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Anglo. A sprinkle of good news.

November 16, 2012 in Uncategorized

“Locally we see the Anglo American Platinum staff return to work, there was a press release: Anglo American update re. Anglo American Platinum which spelt out the details. I spoke to a very good friend of mine in Rustenburg yesterday, he works for one of the heavy duty equipment suppliers in the area and he says that activity on his front has been very low recently. Very low, everyone is differing purchases of heavy equipment and they are in a wait and see mode.”

Jozi, Jozi 26o 12′ 16″ S, 28o 2′ 44″ E. Resources bore the brunt of the selling again yesterday, down a percent as Anglo closed in on territory last seen in October of 2009. There was a brief swoon down to 233.75 at the beginning of September, unfortunately we are close to that now. Prior to the period of great pity in 2008 when the stock was absolutely crushed along with all other equities globally, these levels are the same as 7 odd years ago in London. The stock first crossed 17 pounds sterling in September of 2005. We are now at 1699 pence. Sad face. Year to date however Anglo is down nearly 29 percent in London, whilst the FTSE is barely higher, nearly 2 percent up in a very tough year. In the same market, over five years, the FTSE is down 10 percent whilst Anglo American has lost 51.5 percent of their value.

BHP Billiton is up a rather pitiful 16.7 percent over the same time, but hey, you would take that any day of the next year, not so? Especially when you look at their peers. Rio Tinto is down 46 percent over the last five years, so the Anglo problems are not unique. Xstrata are down 72 percent over the last half a decade, that has caused the biggest stink. So BHP Billiton wins, as a result of their geographical diversity and portfolio quality. Now you know why they, BHP Billiton always talk about their tier 1 assets.

Locally we see the Anglo American Platinum staff return to work, there was a press release: Anglo American update re. Anglo American Platinum which spelt out the details. I spoke to a very good friend of mine in Rustenburg yesterday, he works for one of the heavy duty equipment suppliers in the area and he says that activity on his front has been very low recently. Very low, everyone is differing purchases of heavy equipment and they are in a wait and see mode. And the obvious question that I asked him, what about mechanisation was met with a yes definitely reply. And looking at different ways to make sure that the businesses stay afloat in this tough environment. What he did say to me however was that if “things” came back to some level of normalisation quickly, there would be pent up buying. I hope that he is right! There is the mere matter of Anglo American Platinum to complete their platinum review you know! That would be coming in the next few weeks I would think.

In news just out this morning, Anglo American and Lafarge announce the sale of a portfolio of Tarmac and Lafarge construction materials operations in the UK to Mittal Investments generating cash of up to £285 million. Of up to 285 million Pounds. This is part of the continued divestment away from the non-core assets to the big expensive projects. No, that was not fair. Or maybe it is. Not too sure, all we know is that we are not buying them now.

    Byron’s beats

    Yesterday Woolworths came out with a strong trading update. I guess we are starting to get very used to strong updates from the likes of Woolworths and the other retailers. Nevertheless it’s a good indicator that even off what is continuously becoming a higher base the growth is still strong. Group sales for the first 20 weeks of the 2013 financial year increased by 15.9%. Sales in comparable stores grew 9.9%.

    What is interesting to see was the different growth rates between the 3 big divisions. Food sales grew by 11.2% on the back of a price increase of 7.3%. I did notice those pre-roast chickens going up in price. Clothing in SA grew by an impressive 13.7% with prices increasing 5.8% while general merchandise grew 11.5%. Sales in Australia and New Zealand grew 36.9% on the back of the witchery acquisition which took affect September this year.

    I must say I do like the mix of Woolworth’s products. Clothing is higher margin, a lot easier to transport and does not go off. The acquisition of Witchery seems like a good one to me. Not necessarily because they have access to the Australian market but more because I think they are going to bring those brands to South Africa in the same way they have done with Country Road. This is why the clothing sales growth in SA of 13.7% is very impressive. They have managed to turn their clothing division around in the last 5 years, Ian Moir who came from Country Road really playing to his strengths.

    The debtors book grew by 10.9% with impairments for the period of 1.8%. That is a good sustainable rate which shows their consumers are not under too much financial pressure.

