Apple bruised, Goldman punched

Steve Jobs takes another medical leave.

Jozi, Jozi. Paul Simon sings a song that was apt for yesterday’s markets, first the tone to “Slip slidin’ away” was about perfect for the volumes. The US markets were closed and as such from Sydney to Toronto everyone sits on their hands whilst the yanks are on holiday. Another reminder if you needed one that the Yanks still rule the roost as far as the world of equities is concerned. One of those top left to bottom right days, session end at the lowest point the Jozi all share index closed at 32316, down 344 points on the day, a little over a percent. The scoreboard suggests that the sell off was completely universal with almost every single sector across the (electronic) board down dipped in red ink.

The Kumba Iron Ore stock price ended half a percent higher on the day on their quality trading statement, Richemont on the other hand closed over two and two thirds of a percent lower, as chief Rupert (the bear) cautioned on the coming quarter. Useless factoid of the day, the top twenty listed stocks on the JSE account for 68.35 percent of all the listed stocks (by my count 381 companies) and 4.235 trillion Rands worth of value out of a total of 6.196 trillion overall. The top 10 stocks account for 51.76 percent of the overall index valued at 3.2 trillion Rands.

What is also important to note is that the overall BHP Billiton market capitalisation is not measured and only the Plc share issued shares and not the Limited share issue. Combined the two are worth around 250 billion US Dollars. Or at current exchange rates around 1.5 trillion Rands. So in theory BHP Billiton could and should be around one fifth of our exchange. How is that for size and scale? As Borat would say: “You like?” And by the way, BHP Billiton continue along their merry way buying back shares.

Shareholders of Massmart gave the WalMart deal the thumbs up yesterday. The court still needs to sanction the deal, but the main thing is that shareholders voted in favour. So there you go, they being WalMart have achieved gaining 51 percent of the company. As the official release said: “A further announcement regarding the results of the Court hearing and the final important dates and times for the Scheme will be released on SENS and published in the South African press after the Court hearing.”

The official line from COSATU of course was to suggest that this deal is a bad idea: “The Coalition used the opportunity to address the Massmart Shareholders, and explain to them the implications of this deal, for workers in Massmart, the wholesale and retail sector, its supply chains and other sectors within the economy. The deal is not in the interests of the country and the national imperatives of transformation, economic growth, job creation and poverty alleviation.” Sorry, I cannot agree with the last part. Cheaper goods mean lower inflation. Inflation is the scourge of the poor. WalMart have global clout. Cheaper goods is a GOOD THING!! Not a bad thing. That is all.

The retailer’s sales continue to stream in, this time it was Foschini. Here goes another Jackie Selebi copy and paste job: “In our interim results, we indicated that trading had been encouraging and that we were cautiously optimistic regarding trading for the remainder of the year.

Christmas trading was above expectation across all divisions with sales growth for December of 22,5% and same store growth of 17,2%. Compared to the corresponding period last year, group sales for the three months October to December 2010 increased by 18,5%, whilst sales for comparable stores increased by 13,7%.

Merchandise inflation for the period averaged 1%.”

Excellent. So it seems that the low base has been elevated to a new level. The ultimate test now will be to see whether the market “has got it right”. The stock currently trades on a historic multiple of 15.4 times at 86.51 ZAR, where they closed yesterday. Analysts suggest that the company should earn over 6 ZAR a share to March 2011. And make ten percent more next year to March 2012. Don’t ask me how, but the same analysts reckon that you could see as much as a forty percent increase the year thereafter and see as much as 9.25 ZAR in earnings for the year to March 2013. And therefore just over two years out trades on an earnings multiple of around 9 time. The same analysts reckon that over the next three years you could get 10 ZAR worth of dividends. Sounds decent.

What are the risks? Many I guess, rising rates, a weaker consumer for longer, not managing the book properly. We are already in the consumer finance space with our investments in African Bank. Note that the valuations given to the furniture retailers, both Lewis and JD Group, are comfortably below their peer group, the likes of Foschini, Truworths and Woolies. The same would apply to the Ellerines division inside of African Bank.

