February 28, 2011 in Uncategorized
Jozi, Jozi. We closed at the highs of the day, as on Friday it started to become apparent that the crazy fellow in Libya could not last forever. Because the banking fraternity have decided to freeze his assets, and he is not liquid enough to pay his private army. So much for paying for banking secrecy, it depends who you are it seems. Don’t get me wrong, I am all in agreement with the authorities freezing the demented Top Gun wannabe’s (those Tom Cruise glasses are too much) assets, because I am not too sure how he can accumulate 30 billion Dollars in 41 years. Legally that is.
That is suggesting that the fellow somehow “made” 1.5 million Dollars a day over the period he was in power. Just a reminder, from the budget speech last week, our president makes 2.6 million ZAR a year. Qaddafi swindled/stole/accumulated 1.5 million Dollars a day. So roughly 10.5 million ZAR a day. By mid morning tea time each day he has “made” more than our president earns a year. You can quickly see how there are problems and then there are other problems.
So the consensus out there was that the problems we were seeing with Libya were going to be short lived. Turns out this morning this is not the case. But, Friday it was, and markets cheered. There was the small matter of a second look at US GDP and it turned out that even as the headline suggested it was below consensus, as you dug deeper you found signs of future hiring. Hey, that is just the way that it goes, I am reporting what others say, more on that later.
Session end the Jozi all share had closed at the day high, 31966, up 259 points or 0.82 percent. The leaders were many, SA inc. got a head start as you could see the flows were back, the Rand was firm through the day, and comfortably through the 7 mark to the US Dollar. This didn’t help the gold (down 1.4 percent) and platinum sector (marginally in the red), but retail and banks were lifted comfortably over two percent apiece.
Construction stocks even got a lift, notwithstanding that in the morning session Murray & Roberts (MUR) traded at 22.45 ZAR, down as much as 10 percent on Friday at one stage. It is not good I guess when your top brass are out at the end of June, but hey the cycles are deep and long. At the beginning of this year MUR was trading above 40 ZAR. Less than 40 days later and we are at 25 ZAR. Sis. The last time that MUR was at these prices was mid 2006. So, five years ago. But this stock traded as high as 108.25 ZAR on the 29th of October 2007. From 25 to 108 and back to 25, in less than five years. Wild. If you bought them in 2006 early and went away to the Peruvian rain forests and returned Friday, you would wonder what the fuss what about. The cycles are deep and unpredictable, that is all I can say about that.
The results continue to flow here and it is a little tough to keep up, but this is what we do, so we must pay attention. First, Bidvest half year results to December, because that was the chronological order, the timeline. First come, first served, a little like the football seating at FNB stadium (Soccer City) Saturday. For the record, if want to have fun that is off the funometer scales, you must go to a Soweto derby. It was the second time that I was going to such a match, the stadium had over 93 thousand I think. Amazing.
But back to the grind of results, Bidvest reported revenue for the half year of 58.5 billion ZAR, an increase of 4.2 percent. Headline earnings grew to 1.7 billion ZAR, an increase of 11.3 percent, that translates into a headline earnings per share of 539.8 ZAR cents. Distribution of 225 ZAR cents. So annualise these numbers for the face value fundamentals geeks and you are looking at 14 and a half times earnings and a dividend yield of around three percent. Not overly exciting and not at current growth rates.
Tyco is a *nice* comparison at a global level (OK, sort of) and they trade on 16.6 times earnings with a dividend yield of just less than 2 percent. Maybe a GE comparison too, but as was noted in the office here, not as much intellectual property and not as much manufacturing in the Bidvest stable. GE trades on 18 times earnings with a dividend yield of 2.75 percent. 3M trades on 16 times earnings with a yield of just less than 2.5 percent. You get where I am going with all of this, the price is probably about right. Well done market participants.
Bidvest could be really interesting with potentially a whole lot of corporate activity with some potential slicing and dicing down the road. One of the theories (at least in the office) is that we could see a local business unit, a European one and maybe even an Asian one. Or Bidvest South Africa and Bidvest International. Something along those lines.
