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This is the Sharenet company blog where we will bring you the latest news and events on the go at Sharenet, together with tips on using our site and our products.

Top Rated

    Is your advisor using appropriate selection criteria?

    Prospective clients often express some doubt as to why we sometimes select certain funds for inclusion into their portfolio, when these funds have perhaps just had a poor 12 month performance. Unfortunately a funds ranking over a period of 12 or 24 months is a very poor predictor of its ensuing return. Many times it’s just the opposite.

    Often however fund performance and relative ranking is some of the only information that many investors have, which tends to over emphasise its importance.

    Again many funds use recent top performance as a wonderful excuse to start marketing, again further entrenching and prioritising recent performance as a winning selection criterion.

    A study by David Finstad 3 years back looked at 17 factors to try and ascertain which were significant in determining performance. In the study 17 factors were studied, but 4 were found to be statistical significant in explaining an investment managers performance. At Seed Investment Consultants, we have adopted these criteria (amongst others), because of their greater predictability of future performance

    o Firstly a fund manager should ideally adopt a bottom up value driven approach to investing. While there are many themes on this strategy, a value bias has shown time and time to produce longer term superior results. This is in contrast to a top down approach.

    o Firms that have a high degree of employee and fund manager ownership are more likely to produce superior results.

    o Lower staff turnover tends to go hand in hand with high degree of employee ownership, which tends to produce superior results. Conversely firms with higher levels of turnover produced inferior results.

    o Beyond the minimum required for adequate diversification, firms with portfolios that became too diversified produced inferior results. Often it’s the larger more institutional type firms that have bigger portfolios in terms of number of counters.

    If your advisor is advising a range of funds, it’s very important to ask some questions on the selection criteria used. Past performance, and high marketing ads cannot be used as quality criteria. They just don’t automatically translate into superior performance.

    You will find a fund managers volatility and performance will go up with market volatility but in times like this, as a longer term investor you also want selection criteria that has a higher predictability of the outcome.

    Food for thought?

    Have a great longer weekend

    Kind regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-30, 17:07:01, by ian Email , Leave a comment

    US Interest Rate Decision Today

    LOCAL MARKETS

    The JSE is trading flat in quiet trade as volumes remain thin ahead of the long weekend. "We will see how the market reacts to the Fed's announcement on interest rates later today but I don't see the situation changing too much this week," remarked a Cape Town based trader.

    The rand is range bound in uneventful trade. The local unit is trading at around R7.61/$ and analysts expect it to remain between R7.52-R7.67/$ for the rest of the day.

    OVERSEAS MARKETS

    Corporate earnings and the Fed's interest rate decision has left stock futures range bound today. Investors expect the Fed to cut rates and also await a GDP reading.

    The Nikkei ended 0.3% lower today as investors exercised caution ahead of the US interest rate decision today.

    The FTSE is trading lower today on the back of losses in the mining sector. Other European markets are trading higher thanks to some positive earnings news.

    COMPANY NEWS

    Sovereign Foods have reported a decrease in headline earnings per share for the year from 207.2 cents to 155 cents. Revenue increased by 27% to R581.2 million. Operating profit, however, fell from R108 million to R87.5 million. No dividend was declared as the cash is being used to expand the group's capacity.

    Nationwide Airlines has ceased operations until further notice. Chief executive Vernon Bricknell cited cash flow as the reason for this announcement.

    The Department of Minerals & Energy has approved the conversion into new order rights of all the Anglo American group's old-order mining rights.

    Permalink2008-04-30, 13:44:56, by Marika Email , Leave a comment

    Mars to chew on Wrigley

    I came into the office this morning to be greeted by the news that WM. Wrigley Jr. Co. is going to be taken over by Mars Inc. with a deal being finalised in the early hours of Monday (28 April), US time. For a large deal that values Wrigley at around $23bn (approximately R175bn) the time to complete negotiations happened extremely quickly. Talks first started on 11 April, and the deal is expected to be completed in 6 to 12 months should the Federal Trade Commission Approve.

    Mars is 100% owned by the Mars family, and is an unlisted company. Mr Wrigley, chairman of Wrigley has indicated that the pressures and requirements of being a public company hurt competitiveness, and implied that being privately owned would help performance. Warren Buffett’s Berkshire Hathaway is party to the deal, taking a minor stake in Wrigley of approximately $6.5bn. Mars will acquire Wrigley, and the Wrigley business will become a separate stand alone subsidiary with Berkshire as a shareholder.

    Here we have two well respected confectionary brands coming together with the backing of the world’s most successful investor. This, along with the fact that both companies have similar cultures, bodes well for a successful marriage. Mars and Wrigley products are largely complementary, and the major reason given for the merger is so that greater penetration into developing countries like Russia, India, and China can be obtained. Both companies are traditional family owned businesses, Mars started in 1911 when Frank C. Mars started making candy in his home, and Wrigley started in 1891, with William Wrigley Jr. initially selling soap and baking powder before turning to chewing gum full time in 1893 and listing in 1923.

    Warren Buffett is known as a value investor so the fact that the price for Wrigley is 32 times 2008 expected earnings comes as a bit of a surprise. Buffett generally targets companies trading at low PE multiples, but he also favours companies that have excellent brands in stable industries (think Coke), which don’t require large capital injections (remember See’s Candy that Ian wrote about at the beginning of the month). Wrigley fits the bill on the latter requirements; it is just price that is perhaps a little high. The price negotiated was a 28% premium to Wrigley’s closing price and shows just how tight the negotiations were kept.

    With JP Morgan and Goldman Sachs assisting with financing the deal it is clear that the banks that haven’t been gutted by the credit crisis are in a position to move in and do some deals. You can be sure that they won’t be lending to just anyone, but when quality clients (Mars) come to the table to purchase quality companies (Wrigley), those companies that do have funds (JP Morgan and Goldman Sachs) will be able to assist.

    News of the deal has US analysts predicting that Cadbury will restart talks with Hershey over a potential merger. There have been talks between Cadbury and Hershey in the past, but nothing has come from these talks as the Hershey Trust wants to avoid losing control of the company.

    Mars’ acquisition of Wrigley is undeniably a large transaction, especially given the current financial market turmoil that we find ourselves in. Time will tell whether it is a good investment, but with Mars being a privately held company there won’t be as much public scrutiny of the company.

    Have a good short week! Hopefully you can take some time of to relax, and catch up on those tasks that sometimes get forgotten.

    Kind regards,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-29, 15:49:48, by Mike Email , Leave a comment

    JSE Quiet in Public Holiday Trade

    LOCAL MARKETS

    The JSE is trading slightly lower today in quiet trade. It should be an uneventful week as most investors have taken Tuesday and Wednesday off in a week full of public holidays.

    The rand is firm, trading at around R7.56/$. Strong global sentiment and carry trade has boosted the local unit. It should remain between R7.49-R7.60/$ for the rest of the day.

    OVERSEAS MARKETS

    Wall Street is set to open weaker today. Investors are nervous ahead of the start of a two-day policy meeting by the Federal Reserve. They are expected to lower interest rates when they release their statement on Wednesday.

    The FTSE is trading higher today on the back of better-than-expected results released by BP and Shell. Other European markets are trading lower as bank earnings disappointed investors.

    Asian markets closed mixed today. Positive results from Chinese banks lifted Hong Kong and Shanghai, while markets in Japan were closed for a public holiday.

    COMPANY NEWS

    Aquarius Platinum Ltd have completed the repurchase of Impala Platinum's stake for a total consideration of $504.9 million.

    Anglo American PLC has sold their entire stake in China Shenhua Energy Co. for $707 million. The size of this sale represents 4.6% of Shenhua's H shares or 0.78% of their entire share capital.

    Yang Kaisheng has been appointed as a non-executive director and deputy chairperson of Standard Bank. He is currently the president and vice chairperson of the Industrial and Commercial Bank of China who hold a 20% shareholder stake in the local bank.

    Permalink2008-04-29, 15:35:12, by Marika Email , Leave a comment

    Making Decisions in Times of Uncertainty

    I have been providing investment consulting advice to private clients for over 5 years and following the local and global markets since the early 1990’s. During all these years I have never known a time when the 2- 3 year outlook was better than hazy. Very seldom has the foreseeable outlook had any degree of certainty.

    But I have come across many investors who have preferred to wait for “greater clarity”.

    You may be in a position where you need to make some investment decisions, but have some reservations, “because the outlook is not too clear at the moment”.

    We all know that investing is easier in hindsight, but many suffer from what is known as hindsight bias, i.e. an inclination to see events that have occurred as more predictable than they were before they took place.

    So with the benefit of hindsight, many investors make the mistake of thinking that in times past, the outlook was more certain.

    You may be an investor that needs to make certain investment decisions today. Perhaps you have recently or are about to retired and concerned about the uncertainty and the impact on your portfolio. You look at history and see what unfolded – then you take one look at today’s issues – global credit crisis, Zimbabwe issues, inflation trending up, share prices falling, interest rates rising, the oil price at new highs, etc and say:

    “I will just wait until there is more clarity on the outlook.”

    It’s not going to happen.

    My advice is to rather concentrate on the elements that you can control and not on the issues that you can’t control.

    Some of the aspects that you can control include:

    o Establishing the return required to meet your long term objectives.
    o Looking at history to determine returns provided from different asset classes.
    o Setting a long term strategic asset allocation plan that has a high probability of meeting your long term return objective.
    o Establishing the current valuations of assets to determine which asset classes to overweight and which to underweight in your portfolio.
    o Ongoing monitoring.

    By emphasising those issues that you can control, you are less likely to become overwhelmed by global bad news and more likely to achieve loner term investment goals.

    Have a wonderful long weekend.

    Kind regards,

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-25, 17:14:20, by Mike Email , Leave a comment

    Miners Pull JSE Down

    LOCAL MARKETS

    The JSE is flat today, juggling firm overseas markets and weaker precious metal prices. Gold is trading below the $900/oz level which is affecting mining stocks.

    The rand is range bound, trading at around R7.66/$. The local unit is performing better against the euro which is now below the R12 level.

    OVERSEAS MARKETS

    Wall Street is set to open firmer today thanks to a strengthening dollar and a stronger close yesterday. Investors will be looking ahead at a report on consumer sentiment due at 10am.

    European markets are trading higher today, boosted by better-than-expected first quarter profits from Ericcson.

    Financial markets spurred Japanese markets to a higher close today. The Nikkei ended up by 1.7%, the Shanghai Composite index climbed by 0.3% and the Hang Seng fell by 0.2%.

    COMPANY NEWS

    Allied Technologies have reported a 23% increase in full-year headline earnings per share, boosted by their cellular service provider unit. Group revenue rose by 22% to R8.2 billion and operating profit grew by 17% to R664 million. The group expects more growth this year.

    Imperial Holdings has received a formal offer of R2.08 per share for their tourism services group Tourvest. This values the company at R1.7 billion.

