greek debt problems are Greek you see, but Niger’s problems need our attention. Perhaps that is just nonsense, but you know what I mean.

Niger is in the middle of nowhere. Above Nigeria, below Algeria, that is all you need to know about the climate, hot in the North, and hot in the South with a little more rain. The country is poor, in fact so poor that the annual GDP per capita contribution is under 800 US Dollars. Nothing.

And that is the other thing that grates me when I see an African story, why do I have to go to the New York Times to find the “best” story? Don’t we care about military coups on the continent? Well, here goes, from the New York Times: Opposition in Niger Urges Junta to Hold Vote

So what is it all about? Uranium. Over two thirds of all Niger export proceeds are made up of Uranium. Areva have two major mines in Niger. Niger provides 40 percent of France’s energy needs. France has 59 nuclear power stations that provide 78 percent of their PRODUCTION. Not their consumption, that only is enough for 16 percent. But, nevertheless, you can see why this is important for some, that peace be restored.

But this was the funny part, Bloomberg London crossed to Johannesburg to speak about what was happening in Niger. From London to the Niger capital Niamey is 4225 kilometres. From Johannesburg to Niamey is 5229 kilometres. Next time you need to know something about Niger, go and ask a Frenchman, one that is interested in supplying Nuclear Power Stations.

New York, New York. At face value a nothing day. In reality markets breathing easy, mostly due to a much lower than expected CPI read, which then throws inflation expectations out of the window. For now. We wait. And the headlines that emerge about less worrying about Greece. Ah yes. And I saw this morning that the Greeks said that they are fine until the end of March. Also good. What, March is just around the corner?

Hah-hah, during the great weak Tiger Woods conference volumes plunged as even traders took time out to have a look at what he had to say. Really. I did not watch it live or the whole thing, but it looked lame. Session end the Dow closed at 10402, up 9 points. The nerds of NASDAQ 2 better to 2243 whilst the broader market S&P 500 up by 2.4 to 1109.

Oil, the NYMEX price last crossed the wires (or as the sentence was written) at 80.29 Dollars per barrel. The gold price is higher at 1125 Dollars per fine ounce, the platinum price has also moved lower to 1539 Dollars per fine ounce. The copper price is also lower at 333 US cents per pound. The Rand is firmer at 7.64 to the US Dollar, 10.42 to the Euro and 11.84 to the Pound Sterling.

OK, expect a big positive steer here as the trading year of the Tiger kicks off out to the East and out West Tiger is in another space.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. We lost the cricket, badly, but not after having put up a very brave fight indeed. Any doubters of our bearded wonder at number three, Hashim Amla, including assistant coach Kepler Wessels, must be eating their hats. But this report is not about cricket, it is about one of my other favourite things, markets. The lowest point of the day was in the middle of the first part of the session, the part where European markets have just started trading and our big dual listed stocks adjust. BHP Billiton, British American Tobacco, Anglo American, SABMiller, Richemont and the like all line up to take their cue from Europe and the UK.

From there on it improved, I saw headlines around the world which suggesting that the budget delivery here was business friendly and that the minister had not bowed to union pressure. Yeah good. And decent enough results from a whole host of companies around. Session end we were buoyed with an improving market in the US, the local market managed to end in the green, lifted by a strong performance from MTN. And much improving diversified miners. Session end the Jozi all share index closed at 27280, up 88 points and at the best point of the day.

That Matt Taibbi guy, you know, the one who called the fellows over at Goldman Sachs vampire sucking squids, has come up with another cracker. Or not. Gee, it seems long reading and might have to be bookmarked and then with the intention to read it on the weekend, ignored forever. But here goes, read it if you must, there is a PG rating, but nothing too bad: Wall Street’s Bailout Hustle

OK, before we get into some of those company results, if you did not look at that long winded personal attack on Goldman Sachs article, then this one is short. The problem with this one however is that it requires a PG of comfortably above what you would deem explicit, so if your upbringing was on a boat full of rum swilling pirates then this next piece is fine, but if you were brought up in the Victorian ear, then close your eyes every third or fourth word. But the point made is about charts. Titled Always Remember, Charts Are for Idiots you have been warned in advance.

OK, so one of our recommended companies, Impala Platinum released their results for the half year to December 2009 yesterday. We had been warned to expect some pretty ropey results, but on balance they were pretty much inline with expectations. OK, so first and foremost, why do you invest in a company that produces platinum group metals? Easy, because environmental laws are set to become much tougher over the coming years. Not only in terms of motor vehicle emissions, but other important industries too.