Divisionally as I scan down the page you can see that there was a big bounce-back from the Automotive segment, sales up 17.7 percent to 9.5 billion ZAR. Foodservice, a monster contributor (around half of all sales) was lower by 3.8 percent to 29.2 billion Rand. European sales in Rand terms were lower by 9.7 percent to 17 billion ZAR, Asia Pacific was higher by 7.3 in Rand terms to 9.5 billion Rand, the fastest growing of the major divisions.
But freight was the star performing business unit, revenue up 19.8 percent to just shy of 9.6 billion ZAR, and this was against a second half last year that was worse than the comparable first half to December 2010. In other words of the last three halves, the middle one was the worst. I guess it is seasonal as well. So, those are the big five divisions.
Listen in here carefully, because you can have all the sales in the world, it is actually all about profits. Margins across the group are not great, I must be honest. The most profitable (trading profit) of all the major divisions is the Foodservice division, 956 million ZAR, but that was lower by 7.4 percent when measured against the comparable period (H1 2010). Check out the commentary, “Revenues … reflect continuing pressure on consumers in both the out-of-home eating and institutional sectors and the impact of the translation of the earnings of foreign businesses into rands. Margin squeeze and downtrading impacted trading profit…”
I did a quick trading profit margin calculation and of the big five divisions by sales and here goes, Bidvest Automotive (2.55%), Bidvest Foodservice (3.27%), Europe (2.18%), Asia Pacific (4.19%) and Bidvest Freight (4.16%), the margins are pretty low.
However, of the other divisions not mentioned here (it is not all about revenue, said that already), Bidvest Services is very profitable, trading profit margins of 14.39%, Bidvest Namibia has legendary trading profit margins, up 23.90%. Bidvest Southern Africa on the same metrics has trading profit margins of 7.09%. So you can see that some of the smaller businesses inside of the group have much better margins. What is that old payoff line of theirs, “through diversity comes strength”, something like that. Bidvest are actually the offices next door to us. My favourite sign is still the one in the Bidvest foyer: “We refuse to participate in the recession”. It makes me chuckle. I should see if it is still there, because that would indicate where Bidvest think we are in the cycle.
And the outlook? Looks better in parts —> “Economic conditions in most of the geographies in which Bidvest operates have improved, resulting in higher activity levels, however, the European landscape is likely to remain weak. The underlying threat of inflation and the potential for rising interest rates present both opportunity and risk for trading operations. Our businesses have adjusted to the new economic reality. Management is acutely aware that innovation and service hold the key to future success.” I will check out the results presentation and add in anything tomorrow.
We are not huge fans of the company, but it falls into the category like. You know, like that “like button” on social websites. Too many moving parts is a negative, but keeping the management in place of business that they (Bidvest central) buy, and centralise everything is hugely helpful. So centralised control of a whole lot of different businesses and bankrolling from one acquisition to the next. Brian Joffe is highly regarded. I guess a few question marks about a successor, but I would not be too worried about that. Yes, no, maybe, ja, no well.
Byron’s beats. This is all about the unknown and unthinkable. Saudi Arabia, Byron’s view of what is happening there, and what might happen there. Perhaps everyone should take a leaf out of the Indian’s book and preach for socially conscience capitalism. You know the kind. Don’t have wild sushi parties, that could be the South African context that Cosatu sometimes refer to. Except, as Byron points out here, it seems a little more egregious.
Yesterday the Saudi market crashed 4.9% (yes the market is open on a Sunday) due to fears of potential unrest. Remember, Saudi Arabia is the biggest country in the Middle East and has the world’s largest oil reserves. Often known as the Kingdom of Saudi Arabia the country is ruled by an Islamic absolute monarchy who have often been subject to scrutiny from human rights groups.
The country has a shrinking middle class with growing disparities between the haves and have nots as a weak education system and growing unemployment only elevates this disparity. The extravagant lives of the royal family and the elite few who have managed to reap the rewards of the black gold cannot bode well with the poor who are growing restless.