    Maria Ramos has turned down the CEO post at Vodacom. Currently the chief executive of SA's logistics and transport group Transnet, Ramos has a contract with Transnet till the end of October.

    Permalink2008-04-25, 13:32:56, by Marika Email , Leave a comment

    outperfoming an index

    I came across an extensive study done by well known US investment academic Jeremy Siegel together with Jeremy Schwartz. Although done in 2004 it looks at one of the oldest investable indices, the S&P500, in a report called, “The Long term returns on the original S&P500 firms.”

    The research looked at index tacking from a slightly different aspect, i.e. has the performance of the original firms outperformed the returns on the continually updated S&P500 index.

    The S&P500 was originally compiled in March 1957 and remains the most widely used benchmark for measuring large capitalisation shares in the US. The index is updated regularly with an average of 20 new additions each year, while dropping an equal number. The idea is that new companies that move up the rankings of certain criteria, typically market value, earnings and liquidity are included, while poorer performers are dropped.

    So since formation more than 900 companies have been added and the same number removed from the index as the composition of the index is continually updated.

    The rationale is essentially that an updated index of companies meeting certain criteria will outperform the more staid older companies. In certain instances this is the case as names such as Union Carbide and Eastman Kodak were replaced with Intel and Wal-Mart etc.

    However the conclusion on the research was that the buy and hold of the original 500 would have outperformed the continually updated S&P500 index. The main reason was that the in most cases the new companies added to the index over time, did not outperform their replacements.

    The research took into account takeovers, splits, delisting etc by forming 3 portfolios. In the survivors portfolio, 125 of the original companies have remained intact (94 of which were still in the index in 2004), with 26 still traded but not in the index.

    The research included taking into account companies that were taken over, spun off, etc, placing them into portfolios to get a composite picture of the performance of the original 500.

    o The annual compounded return on the S&P500 index from 1 March 1957 to Dec 2003 was 10,85%.

    o The return on the original composite portfolio came in at 11,4% assuming an original weighting to market value, or 12,14% assuming an original equal weighting.

    It may not seem a lot, but the conclusion is that the original 500 firms selected by Standard and Poor in 1957 on average outperformed the 900 new companies added over the almost 50 year period.

    From these results I note 2 aspects that point to a value bias beating a growth bias.

    o Firstly pressure to continually add high market value shares to the index, which have a higher price relative to fundamentals, leads to subsequent underperformance.

    o Secondly the fact that the equal weighting the original portfolio produced a superior result. i.e. when constructing a portfolio don’t give the same weight to each share that an index does.

    These are all important aspects which we consider when looking at how managers firstly decide which shares should be included into a portfolio, and then secondly how they should be weighted.

    When constructing portfolios for clients we avoid managers that merely produce a portfolio by tinkering with the weights of say the Top 40 index.

    We try and assess the extent of portfolio turnover.

    I hope that this gives some food for thought.

    Kind regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-24, 17:13:48, by ian Email , Leave a comment

    Interest Rate Hike Inevitable

    LOCAL MARKETS

    The JSE is trading lower today as investors digest poor producer price inflation and weak Asian markets.

    South Africa's Producer Price Index rose by 11.8% year-on-year in March, compared to the 11.2% reported in February. This does not bode well for consumers as another rate hike in June seems inevitable.

    The rand is slightly weaker on the back of weak PPI data. The local unit is trading at around R7.77/$ and should remain in range despite today's performance.

    OVERSEAS MARKETS

    Mixed corporate results has resulted in a slightly lower opening for Wall Street today. Investors are awaiting some economic reports, including one on unemployment.

    European markets are trading lower today, with the FTSE trading below 6000 points as investors grow nervous over the UK housing market.

    Most Asian markets closed lower today despite a 9.3% higher close on the Shanghai Composite Index. This rally about after Beijing cut taxes on mainland share trading. The Hang Seng closed up by 1.5% - a 3 month high, but the Nikkei fell by 0.3%.

    COMPANY NEWS

    Dimension Data has acquired a 51% stake in Data Processing Systems, a United Arab Emirates based IT systems integrator, for an undisclosed sum. This marks the launch of their offices in the UAE.

    Aquarius Platinum has reported a 59% increase in third-quarter net profit to $90.8 million as high prices outweighed weaker production. Fourth-quarter output is also expected to improve.

    New Clicks have reported a 25.8% increase in first-half diluted headline earnings per share, largely as a result of health and beauty sales. They expect full-year diluted headline eps to the end of August to rise between 20% and 30%.

    Permalink2008-04-24, 14:57:38, by Marika Email , Leave a comment

    Pioneer Listing on the JSE

    Tuesday saw the listing of Pioneer Food Group Ltd (JSE Code: PFG).

    Pioneer has, for the last few years, been trading in the Over the Counter (OTC) market. OTC trade of shares is generally seen as less efficient than trading on a regulated exchange, because regulations prohibit many institutions from investing in OTC shares, and because the OTC market requires a platform for each share, the process of buying and selling across companies becomes more onerous. Fewer participants equates to less liquidity, and it is for this reason that these shares typically trade at a discount to their listed equivalents.

    There are some advantages to the OTC market in that the share price won’t be as volatile as its listed counterpart because the investors generally have a longer time horizon (there is a larger liquidity premium which discourages short term traders). Also the costs of listing are quite high, and a company is able to save on these if they trade over the counter.

    Well, Pioneer finally took the plunge after threatening for a while, and listed on the JSE. In recent times listings on the JSE have dried up, and have generally been small companies listing on the Alt-X. It is therefore quite refreshing to have a company with a market cap of over R6bn listing. The company forms part of the Food Processors index along with A-V-I (Bakers, Ciro, Lacoste, Jimmy Choo, Gant, and many others), Illovo, Tigerbrands (All Gold, Beacon, Fatti’s & Moni’s, Myprodol, Panado, Oros, Rattex, etc, etc), and Tongaat Hulett. Pioneer, with its own stable of Sasko, Ceres, ProNutro, Bovril, Pepsi, Liqui Fruit, etc, commands 10.4% of the sector, behind Tigerbrands (43.2%), Illovo (20.7%), and Tongaat (16.5%), but ahead of A-V-I (9.2%).

    Part of the reason for the Pioneer listing is that they don’t want to trade at a discount to their peers (by trading OTC), and also that they require a capital injection. The company have announced a rights issue at R25 a share. They are hoping to raise R500 million which they will use for expansion. Some of the major projects in the pipeline include a new Weet-Bix plant to increase capacity, increasing bottling capacity mainly in the Western Cape to cater for the significant growth experienced by Pepsi, a new bakery in KZN, and the establishment of an additional broiler farm.

    The share price has had a tough first few days on the local bourse, but this is often the case with new listings. The new listing’s share price is generally fairly volatile at first as participants decide on whether they want to own the share or not, and what fair value is. After a while the price tends to settle down a bit, and this is what I expect to see in the weeks to come.

    We’ll see if Pioneer is still around on the JSE in 40 years. It might then be honoured by the JSE.

    Kind regards,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-23, 16:11:28, by Mike Email , Leave a comment

    Poor Inflation Data

    LOCAL MARKETS

    The JSE is trading firmer today on the back of strong resource stocks but bank and financial stocks are dampening any significant gains.

    The consumer inflation (CPIX) rate has reached double figures for the first time since 2003 with a rise to 10.1% in March after the 9.4% reached in February. This has renewed fears that interest rates will be hiked in June again.

    The rand is firm thanks to a re-injection of foreign investment and a strong euro. The local unit is trading at around R7.61/$ and should reach R7.56/$ once it breaks its support level.

    OVERSEAS MARKETS

    Positive results released by Yahoo is set to propel stocks to open higher on Wall Street today. Investors are eyeing the release of a slew of earnings reports, including those of Delta, UPS and Apple.

    European markets are trading lower today as gains in pharmaceuticals and steelmakers are hampered by losses in the banking sector.

    Asian markets closed firmer today. Resource stocks were bolstered by higher oil and commodity prices. The Shanghai Composite Index rallied to close higher by 4.1%. The Hang Seng closed up by 1.4% and the Nikkei closed 0.2% higher.

    COMPANY NEWS

    Lonmin has cut their full-year sales target from 860 000 to 775 000 ounces due to the effect of the recent power cuts.

    Absa Private Bank has appointed Hlengani Mathebula as their new managing executive with immediate effect. He has been serving as their acting-head for the past few months and has 13 years of experience in the banking sector.

    Cashbuild, the largest retailer of building materials and associated products in Southern Africa, have reported a 19% increase in third quarter revenue to March 2008.

    Permalink2008-04-23, 14:20:31, by Marika Email , Leave a comment

    Investment Survival Rate

    Business Day carried a piece on the front page today, headed, “Golden oldies give JSE vintage edge”. It discusses the function that the JSE had in honour of companies listed for 40 years or more. There are over 400 companies currently listed on the market of which 19 have been listed for 40 years or more. But as the article points out, among these 19 are some of the biggest names in SA business.

    If you take a bit of time to consider the scenario, you will probably note that 19 is actually not that big a number and you would be correct. Remember the JSE itself is just over 120 years old, having started in the gold rush. It has one of the oldest histories of bourses around the world.

    Then you must consider that while 400 is the current number of listed companies, many many more have come to the market over time and therefore by implication you would be correct in assuming that many companies have left, been liquidated, delisted or been consolidated into other listed companies.

    Suddenly 19 is actually a very small survival rate.

    While 19 may be strictly accurate, it is not exactly the position, if one takes into account the fact that some existing large companies, such as Anglo American have a long history with the JSE, but through corporate restructuring moved their primary domicile and listing to the UK, with the listing on the JSE now being a secondary listing.

    Remgo is another company not among the 19 golden oldies. Its original guise, Rembrandt Ltd was started in 1941, but again through restructuring the current Remgro listed in 2000.

    Despite the anomalies, the list includes some interesting names such as Liberty Group, DRD Gold (113 years old), African Oxygen (Afrox), AECI, Caxton etc.

    Armed with this information that only 19 companies have survived 40 years or more out of many thousands listed over the years, it’s not difficult to see that investing does require a large dose of ongoing due diligence. At a minimum this requires keeping track with ongoing corporate activity.

    The actual survival rate then also paints a very good picture as to what can be expected going into the future. I.e. over a long period of time, survival rate of companies as listed investment vehicle is perhaps far lower than what it appears at face value.

    Naturally an investor would assume that the survival rate would be higher for larger companies. For this reason, a common buy and hold strategy is to invest into the top 40 companies and hold these on the presupposition that because they have already achieved a certain size, giving them entrance into an index, this should ensure sustainability long into the future.

    From an investment perspective it’s not necessarily the soundest strategy - from a company sustainability perspective there is a large dose of truth that the majority of these companies will survive. However given the historical perspective, index tracking or no index tracking, investors need to be extremely diligent in the ongoing monitoring of their investments.

