Good Morning Carnage. Oil was delightfully proving very fulfilling with the bets being on a significant reduction in supply (how wrong). Its ironic that the Ukraine may actually be intensified as a result of today's OPEC vote on production. Expect a more urgent call back to Austria in the next few months if the demand doesn't support an appreciating Oil price (February).
The amount of futures/options (the bets) on the reduction caused categorical carnage on the market as they called it wrong and ran to the door. To quote myself from this mornings phone in about the OPEC which clearly has impacted oilers across the board...short the cash starved and those with outstanding assets may have some hope...risks are for $58/b (serious risks). The Indonesian President will be sighing with relief, what a perfect era to wean off a fuel subsidy.
Items worthy of a note from yesterday and bolting on nicely to the Rio seminar update today was the Rio Tinto Diavik Diamond Mine - development of the A21 pipe. For those followers of age, you'll note the A21 was the sweet spot that was the original target a few years back, but the plan changed. The costings are postive for a mine life extension of circa 5+ years, and the quality of the stones is surprisingly good. A good move for Rio keeping those returns coming in. Long live the independent Chinese Rio, Glencore have enough problems.
Don't get too excited about the Swiss vote with the expected outcome save for some random events or last minute changes is swinging favour of a no vote (48% 38% in favour). With the lack of Comex trades rolling over its amusing to see the market devoid of any opinion (not here). The gold price is the opinion (my view), so the market is saying its a no vote for 1500t's of gold over 5 years. Expect analysts to sit on the fence with limited suggestion on direction. Gold has some serious risks as a result of oil...
Something I missed a few days ago was Gem Diamonds (GEMD) unearths rare 40.23-carat ruby in Mozambique. No RNS has been forthcoming on this which is surprising as estimates range between $250K a carat and $1m cut (please note cut). Point out by Roger Bade this yesterday morning...
Monitise (MONI) holders will take some relief that they've got more cash to develop things with...the cash burn in total in MONI is staggering and far from proportionate to the returns. Monitise Enters New Strategic Partnerships with Santander, Telefónica and MasterCard to accelerate the growth in Mobile Money ecosystem. Small change to those involved, so holders would be wise to view today's news as a great opportunity to take some profit save some loss.
Its not the intention to bore you with the potential of enabling financial transaction for the 'unbanked', but parties would be wise to read around the African opportunities (interoperability). Mobile money will make a market, it will create a market place, although it's more a case of when you'd be wisest to invest.
With the discounters in full swing it was with no surprise that Poundland's (PLND) Interim Results for the 26 weeks ended 28 September 2014 were well received. Being equity long on PLND, I took the monies off the table this morning at just above what was paid. Either I have got something wrong in terms of PLND's potential or the market is simply not valuing it the same way. Having held near 5 months, there are better places for the money currently than the potential of a steady walk to £4.
For those with greater expectations of Gin, Distil PLC Blackwoods Gin approved by TTB. The disappointment being this was not well in advance of the Christmas market where sales could have been motivated and promotional activity more memorable (+improved cash flow). Not the wisest time to be long however these companies should be supported, not because you want to make a profit but a gift to gin drinkers.
The company in my view needs circa £1.5M for expansion so if a certain reader hasn't found a home for just some of his Serco profits to get on the blower, there's worst places you could put it! Alternatively, pop out and support a British Company by buying a British drink (its actually from the Shetlands but before people black list me for train-spotting in the gin world!). If I see cases of cheaper alternatives arriving next week, one shall be sending the thank you with disappointment cards, Hendricks is of course acceptable.
Couple of items to share Duncan Fox...