Like? Well in a CNBC Africa interview done yesterday by Eleni Giokos with Dave Brown the CEO, Brown said that the metals will be very important in the refining industry, train transportation, even leaf blowers where mentioned. You know, the stupid machines that blow all the mulch away, their exhaust fumes need cleaning too. So autocatalytic convertors (around half of PGM usage), other industrial applications (a quarter) and jewellery is the rest.

This means that there is a fairly good spread of uses. But the main one that we focus on is environmental technology. I asked for the full interview online and was promised that there would be one available soon, without the editing. So there goes, under pressure to have it soon.

The numbers themselves were not good, but you really have to bear in mind that we went from a period of record platinum prices to one where the price per ounce was less than an ounce of gold. This graph about sums it up perfectly. The spike because of the electricity shock was a once off, the subsequent fall off as a result of the great credit crisis of 2008 was a once off. But Impala survived without having to raise money in the tough times, all their majors competitors had to come to market and ask shareholders to cough up.

The numbers, I promise I am not avoiding them because they look rubbish at face value, dividend held, that is no mean feat, but earnings plunged from 877 cents per share for the comparable period to 211 cents to December 2009. Yech. Production actually slightly higher, by two percent. The platinum price improved through much of the second half of the year, as per this graph, for the 2009 London fix, courtesy Kitco.

As per the official release from the company, they are cautiously upbeat about the global revival, take a read:

As the first signs of a global economic recovery become apparent, the prospects for industrial demand looks promising coupled with the recent launch of a US platinum and palladium Exchange Traded Fund and another year of constrained supply will result in tight market conditions for both metals. Despite growing demand rhodium`s ample liquidity will keep prices in check.

Despite difficult conditions Implats has retained a strong balance sheet and maintained a continuous dividend flow to shareholders. This is a reflection of operational recovery and improved market fundamentals. In addition, the group`s cost performance which has been impacted by lower volumes at Impala Rustenburg, is still regarded as one of the best in the industry. The positive developments at this operation, an unchanged five year capital expenditure programme of R23 billion and a steady growth profile to 2.1 million ounces of platinum by 2014 place Implats in a strong position to take advantage of the improving economic environment.

And how do we fell about them? Well, stay tuned, because there will be a video analysis next week of the companies results. City Lodge Hotels, our newest addition to the list of recommended stocks also reported for the six months to December. This one will also get our utmost attention and we will be onto it very shortly.

If you want to check out some of our commentary on the results, from yesterday, check out this clip here, it is something that we do daily. The fellows over at Business Day online, actually a fellow called Roy, comes and films us chatting about the markets and then sticks it up on their website. We have some other exciting news, we will be doing some results presentations, starting with BHP Billiton and Aspen, those videos are “inhouse” and we are proud of them.

President Jacob Zuma seems like a rusty Greek oil super tanker taking on mountains of water. When one of your biggest champions, admittedly a loud mouth with seemingly little substance other than their own self importance, turned around to say that we don’t need Zuma’s support on the nationalisation issue, then one can be sure that the ship is taking water. As Paul said the other night on Summit TV, or something along these lines, Julius Malema is more likely to be watching Top Gear or the Cartoon Network rather than a business show. Ouch. A Julius Malema lifestyle audit in the Star today is quite revealing.

The alliance is creaking. The most respected South African globally took a trip around Soweto yesterday, that is right, Nelson Mandela rode around. Is he checking up on progress? I see that the unions are most upset by the budget. I know this sounds completely patronising but perhaps there should be a round of simple economics explained to the unions.

Mike Schussler, a fellow I don’t always agree with, made a good point yesterday. He said that for every three dependants on the grant side, there was only one tax payer. Obviously social grants are a lot less than that tax payer is paying, but you get the point. The trick of course is to change those grant recipients, if they can work, into tax payers. Just read the front page of the Mail & Guardian to get in on the picture.

If you follow just one more person on Twitter, or your first person on Twitter then make sure that it is Heidi N. Moore. Her bio: Handmaiden to capitalism. Independent journalist (WSJ alum). Twitter convert. Tweeting about Wall St., mostly. But read her piece that explains it pretty well: About This Whole Goldman Sachs–Greece Thing.

And if you still don’t know what Twitter is all about, here goes my version. It is a customizable news feed, with a short header and normally has a link. As well as lots of pointless babble as this pie graph from a survey shows clearly. The trick is to find the right people to follow. The next trick is how to aggregate it, if you like email, use Twinbox, a plug in to your mail. Come on people, you are missing out.

Did you see that dude, crazy, completely nuts who amended his suicide note something like 27 times before crashing into a building in Austin Texas yesterday? What a nut case. His name is Joe Stack and here is the damage that he has done.