    Successful investing

    Sincerely

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-22, 18:25:09, by ian Email , Leave a comment

    Lacklustre JSE

    LOCAL MARKETS

    The JSE is trading flat, largely looking for direction from Wall Street later today. Investors are staying on the sidelines as there is both local and international data due out later this week.

    The rand is firmer as demand for the local unit comes in from UK banks. The rand should trade between R7.65-R7.78/$ for the rest of the day.

    OVERSEAS MARKETS

    Wall Street is set for a mixed opening today. A dreary outlook by Texas Instruments have disappointed investors who also await earnings reports from AT&T and McDonald's.

    Oil hit an all-time high of $118.05/barrel before retreating to $117.60.

    European markets are trading lower on the back of losses in the banking sector and mixed corporate earnings news.

    Asian markets closed lower today. The Shanghai Composite Index fell by more than 3% to end below the level that marks its peak in October last year.

    COMPANY NEWS

    Harmony Gold and Australasia's largest gold company Newcrest Mining have signed an agreement that will allow Newcrest to earn a 50% interest in Harmony's Papua New Guinea gold assets.

    Pick 'n Pay have reported a 10,1% increase in headline earnings per share. Revenue rose by 15,4% to R47.5 million. The group expects "acceptable" growth in 2009.

    Highveld Steel & Vanadium have agreed to sell some of their interests to Vanchem Vanadium Products for $160 million.

    Permalink2008-04-22, 16:03:09, by Marika Email , Leave a comment

    A move to a more defensive position

    In times of increased volatility there is a definite move to more defensive shares. Food retailers, especially cash operators are classic defensive businesses, even in time of high food inflation. Some have proved to be excellent businesses despite the high inflation and market uncertainty.

    The 3 large retailers in the food and drug retail sector are Pick n Pay, (we will ignore Pikwik, which is the major shareholder in Pick n Pay), Shoprite and Spar.

    Competitors include Woolies, which is in the general retailers sector.

    If I look at performance of these 4 main food retailers for the period April 2006 to date, we note the following:

    o Spar and Shoprite have outperformed PicknPay and Woolies.
    o If I set the base at 100 in April 2006, Shoprite is up 60% at 160 while Woolies is down 25% at 75.

    Shoprite gained 5,3% to 4425c today. It trades on an historical PE of 17,7 times, but to June 2009 this is expected to drop to 15,4 times. It looks expensive, but the business is doing very well and indeed in areas outside of South Africa, exceptionally well. At the interim stage to December, profits rose 42,2% to just over R1 billion.

    Diluted headline earnings rose 55,1% to 128,4c and the dividend was increased 40% to 49c.

    The company has a market cap of R24 billion. In addition to the original and main brand, Shoprite, which caters for the mass market across almost 300 stores in SA and 69 outside of borders, it also owns the following brands, which draw customers from various segments:

    o Checkers, which it acquired in 1991, catering to a more affluent shopper, with lifestyle departments of wine, cheeses etc.

    o Checkers Hyper and House and Home retailers.

    o Shoprite U Save, which is a 700 basic line no frills store ideally suited for expansion into Africa,

    o OK Furniture, OK franchise and OK Power Express.

    Allan Gray clients own 9,1% of the company, Public Investment Corporation 8,64%, Titan Nominees (which is Christo Wiese’s company) owns 8,2%, and Sanlam 7,09%.

    Margin expansion saw turnover of R23,3 billion up 21,7% translate into trading profit up 42,2% to R1 billion, i.e. a trading margin of 4,4%. This is a critical number for a business such as retailing, where due to large sales volumes and incremental change in margin has a HUGE impact on the bottom line.

    The margin has increased from 3,4% in 2005 to 3,8% in 2007 to the current 4,4%.

    The big growth in turnover and trading profit came from non RSA supermarkets with an increase in 32,4% and >100% respectively. Furniture margins on the other hand fell back 19% on a poor increase in sales of just 3,2%.

    Franchise is another growth area but off a lower base.

    Total owned and franchised stores at the end of December came in at 1220.

    With oil price at new highs, inflation running at 10%, interest at 15%, consumers are under pressure. At the food level there is trading down in buying habits – Shoprite is ideally placed.

    It’s an excellent success story, defensive, but with strong growth elements into the rest of Africa.

    Kind regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-21, 19:25:23, by ian Email , Leave a comment

    Oil Hits $117.40/barrel

    LOCAL MARKETS

    The JSE is trading slightly firmer today, in line with other world markets. However, a stronger rand and lower gold prices have tempered any significant gains.

    The rand is firm and range bound in positive trade. Foreign investors are coming back into our market as they believe the worst of the credit crunch is over. The local unit is trading at around R7.77/$. Investors will be keeping an eye on local consumer and producer inflation date this week.

    OVERSEAS MARKETS

    Wall Street is set for a slightly lower opening today as investors digest weaker-than-expected results released by the Bank of America. Oil has reached a record high of $117.40/barrel after news of an attack on a Japanese oil tanker.

    The FTSE is flat today after the announcement by the Bank of England to swop mortgage-backed securities for gilts worth £50bn. Other European markets are trading lower on the back of weak earnings news from Nestle and Schneider Electronics.

    A positive ending on Wall Street on Friday has led to stronger Asian markets today. The Nikkei ended 1.6% higher, the Shanghai Composite index closed up by 0.7% and the Hang Seng ended up by 2.2%.

    COMPANY NEWS

    Adcorp Staffing Solutions is set to acquire Staff U Need and Dithomo Labour Services as going concerns for an aggregate cash consideration of R210 million.

    Keaton Energy is set to list on the JSE tomorrow and is likely to trade above its share placement price of R10 as market interest in junior coal companies grows.

    Aluminium semi-fabricator Hulamin expects to start seeing the benefits of their R950 million project to boost production of rolled products by 20% to 250 000 tons from next year.

    Permalink2008-04-21, 14:06:10, by Marika Email , Leave a comment

    Lumpy or smooth

    It’s Buffet who says “I'd rather have a lumpy 15% return on capital, than a smooth 12%." As the world’s best investor he understands the impact of compounding higher numbers and hence has a high risk portfolio. The great paradox with investments and risk perception is that when risk is perceived to be low it’s often high. And vice versa, when the perception of risk is at its highest, investment risk is low.

    In a difficult past 12 months where the return on the JSE came in at just 11,1% and where many investors may have received far less than this due to the positioning of their portfolio we tend to hear the words, “I could have achieved a higher return just by sitting in cash, why should I be exposed to the market.”

    As returns on cash improved with interest rates climbing and returns on equities declining sharply – depending on where you measure from – many investors have questioned why they are even exposed to risky assets.

    It’s a very good question – why take the risk when you can get the same return for virtually no risk.

    This is perhaps also especially relevant for banking and other financial shares – putting your capital in the bank would have returned perhaps 10%, but putting your funds in the Financial 15 index would have gone backwards by 17,6%.

    It’s a big difference and not something than can be simply brushed aside.

    But as we all know hindsight is an exact science.

    The answer lies in the fact that over time an owner of a riskier asset is compensated for the additional risk. It’s what is known as the equity risk premium. Over time equities have more than adequately compensated owners for the additional risk of being ordinary as opposed to preferential shareholders.

    Compound up the additional return over many years it’s not even a race – owners of real assets win hands done. An investor with R1000 in 1960 had a choice – invest into fixed deposits and keep reinvesting the interest – i.e. compound the returns. According to JP Morgan numbers his final value at the end of 2006 would be R785 00.

    Had our more astute investor invested into the JSE All Share index his final balance would be R2,135m. It’s a BIG difference.

    However long run numbers mask the pain investors feel over any shorter period. And by shorter periods I mean 2 – 3 years – not 2 months.

    On a rolling 5 year basis an investment into equities has since 1960 in South Africa at least, not given less than 0% compounded return. The lowest nominal return was 4,8% compounded from 1994 – 1998.

    In real terms however of any 5 year period, equities have occasionally given negative returns. Over the high inflation period of 1973 – 1978 (6 years) equities produced a negative real return (i.e. after inflation).

    For investors that cannot remain fully invested into the equity market through its ups and downs, there is therefore always going to be a trade-off. I.e. accept slightly lower long term returns for not being fully exposed, in order to ensure slightly less volatility.

    We don’t necessarily advocate a full exposure at all times, because as history indicates in periods of high inflation and when markets have come off a high base, there may well be an ensuing period of poor returns. At all times, it’s a matter of assessing absolute and relative valuations.

    Clearly an investor such as Buffett can remain fully invested into risk assets, not having to try and make any timing decisions and knowing that a long term investment view will produce a higher end result.

    Hope that this provides some food for thought. Have a wonderful weekend.

    Kind regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-18, 17:47:59, by ian Email , Leave a comment

    Lacklustre JSE Looks For Direction

    LOCAL MARKETS

    The JSE is trading slightly higher today but lacks direction as world markets drift along. Resources and banks are boosting the bourse but a quiet day expected on Wall Street will keep the market at its current levels.

    The rand is firmer, trading at around R7.80/$. Analysts expect a range of between R7.75-R7.85/$ for the rest of the day.

    OVERSEAS MARKETS

    Wall Street is set to open stronger thanks to good profit news from Google. However, this should be tempered by further woes in the financial sector with Citigroup posting losses.

    European markets are trading firmer today, boosted by a rally in the banking sector.

    Asian markets have had a dull day, mostly closing lower. The Shanghai Composite Index fell to a 12-month low by ending 4% down. The Hang Seng closed down by 0.3% and the Nikkei ended 0.6% higher.

    COMPANY NEWS

    York Timbers has increased their black economic empowerment ownership in the company from 27% to 39%. This transaction with Lereko Metier Capital Growth Fund is worth R201.3 million.

    The newly formed company by Harmony Gold Mining and the Pamodzi Resources Fund, RAND Uranium - plans to become the world's ninth-largest uranium company when output starts in three years.

    Rio Tinto expects to post production growth of more than 8% per year until 2015 as a result of a series of growth projects boost output.

    Permalink2008-04-18, 14:17:46, by Marika Email , Leave a comment

    Java Charts Upgrade!

    The Java Chart facility, available to all subscribers, has recently been upgraded. We are also currently upgrading the “Intra-day” version and once completed, we will notify all our members.

    Once logged in, simply click the “Graphs & Charts” link situated in the side menu, to the left of your browser or, in your address bar enter in the following URL address: www.sharenet.co.za/charts
    A page should then load up with a heading that reads, “Java Technical Analysis Charts Plus”.

    I am pleased to report that the following improvements have now been made to this link:

    1- When using the “Find a Share Code” option, simply clicking on a name that was found will load it up in your chart. Of course this new feature makes finding and loading shares so much easier. On dial up connections (56K modems), this may take a few seconds.

    2- Please note, that an option has been made available which allows the user to save the chart image as a “png” file. To do this simply scroll down to the bottom of the page and click on the “Save as Image” button. The graph currently under view will then be saved. This file can then be emailed or even used in an office document.

