ABIL. Very able.
August 6, 2012 in Uncategorized
“Credit disbursements for the 9 months reached R19.5bn. That is a 26% increase from last year. This was as a result of the success of the Ellerines kiosks and new product offerings. The average loan size has also increased by 24% to R12 420 while the average term increased from 45 to 47 months. The increase in disbursements was despite the reduction of approval rates from 75% to 69%. This was done to further manage risk.”
Jozi, Jozi 26o 12′ 16″ S, 28o 2′ 44″ E. Another Friday, another record for the equities markets, thanks to a better than anticipated US jobs number mid afternoon. Excuse me for being a grump about it, but the number is given way too much airtime. But I am never going to change that. I am never going to change the minds of everyone that finds this number the most important number on their monthly radar screens. So for the time being, this is what it must be, all the emphasis placed on a specific data release over another. But you can see the thinking behind the importance of that number, the more people in employment in the US, the more people spending and keeping the wheels of their economy turning with more fluidity. And as such better for stocks. No arguing about that from my side. At the end of the session the Jozi all share had printed another high, 35244, up 0.6 percent on the day. In the winners column were the banks, up nearly three percent as a collective. Wow. Financials added two percent and retailers clocked a serious enough gain. Resources were flat, being held back a little by a firmer currency. The Rand understandably rallied, Mr. Risk-on was back in town Friday. I am not complaining, our market is up ten percent plus this year, notwithstanding all the bad news.
There was a trading update from one of our favourite companies Richemont this morning. We group Richemont with Nike and McDonald’s in a segment, aspirational consumerism. There are folks who are aspiring to consume products that were once out of their reach, but because their circumstances have improved markedly from a generation before, they are able to now. In Richemont’s case it is the nouveau riche, and their product is an “expensive” purchase. In some parts of the world people eat baked beans but drive a swanky car to show that they have “arrived”, in other parts of the world it is a flashy watch and piece of jewellery. And that is the audience that Richemont are trying to capture, not only in the old world but also in the newer and emerging nations, in particular China.
You can find the full release from the Richemont website, a rather long winded headline: Strong trading indicates likely increase in operating and net profit for first half year of between 20% and 40% against the comparative prior period. What strikes me immediately is that is a fairly wide range. No, a very wide range, but you will see why now, it has to do with uncertainties around currencies. There were obviously going to be some currency translations here, but this is better for Richemont, a weaker Euro. Richemont has a large number of sales in Asia, and the Euro has been very weak.
On a reported basis (in other words in Euros, their reported currency) their sales for the four months (ended July 2012) were 24 percent higher. BUT, in constant currencies sales were “only” 13 percent higher. Not bad for tough times I guess. The stock is up handsomely this morning, in Rands we saw a five percent plus gain straight out of the blocks. We continue to acquire the stock, and have been adding on weakness. Let us presume for a second here that Richemont profits come in the middle of the range, at the half year stage to September 30 2011 last year, the companies recorded operational profits of 1.075 billion Euros.
On an earnings per share basis (and based on an increase of 30 percent) the next number should clock around 1.64 Euros. The stock trades at 58.85 Swiss Francs a share. Bleh, Euros, Francs and Rands. One Swiss Franc buys 8.39 Rands. The price then in Zurich at the current exchange rate is 493 Rands, a little over that. But remember that our price here is a one tenth of the price in Switzerland, because the Global Depositary Receipt traded here is a one for ten. And that is how you get to a current price comfortably above 49 Rands a share. Half year earnings around 1.66 ZAR a share, is the stock stretched at 50 ZAR? If it was trading at 75 Swiss Francs a share my answer might be yes, but they are growing strongly through tough times. And as luck would have it, Prada have just reported revenue growth of over 36 percent for the half. See, Johann Rupert is right, people like nice things.
Staying on the theme of aspirational consumerism, Byron’s beats looks at another one of our favourite stocks.
- This morning we had a trading update for the third quarter ended 30 June for African Bank. On the face of it, it looks pretty good. The update is very informative going through the banking and retail units in detail.