The letter, which I read on the BusinessInsider suggests that Joe Stack revised that letter. A lot. Check it out here: Joseph Andrew Stack Revised His Death Letter 27 Times Before Settling On The Final Draft

Problem with Joe’s suicide is that it is not a suicide. It is an attack on the tax system and fellow states folk. I read his “note” if you can call it that. Sounds like a crazy Mosquito Coast type, one of my favourite teenage books I must add.

So what if the IMF are selling 191 tons of gold? The plan was to sell 403 tons (more than 12.9 million ounces), that is what they have left to sell, as far as I can understand it. Check out the IMF release from two days ago – Gold in the IMF

OK, so the single biggest story overnight and this morning is that the Fed have raised their discount rate, the rate at which they lend to the banks, from 0.5 percent to 0.75 percent. So that might sound like 0.25 percent, but it signals that the Fed are going to be pulling back from the stimulus that has been such an important part of keeping money supply high. Keep the stream flowing, because at the worst point, as I read somewhere the gap between treasuries and interbank loans, the so called TED spread, was over 450 basis points. It is now around 15 basis points. As you can see the banks are now not wary of lending to each other.

So it is time for the Fed to exit, read this Bloomberg take on it. I went off saying, didn’t those very same folks worry that the Fed are slowly exiting ask for an exit package? What morons. And now the futures have sold off heavily and spread all the way through to Asia. I thought this is what people wanted. Once I had calmed down, Byron, who sits across the desk here from me, said, “they just need something to talk about.” I laughed, how true.

New York, New York. Another good day for the bulls, in spite of some negative news out on the jobs front in the form of initial claims, which spiked after a big fall. Some folks attributing that to the weather, some people snowed in and could not make it to unemployment benefits offices. Crazy but true. It was three days in a row for equity markets to end in the green, Wal Mart results pre the bell looked like they disappointed on the top line, but beat on the bottom line. And I guess guidance was lower than anticipated, that was the other thing worrying the pundits.

Session end however the Dow Jones Industrial closed at 10392, up 83 points, the nerds of NASDAQ better by 15 to 2241 whilst the broader market S&P 500 added seven and a quarter to 1106.

The oil price was last at 77.91 Dollars per barrel. Lower. The gold price also lower 1102 Dollars per fine ounce, as is the platinum price, last at 1506 Dollars per fine ounce. The copper price at 323 US cents per pound. All lower across the commodities complex as the Dollar surges. The Rand last at 7.68 to the US Dollar, 11.84 to the Pound Sterling and 10.35 to the Euro. Expect a Fed funds rate jitters to lead to red across the screens. Sydney, Hong Kong, Jozi. All around.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. So whilst we were waiting for two thirty and the budget delivery, we were enjoying a good day as we joined the global upturn in markets. Yeah, the usual dumb headlines, Greece credit worries abate. Hey, guess what, they still there. Some decent enough economic data at the tail end of the local session saw us able to keep up the momentum. The budget on balance was steady as she goes, one could say that it was a Goldilocks budget. Yes, not too hot and not too cold, just right.

Session end the Jozi all share index ended 253 points higher to 27192. Good performances across the board. Except the gold miners. Construction stocks had a whale of a time. Perhaps government and their commitment to infrastructural spend, that still in place. No pulling the plug there. I suppose that is a good thing right? Right.

Pravin Gordhan did a very good job in my opinion. I guess the only folks who might have felt completely aggrieved that perhaps their policies were not more aggressively dealt with could be the communists and socialists labour element to the tri-partite alliance. Nic Dawes, the Mail & Guardian editor who was sitting in the gallery and tweeting during the budget speech said (tweeted) a few telling signs during the speech that suggested this was the case:

“Finally spotted zwelinzima vavi in the gallery. Is it just me, or does he look cross?”

“Gwede Mantashe and Vavi share a joke. Fireworks to follow later? If not I’ll be very surprised.”

And then much later after having a chance to have a look at some of the reactions: “Seems cosatu were just as furious as I thought.”

There was something that suddenly struck me yesterday, a point that is often missed. We are quite right to point out that South Africa has a very high Gini coefficient, you know the measure between the haves and the have nots. And by global standards ours is very high, somewhere around 58. From Wiki: The range of the Gini index is between 0 and 1 (0% and 100%), where 0 indicates perfect equality and 1 (100%) indicates maximum inequality.

But there is a serious counter argument to that. A very good one, it suddenly struck me whilst I was reading the Wall Street Journal (WSJ) about US tax collections (of all places) that the top end, the haves in this country pay a lot of tax.

Personal income tax revenue collections accounts for just over one third of all income for SARS. Not quite as high in much of Europe, where countries like Denmark, Belgium, Germany, France, Sweden, Austria and Finland all are comfortably north of 40 percent, more than the top end of the tax range here. Check out this graphic. And then check out this associated page which refers to global taxes, both personal income tax and corporate tax.