    3- Furthermore, printing of the chart can now also be done immediately by simply selecting the print icon which is the last icon on the bottom left.

    4- In respect to “Preferences” and “Studies”, the option to both save and load has now been added to Studies as well. Remember, “Preferences” relate to the system as a whole, while “Studies” relate to individual shares.

    So, for example, you can now set different moving averages for each share, save your studies and then on your next visit simply load your settings and the program will remember the different moving averages for each and every share as you saved them.

    5- You may also have noticed that the default indicators are now set to RSI and MACD, this change was made due to the fact that these indicators are the most widely used.

    6- Also included in the list of improvements is a drop down menu situated next to the scrolling buttons on the top of the toolbar that allows the user to alter the period from which the data is taken. The default is set to 6 months, but by simply clicking one of the options in the drop down menu, data for 1 month (1m), 3 months (3m), 1 year (1y), 2years (2y), 3 years (3y), 5 years (5y), 10 years (10y) and a final option of “All” can now be selected.

    Extra enhancements include:
    • New indicators: Elder-ray Bear Power, Elder-ray Bull Power, Pivot Points and DMA (Displaced Moving Average)
    • Support for multiple exponential average lines
    • Extended Fibonacci Retracements
    • Easy drawing of trend channels and parallel lines

    Finally, please note that by right clicking on the chart itself, a menu pops up which also displays several options worth familiarizing oneself with.

    I hope that all these improvements enhance your Sharenet experience and if there are any other tools you would like to see added, please do not hesitate to let us know.

    Permalink2008-04-18, 11:37:32, by Marika Email , 5 comments

    Black gold's gains pushes Sasol

    Black gold heads higher and higher. Today it touched $115. George Soros was quoted as saying that commodities are in a bubble, but the bubble is still growing. Does this mean that Sasol, one of South Africa’s foremost technology companies is a good investment?

    On the 8 April the company had a comprehensive investor day in New York. Timing of these investor "show and tell" days are always important and with crude prices at new highs, Sasol times this to perfection.

    The date also coincided with Sasol’s 5 year anniversary of its listing on the New York stock exchange main board.

    The investor day was designed to update analysts of the company’s strategic, operations and financial progress as well as an update to opportunities.

    Sasol is the world’s leading provider of synthetic fuels and chemicals. As the price of fuel trends sharply up, Sasol’s technology taps into coal and natural gas in order to convert this to clean diesel, petrol and jet fuel.

    Sasol has a powerful business model with 50 years of technological innovation, operating and continuously improving its large synfuels and chemical plants all using its proprietary technology to the Fischer Tropsch process.

    They have 206 PhD’s on their staff.


    Sasol’s SA operations remain the biggest contributor to earnings at 86%.

    Internationally the business units are Sasol Synfuels International (SSI), Sasol Chevron and 50/50 Joint venture and Sasol Petroleum International (SPI)

    Their presentation revealed some interesting statistics:

    o 80% of world oil in 9 countries, representing just 5% of world population and 5% of GDP.
    o 80% of world coal in 6 countries representing 45% of world population and 46% of GDP
    o 80% of world gas in 13 countries, representing 12% of world population and 26% of GDP.

    Sasol has a large pipeline of projects at various stages. Shorter term is the Oryx operation in Qatar, gas to liquid (GTL) in Nigeria.

    Medium term is China coal to liquid (CTL), an increase of the Qatar footprint

    Longer term is possible projects in US and India (CTL) and Australia (GTL)

    Sasol Technology is at the heart of Sasol. Its here where Sasol employs 100 PhD’s, 2000 technical and support personnel and has filed about 590 patentable innovations of which more than 300 are in force in many countries around the world.

    Staffing up is a big project in it own right, given in the war for talent.

    In addition Sasol has recently announced the Sasol Inzalo black economic empowerment deal, which will effectively see 10% of Sasol owned by various groupings, in a total transaction valued at R25,9 billion.

    4% will be at the employee share ownership level, where in the broad scheme 24 500 staff will benefit with an indicative value of R310 000 per person. 235 senior black management will receive 0,3% of Sasol with an indicative value per participant of between R2m and R9,8m.

    The company’s year capex plan is R50 billion with financial 2008 estimated at R12 billion.

    The cash generated by operations in the first half was up just 4% to R14,1 billion.

    Sasol has indicated some sensitivities, which are useful to note:

    o Should crude oil price increase by US$1/bbl then Sasol’s earnings before interest and tax (EBIT) will improve by R300m
    o Should the rand weaken by 10c against the US$, then Sasol’s EBIT will improve by R600m.


    The price tracked largely sideway for 2 years from 2003 – 2005. Then up sharply to around R250 at the end of 2005. Then sideways until 3rd quarter 2007 before shooting up again sharply to around R450. Should it get to targeted R500, it would have been in a relatively short space of time.

    A great SA success story.

    Kind regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-17, 20:15:54, by ian Email , Leave a comment

    JSE Pushes Over 32 000 Mark

    LOCAL MARKETS

    The JSE is trading just off its record high reached earlier this morning. Resources and firm world markets are boosting the bourse.

    The rand is firm today, trading at around R7.86/$ on the back of a stronger Dow overnight. The euro has hit an all-time high against the dollar. A range of between R7.80-R7.90/$ is expected for the rest of the day.

    OVERSEAS MARKETS

    Positive corporate earnings released by IBM and further reports due for release today has led to a strong opening on Wall Street.

    A disappointing earnings report by Nokia has pulled European markets off their earlier highs. The FTSE is trading higher thanks to gains in banking stocks.

    Strong earnings results from Coca Cola, JP Morgan and IBM boosted Asian markets today. The Nikkei closed 1.9% higher, the Hang Seng ended 1.6% higher and the Kospi rose by 0.6%.

    COMPANY NEWS

    Liberty Life has sold their Parktown conference centre to AstroTech, a major training company, for R23 million.

    SA REIT will acquire a portfolio of properties from Super Group for R918.2 million. It will acquire 11 office and industrial properties - nine in Gauteng and two in Kwazulu-Natal.

    B&W has more than doubled revenue for the six months ending February 2008. New cross-border business has resulted in revenue growing by 109% to R219 million. Headline earnings per share is up by 165% compared to last year. An interim dividend of 2c per share has been declared.

    Permalink2008-04-17, 14:33:18, by Marika Email , Leave a comment

    Better Performance by Being Aware

    Ian wrote yesterday about Michael Pompian’s seminar that he attended on behavioural finance. I was also able to attend so I thought I’d take this opportunity to further explore some of the biases that were discussed at the seminar, and how being aware of these predispositions can translate into improved investment performance.

    Biases are broadly categorised into two types, those that are cognitive and those that are emotional. Cognitive biases are essentially beliefs that we form, and are often misguided. Education can therefore limit the negative impact that cognitive biases have on our investing. Emotional biases aren’t easy to correct as they are ‘wired’ into our system, but being aware of them will help you avoid making investment decisions based purely on optimising your risk/return profile, but rather on optimising your ‘emotionally adjusted’ risk/return profile.

    In practice this means that while you may be aware that making a 60% investment into local equities will optimise your risk/return profile, the fact that you have bias of loss aversion (where the pain of your losses is substantially more than the joy of your gains) means that decreasing your equity component, while decreasing your expected return, could actually improve your realised returns, as you are less likely to make an irrational decision when the markets go down (and thus hamper your realised returns).

    Purely matching your personality to your investments does allow you to sleep easy, but if you avoid addressing actuarial risks you will hamstring your long term investment goals. Risks to investing come in many forms, and you need to balance all of these risks (actuarial, investment, and behavioural) in a comprehensive investment plan if you want to be a successful investor.

    An example of a typical cognitive bias, which can hopefully be rectified through education, is mental accounting. Mental accounting is the process of separating our investments into different ‘compartments’ for different purposes and isn’t necessarily the most efficient method of investing. This bias probably arises as we lack the self discipline to stringently stick to an investment plan, and therefore create pockets of investments for different goals, 'forcing' us to be disciplined. Putting money separately into a low risk (low return) investment for your child’s education (that you know you won’t touch), while simultaneously struggling to pay off the bond on your house at a higher rate, and playing in the CFD market doesn’t make rational sense, yet lumping the total amount into your bond will probably result in you accessing some of the capital (that’s meant for your child) when you feel like going on a holiday!

    Actively facing up to the opportunity cost of mental accounting (and of other cognitive biases) should improve your self discipline, and should result in your investments becoming more profitable.

    While many people treat investing as a pure science, the social interaction that humans inject into the investment world (by being the investors) results in investing being a blend of both science and art. Knowing yourself, and ensuring that your emotional state is taken into consideration when investing (where possible) will help you in your quest of becoming a better investor.

    Talking the talk is always easier than walking the walk and that is where we, as investment consultants, come into the picture. We build a relationship with our clients, assess their risks, and create a plan that adequately addresses their needs.

    Please don’t hesitate to contact Ian (ian@seedinvestments.co.za) if you feel that you need help walking the walk.

    Take care,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-16, 16:50:56, by Mike Email , Leave a comment

    JSE Flirts With All-Time High

    LOCAL MARKETS

    The JSE is trading firmer today, hitting an intra-day high of 31 700.350 points, slightly lower than its all-time high reached in October last year. Resources continue to boost the bourse which remains firm thanks to strong world markets.

    The rand is slightly weaker, trading at around R7.97/$ ahead of the release of US inflation data later. Analysts believe the local unit will remain between R7.85-88/$ with a possibility of reaching R8/$ later this week.

    OVERSEAS MARKETS

    Wall Street is set to open firmer on the back of better-than-expected results by JPMorgan Chase and a positive outlook by Intel. Investors are also keeping an eye on the March Consumer Price Index - an important inflation reading.

    European markets are trading higher after gains in Wall Street and on Asian markets.

    Intel's positive outlook and a weaker yen boosted Japanese markets today. The Nikkei closed 1.2% higher, while the broader Topix index closed up by 1.3%.

    COMPANY NEWS

    Woolworths is selling 50% plus one share of its financial services arm to Absa. The two companies are launching a joint venture which will see the launch of new consumer finance products, including a premium Barclaycard offering.

    Aquarius Platinum has bought our Impala Platinum's stake in itself and its operating subsidiary for $790 million.

    Pioneer Foods plans to list on the JSE on 22 April with 400 million shares as part of their plan to raise capital. Prior to this listing, the company will offer 20 million shares at R25 each in a rights offer.

    Permalink2008-04-16, 14:18:06, by Marika Email , Leave a comment

    Are you in control of your investment outcomes?

    I had the opportunity yesterday afternoon to listen to Michael
    Pompian from Hammond Associates in the US on behavioural finance. He is one of the pre-eminent researchers in the US on this topic, having also written the book, “Behavioural Finance and Wealth Management”. Behavioural finance is commonly defined as the application of psychology to finance.

