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