The country has a heavily censored media and is not very well understood by the rest of the world. We see stories of Sheiks buying platinum plated Rolls Royce’s but little is known about their 28% unemployed. Last week King Abdullah, the current ruler, ordered an extra $36bn ($2000 per person) in new welfare grants for his people which is a clear indication of how anxious he really is. Other measures such as a huge infrastructure spend injection and bans on hiring foreign domestic workers have also been implemented. There is a huge contingency of foreign workers in the country as the local Saudi’s try and hang onto their middle class livelihoods and refuse to work the “lower end jobs.” So a revolt from the foreign citizens is more likely at this stage.
I think the difference between Saudi Arabia and Egypt and Lybia is that the Saudi people are still fairly pro government and the state has plenty of money to blackmail their citizens into happiness. What sparked the huge fall in the market was the death of two protestors in Oman, a small country to the East of Saudi Arabia. They were shot dead by police.
Much speculation about these anxieties spreading to Saudi is definitely spooking markets globally. Like I said, they have the biggest oil reserves in the world with 260 billion barrels. This comprises one fifth of the worlds proven reserves so you can imagine what kind of affect an uprising would have on the oil price. I still maintain that long term these uprisings will have a positive impact but for the short term a surging oil price is not ideal for an already growing trend of inflation around the world.
New York, New York. US GDP, fourth quarter, take two was Friday, before the market opened. We had lots of stuff going on here, meetings, swings in the oil price as the Saudi’s saying, no worries we will pump more if we need to and then of course the cricket in the background. Poor little Bangladesh, they did manage to come through though against the mighty Ireland. Check out the full release of the Second Estimate of GDP.
I am no economist, so I couldn’t explain the hidden stuff, a look under the hood would reveal the engine, but mean very little to me. But I understand a whole lot more about this content than the combustion engine. Hmmmm, not so cool, don’t tell the guy in the Windhoek Larger advert. So check out the sectors adding and the sectors weighing on the overall GDP read:
“The small fourth-quarter acceleration in real GDP primarily reflected a sharp downturn in imports, an acceleration in PCE, an upturn in residential fixed investment, and an acceleration in exports that were mostly offset by downturns in private inventory investment and in federal government spending, a deceleration in non-residential fixed investment, and a downturn in state and local government spending.”
Someone suggested that without the inventory drag, we were looking at around a 7 percent print. But you can’t slice and dice, it is what it is. But I get why the markets could have been a little more than just a bit excited about this. All you need to know is that “things” are a little rosier.
Silk road, riced and diced. So what does it mean to all of us that the Chinese have lowered their long term growth target from 7.5 percent per annum to 7 percent? I guess the base rose so furiously that you can’t expect that sort of breakneck speed growth into the future. Bearing in mind that your economy is now 5.7 trillion Dollars, so seven percent per annum should see the Chinese economy roughly the size of the US economy now in 2035.
Explained here —> And let us suggest that the US economy could grow 3.5 percent per annum for the next 15 years, that suggests the inflection point could be around 2035 and not 2025. A lot can happen I know, in that time. This is just until 2015 though, not until that time. This WSJ article suggests that in the past the Chinese growth targets have beaten their own expectations —> Beijing to Slow Growth. There are of course all these methods to slow growth, salaries in the urban and rural areas are skewed to the cities.
What Beijing central does not want is for the masses to start getting more and more irritated. But I suspect that “the party” is on top of it. So, any whiff of a Jasmine revolution spilling over into China, anything is likely, but you would think not. Chinese economic reforms are into their fourth decade from the great leaps backwards. At least I hope so.
Commodities corner Dr. Copper is last at 444 US cents per pound. The gold price is steady at 1411 Dollars per fine ounce, the platinum price also unchanged really, at 1805 Dollars per fine ounce. The oil price after having slipped back Friday, is back on an upward trajectory, last at 98.66 for WTI on NYMEX, the Brent crude price is 113.23 Dollars per barrel. DME Oman Crude is trading at 105 Dollars per barrel exactly. Wow. All over the show. The Rand is firmer at 6.98 to the US Dollar, 11.32 to the Pound Sterling and 9.65 to the Euro.
Where to from here? Key stuff to watch out for later are definitely the personal income and spend monthly stuff from the US. Chicago PMI. Pending home sales. The Qaddafi daily madness index. I slipped that one in there to see if you were paying attention.