    In contrast, standard finance developed over many years and has its presuppositions, aspects such as:
    o A rational investor;
    o Markets are efficient;
    o The capital asset pricing theory, etc

    All good stuff, but much of it is theoretical because it’s designed to provide mathematically elegant explanations for financial questions, but where the set of assumptions often over simplifies reality.

    Behavioural finance looks past the theoretical assumptions and rather focuses on observed financial behaviour. I.e. how do different types of investors act under various circumstances? From observations certain characteristics and biases can be highlighted.

    With a greater understanding of how investors react and behave under different circumstances, we as investment consultants we can hopefully identify certain bias traits and make recommendations to try and correct.

    With research many investor biases have been identified. Let’s take a look at just one today – i.e. the illusion of control bias.

    The illusion of control bias describes the tendency of humans to believe that they can control or at least influence certain outcomes, when in fact they cannot. It’s a very normal bias, because it’s a typical characteristic – i.e. most people have a tendency to want to be in control.

    Now there are many outcomes that we can and should look to control or at least influence the outcome, but we all need to be careful to identify outcomes which are out of our control. Certain studies has shown that choice, familiarity, competition and active involvement can all inflate confidence and generate such illusions.

    A classic but very accurate example if this is how lottery numbers are issued. It has been found that where people are permitted to select their own numbers, they were willing to pay a higher price per ticket. i.e. they perceive greater control over a random event than is actually the case – when one takes the time to think about it rationally then it’s not difficult to see that it’s merely an illusion of control.

    A roulette table would be the same. Given the choice, would a gambler prefer to make a bet selection himself, or would he prefer to random bet be generated, followed by the spin of the wheel? We know the answer.

    The illusion of control can lead to overconfidence, which if misplaced is dangerous when it comes to investing.

    An area where we see this fairly often is in a concentrated portfolio and typically a concentration into a company where there is some strong emotional attachment – often an employer.

    A senior employee is allocated shares or share options, which now comprise a large concentrated position of his total wealth. The investor may have an illusion of control over the ultimate outcome because of his knowledge of the business, sales levels, being in a management position, etc. And so while he understands the higher risk, he believes that he is controlling it.

    The illusion of greater control is a bias, which therefore often leads to concentration and risk seeking behaviour.

    Take some time to think about any actions, and feel free to contact me.

    Kind regards

    Ian
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-15, 17:48:44, by ian Email , Leave a comment

    Oil Pushes $112/barrel

    LOCAL MARKETS

    The JSE is trading firmer today, edging near the 31 000 level mark as resources shine. The platinum and gold price is also performing well today, supporting the current market sentiment.

    The rand is stable and range bound, trading at around R7.86/$. Investors are keeping an eye on key data to emerge out of the US later today as well as developments in Zimbabwe.

    OVERSEAS MARKETS

    Wall Street is set to open mixed on the back of weak corporate earnings, rising oil prices and inflation pressures.

    European markets are trading firmer thanks to a strong close on Wall Street and Asian markets. Investors are, however, treading cautiously ahead of the release of US Producer Price Index data.

    A stable dollar and bargain hunting helped Japanese markets rebound off it's latest losses. The Nikkei closed 0.57% higher.

    COMPANY NEWS

    Woolworths has been named the responsible retailer of the year at the World Retail Awards. The group was one of only two retailers shortlisted outside Europe out of the six in line for the award.

    88.3% of shareholders have voted in favour of Bidvest's proposed share buyback scheme. The scheme required a minimum of a 75% majority vote in order to be passed.

    Naspers has disposed of its Greek and Cypriot pay-TV operations, Netmed, following a review of its strategic investment priorities.

    Permalink2008-04-15, 14:28:17, by Marika Email , Leave a comment

    The wealth cycle

    Sitting on the tip of Africa in Cape Town watching the developments unfold to the North of us in Zimbabwe, it’s possibly incongruous to be talking about wealth creation, when so much wealth destruction has taken place. 8 years into the 21st century, you would be forgiven for thinking that no country in the world should be forced into economic depression by a dictatorial tyrant.

    As a mere observer of 30 years compressed into a one hour documentary, my reaction is one of empathy for those who have lost everything and respect for those who planned ahead, protected their capital and at least have some options available.

    Let’s briefly look at the wealth cycle, with the situation in Zimbabwe in the back of our minds. The wealth cycle can be looked at from many different angles, but at its most basic, consists of 4 pillars, namely

    o Creation
    o Enhancement
    o preservation and
    o Distribution.

    Wealth creation is the aggressive first pillar. It can come in many forms, i.e. earning a salary, starting a business, receiving shares or share options in a listed company, trading shares, selling your stake in a business, buying and developing property etc.

    Having created wealth the emphasis then shifts to wealth enhancement. Here the primary objective is to enhance the returns on capital, but with a lower risk mindset and capital preservation becoming more important. Aspects such as asset allocation and investment strategy are crucial.

    Wealth preservation is that phase when you have created and enhanced your capital and now have less opportunity to recreate should you come up against any adversity. Preservation in real terms is crucial here, i.e. not only in nominal terms. Again asset allocation and key decisions are crucial.

    Finally, but just as importantly is the wealth distribution phase, where your accumulated wealth, business interests etc are transferred optimally according to your wishes. This is where quality estate and succession planning is crucial and yes it’s an area that is too often ignored.

    Too many investors concentrate all their effort on only the first phase, without placing enough emphasis on the 2nd, 3rd and 4th phase. Here I think of those in Zimbabwe who perhaps created enormous wealth, but did not necessarily put steps in place to enhance and preserve (in this scenario, distribution does not even then feature)

    So while, there are literally thousands of ways to create wealth, as investment consultants, we tend to focus on phases 2 – 4. Once you have attained a reasonable level, without stopping the creation process, set aside some of the wealth created for further enhancement and protection. Then also make sure that your plans for distributions are updated periodically.

    Don’t make the mistake of only focusing only on the creating stage and ignore the equally important other phases.

    Have a great week

    Regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Feel free to mail me genuine investment questions.

    Permalink2008-04-14, 18:25:54, by ian Email , Leave a comment

    JSE Dragged Down by World Markets

    LOCAL MARKETS

    The JSE is trading lower today on the back of some poor earnings results out of the US. There is renewed concern in the market over the state of the US economy and the credit crunch.

    The rand is slightly weaker today, trading at around R7.85/$. Negative sentiment has filtered through to the local unit which is looking to remain in a range of R7.72-R7.89/93/$ for the rest of the day.

    OVERSEAS MARKETS

    It's another tough day for US stocks which are set to open weaker. One of the country's 5 largest banks, Wachovia, reported losses this morning which is likely to weaken the market after Friday's losses. Investors are also looking ahead at government's reading on retail sales.

    European markets are trading weaker today on the back of losses on Wall Street on Friday and the prospect of further disappointing corporate earnings this week.

    Asian markets closed weaker today. The Nikkei closed down by 3.1%, the Shanghai Composite index fell by 5.6% and the Hang Seng closed 3.5% lower.

    COMPANY NEWS

    Eastern Platinum has secured the rights to purchase four power generators capable of producing over 23 MW of power. This will ensure that they can proceed with the timely development of the Crocette section at the Crocodile River Mind and the Spitzkop-Kennedy's Vale development on the eastern limb of the Bushveld.

    AECI plan to spend at least R670 million on capacity expansion projects of their speciality chemicals business Chemserve. These plans are part of the company's R1.4 billion capital expenditure programme in the next two years.

    Pals Holdings have reported a headline loss of 45.2c per share for the six months ending December 2007. Turnover decreased from R37.63 million to R34.78 million. No interim dividend was declared.

    Permalink2008-04-14, 14:48:54, by Marika Email , Leave a comment

    Are you getting the best advice

    I was invited onto CNBC this morning to give my few comments on the market. Day after day these business news programs track virtually every market tick. When interest rates are hiked economists are called in to explain what happened, and what is likely to happen. Stockbrokers and fund managers provide their views on what to buy and what to avoid.

    The investing public want up to date information and good advice – and the news programs are there to feed them.

    Let’s be clear – they serve a purpose, are business entities in their own right, and for some they are entertaining.

    But the dilemma comes for the investor trying to steer a path through the maze that is taken as advice.

    Without distilling the information, taking the time to come to your own conclusions, applying it in detail to your own circumstances and then formulating an investment strategy, my concern is that constant and often conflicting news flow can be more harmful than good.

    The basis of my argument is this. Current and topical news is just that – its current and topical but often it does not translate into investment excellent investment opportunities.

    o Firstly it highlights the short term and gives less credence to medium and longer term.

    o It’s said that with newspapers bad news sells. But with the financial markets, its good news that creates a buzz, which is exactly what investors don’t want, because this hikes prices.

    Higher prices mean less attractive valuations.

    It really concerns me when certain advisors (read brokers) see fit to recommend clients invest into a top performing investment product, take a high initial commission and then essentially walk away – all under the guise of providing advice.

    Some fund managers themselves are party to this process by spending good money marketing their recent top performance, doing nothing but aiding these brokers in selling their products to unsuspecting clients.

    The winners are:

    o The broker – but only for a period of time

    o The fund manager – but only for a period of time

    The loser (unfortunately) is the investor.

    In my humble opinion, providing considered advice is firstly about a relationship. It’s about trust that can only develop over time and having a mindset of being a fiduciary. It’s about providing the best advice – even if that advice has zero financial benefit for the advisor.

    On that note, have a great weekend – enjoy the rugby

    Sincerely

    Ian
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-11, 19:53:23, by ian Email , Leave a comment

    JSE Flat After Rate Hike

    LOCAL MARKETS

    The JSE is trading flat today as investors digest the rate hike announced yesterday. "Banking, financial and general retail stocks are trading slighty lower but the market in general looks stable" remarked a Cape Town based trader.

    The rand is firm and steady, holding onto gains made yesterday. The local unit is trading at around R7.79/$ with traders expecting it to remain between R7.70-R7.85/$.

    OVERSEAS MARKETS

    Wall Street is set to open firmer today, extending gains from the previous session. Positive earnings results from General Electric and merger news between Delta and Northwest has improved sentiment in the market.

    European markets are trading higher on the back of gains on Wall Street and Asia. Technology and telecoms stocks are amongst the biggest gainers.

    Asian markets closed firmer today. Japan gained almost 3% on the news that the G7 industrialised nations group will take action to boost financial markets.

    COMPANY NEWS

    Growthpoint Properties have secured R2 billion in additional debt facilities to help fund their R4 billion development and acquisition pipeline. This additional funding has come about through an unsecured five-year loan from Nedbank Corporate Property Finance.

    Sappi have joined the UN Global Compact at a public signing ceremony in Johannesburg. This is indicative of their commitment to incorporate the principles of sustainable development into the everyday management of their business.

    Sasol has won top prize in the 2008 Ernst & Young Excellence in Corporate Reporting Survey for the fourth consecutive year.