But, and this is a big but, the differences between the haves and have nots are not that great. And social benefits are huge, these countries have some of the best services to go alongside those very high tax rates.

And then something that hit me right between the eyes, a WSJ blog which suggested that the top end tax payers in the US pay too little, I agree. Tell me what you think here. My long convoluted point however is that whilst we have a big disparity between haves and have nots here, the top end tax payers bear the brunt of the personal income tax revenue that SARS are very reliant on.

If you want to know everything that you need to, or everything that you think that you need to know (Donald Rumsfeld language) then check out the several websites that are available to you. Check out the Fin24 take and all their articles. And then check the Mail & Guardian wrap too, that is also good.

“If Malema raises nationalisation, they must raise a counter argument instead of saying to government ‘stop him, make him keep quiet’.”

The president asked this question in parliament on Tuesday. OK, so I have said this several times and will say it again. And if you use the example that the Europeans have nationalised their banks, as have the Americans and the Brits, then that is by default, not by design, those governments definitely don’t want that at all, they want to feed that back into the markets when the time is right. So their time frame on it is relatively short.

So, I dug up some old material, this is seriously old. In 1989 Iscor as it was then was privatised. Treasury raised a mere 3 billion Rands. Add ArcelorMittal, Exxaro and Kumba Iron Ore market caps together. Wow. 194 billion Rands. That is a way too simplistic way of looking at it though.

Eskom, Transnet, those ones are fine, no they are not. Transnet you would probably say is the best of the lot. But there are some disasters, SAA, SABC, Denel, Sentech, the Post Office, The Land Bank. If these businesses were privatised (if someone wanted them) could they actually create as much wealth for private hands as the Iscor value unlock? Bear in mind that in the early nineties Iscor was bumbling around and falling all over the show. And who was to know that the Chinese economic reforms would lead us to this point, here today.

Right, so I dug up some recent ramblings that I had on nationalisation, old material, feel free to use it as a rebuttal in the whole debate.

Lets stay on what the impact of nationalisation can have on an economy. Venezuela, the folks who we actually have a relationship with. I came across a news story from FOX, admittedly a bit old, a couple of days old. Media freedom is basically gone and Twitter has been going crazy with Venezuelan youth giving it a wind, sending pictures to the outside world. You cant hide it you see, the only way is to become like North Korea and sever ties with the outside world.

This part which highlights the non successes of the nationalisation part (perhaps not entirely fair) must be read carefully: “On Sunday, Chavez ordered five cable stations shut down for refusing to broadcast his frequent speeches, setting off nationwide demonstrations in a country already wracked by water shortages, electricity rationing, alarming crime rates and the plummeting value of its currency, the Bolivar”.

So when your policies do not go according to plan and actually come apart at the seams, then you resort to very unsavoury tactics. Water shortages. No Power. No TV. High crime rates. Currency and inflation out of control. Not a great outcome. Read the official government take on these matters. Lets face it though, a lot of banks required government assistance in the UK, the US, across Europe. But these are not permanent plans, these are short term measures to back stop financial disaster.

The phrase that is doing the rounds in Venezuela is loosely translated to, Chavez, you’ve struck out. So much so is the paranoia that military now are at the entrance to baseball games not allowing any placards in, because they could have that phrase. Paranoia. We were kicking the reasons why Venezuela got to this point and decided that the folks there deserved what they got, after all the fellow was voted in. That is not entirely fair, but you know what I mean, he was a popular candidate voted in. The country is really close to the brink. My sense is there is a change or complete isolation, sadly I fear that isolation might be on the cards.

OK, so we all admire that Chavez so much (!!??) that people will be so glad to give him a loan when Venezuela defaults. No. Chavez and his cronies have done such a brilliant job that Venezuela, according to the guys at the Business Insider, are the most likely country to default. That is right guys, not Lithuania or Latvia, Dubai or Pakistan. The biggest risk is the great example of nationalisation and the brilliance of Hugo Chavez in Venezuela. And thanks Hugo for the third term for your ultimate plan, complete economic failure, we have an example of what does not work. Was anything in the above paragraph anything but sarcastic?

Check out who is most at risk. So your ability to borrow on an international scale is diminished dramatically.

So, if anyone can please send this link to the geniuses who once again have called for the nationalisation of the mines as the right way to go about trickling down wealth to many more folks who are have nots, then feel free to forward. I will be the first to admit that the wide gap between haves and have nots is nothing more than a disgrace in this country.

Check this out via the Econompicdata talking about the gap between rich and poor in the US.

