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10 March 2010 00:03

The almighty interest rate

The repo rate, asset prices, and immortality.

PORT ELIZABETH - It is common knowledge that money has a time value with money now being worth more than the same amount of money in the future. For example, any rational market participant would rather have a R1m right now than in a 100 years time...because the chances are good that they'll be dead in a 100 years time.

So, in other words, the time value of money is simply a function of our mortality.

The further in the future we look the greater the risk attached to the actual delivery of money, hence the greater the amount of money necessary to compensate for this risk. This increase in the future nominal amount of money is the discount rate and is intrinsically tied into the market interest rates once it has been adjusted for specific risk.

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03 March 2010 00:31

A Freeworld...

Why Freeworld buying Rolfes and Chemspec makes sense.

PORT ELIZABETH - Marc Ashton's post on why Abil doesn't acquire Blue got me thinking about other potential merger and acquisition (M & A) activity that could happen on the JSE. Revisiting an earlier article I wrote where I pointed out that Freeworld (JSE:FWD) could opportunistically buy up either or both Rolfes (JSE:RLF) and Chemical Specialists (JSE:CSP) I have some furthe...

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24 February 2010 00:13

Managing the cost outliers

Quality management should not only control costs, but also “one-off” costs.

PORT ELIZABETH - A common answer I receive when asking directors for greater detail regarding a drop in their company's profits is that there were certain unexpected or "one-off" costs incurred during the year: costs like theft, fire or strikes or more abstract costs like accounting impairment, fair value write-downs or goodwill write-off all negatively impacting their results.

These types of answers are often followed by a dismissive attitude with directors pointing out how the costs are one-off, won't affect future years' profits and should really be ignored from an analyst's perspective when analysing performance, growth and future viability.

Perhaps a valid point, but I have a different argument.

For example, in the case of theft, directors' obviously haven't...

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