vestact posted: " Market Scorecard Yesterday, US markets cooled off after experiencing their best week in a month. It was a quiet, sleepy session, with low trading volumes. Consumer stocks were amongst the worst performers, while the S&P oil and gas sector rose" Vestact - Money with a dash of funny
Yesterday, US markets cooled off after experiencing their best week in a month. It was a quiet, sleepy session, with low trading volumes. Consumer stocks were amongst the worst performers, while the S&P oil and gas sector rose 2.8%.
In local company news, Discovery announced that they would launch a secondary listing on A2X, helping to provide some much-needed competition to the JSE. Internationally, Nike reported earnings that beat Wall Street's expectations but its outlook was dented by news that it would leave Russia permanently. Elsewhere, Barclays spent $2.8 billion buying specialist lender Kensington Mortgages and a $2.4 billion loan portfolio.
Yesterday, the JSE All-share closed up 2.23%, the S&P 500 lost 0.3%, and the Nasdaq fell 0.72%.
Our 10c Worth
One Thing, From Paul
Leonardo Del Vecchio has died at the age of 87. Born dirt-poor, he built a global eyewear empire and amassed a personal fortune of over $25 billion.
The Italian entrepreneur grew up in a Milan orphanage and started an apprenticeship at 14. He started making eyeglass frames in 1961, 60 years later his creation, EssilorLuxottica, includes brands like Crizal, Essilor, Ray-Ban, and Oakley and owns stores such as LensCrafters and Sunglass Hut.
He also had big personal holdings in Italian financial groups Mediobanca, Generali, and UniCredit. A relentless dealmaker, he said in a recent interview: "You need to be brave enough to keep doing things, to move forward".
We have a few clients who own EssilorLuxottica shares in New York, on the basis that short-sightedness is under-treated around the world, and that sunglasses are an affordable luxury item that will sell well in sunny regions. Del Vecchio's passing may help the company resolve some difficult boardroom battles. It's a good stock to own, if you like the healthcare and luxury goods sectors.
Ever heard of Google Hangouts? Probably not, that's why they are shutting it down in November. Google Hangout was Alphabet's attempt at a social media platform, leveraging off its millions of Gmail users.
I am telling you this because many business failures go unnoticed, especially within the tech giants with a lot of cash to burn. With size comes high expectations for growth and innovation, but despite some misfires, they will roll out some new winners.
Amazon Web Services (AWS) is a good example of a side bet getting so large that it has become Amazon's biggest profit driver. Cloud services have such a large addressable market that Google has been able to copy AWS and build up its own cloud business.
Google Cloud is a confirmed winner and will bring in over $20 billion in revenue this year.
Michael's Musings
It's been a bruising few months for equity investors. Yesterday we had some great news out of Naspers/Prosus. The management team has taken positive steps to reduce the discount of the value of the groups' underlying assets. Roughly speaking Naspers was trading at a 60% discount to net asset value (NAV) before yesterday's announcement. That discount had been widening recently after the management team complicated the group structure.
Naspers has now initiated an open-ended and unlimited programme to sell down Tencent shares, and use the money to buy back its own shares. This is a break from a previous strategy where the company committed to not selling any Tencent shares until 2024. Naspers says that their selling won't be more than 5% of Tencent's daily trading volume, as not to put too much pressure on the Tencent share price.
The news sent Naspers shares up by over 20%! For every Tencent share that is turned into cash, and then used to buy back a Naspers share, the discount to NAV automatically narrows. If Naspers sold its whole Tencent stake, it could repurchase all of its own shares, and still have cash left over.
My best guess is that this Tencent to Naspers share swap will continue until the Naspers NAV is below 30%, which seems to be the average market discount for investment holding companies. Management will let the market know that they will step in if the NAV discount gets worse than that.
Bright's Banter
Mondelez announced that it was buying Clif Bar for $2.9 billion to expand its global snacks portfolio. The Cadbury-maker will get the Clif, Luna, and Clif Kid bar brands when the deal closes.
Gary Erickson and Kit Crawford are the power couple behind Clif bar; they own 80% of the business. The balance of 20% of the shares were extended to colleagues as a retirement benefit. Clif has been a family and employee-owned company since the turn of the century. As an aside, we follow that model here at Vestact.
The founding duo received a $120 million offer back in the year 2000 from Quaker Oats, but they politely declined and put a "CLIF Is Not For Sale" sign on their website.
If you thought a $2.9 billion payday was enough, then you're in for a surprise. Mondelez will also pay additional carry-out bonuses to the sellers depending on how the business performs during the earn-out period. Nice work if you can get it!
Linkfest, Lap It Up
Most African youth between 18 and 24 want to emigrate in the next three years. Will their governments do enough to improve the quality of their lives and keep them? - Over half of Africa's young adults want to leave.
Jonathan Clements from the Humble Dollar looks back on his life. He says there are things that are costly but worth it, like saving for retirement and having enough insurance - Here are four things we shouldn't regret.
Signing Off
Asian markets are moving slightly higher this morning, despite Chinese tech shares trading down, especially Tencent.
US equity futures started out on the back foot but have rallied after the lunch break in east Asia. The Rand is trading at around R15.84 to the US Dollar.
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