“We based our list on the U.S. Census Bureau’s Gini Index, which ranks income inequality in cities on a scale of 0 to 100. Imagine two islands, each with only five people, and a total income of $100,000. On one island, each person earns $20,000. This island has total income equality, and a Giniscore of 0. On the other island, one person earns $100,000 and the other four people earn nothing. This island has total inequality, and a Gini score of 100.”

“The United States as a whole had a Gini score of 46.9 in 2008. By comparison, incomes are more equal in Europe (the E.U. has a score of 31), and less equal in South America (Brazil has 56.7; Bolivia has 59.2)”.

For the world, see that Comrade Julius is right, the gap is huge between haves and have nots. Something that we have to address and come up with innovative ideas, nationalisation is a path to bankruptcy. Venezuela, well we sit and wait, but my sense is that it is coming. This was written before the recent protests in Caracas

Sorry for regurgitating, but there is the rebuttal. Written over the last four months. Get your own house in order, fix the mess that is Eskom, SAA and so the list goes on, and then come back to us.

New York, New York. A good day in New York, following on from some of the recent gains, it has to be said. The only sector lower was the energy cluster, material stocks much lower. Good company news in the form of results from Merck and John Deere, better than expected housing data and the celebration of one year of stimulus. Celebration? Yes, no, well thankful that it is there I guess, the flip side of none would be disastrous.

Session end the Dow Jones Industrial Average closed at 10309, up 40 points, the nerds of NASDAQ up 12 points to 2226 whilst the broader market S&P 500 closed 4.6 better to 1099. The oil price was last at 76.79 Dollars per barrel. The gold price is lower at 1099 Dollars per fine ounce, the platinum price also lower at 1509 Dollars per fine ounce. The copper price also lower at 318 US cents per pound. The Rand is steady after a great day yesterday, 7.66 to the US Dollar, 10.38 to the Euro and 11.97 to the Pound Sterling.

Well, perhaps a breather here today after the recent flurry for the bulls.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. We started very well, threatened to slip into the red in the middle part of the afternoon, but were pulled through strongly by the fellows over on Wall Street, closing near the highs of the day. Resources led the pack, industrials were flat at the end of the session, all that translating into a session where the Jozi all share added 238 to 26939 points.

OK, budget day today. What can we realistically expect from finance minister, Pravin Gordhan? Some say not too different other than having to tell folks that we need to be prudent when spending, simply because the collections are much lower this year, expected to be around 7 percent lower than last year.

Plans around the National Health Insurance, a global healthcare plan for all and sundry in South Africa, and more importantly, how are we going to pay for all of it. No tax relief expected and some even hinted that tax rates may even rise. And then another really big one, is there going to be a shift in the inflation targeted rate? Is there? Is the band going to move north, be more like 4.5 percent to 7.5 percent?

Is there going to be final clarity on who is actually running the future of economic policy? And lastly, I know that our president said that mine nationalisation was not government policy, but was it going to be discussed at an ANC NEC level in much higher detail? It is all very well to tell us that it is not policy, but could it become policy in the future and what would lead us to a meaningful conclusion.

Did you also see the news that PetroSA, which is the state owned and I guess managed company plans to build a refinery at Coega. Or so the story is being reported by all the majors. The state plans to build a 9 billion Dollars refinery. OK, but where is the money going to come from? The project, known as Mthombo, the agreement actually signed last October. Coega finally going to be utilised with this first big project, but this is going to take half a decade.

If you go to the Coega website you can see that there is some progress taking place, in terms of a gas turbine proposal, plus more recently a Belarus tractor plant. But what does the actual 110 square kilometres look like on a sunny day flying into PE? From the air I mean? I was last there in March 2006 and drove past a very impressive infrastructure on my way from the airport out West. And saw no action from the air. This aerial shot from 2007, kind of confirms that does anyone have a more recent shot?

What me worry? I saw that Japan had overtaken China as the largest holder of US government debt. Should we be less, or more worried? Well, China have been cutting their US debt exposure, whilst Japan have been buying. So divergent views there. But is it for real, or is it just what you see on the register? There have been large UK buyers, as Wall St Cheat Sheet calls it, it could be a direct bidder. Sinister? Or nothing in it really do you think? Check it out, Rising Sun: Japan Overtakes China as Largest Creditor to US.

Talking about debt, is it really that bad in the UK? I was pointed to a Bloomberg article that suggested that when David Cameron is elected the new Prime Minister of Britain, which is not a foregone conclusion, Cameron should ask the IMF for a loan. Oh yes? The economist who is suggesting this is a fellow by the name of Irwin Seltzer who has clearly been around for a long time.

Seltzer goes on to say that it is time to act now, basically extraordinary times call for extraordinary measures I guess. Read the full Bloomberg article and perhaps now you will see our fears with the medium term UK economy. And that is one of the reasons why we dropped UK based Liberty International out of the recommended pot. Read this piece from EconomyWatch, in particular the last paragraph of the forecast 2010.