    Permalink2008-04-11, 14:28:01, by Marika Email , Leave a comment

    Interest Rates

    After my report on inflation a couple of weeks ago I got some interesting comments from readers. Basically the gist of their comments centred on what the Reserve Bank’s mandate is. I know that the Reserve Bank is mandated to keep CPI-X in the 3 to 6% band, but thought I’d just check what the official statement is. On their website under ‘Our mission & vision’ they have the following to say:

    “Our commitment

    The Reserve Bank is committed to achieving and maintaining price stability in the interest of balanced and sustainable economic growth. In the pursuit of its primary objective, the Bank must perform its functions independently, without fear, favour or prejudice.”

    Quite clearly price stability (read low inflation) is the main focus. They realise that by keeping prices stable they will, over the long run, promote real economic growth. While this strategy works over the long term (much like investing in equities) there will be periods over the shorter term when other strategies may play out to be more beneficial.

    When inflation rises, raising interest rates is the Reserve Bank’s primary tool to dampen spending. This generally results in prices stabilizing and inflation coming under control, but while the price of essential products (food and transport) continue to head north, the effects of raising rates on inflation is muted.

    It is because of this fact that I believe that we are currently in such a period where sustainable economic growth will be better achieved through holding rates constant. With this in mind I was disappointed that rates were raised by 0.50% this afternoon.

    Tito Mboweni, in his monetary policy speech, mentioned that the economy is responding to the tightening policy, but that global supply side shocks continue to inflate prices of food and oil. Second round inflation continues to affect the inflation rate, and this is one of the factors that the Reserve Bank is able to try and contain.

    The rand has weakened since the previous MPC meeting, partially as a result of the current account deficit. A higher repo rate is generally positive for the currency (as should therefore help decrease the current account deficit). In line with the theory the rand improved by around 1% against the dollar when the announcement of the interest rates came through.

    As can be expected financials, and banks specifically, came under the kosh, with the banking sector down 3.4% over 45 minutes after the MPC speech. When interest rates go up, banks will do less business as customers decrease the amount that they are willing to lend. Bad debts also go up as more and more people are unable to afford to pay off their debt.

    Tito Mboweni has warned that we’re going to have to continue to tighten our belts, and with this latest interest rate hike this is certainly going to be the case! Inflation is already way above the Reserve Bank’s target, and despite the fact that most of it is down to factors beyond our control the SARB needs to do everything in its power (read increase interest rates) in order to get us back to a period of price stability. By raising interest rates again Tito Mboweni is certainly showing that he is willing to act “…without fear, favour or prejudice.”

    Take care,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-10, 16:39:48, by Mike Email , Leave a comment

    Interest Rate Debate

    LOCAL MARKETS

    It's a quiet day for the JSE as investors await the MPC's announcement at 3pm.

    There is still a lot of uncertainty over the pending interest rate announcement. A survey of leading economists shows a consensus of an unchanged interest rate of 11%. However, 4 out of the 9 expect a 50 basis point rise. Keep reading for an update on this...

    *Update* - the Monetary Policy Committee have hiked interest rates by 50 basis points to 11.5%.

    The rand is trading weaker today, largely as a result of nervousness over the Monetary Policy Committee's rate announcement this afternoon. The Bank of England and European Central Bank are also set to report on interest rates today. The local unit should trade between R7.88-R7.95/$ for the rest of the day.

    OVERSEAS MARKETS

    Wall Street is set to open weaker today, despite news that other companies are interested in entering into deal talks with Yahoo. Investors are keeping an eye on a report on retail sales which should point to more weakness in the economy.

    European markets have opened weaker today as investors await the Bank of England and European Central Bank's interest rate decision.

    *Update* - the Bank of England has cut interest rates by a quarter point to 5% - its lowest rate in 17 months.

    A stronger yen and concern over the US economy led to profit taking in Japanese markets. The Nikkei closed down by 1.3% while the broader Topix index dropped by 1.2%.

    COMPANY NEWS

    The Competition Tribunal has given Vodacom the go ahead to acquire Global Telematics South Africa.

    Sasol has become the first company to receive international approval for its 100% synthetic jet fuel. Produced by Sasol's proprietary Coal to Liquids process, it will be the "first fully synthetic fuel to be approved for use in commercial airliners."

    Tim Wolf has been appointed chief integration officer and Gavin Hattersley chief financial officer of a prospective joint venture announced by SABMiller and Molson Coors in October last year.

    Permalink2008-04-10, 14:24:15, by Marika Email , Leave a comment

    Commodity prices moving up again

    No stopping commodity prices. It’s difficult to assess how much of this is due to absolute supply and demand and how much due to financial demand pushing up prices. BHP Billiton shares gained 7% to a new high at R273,80.

    Some news on commodity prices this week.

    o Crude for delivery in May rose 2,5% to $111 a barrel on the New York Mercantile exchange.

    This as the US Energy Department reported that crude oil deliveries fell to 316m barrels.

    o Is Ian Cockerill backing the right company? – he is leaving Goldfields to head up Anglo Coal. Despite gold prices making new highs, gold companies have had a tougher time. Coal has however been in excellent demand.

    BHP Billiton announced today that it expects it prices for metallurgical coking coal to rise by between 200% - 240% over last years price. BHP enters into long term contracts with its customers.

    In some instances coal prices have more than tripled over a year to $300/ton.

    BHP’s earnings for the half year to Dec, reflected metallurgical and energy coal giving it $800m. Total earnings before interest and tax for the 6 months came in at $9,6 billion.

    o The higher price of coal, used as a fuel and a reducing agent in smelting iron ore, together with the price increase in iron ore as a raw product is pushing up steel prices.

    BHP’s earnings from iron ore for the 6 months to Dec came in at $1,67 billion up 20% over the previous period.

    Arcelor Mittal is the world’s biggest steel producer. They want to be 65% - 70% self sufficient in terms of supplying their own iron ore needs by 2012. They are currently at 45%. In the mean time the iron ore and coal price escalations provide an underpin to steel price increases.

    ARCMittal gained 3,3% to a new high at 21650c. Hiveld Steel gained 1,2% to R166

    o Iron ore prices have moved up around 70% over the last year in terms of contracts signed.

    o Copper prices are at record prices of around $8874/ton. The demand continues unabated from China, where demand is extremely firm. Bloomberg reported that copper concentrate – processed ore containing copper – is looking to increase to 5,4m tones from 4,5m tons in 2007.

    The story is fantastic for most of the companies in the resource industry. To date the increases and impact on top line for suppliers has been underestimated, providing the ongoing boost to share prices.

    Kind regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-09, 18:37:30, by ian Email , Leave a comment

    China,BHP Talk Boosts Market

    LOCAL MARKETS

    The JSE is trading firmer at noon today thanks to news that China is interested in buying a stake in BHP Billiton. The resources index is trading higher by over 2%. Investors are keeping away from interest rate sensitive stocks ahead of the Monetary Policy Committee's rate decision tomorrow.

    The rand is steady today, trading at around R7.78/$. Today marks the start of the two day meeting with an interest rate decision expected at about 3pm tomorrow.

    OVERSEAS MARKETS

    Wall Street is set to open lower today on the back of reported problems in various key financial firms.

    European markets are trading lower today after a weak close on Wall Street and losses in Asian markets. The pound has hit a record low against the euro, reaching £0.8000, as well as a six-week low $1.9651 against the dollar.

    Asian markets closed lower today. The Shanghai Composite Index was the biggest faller, ending 5.5% down. The Nikkei ended 1.1% lower while the broader Topix index closed 1.5% lower.

    COMPANY NEWS

    BHP Billiton's shares are trading over 5% today after a media report was released saying that China is planning on taking a multibillion dollar stake in the company.

    Old Mutual Investment Group Property Investments are going to be creating and managing a major waterfront development in Nigeria. This joint venture with a Nigerian company is valued at between $300 million and $500 million.

    Telkom haven't received any further expressions of interest as speculated in the press recently. The group announced in a statement that Oger Telecoms had submitted two non-binding letters expressing an interest in acquiring Telkom. The board evaluated it and decided that it would not be in the best interests of Telkom shareholders to accept their offer.

    Permalink2008-04-09, 14:20:40, by Marika Email , Leave a comment

    Listed property

    Listed commercial property has been a solid investment asset class for many years now. While there were many positive factors driving prices up, yields down and therefore excellent total returns, these tailwinds have largely dissipated. So the question now is this – is there still value in local listed property?

    But first a correction on yesterdays report on oil. The said equivalent rand price of fuel in the US was around R12,64/litre. Inflation is running high, but not quite there yet. The equivalent rand price of $3,34 / gallon is closer to R6,84/litre.

    Back to property. An Investec property presentation today made the following points.

    The 3 year annual total return for the property index to the end of February was 28,8% compounded. Total return is the sum of income yield and capital appreciation. The effect of these gains over the last 3 years has seen the market capitalisation of the property sector on the JSE escalate from R38,8 billion in 2005 to its current R92,3 billion, an increase of 138%.

    Interestingly the actual number of properties that this represents has not increased much from 2348 in 2005 to 2477, an increase of just 5%. Given the ongoing corporate action and consolidation, the number of property companies has decreased from 31 to 26.

    Despite the relatively high 3 year numbers, the last growth in the last 12 months has come down fairly sharply as the interest rate cycle turned. The total return for the year to February came in at just 4,67%.

    In order to assess the likely returns from the asset class going forward, some of the factors that must be assessed include:

    o Independent valuations of the underlying properties versus the listed price. On an overall basis, Investec indicates that value of properties is approximately R103 billion (versus the R92bn market cap)

    o As assessment of the lease expiry profile and the indicative rates and leases that are being entered into as the older leases expire.

    o As assessment of the gearing levels, cost of this gearing, and extent to which some of the debt is fixed etc.

    o The strength of the underlying economy and hence strength of demand across the 3 main property categories, i.e. office, retail and industrial.

    o An assessment of the supply of new property coming on stream over say the next 2 to 3 years.

    o Rental escalations being signed into leases across specific properties and the 3 main classes.

    Then, as will all investments, it’s a matter of assessing to what extent the outlook is already factored into the price. If the prevailing price already factors all the good news in, then it may possible make a poor investment.

    Property has many distinguishing features, one of which is that of its total return, a higher proportion typically comes back to the investor in the form of a rental yield. Unlike the traded prices, which are far more volatile, rental yields by virtue of the fact that they result from signed multi year leases, are far more stable.

    The expected distribution growth is expected to increase by around 12% for the next year.

    Assuming that capitalisation rates come down slightly, i.e. a small upward rating, the expected total return from listed property is expected to by around 14,5% for the next year according to Investec property.

    Don’t hesitate to contact me if you would like to look at a total Investment Strategy plan and ongoing management of your investments.