Banking Unit. Credit disbursements for the 9 months reached R19.5bn. That is a 26% increase from last year. This was as a result of the success of the Ellerines kiosks and new product offerings. The average loan size has also increased by 24% to R12 420 while the average term increased from 45 to 47 months. The increase in disbursements was despite the reduction of approval rates from 75% to 69%. This was done to further manage risk.
Overall advances have peaked above R50bn to R50.5bn for the first time ever. Loan advances have grown 35%, the credit card portfolio grew 47% while Ellerines credit advances grew 33%. The EHL kiosk network brought in R2.7bn over and above retail sales which are up from R1bn last year.
These are all strong numbers of growth from a combination of good company practices and strong demand from the market. As an investor we have full faith in the management team to maintain their innovative ways of grasping the growing consumer. The big risk for this business at the moment is the macro environment. I am going to the Abil investor presentation this afternoon where the micro lending environment will be discussed in detail. I will report on this tomorrow.
Retail Unit. This sector is not doing as well as the banking unit. Sales came in at R3.7bn which is 3.4% higher than the corresponding period. These sales were impacted by tough trading conditions. The retail sector has been strong but the furniture guys like Lewis and JD Group have been a lot slower with both these companies having tough years so far. This compared to the clothing and food retailers have really underperformed. I remain fairly neutral on the sector but the fact that African Bank use these retail outlets as kiosks remain this businesses core contribution to the group.
In the interim report for the 6 months the company had grown earnings by 25%. That was off 47bn in loans. A 7.4% growth to R50.5bn for these 3 months shows that the company is maintaining its strong growth levels and we expect earnings to follow suit. We remain buyers of stock and a more detailed report on the macro conditions will be covered tomorrow.
New York, New York. 40o 43′ 0″ N, 74o 0′ 0″ W. Stocks rocketed higher, thanks to all the positive sentiment generated around the jobs number. US nonfarm payrolls registered a gain of 163 thousand jobs in the month of July, the unemployment rate rose a little to 8.3 percent. A blogger that I follow, James Pethokoukis, a staunch republican and democrat hater, suggested the report might be fiction: Is the July jobs report completely bogus?. Phew, I don’t know about that, but he did make some telling points about the data, the 42rd straight month of 8 percent plus unemployment. Which is the longest stretch since the Great Depression, but it turns out that president Obama could be re-elected anyhow. So much for that higher unemployment = no re-election. By the way, it was both President Obama and my dad’s birthday on Saturday, well done to both of you.
For the record you can check in with The Employment Situation to read all the gumpf that you need on the US jobs number. Most people I know just look at a few of the headlines and are either happy, or not happy with that. The average work week was unchanged at 34 and a half hours, average hourly earnings ticked up a couple of pennies to 23.52 Dollars. There were revisions up for the month of May, but down for the month of June. The net of it all was a loss of 6 thousand jobs for the two months. I guess we should be happy, the folks who question the data will continue to do that, I am with the equity crowd. And that crowd sent the S&P 500 1.9 percent higher, and the Dow Jones added over 200 points to close just shy of 13100 points.
Currencies and commodities corner. Dr. Copper last traded at 337 US cents per pound, the gold price is also slightly better at 1610 Dollars per fine ounce. The platinum price is lower at 1397 Dollars per fine ounce, I am sure that you have seen the story, Treasury being asked to buy some platinum and hold it as stock. Phew, we are struggling here, badly. The oil price is last at 91.17 Dollars per barrel, lower on the session, but higher than last week. As is much of the commodities complex. The Rand is firmer, last at 8.17 to the US dollar, 12.72 to the Pound Sterling and 10.15 to the Euro. We have started higher again this morning, reaching yet another record on the Jozi. For stocks that is, not for the rugby. Which nobody wants to talk about, I don’t blame them. Nor for the football, if you are a Amakhosi fan. Yech. Luckily for my colleagues the markets are trading at record highs again.
Sasha Naryshkine and Byron Lotter
011 022 5440