10 December 2018 08:07:50 PM

Looking Into the Eye of the Tiger

- 2017-11-30 03:20:30 PM

The biggest news out yesterday for the investor community globally was that Google Finance has received a facelift. The new version looks clean but seems to have fewer features. Onto more serious matters, 'FANG' stocks had their worst day in 22-months yesterday. A few explanations doing the rounds include, sector rotation from tech into banks and the US senate talking about only dropping the corporate tax rate to 21% or 22% in order to make the bill easier to pass. Not good news for corporate bottom lines.

Another problem with only cutting the corporate tax rate to 22% is that it may split the GOP, making it even harder to pass the bill. Trump, 'Master of the Deal' knows that you lead with a low number, making it the reference point for the rest of the negotiations. In the case of tax cuts, he campaigned on a corporate tax rate of 15%, then put a tax bill proposal through at 20% and will probably get the bill passed with a corporate tax rate somewhere between 20% and 25%. Good going if you consider that the current corporate tax rate is 35%.

Market Scorecard. The more tech-heavy Nasdaq and S&P 500 were under pressure, the Dow though, who has Goldman as a high weighting faired better. The Dow was up 0.44%, the S&P 500 was down 0.04%, the Nasdaq was down 1.27% and the All-share was up 0.56%.

 

Company corner

Michael's Musings

On Monday Tiger Brands released their full-year numbers. The share price originally sold off over 3%, but over the last two days it has recovered and then some. Tiger Brands continued the recent theme from corporate South Africa of impairing assets from acquisitions. In Tiger Brand's case, it is a R560 million impairment which is not as significant as we saw from the likes of Brait and Famous Brands. In this case, they had an impairment of R300 million on their Davita asset, which they bought for R1.35 billion in 2011. Then a R250 million impairment on their 49% stake in UAC Foods, a JV with listed UAC Nigeria.

Here are the numbers, Revenue is up 2% to R31.3 billion, HEPS are higher by 2%, operating margin grew by 110 basis points to 14.8% and volumes dropped by 3%. Higher margins with lower volumes which results in flat revenues is a good place to be in general.

All their divisions grew margins except their 'Exports and International' unit, which was hurt by a strong Rand and challenging trading environment due to capital constraints in certain countries. Which is exactly the same thing Shoprite and Famous Brands said about their Rest of Africa operations.

We don't think that Tiger Brands will shoot the lights out in the short term, we would need a big uptick in local GDP growth. If there is any sign that local consumer confidence improves, expect a good move higher from the stock. They are a defensive holding for now, who pay a reasonable dividend and will continue to provide families with familiar brands for generations to come. Happy to hold. 

One thing, from Paul

I had a long chat to an interesting client yesterday, who said that he hated "being wrong" when buying shares. In other words, he did not like to see a recently acquired holding slip lower.

I know what he means, but I tried to argue that since none of us control the movement of share prices, and the future is unknowable, it is not really anyone's fault when that happens. Sometimes it goes that way for while. Most often, the quality shines through and patience is rewarded. Occasionally we just get it wrong and have to exit with a loss.

If its any consolation, all of the world's best investors have these problems too, and the sums of money involved can be very large! Warren Buffett's Berkshire Hathaway Inc has been selling off pieces of a gargantuan stake in IBM. In a recent regulatory filing, they noted that they had cut their stake to $5.37 billion from $8.32 billion. IBM stock has fallen by 54 percent since the end of 2016, when Berkshire owned roughly 81 million shares for which it paid about $13.8 billion.

Eina!

Buffett's Berkshire slashes IBM stake, adds to Apple

Home again, home again, jiggety-jog. Due to the global tech sell off, Naspers is down 3% today dragging the rest of the market down with it. Data out this morning showed that Chinese manufacturing is looking stronger than expected. Then later today we have EU CPI, which is expected to remain well below the targeted 2%. This evening our time initial jobless claims from the US.

Article by Team Vestact

 
 

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