OK, so what are the Goldman Sachs swaps that are directly linked to Greek debt? Another Goldman Sachs conspiracy theory, or does this one really have substance? The laughable part for me is that Goldman acting on behalf of Greece is able to get a better price. In short, Goldman has a better credit worthiness than the fellows in Greece.

And why should European leaders be upset with Goldman, they should be even more mad at Greece for trying to hide the extent of their debt problems. Lastly, if you read the Business Week article, via Bloomberg it becomes clear that the EU officials missed something here. And as such, finger pointing at someone else.

New York, New York. A surge on Wall Street saw markets add a solid 1.8 percent in the form of the broader market S&P 500. Simon property group made a bid for General Growth Properties, a deal worth around 10 billion Dollars. Plus there was the news that Barclays had comfortably topped expectations, but more importantly had a better outlook on what was going to be happening in the US for the rest of the year. Their view was rosy. And then a manufacturing survey in Feb was much better than the January read, that is good news for the manufacturing sector.

Session end the broader market S&P 500 closed at 1094, up 19 points, the nerds of NASDAQ better by 30 points to 2214 whilst the Dow Jones Industrial Index tacked on 169 points to end the day at 10268. The Dollar lost some impetus across the session, one currency guy I follow said don’t discount the fact that the Chinese have not been participating, as they are celebrating new year. It’s the year of the Tiger, it’s the cream of the fight. You know, that cheesy song.

The oil price last traded at 77.76 Dollars per barrel, this price has surged over the last week. As has the copper price, last at 325 US cents per pound. The gold price also has gained traction, last clicked over at 1123 Dollars per fine ounce. The platinum price has also gained ground, the last traded price there was 1551 Dollars per fine ounce. The Rand is firmer on account of a weaker USD Euro cross, 7.66 to the US dollar, 10.55 to the Euro and lastly 12.10 to the Pound Sterling.

Expect a much better day for starters here.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. Yesterday was there to remind us how important the US markets are from a volume point of view. We enjoyed a good day, no, scratch that, a very good day for us, financials and resources both comfortably north of two percent, which translated to the Jozi all share index up 438 points on the session to finish at 26701.

There were results from Hulamin, I tell you, this company does not really get any juices flowing. As per their website: Hulamin is an independent producer of semi-finished and fabricated aluminium products, situated in South Africa. We are focused on the South African market and other specific niche markets around the world.

Building, construction, electrical wiring, consumer durables (tools), packaging, you know, like the wrappers on butter and the automotive and transport industries, those are the markets that Hulamin sell into. So there is a defensive element in there, folks need to always eat food, and that food needs to be packaged. Wrappings on everything, from the inside of a fruit juice box to beans in a can.

Then there is the other part of the business that is a lot more cyclical, the one geared to the automotive (transport) and construction areas. And that obviously is a huge area to cover, everything from seats on airplanes to making buildings look different. And pretty.

As Paul pointed out though, for a company to have a 40 percent fall off in revenue and still make a profit, I guess that is no mean feat. The company unfortunately has very low operating profit margins for what we use for our valuation metrics. No dividend this year sadly, the company needs to conserve cash.

Inside of their space locally they have no comparison. Alcoa is one on a global level, their earnings have been at best patchy. In fact the other two big companies in this space at a global level, the Chinese producer Chalco and Norwegian company, Norsk Hydro, have been very patchy themselves. Perhaps too cyclical and best left out as a long term investment. You can however be assured that when the tide turns, they will do well.

I am seeing stories on the wires today that the Obama proposals for new banking rules is running into headwinds, in the form of European finance ministers. Remember how important it is to have a coordinated set of rules, because the risks to countries implementing rules are that financial institutions will go to places where the rules are more lax.

As you can imagine the risks to countries losing an important part of their economy far outweighs the need to regulate. Think about it. If you want the economic wheel to turn, the financial services and banking sectors are the oil that make the wheel spin faster. And in the US it is a very important part of the markets too, here is the Finviz map, financials and banks are the bottom left corner.

In fact, in our market, just the banks make up 477 billion Rands worth of market capitalisation inside of an entire market where it is 5.1 trillion Rands. Inside of the top 50 stocks listed on the exchange, financials and banks collectively have a 12.75 percent weighting. So important, very important. Bearing in mind that the top four stocks by market capitalisation in this market, British American Tobacco, BHP Billiton, Anglo American and SABMiller make up nearly 34 percent of the whole market. Those four stocks.