The resignation of the Financial Director of any company is never welcome, because there are always question marks that appear, yesterday we saw that the Impala Platinum Financial Director had resigned. Dawn Earp is her name, and we regarded her well in this office, a solid performer if not a star. Bear in mind that Dave Brown was the former Financial Director and we are pretty sure that he always had a solid handle on the numbers. In the interim a fellow by the name of Francois Naude. Oh yes, and Earp left not to go to Tombstone to fight crime with her brothers, but rather to pursue other interests. I like that….never sure what it means.

SABMiller released a trading update for their third quarter this morning. Some of it seems pretty good: “Continued improvement in economic conditions in many of our emerging markets assisted our volume performance. …. We have benefited from lower costs of certain raw materials whilst continuing selectively to increase investment in brands and operations. The group’s financial performance in the quarter was in line with our expectations.” I was a bit amused by that second bit, because my long term line has always been that most of their raw material prices will tick higher. Over time. All this worry about food prices in the future, and resources being stretched does concern me, but as ever I think it is a little overcooked.

So here is the SABMiller plc Trading Update from their website. You might have to verify that you are 18, or 21, depending on where you live. In Latin America, it was OK, Peru the star performer, Colombia still bumping and grinding along as the “emergency sales tax” and poor weather has taken its toll. I wonder if that emergency sales tax will become permanent? In Europe the Poms and the Ukranians are still engaged in pub activity, some of the traditional strong markets including Russia and the Czech Republic falling quite sharply for different reasons. In Russia Vlad, I mean Dmitry slapped a tax on the beer makers, you know, to help the vodka boys out. In the Czech Republic it was the economy stupid.

In America they keep seeing declining volumes. SABMiller uses the word “testing” to describe conditions. Africa and Asia are the bright spots, In China volumes increased 16 percent, yowsers. But still, that market not quite at the size and scale we would expect yet, and India has not quite come to the fore yet. This is an interesting line: “In India volumes were lower than the prior year with significant regulatory issues continuing to constrain volumes in the key state of Andhra Pradesh. Volume growth remained solid elsewhere in India.”

To understand more about the liquor laws in Andhra Pradesh just read this crazy piece from Wiki —> “The state of Andhra Pradesh had imposed Prohibition under the Chief Ministership of N. T. Rama Rao but this was thereafter lifted. Dry days are also observed on voting days. Prohibition was also observed from 1996 to 1998 in Haryana. Prohibition has become controversial in Gujarat following a July 2009 episode in which widespread poisoning resulted from alcohol that had been sold illegally.” Wow. The stock is also wowing this morning, up nearly three percent.

Tunisa. A North African country with close ties to the Mediterranean countries on the other side of the body of water, mostly France really. My mother was born in Algeria after the Second World War and was brought up in the area until moving to France around Algerian independence. That is another story, but neighbouring Algeria and nearby Egypt are apparently quaking in their boots, because the very same riots in the streets could take on the same proportions in the region. Either way, know that unemployment and rising prices are not exactly favourable for any government. And I guess that our government is mindful of the consequences of this toxic cocktail. I guess the biggest difference is that we do not have an oppressive government.

Byron’s street beats. Byron’s daily missives, here goes:

He has a Nobel Prize in economics and is a former chief economist at the World Bank. Joseph Stiglitz is here in South Africa and yesterday played an important role as a contributor to Ebrahim Patel’s advisory panel in a lecture in Pretoria. I have a few criticisms of what he had to say, and you may ask who am I to criticise someone with such high credentials? Basically it’s my opinion piece and I give myself full permission.

Stiglitz is an expert on development economics but is mainly here to talk about green technology and how it can benefit our economy and create jobs. But before he got onto the environment he mentioned a few policies he would recommend that would have made the labour unions rather excited. He said that managing ones currency was the right way to go about things and that weakening a currency is a sustainable way to create jobs.