    The stock has had a whopping year, up over 70%! On the back of their ambitious growth in the clothing division and maintaining those extremely high standards in the food department I feel Woolworths will continue to attract the aspirational consumer, steal market share and grow on the back of a stronger consumer. Still a buy for me.

Digest this.

It was taking an age, but I guess it is finally out of the way. Remember when the world was fixated with that camera at the bottom of the sea bed relaying us pictures of the Deepwater Horizon oil spill, more commonly known as the BP oil spill? At Deepwater the thing was really deep. The deepest well ever drilled at the time was here, a vertical depth of 10,683 metres according to Wikipedia. Amazing. I have told you these things before, but if you invert Mt Everest (8,848 metres according to Wiki) you still have a mere 1835 metres to go to the deepest point ever drilled by humans. If you add the altitude of Jozi, our city here, 1753 metres above sea level you still have another 82 metres to go. I am hoping that we would be able to crack that distance in under 12 seconds. Hey, in the recent dads race at school I did alright. I can win that next year.

Not winning is BP though. Not the dads race, but this was coming, a monster fine: A Breakdown of the $4.5 Billion Worth of Crimes BP Committed. The stock rose a little. And the worst is now out of the way. The stock looks awfully cheap, but that was relative to an old business that people knew. But still, it is BP. Meanwhile, closer to the surface and mostly on land, this theme that we have been following has been happening: America’s oil bonanza. I am not one for the projections and expectations, but this would be very good for the Dollar and more importantly the trade deficit for the USA.

This is a day or two old, but we need to take a look at the recent Starbucks transaction. They bought a tea company. You could have seen it coming with the company dropping the “coffee” part from their logo. In fact, if you read this Bloomberg piece: Starbucks With Teavana Moves Schultz Beyond Coffee Roots, you can see the diversification path was set out a long time ago. Tea shops? I suppose culturally there are as many people who enjoy tea as they do coffee. Tea is an art form in the East. In Japan, China and Korea there are all specifics with regards to the ins and outs of tea drinking and preparation. If I drink tea, it is normally Rooibos. At University though I drank tea. A lot of tea. Too much tea. Perhaps Starbucks can mesh the two cultures together, Tea seems so ballet whilst coffee seems heavy metal at times. Perhaps somewhere in the middle.

How are we doing thus far into earnings season? Turns out not that bad, about as well as people expected, a drop off in earnings. This of course is not surprising bearing in mind all the anxieties that we have had this year. Cullen Roche (I know, we have seen lots of him, but he does some good stuff) does a summary of someone else’s summary: Key Points From the Q3 Earnings Season. The only thing that worries me about this earnings season past is that the top line beats were far and few between. The bottom line beats were around 2 out of 3 S&P 500 companies that reported, which means only one thing to me. When, (and there will be a when) companies see the benefits of increased consumer activity with a return of confidence, all the cost cutting exercises would have happened already. Companies have had four years to train and become the trimmest machines in decades. I mean, they are in far better shape now than back then, in 2008. More Brad Pitt and less Vince Vaughan. Ouch. Vince is funnier though. Oh, and whilst margins did not increase substantially, they were essentially flat. That is also a good thing.

Why oh why would you think that liking this observation is a good thing: Pessimism Surges to Highest Level Since August 2011. I will tell you why. Because in exactly the same way you remember my observations about the Sell Side Indicator I wrote back then, when I saw this piece in September: “that just before the Tech bubble exploded, analysts were even more positive than ever before. The reverse is true now.” So, at the risk of sounding completely contrarian, the analyst community is useful and people feeling pessimistic are useful, but not the litmus test. Opportunities are here I suspect.

Lastly, who better than the Economist to do a job like this, covering what is “new” about the Chinese leaders: A change of style, but not of substance. I quite liked this NY Times article of the second in charge, Li Keqiang (pronounced, as per the article: lee ke chang) Liberal Background, but Limited Leeway, for a New Premier. That closing line is a bit of a hoot though: “Smart leaders will reform because they want to. Idiots will reform because they have to.” Either way it sounds like reform to me.

Crow’s nest. US futures are lower, stocks are trending lower, things feel soft and squidgy. Looking across my screens I cant see too much that would change that in the absolute short term, but stocks are looking cheaper. And that means that those with buying appetite should be putting funds to work.

Sasha Naryshkine and Byron Lotter

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