    Kind regards

    Ian de Lange
    Ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-08, 16:39:16, by ian Email , Leave a comment

    Thursday's Rate Decision Looms

    LOCAL MARKETS

    The JSE is trading slightly lower at noon today. Investors are getting increasingly nervous about the upcoming Monetary Policy Committee's meeting where they will decide whether to increase interest rates or keep them at their current rate.

    The rand is steady, holding onto earlier gains on the back of a weaker dollar and a firmer equity market. Most analysts predict an unchanged interest rate of 11% but some believe it will be pushed up by 50 basis points. The local unit should trade between R7.70-R7.86/$ for the rest of the day.

    OVERSEAS MARKETS

    Wall Street is set to open lower today after disappointing earnings news from Alcoa. Investors are also nervous ahead of a report that's expected to show a slowdown in pending home sales.

    The FTSE is trading lower on the back of a slump in banking stocks. European markets in general are trading lower as tech stocks take a tumble.

    Asian markets closed mixed today. The Nikkei closed 1.5% lower, while the broader Topix index closed 1.8% lower. Energy and commodity prices helped offset losses by chipmakers.

    COMPANY NEWS

    Kagisano Group Holdings have reported a 3% decrease in diluted headline earnings per share for the six months ending February 2008. Revenue grew by 39% to R140.5 million, while revenue from loans increased by 19%. They have also decided to rebrand and rename the company CREDIT U.

    Pioneer Foods plan to list on the JSE and raise capital through a rights offer to their existing shareholders.

    Palabora Mining Company hopes to start building a pipeline to pump magnetite to a port in Mozambique in 2009. This part of their plan to export their stockpiles of low-grade iron ore to China.

    Permalink2008-04-08, 14:16:24, by Marika Email , Leave a comment

    Oil

    As the price of oil continues to touch remain above the $100/barrel level and trending back to $110/barrel, it remains an extremely sensitive commodity for global investors and consumers. The reference to the price is oil is to either the spot price or the futures price. Today crude for May delivery rose to $108,94/barrel on the NYMEX. Let’s looks at some of the terms that are so easily bandied around.

    Bloomberg reported that fuel prices at the pump rose to a record $3.339 a gallon or R12,64/litre.

    Brent crude is one of the main classifications of oil. It is sourced from the North Sea. The name “Brent” comes from the naming policy of Shell UK exploration which originally named all its oil fields after birds and in this case the Brent Goose.

    Brent is traded on the Intercontinental Exchange

    Another classification is the West Texas Intermediate – WTI.

    Oil is traded on the NYMEX (New York Mercantile Exchange) commodity exchange. A benchmark contract is the light sweet crude oil futures contract and is also widely used as proxy for the cost of imported crude oil.

    A barrel is 42 US gallons or approximately 159 litres.

    OPEC is the Organisation of the Petroleum Exporting Countries. It is a large group of countries made up of Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela, and Ecuador.

    Their overriding goal is to determine the best means of ensuring the stabilisation of prices in international oil markets.

    Over the years they have had higher and lower influence. In 1973, Arab countries imposed the 1973 oil embargo against the US and Western Europe following their support of Israel in the Yom Kippur War.

    OPEC countries produce more than 40% of global oil production.

    The US Energy Information Administration expects world oil consumption to grow by 1,3m bbl/d (barrels per day) in 2008 and 2009. This is a slight slowdown due to higher projected prices and increased risk of a global economic slowdown.

    Production and demand remain extremely tight at around 88m bbl/day. Peak oil theorists say that given the dearth of new discoveries, this is about as good as its going to get. Production will remain extremely tight and in fact decline as demand continues to increase.

    That’s it for today

    Kind regards

    Ian
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    source : Wikipedia

    Permalink2008-04-07, 20:33:02, by ian Email , Leave a comment

    Resources Boost JSE

    LOCAL MARKETS

    The JSE is trading firmer in noon trade as resources continue to bolster the market. Platinum is trading above $2000, oil is $104 and gold is back up above $900. World markets in general are looking positive today.

    The rand is slightly firmer and range bound, trading at around R7.79/$. Analysts expect the local unit to trade between R7.70-R7.90/$ until the Reserve Bank's Monetary Policy Committee meets on Thursday.

    OVERSEAS MARKETS

    Wall Street is set to open higher today as investors digest some recent corporate takeover deals.

    European markets are trading higher today on the back of gains in Asian markets and the hope that most of the bad news is over with in the US. The focus is on the Bank of England and ECB's decision on interest rates later this week.

    Asian markets ended slightly higher today. The Hang Seng ended 1.1% higher, the Shanghai Composite index closed up by 4.2% and the Kospi added 0.4%.

    COMPANY NEWS

    ArcelorMittal has acquired 30 million ArcelorMittal Inox Brasil shares in the tender offer concluded on April 4. This increases their stake in ArcelorMittal Inox Brasil from 57.34% to 97.67%.

    The natural resources fund set up by Mvelaphanda Holdings, African Global Capital, and two international investor groups has made their first investment by taking 29.04% of Aflease Gold.

    Barloworld Logistics has acquired Hong Kong-based logistics company Flynt International for $13 million. This follows the group's recent acquisition of the Swift Group in Dubai last month.

    Permalink2008-04-07, 16:14:40, by Marika Email , Leave a comment

    Resources, Banks Boost JSE

    LOCAL MARKETS

    The JSE is trading firmer today thanks to gains in resources heavyweights Anglo American and BHP Billiton. Bank and financial stocks are also finding favour and boosting the market. Trade is thin today as investors wait on the sidelines for important economic data out of the US and election news from Zimbabwe.

    The rand is softer in quiet trade today, trading at around R7.82/$. Investors are looking ahead to a key report on US jobs data later today.

    OVERSEAS MARKETS

    Wall Street is set to open flat today as investors brace themselves for the government's reading on employment. The unemployment rate is set to rise to a 3 year high of 5% from 4.8%.

    European markets are trading slightly higher today after modest gains on Wall Street overnight.

    Japanese shares closed lower today as investors took profits after the recent 3 day rise. The Nikkei closed down by 0.7% with the broader Topix index down 0.8%.

    COMPANY NEWS

    Vishnu Pillay has been appointed executive vice-president and head of South African operations of Gold Fields. Pillay is replacing Terence Goodlace and starts the position on May 1.

    Lonrho Plc is buying 51% of agri-processing and logistics company the Rollex Group for R40 million in cash.

    FirstRand's shares have soared by over 3% today after a report that a state-owned Chinese bank was in talks to buy a stake in the First National Bank.

    Permalink2008-04-04, 15:35:29, by Marika Email , Leave a comment

    Taking a Short Position

    Bloomberg carried the headline, “Buy Wal-Mart, Sell Goldman becoming easiest Wall Street trade”. The ease with which investors can sell a share, with the hope of buying it back at a later stage, allows for such transactions, i.e. banks globally have fallen in price, while stable non cyclicals have benefits. A successful investor would have simultaneously sold the one and bought the other.

    Instead of not owning a particular share because its fundamentals are not attractive, or because it is looking technically weak, investors can very easily sell that asset before owning it.

    How do they do this?

    As markets have become more liquid, investment banks together with brokerages have facilitated the so called short trade – i.e. selling an asset that one does not own. The investment bank provide a lending facility, i.e. facilitating owners of shares to lend their shares out for a small return. Depending on the actual methodology used, e.g. using futures or CFD’s (contracts for difference), the subsequent repurchase can be anything from 1 second after selling to possibly 12 months or more.

    Hedge fund managers are merely unconstrained fund managers with the ability to use these instruments.

    We won’t get into the specific details, suffice to say that in theory an investment strategy that allows for both normal buying and holding (going long) and selling short, should be of greater value than merely using funds to go long.

    Why is this?

    The product of all fund managers’ research is to produce a ranked list of attractive and investable shares.

    Each fund manager has their own methodology, investment beliefs, processes etc. of how they derive their rankings, but included will be certain shares that have a low ranking and are therefore not attractive investments.

    A so called long only manager can at best avoid buying these shares for the portfolio.

    An unconstrained hedge fund manager can however derive a positive benefit from these unattractive investments (naturally assuming that their investment process works over time). To repeat, they will sell the share at a certain price, looking to buy it back at a lower price some time into the future.

    A fund that adopts a large degree of short selling (say 30%) can therefore lower their overall exposure to the market risk. Some funds take this much further, borrowing and selling 100% of the fund value and thus retaining close to a neutral market exposure. An investor must understand the risks involved, because in this case the gross exposure may be 200%, i.e. 100% on the long side and 100% on the short side, but the net exposure 0%.

    Unconstrained investment strategies definitely have their place in portfolios. We have discussed the US’s Yale endowment approach to including hedge funds in their overall strategy. We definitely make specific recommendations for inclusion into hedge funds.

    If you would like to discuss building a more robust investment strategy, including hedge funds, please don’t hesitate to contact us.

    Have a great weekend.

    Kind regards,

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-04, 14:32:59, by Mike Email , Leave a comment

    US Money Magazines 5 trends

    In the latest copy of US Money magazine, they highlight an article titled, “What’s next – in the years ahead, five key trends will dominate your financial life.”. The magazine focuses on the financial aspects that so called baby boomers will find interesting.

    I understand and agree with the first 4 key points and trends that they highlight, but have some problem with their last point.

    They highlight

    o Investment returns will cool off.

    The last 25 years have been good, mostly because the base back then was so low. I.e. interest rates were high and trended down, while asset prices were cheap and trended up.

    o The fastest growth will occur abroad.

    Here they highlight the fact that over the last 25 years, the US dominance has reduced. US investors who have typically been insular, need to expand their horizons.

    The average pension fund investor has just 19% of their portfolio invested offshore. Well known finance professor Jeremy Siegel thinks that this figure should be closer to 40%.

    o Taxes will go up

    Again in the US over the last 25 years taxes rates came down steadily from a top marginal rate of 70% in 1980 to 35% now. Capital gains rate reduced from 28% in 1980 to 15%.

    The US government is in the hole for its Social Security and Medicare benefits. The numbers are astronomical and this will have to paid by US taxpayers, through higher taxes, inflation or both. Just to give an idea, the US GDP is around $15 trillion, the US government funded debt is around $9,5 trillion, but under funded liabilities (mostly Social Security and Medicare) are in excess of $50 trillion.

    These are debts which cannot conceivably be repaid under normal circumstances.

    o Your career will get complicated

    The 1980’s and 1990’s was a huger seller’s market for labour. They reckon that under the Reagan and Clinton administrations, more than 40 million jobs were created with unemployment driven down from a peak of 10,8% in 1982 to 3,8% in 2000. Now its heading for 5% again.

    The dynamics of the labour market are changing fairly dramatically. Once an area that had low tradability, now technology is increasing the ability for labour to be traded.

    o The most reliable retirement pan will be Plan B

    In the US a pensioner traditionally had 3 sources of retirement income, company pension, social security and personal savings. Now they say with pensions and social security looking more wobbly, they are talking about adding a 4th leg, i.e. home equity. Don’t overlook your most valuable and underrated asset they say.