SABMiller:
Sell
The Company has announced the creation of the largest Coca Cola bottler in Southern and Eastern Africa this morning. SAB, Gutsche Family Investments and Coca Cola Sabco will merge their businesses in two phases which will eventually leave SAB with 57% of the voting rights, GFI 31.7% and Coca Cola with 11.3%. The combined business will bottle 40% of all Coke's volumes in Africa and will serve 12 high growth countries. Clearly as the business develops it should benefit from the scale and growth within these 12 markets, but eventually add further geographies to develop the business (we assume). Clearly soft drinks was an important contributor to the Group's growth, it provided 7% growth at the Interim stage whilst Beer volumes really struggled, so the rationale for the deal is excellent. However, with the shares trading on a 2015 consensus PE of 22.3x, the shares are not cheap. In fact we believe that there is some take-out premium within this rating, ABI are certainly getting closer to being able to do a deal. Adding more ties with Coca Cola though do make a tie-up with ABI more troublesome as ABI bottles for PepsiCo, not impossible to unpick, but just adds further headaches for the ABI management. SAB is a great Company, well run but just too expensive given the current growth rates that they are achieving, so we will continue with the Sell recommendation.
The Company has announced the creation of the largest Coca Cola bottler in Southern and Eastern Africa this morning. SAB, Gutsche Family Investments and Coca Cola Sabco will merge their businesses in two phases which will eventually leave SAB with 57% of the voting rights, GFI 31.7% and Coca Cola with 11.3%. The combined business will bottle 40% of all Coke's volumes in Africa and will serve 12 high growth countries. Clearly as the business develops it should benefit from the scale and growth within these 12 markets, but eventually add further geographies to develop the business (we assume). Clearly soft drinks was an important contributor to the Group's growth, it provided 7% growth at the Interim stage whilst Beer volumes really struggled, so the rationale for the deal is excellent. However, with the shares trading on a 2015 consensus PE of 22.3x, the shares are not cheap. In fact we believe that there is some take-out premium within this rating, ABI are certainly getting closer to being able to do a deal. Adding more ties with Coca Cola though do make a tie-up with ABI more troublesome as ABI bottles for PepsiCo, not impossible to unpick, but just adds further headaches for the ABI management. SAB is a great Company, well run but just too expensive given the current growth rates that they are achieving, so we will continue with the Sell recommendation.
Britvic:
Sell
The Full Year results have been delivered today, there shouldn't be any surprises as nearly all of these numbers have already been released. However, it is clear that the numbers have been good due to an excellent performance by the UK Carbonate business with volume growth of 4.4% and pricing growth of 1.3%, other than that only the International business drove any value. All the other businesses are dull. What we need to remember about the year is that in eth UK Coca Cola reduced the size of the large bottles from 2ltr to 1.75ltr, effectively an 8.75% price increase. Whilst this was being implemented the promotional campaigns, marketing etc were poor/non-existent, so Pepsi had an easy time. To be fair to Britvic they executed their strategy very well for Pepsi to deliver the growth above, but we suspect life will not be as easy again. There are two issues that fly out at you from the outlook statement. Firstly Britvic are now ready to push Fruit Shoot in multi-packs in the US from the middle of 2015. This will create noise where analysts will speculate on how much this will mean for the Group. However, given that the International business represents just 5.6% of the overall business, we believe that the market is pinning too much hope on a small part of the overall business. The driver here has to be the UK Stills and Carbonates business, these businesses represent 67% of the total so if they stagnate or fall, there will be no/limited growth in the top line. Cost savings will continue to come through for another couple of years, but you shouldn't put a high PE on cost saving driven growth. With Britvic trading on a consensus PE of 14.8x (we are lower, so 15.1x), then you need some sales growth. We are not convinced that this will come as the business has concentrated on pricing recently, and we can see from many a company that getting pricing in the UK, Ireland and France is not easy at the moment. We keep our Sell recommendation.
Tesco: Buy
It is being reported in today's FT that a UK law firm (FT article) is trying to sign up investors to sue for their losses in the shares. Interesting, we assume the 'buyer beware' principal, and if we believe Tesco and the independent auditors that were brought in they didn't do anything illegal, but pushed that law to the limits. If anyone read the accounts they could have spotted that life didn't seem right, the cash flow wasn't following the supposed top line growth, and the explanation that this was just higher investment always seemed odd as you would assume that this should make a return. However, more time for the management to sort out stuff rather than drive the business which is bad news, but we are not sure how the lawyers will shape their argument.