So if rules are, or are not implemented, then no doubt that there would be an impact on a fairly large portion of our market. Read the full story, EU States Cool to Obama Bank Trading Plan

Staying on financials, ABSA have reported their full year numbers to December end 2009. As expected a sharp fall off in earnings and big impairments largely to blame for that. Capital adequacy ratios not a problem for this bank, comfortably above where they need to be. Perhaps in preparation of global moves afoot.

It still boggles the mind how a deposit taking bank can make 2.3 billion Rands from fees generated from simple savings accounts and then 3.2 billion Rands from Cheque accounts. Look, they are a business and are therefore entitled to make money, but 5.5 billion Rands worth of fees on those accounts is where it is all at, plus the electronic banking fee, which add on another 3.5 billion Rands.

Results are in line with expectations, a CNBC Africa interview done with Maria Ramos, the chief of the bank suggests that this year is still going to be tough going, but the worst is behind us. A fragile world is what she suggests, pointing to the obvious problems in Europe. Only expecting 2011 to be a much better year. Kokkie Kooyman, who is largely viewed as South Africa’s top banking analyst welcoming the cost cutting that the bank had done, but worried about rising impairments. Looks a little stretched at 13 times earnings, or not?

What a twist. The Bharti potential purchase of the Zain African operations has taken another twist. Just to be put in the picture if you missed yesterday, Zain have agreed to sell their Sub Saharan African assets to Bharti Airtel for the princely sum of 10.7 billion US Dollars, subject to due diligence. Plus there is an exclusivity agreement until the end of March.

But one of the usual suspects in African telecoms has come along to throw a spanner in someone elses works, not for the first time I shall have you know. Strive Masiyiwa, the Zimbabwean business fellow who lives in our backyard, Jozi. Strive certainly lives up to his name, he has made great progress over the years. But what does he have to do with Zain?

Well, Econet Wireless, one could with all due respect call them a junior telecom African operator, owns five percent of Zain Nigeria. But, and this is a big but, more importantly, there is a battle happening in the background for the original asset that is now Zain Nigeria. All rather confusing, but hopefully the Nigerian publication, This Day, will clear it up with this article: Nitel Bid: Glo, MTN may be disqualified. The reason why I don’t understand, is, does that mean once you are in, there can never be consolidation in the Nigerian telecommunications space?

This one is confusing me, confusing me a lot. The Chinese Yuan. Read this piece that I found on the Business Insider and then let me know what you think. The piece is titled: The Yuan Is About To Surge Beyond Your Wildest Dreams

How much of that is directly linked to the surging Dollar, check out this WSJ article Dollar Up as Europe Reels. I am just going to say it again, smugly, where has all the talk of the reserve currency moving away from the Dollar? Exactly, for the time being there is very little to chose from. Inside of this year I suspect that there is going to be an attack on the Pound Sterling.

US markets closed yesterday, so lets get right into the commodities complex. The oil price last traded at 74.76 Dollars per barrel, the gold price is also up at 1113 Dollars per fine ounce. How is that, the Dollar and commodities prices moving in the same direction. The platinum price last at 1530 Dollars per fine ounce. Lastly, the copper price at 314 US cents per pound.

Expect a better start here on account of a better commodities complex.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

Jozi, Jozi. We were swimming in the green and then bang, the Chinese central bank put out a bombshell announcement about the bank reserve requirements, see below. From that point on during the day it was all downhill and we settled into a lower position, but holding levels. Session end on the Jozi all share we closed 88 points lower to 26262, what a great number. Banks and construction stocks much lower, health care much higher, resources marginally lower.

Happy New Year. If you are Chinese you will be ushering in the year of the Tiger. And how did the Chinese authorities suggest that we celebrate New Year? Well, by raising the reserve requirement of banks by 50 basis points. As the Chinese monetary authorities continue to try and stem the massive credit flows.

OK, so I was on the box this morning and I know that this point has been made several times, but throw in the mix of the average Chinese propensity to gamble, plus have lots left over at month end because you are a saver and a limited landscape of investable assets. If you think that you are not going to get wild swings, then best you rethink what you want out of investing in the region. If of course you want to invest in the region.

Of course we have access to the US markets, where there are opportunities to invest in China. Either through ETF’s, which there are many, or in single stocks. You can buy China Mobile, PetroChina, Baidu, Sinopec, CNOOC, just to mention a few. Or you can buy the ETF’s, share codes FXI, GXC or PGJ. FXI apparently a good one, more focused, only 25 stocks. As has been pointed out before though, rather buy a global company that has increasing exposure to China. Invest in companies that trade away from the Chinese market. Markets in the region closed until Wednesday, for the first of the three golden weeks.