    But this is just the problem. That home equity that so many are now counting on, has already fallen rapidly as house prices come off dramatically from their peaks.

    Pimco chief, Bill Gross, says this about the equity that US citizens think they have, “ Home price declines of 20% are in fact much more of a shock to the American economy than the popping of the Internet bubble and NASDAQ 5000, because the amount of homeowner leverage is so much greater. A 20% negative adjustment not only wipes out all ownership equity for millions of Americans, it turns their homes "upside down" – incentivizing them to let their gardens grow weeds instead of lettuce”

    These are interesting points for consideration - for global investors, not just those in the US.

    The 40% allocation to offshore is important for immediate risk reduction. We have clients with offshore ranging from 30% to 50% and depending on your overall position recommend a considered offshore exposure.

    Kind regards

    Ian

    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-03, 17:03:24, by ian Email , Leave a comment

    Commodity Prices Rebound

    LOCAL MARKETS

    The JSE is trading firmer today, underpinned by strengthening commodity prices and improved global market sentiment. The stronger rand is, however, pulling the local market down a little.

    The rand is firmer today, extending yesterday's gains. The local unit is trading at around R7.75/$. Positive news out of Zimbabwe and improving world market conditions is boosting the rand.

    OVERSEAS MARKETS

    Wall Street is set to open slightly higher today but analysts expect a volatile day on the bourse. Ben Bernanke yesterday suggested that the US might be heading into a recession which sent stocks lower at the close.

    European markets are trading slightly lower today after 2 straight days of gains.

    Asian markets reversed earlier losses by ending higher today. The Nikkei closed up by 1.5%, the Shanghai Composite Index closed higher by 3% and the Hang Seng gained 1.8% to close higher.

    COMPANY NEWS

    Thulani Gcabashe has been appointed the new non-executive chairperson of Imperial. Gcabashe was CEO of Eskom from 2000 to 2007. The position place with immediate effect.

    AltX-listed heavy building materials supplier Buildworks has reported a net profit of R23.6 million for their maiden interim period ending February. Group revenue was R98 million and headline earnings per share were 5.65c.

    Phumelela Gaming and Leisure has reported a 17% increase in revenue to R1.34 billion for the six months ending January. International revenue grew by 153% to R114.5 million and domestic revenue gained 12% to R1.2 billion.

    Permalink2008-04-03, 13:25:36, by Marika Email , Leave a comment

    Keep your Investing Simple

    The more that I read up and study about investment products and investment analysis, the more I realise how complicated the investment universe is. Trying to get a handle on all the available investments, and how to value them all, is a task that very few people around the world will be able to achieve with success.

    The complexity and range of investments available needn’t be a problem to investors, but in many cases proves too much for the average investor. An illustration of my point is Warren Buffett’s investment philosophy. As Ian wrote yesterday his approach to buying See’s Candy was fairly straightforward, this is an uncomplicated business producing an uncomplicated product. I am sure that he understood where the risks were, which is key when making an investment.

    Buffett faced his sternest test during the run of the IT companies at the end of last century. As he didn’t understand how these companies made their money, where their cash flow was coming from, or what their profit drivers were, he decided not to invest in them, despite them being touted as the ‘New Economy’, and producing excellent returns. In the run up he was severely criticized, but when their prices came tumbling down he was hailed once again.

    While there hasn’t been a blind rush of capital to a specific ‘new age company’ so far this decade, there has over the years been a proliferation in investment products.

    Investment products, by their very nature, are typically launched when conditions for their success are favourable. The sales people then tout how successful they have been, and often sprout forth ‘factoids’ such as “In ten years time online shopping will account for 90% of retail sales”, or “Property prices NEVER go down” to help them get the ‘sale’. Many ‘clever’ people get caught up in this frenzy, as evidenced recently in the sub-prime and credit fallout, and many lessons ultimately get learnt.

    Spending the requisite time BEFORE making an investment and attempting to figure out how your potential investment will react in a range of scenarios will help you be prepared should any of those scenarios occur. While scenario analysis is a useful strategy to implement, you need to be aware that humans are, by our very nature, over confident in our ability to predict outcomes. Factoring scenarios that ‘will NEVER happen’, like falling house prices, interest rates rising to 20%, or getting fired from your job, into your calculations will help you to understand the full risks involved ‘should things go wrong’.

    Just the other day when I was out wine tasting, I was chatting to the wine expert. When he found out that I was an investment analyst he proudly told me how well his investment into CFD’s was going, and that he checks his portfolio between wine tasting sessions. While I’m sure that he was aware that he was buying shares on margin and that a 5% drop the share prices would result in a 50% drop in his portfolio, I don’t think that he realised that the chances of a 5% drop on the stock market is actually quite high!

    While the school of hard knocks is often the best way to learn, by doing research beforehand you should be able to avoid unnecessary losses. ‘Keep your investing simple’ should really read ‘keep your investing within your (or your advisor’s) ability’. There are experts out there who do understand and appreciate the full risks of complex investment products, and unless you are an expert, or have a qualified professional advising you on these products, it is probably best not to invest in them.

    Keep well.

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-02, 15:17:19, by Mike Email , Leave a comment

    Strong Rand Keeps JSE From Advancing

    LOCAL MARKETS

    The JSE is trading slightly firmer today in line with other world markets. However, the market's performance has been tempered somewhat by the strengthening rand. Investors are concerned about a potential rate hike at the end of the month with analysts predicting a 50 basis point increase.

    The rand is stronger today, trading at around R7.96/$. Traders don't expect this good mood to last too long but predict that the local unit remains between R7.93/5-R8.05/$ range today.

    OVERSEAS MARKETS

    Wall Street is set to open slightly lower today as investors take a step back and wait to see what Ben Bernanke has to say in his testimony before Congress.

    European markets are trading higher today, taking their cue from a strong close on Wall Street overnight.

    Asian markets rallied to close higher today. Most investors believe the worst of the credit crunch is over and piled back into the market. The Hang Seng closed 3.2% higher, the Nikkei ended 4.2% up and the Shanghai Composite index closed higher by 0.6%.

    COMPANY NEWS

    Capitec Bank Holdings has reported a 16% increase in headline earnings per share for the year ending February. A final dividend of 75 cents was declared, up by 25% from a year ago - bringing the total dividend for the year to 100 cents. Revenue rose by 28% to R1.1 billion but operating expenses increased by 26% to R771 million.

    1Time holdings have reported an increase of 36% in revenue and a 38% increase in operating costs. Rising fuel prices have contributed to this rise in costs but the company has still managed to increase its profit by 17% to R28 million.

    Independent power plant developer Ipsa has signed a £15.5 million loan facility agreement with Standard Bank plc.

    Permalink2008-04-02, 13:20:50, by Marika Email , Leave a comment

    Buffett shows how high dividends can generate wealth

    Berkshire Hathaway’s annual report always makes for interesting reading for all investors. Warren Buffett bought into Berkshire around 42 years ago and used the company as his vehicle for buying into listed and unlisted investments. Today I want to highlight an aspect that jumped out at me when reading his latest report.

    At the end of December, the company had 76 operating businesses. Buffett reported that most did well. The businesses in the housing sector had a tough time. Despite the increasing emphasis on operating companies, the company still highlights its increase in book value per share. i.e. the net asset value per share.

    This was $19 when Buffett took control of the company and is now at $78008, a compounded 21,1%. The business then comprises, like many investment companies, part pure passive holding, and part ownership of operating companies.

    After giving details of past performance from operating and passive holding, the honest Buffett then makes the following pertinent point, which is relevant for all investors, “Berkshire’s past record can’t be duplicated or even approached. Our base of assets and earnings is now far too large for us to make outsized gains in the future.”

    Now about that important point.

    Buffett says that he likes long term competitive advantage in a stable industry, even if this comes without high organic growth. He will take the high earnings and if necessary invest them somewhere else. There is no rule that says you have to invest the money where you’ve earned it.

    This is essentially talking about a stable company throwing off high dividends because that company does not require huge amounts of capital for ongoing expansion.

    He then elaborates about his ownership of See’s Candy, which he purchased in 1972 for $25m, where its pre tax earnings were less than $5m. The capital invested needed to generate those earnings was $8m and so the company was earning 60% on capital.

    While subsequent growth rate in terms of volume increases has been at a snail pace at just 2% per annum, the capital invested now is at $40m and the company is earning pre tax profits of $82m.

    Therefore from the time of purchase until now, the company only required a further net investment of $32m in capital. Over that time however the company has generated free and distributed cash flow (i.e. earnings paid out as dividends) totalling $1,35 billion. All of these profits, except for the $32m, have been paid up as a dividend to Berkshire and which has been available to Buffett to invest.

    He admits that this is a rare example of a company that requires a modest increase in capital in order to finance growth.

    But here is a steady boring company that generated volume growth rate of only 2% per annum, profit growth rate of around 8,3% compounded, but because of its low capital requirements was able to pay out a high proportion of earnings as a dividend. This was the biggest attraction that allowed a $25m business to ship back $1,35 billion in dividends and at the end of the period still be worth around $1 billion, assuming a 12 PE.

    It’s a strong case for an emphasis on value, quality of earnings, high dividend payout ratios, high returns on capital employed, and less of an emphasis about high growth rates over say the next 2 years.

    Kind regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-04-01, 17:45:10, by ian Email , Leave a comment

    Bland Day For JSE

    LOCAL MARKETS

    The JSE is flat today with not much news driving the market. Investors seem to be buying banking and industrial shares and moving away from resource shares for now.

    The rand is range bound, trading at around R8.09/$. Traders expect the local unit to remain between R8.05-R8.16/$ for the rest of the day.

    OVERSEAS MARKETS

    Wall Street is set to open firmer today as the start of the new quarter beckons. Investors are confident after various financial firms made definite moves to combat the current credit crisis. Various economic reports, the ISM's report on nationwide manufacturing activity and a government reading on construction spending, are due just after the market opens.

    European markets are trading firmer today on the back of a firm close on Wall Street overnight. The banking sector is in the spotlight after UBS announced a 15 billion Swiss franc capital hike after declaring a further $19 billion in writedowns.

    Japanese shares closed higher today. The Nikkei ended up by 1% while the broader Topix index closed 1.5% higher.

    COMPANY NEWS

    Gold Field's March quarter gold output will be 20% lower than the December quarter and production should improve in the June quarter. Ian Cockerill, CEO for seven years, has announced his intention to leave Gold Fields for another leadership position in a company outside the gold sector.

    Avusa has purchased a majority stake in specialist airport advertising business Airport Media. They will become a key part of the significant set of brands in the Avusa stable.

    The Triangle Real Estate India Fund, established by Old Mutual Investment Group Property Investments and ICS Realty of India has secured an investment pipeline of projects worth more than $400 million.

    Permalink2008-04-01, 14:55:31, by Marika Email , Leave a comment