The Full Year results have been delivered today, there shouldn't be any surprises as nearly all of these numbers have already been released. However, it is clear that the numbers have been good due to an excellent performance by the UK Carbonate business with volume growth of 4.4% and pricing growth of 1.3%, other than that only the International business drove any value. All the other businesses are dull. What we need to remember about the year is that in eth UK Coca Cola reduced the size of the large bottles from 2ltr to 1.75ltr, effectively an 8.75% price increase. Whilst this was being implemented the promotional campaigns, marketing etc were poor/non-existent, so Pepsi had an easy time. To be fair to Britvic they executed their strategy very well for Pepsi to deliver the growth above, but we suspect life will not be as easy again. There are two issues that fly out at you from the outlook statement. Firstly Britvic are now ready to push Fruit Shoot in multi-packs in the US from the middle of 2015. This will create noise where analysts will speculate on how much this will mean for the Group. However, given that the International business represents just 5.6% of the overall business, we believe that the market is pinning too much hope on a small part of the overall business. The driver here has to be the UK Stills and Carbonates business, these businesses represent 67% of the total so if they stagnate or fall, there will be no/limited growth in the top line. Cost savings will continue to come through for another couple of years, but you shouldn't put a high PE on cost saving driven growth. With Britvic trading on a consensus PE of 14.8x (we are lower, so 15.1x), then you need some sales growth. We are not convinced that this will come as the business has concentrated on pricing recently, and we can see from many a company that getting pricing in the UK, Ireland and France is not easy at the moment. We keep our Sell recommendation.
Tesco: Buy
It is being reported in today's FT that a UK law firm (FT article) is trying to sign up investors to sue for their losses in the shares. Interesting, we assume the 'buyer beware' principal, and if we believe Tesco and the independent auditors that were brought in they didn't do anything illegal, but pushed that law to the limits. If anyone read the accounts they could have spotted that life didn't seem right, the cash flow wasn't following the supposed top line growth, and the explanation that this was just higher investment always seemed odd as you would assume that this should make a return. However, more time for the management to sort out stuff rather than drive the business which is bad news, but we are not sure how the lawyers will shape their argument.
Still working on SVT (Severn Trent) so hopefully over the weekend. With rumours of a gold placing being explored for a very small gold stock they should think themselves lucky there's no stock to borrow.
Re: the Australian Atlas Iron supporters club, if they can moderate their profanity I give an assurance I shall publish, until then...best of success "long & strong."
Atb Fraser
Fraser- Hi- The annual BBC Food Show carnage with the better half yesterday and whilst I didn't try any of the multiple gins on offer, the head is a little delicate even at this time of day/afternoon. If you haven't been I can recommend it thoroughly- the food is optional but the drink is a definite must.
ReplyDeleteRe oil- yes, the Saudis are playing for keeps, and as they couldn't get everyone else to agree to their precise demands they have stopped the game by taking their ball home. Lots of production is now being provided at a loss, and in a similar manner to iron ore, new developments are being deferred and the pace of any farm outs will slow even further, if that is actually possible. So we will have a period of lean now with a bountiful period in 2/3 years time, when the Saudis will reap their rewards. Its a game that only those with deep pockets can play and the Saudis are experts here.
Re RIO- as with oil, they will press on with the squeeze, their Pilbara production plans are unchanged so 330mt in 2015 and 350mt in 2017, with 360mt the year afterwards. I do admire their balls and their ignoring of the normal quarterly pressures that corporations focus on in the main, given the markets v short term needs. Some "analysts" have mentioned selling off all non iron ore assets, which in my view is just not sensible or logical and perhaps white powder fuelled. Diamonds are nice at this point in the cycle and copper will come to the fore in its own time. Perhaps the anal in analysts coming to the fore :-))
Re SAB- Dan is right- they aren't cheap, but I wouldn't sell given their position in the drinks market and their emerging overseas businesses will drive profits in decades to come. They could be a target, but I see a v bright future for SAB and hence the queue to buy their shares. The dollar has been an issue, but the dollar wont be strong forever.
Re TSCO- buying now isn't my plan, as I can see their underperforming continuing and giving them the crappiest Xmas of the food retailers, so I still have fair value at £1.68, warts and all.
Cheers. The Leggie