Another issue he brought up was the size of the financial sector as a percentage of US GDP. He is obviously pro manufacture and anti-banker bonuses, stating that the financial sector contributing 40% to US GDP was made up. Paul was not impressed by this statement which lacked any proof or substantial reasoning.

My criticism stems from his environmental policies which relied more on capitalist based incentives and contradicted his earlier leftist advisory comments. Now, these policies I do agree with which includes taxing carbon emissions and creating incentives which will encourage innovation in creating sustainable energy alternatives. He also mentioned sanctions on countries who do not comply with certain environmental rules just like sanctions are imposed to countries that do not follow certain political standards.

Although such sanctions may not be entirely business friendly, excessive floods and rising sea levels are not great for business either. So yes, the man is clever and knows what he is talking about but I feel that dealing with unemployment and economic growth should use the same incentive policies and his earlier statements about currency control rather tainted my opinion of him.

New York, New York. Closed markets in the Big Apple. Anxiety no doubt will return to the Apple stock today as chief Steve Jobs announces that he will take another leave of absence to concentrate on his health. This is the third time that this has happened. The new guy is Tim Cook. Or should we say the old guy, Cook has been at Apple since 1998. Cook is 50 years old, and worked at both Compaq and HP. Don’t fret Apple shareholders, as this San Francisco Chronicle article points out, Cook has been running the company for the last two years anyhow —> Get well, Jobs, but time for Cook.

Like them, we wish Jobs well, but something tells me that this might be “it”, there might not be the same comeback. I hope that I am completely wrong. As the school war-cry goes, “we have Steve Jobs, on our team, we have Steve Jobs on our team, we got the best team in the world.” I guess that all you have to know is that Apple’s stock was down nearly eight percent in Frankfurt yesterday. So, a company that used to be 320 billion Dollar market cap will slip below that on this suggestion.

AT THE SAME time as this announcement, we are anticipating earnings from Apple today. Briefing.com suggests that the quarter consensus view is for 5.39 Dollars worth of earnings, annualise that and you get nearly 22 Dollars rolling. So expect the NASDAQ futures to be pounded more later in the day, note that the Apple earnings are after market. Perhaps the prospect of an Apple beat will offset the losses somewhat, I would think that the stock in New York will end anywhere between three and four percent down in normal trade. We shall see.

Paul summed it up and said it was a bit of an embarrassing situation, what he is referring to is the Facebook sale being run by Goldman Sachs. It is. Basically US participants cannot take part because of the worry that the SEC could strike. And the suggestion is that the media hyped that worry. The WSJ in this article Goldman Limits Facebook Offering suggests that this is a punch in the face for Goldman. And could impact on their clients perception of them. Confusing and because of potential future lawsuits, because of the SEC hovering around. Hey, perhaps this will push a listing even further forward. And about the nationality of the shareholders, who cares, right?

Silk road, riced and diced. News this morning suggests that a Peoples Bank of China official has suggested that a rate hike is imminent. And we should or could see one in the first quarter. This comes fresh on the news that the fourth hike in the triple R, bank reserve ratios over the last two months took place on Friday. Sending Chinese shares three percent lower yesterday. Hey, they are trying to put a lid on matters. All I know is that the PBOC seemingly are on top of things and have better “control” of matters.

Commodity corner. The copper price last ticked through at 4.40 US Dollars per pound, the platinum price is last at 1818 Dollars per fine ounce. The gold price is higher at 1367 Dollars per fine ounce. The oil price is slightly higher at 91.62 Dollars per barrel. The Rand has strengthened significantly, last at 6.83 to the US Dollar, 10.94 to the Pound Sterling and 9.17 to the Euro.

Up periscope We have started firmly here and should continue through the day. US futures are lower as Apple dominates their world, that could impact ours a little later. There is a German economic sentiment number that could sway us this way or another a little later. We shall see.

*Sasha Naryshkine is from Vestact Asset Management

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