Righto, Aspen with a trading update out on Friday morning at 10am. For the six months to December the company expects earnings to be 20 to 30 percent better than the 193 cents earned to December 2008. So around 240 cents for the half year. Market participants like that, the stock climbed over four percent to 70 bucks a share. The company in the official release put that down to a strong performance from their local business.

And then another one of our recommended stocks, Sasol with a revised view of their early December trading statement that looked worse than they expected back then. This is for the six months to December 2009, where the company expects earnings to be 50 to 55 percent worse. OK, to put it into perspective, In July 2008 the oil price was at a record high, NYMEX WTI topped 147 Dollars a barrel. So we are comparing this to a record six months.

Secondly, the second half of the year for Sasol, their second half to June 2009 the company really struggled and made less per share for the full year, than the first half. So, basically this is measuring against the high base, but still hampered by a much firmer Rand. And volatile oil prices. Well, I guess that is what you get with a single commodity stock. This stock is under the spotlight and we will do a thorough review after their numbers 8 March.

Zain are set to offload their Sub Saharan African cellular assets to Bharti for the princely sum of 10.7 billion US Dollars. Or so it is being reported, the Zain board accepted an offer yesterday. The official release suggests that the board did discuss the offer yesterday, nothing further on that. OK, but what are these assets? Total Africa subscribers to September 2009 were nearly 42 million strong, so more subscribers than Vodacom at that same stage.

Interestingly in Nigeria they (Zain) lost subscribers, Q3 2009 when compared to Q3 2008. But nearly 15 million subscribers out of their 42 makes their exposure to Nigeria most important. Their other two African countries that are important include Tanzania, with over four million subscribers and then the DRC with over three and a half million folks.

Zain Africa (lets call it that) operate in 15 different countries, so you can see the attraction. The problem with Zain has been the brand, trying to integrate it with the Middle Eastern brand Zain, with the African brand Celtel. All those were rebranded to Zain in August 2008. It was well known however that Zain, the parent company with a total of 71 million customers, headquartered in Kuwait, were overburdened with debt as a result of aggressive purchases.

For every buyer there is a seller right, and if the price is right then both parties meet. 4.6 billion Dollars worth of debt are starting to weigh heavy. In fact one of the subsidiaries, the operation in the middle east was unable to meet their obligations, a 2.5 billion Dollar two year loan. Bharti is getting thrashed on the news, down over seven and a half percent as investors struggle with that 10.7 billion US Dollar ticket. Access to Africa, where the population is set to double in forty years.

Still can’t get my head around 10.7 billion US Dollars for 42 million subscribers. 254 US Dollars a subscriber is what they paid. I would have it at a guess that the average ARPU, that is average revenue per user per customer on the African continent is around 10 US Dollars per month. When MTN bought Investcom in 2006, they bought only 4.9 million subscribers in ten countries for 5.5 billion US Dollars. What?

So it seems that Bharti paid twice as much for eight times the number of subscribers. Of course it is not that simple, it depends where you operate and whether or not you are the main operator in those geographies. There is also a carrier business that MTN bought when they made the acquisition. If you add up the number of subscribers today however, that MTN have gained from the acquisition, you get to over 22 million subscribers. So does that 5.5 billion Dollars look a little more reasonable now? Sure.

New York, New York. Session end on a long weekend, presidents day, the markets on Wall Street closed at the top end of their trading range. Tech stocks managed to gain, but much of the focus was on the China reserves ratio. Who knows, like with much of the stimulus programs, China might be the precursor to a global exit. I suppose it helps when your economy is growing at 11 percent per annum, in fact expected to grow comfortably beyond that, this year.

I was thinking about the Greek debt issue, the Greek government need 53 billion Dollars to meet their short term obligations. And the whole EU economy is 13 trillion Dollars. So that sounds like less than half of a percent. Is it really that much of an issue? Blackrock says that it has been blown out of proportion and they are happy buyers of Greek debt. These are the people who manage 3.35 trillion Dollars worth of assets remember. As Blackrock points out, Greece represents just 2.7 percent of the entire EU economy. Portugal also looks attractive to Blackrock. The bonds people, the bonds.

Session end the Dow closed down 45 points to 10099, the nerds of NASDAQ higher by 6 to 2183 whilst the broader market S&P 500 was in the middle of the two, down nearly 3 to 1075. The oil price is trading lower at 74.01 Dollars per barrel, the gold price is last at 1096 Dollars per fine ounce. The platinum price is slightly higher at 1515 Dollars per fine ounce. The price of copper, a pound of copper was last at 307 US cents per pound. The Rand was firmer at 7.69 to the US Dollar, that was the last read, 10.49 to the Euro and 12.09 to the Pound Sterling.

Better at the start. But quiet. Big Asia quiet, more importantly, US holiday today.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440