"So let us rewind. 5 years ago, SABMiller was trading at an average price through the year of 190 odd Rand, earnings per share for the year were just over 9 Rand a share, hardly a bargain at 22 times earnings. Fast forward to last year, 2014, where the stock traded at an average price of 500 Rand a share on earnings per share of 21.45 Rand, again an average rating of 24 times earnings, ten percent more expensive than 5 years prior."
To market, to market to buy a fat pig. Thanks y'all for the support last evening on the SSO final, close but no cigar for me. I was just grateful for the opportunity in the end, thanks to everyone. My problems pale into insignificance, the fires in the Cape, although part of mother nature and part of a cycle do little for the residents immediate concerns, we are all thinking of those impacted and wish them well.
Cape Town was the hottest city in the world yesterday as the mother city clocked the hottest day in 100 years according to the records. The low to mid forties, that temperature is nuts! In celcius of course, convert that to Fahrenheit and you are pushing somewhere around 110. I guess the damage could have been far more severe if it had been closer to buildings and more densely populated areas.
Race day for the Cape Town Cycle Race (previously the Argus) is Sunday, I am guessing that many will get to see the devastation and power of nature up close and personal. The Argus website does not seem to suggest that the race is anything but going ahead, I certainly hope that it cools significantly over the next couple of days. Sunday looks like around 28 degrees, good luck to all participants, I think that health and wellness as an investment theme is in its infancy.
That is what we do here in this daily piece, discuss interesting new events from companies, prickly outcomes from others and continue to try and identify new investment themes as well as keeping a handle on the existing ones. We try and make the business of investments practical, enjoyable and try to educate all and sundry.
One thing I still cannot get a handle on is why some folks feel it necessary to tell you that your thesis is wrong. I have said many times that I do not think that any specific investment style is wrong or right, in the recent interview, Warren Buffett argued that you cannot have growth without value. When people tell me that today I am paying x or y for a company and that is too expensive, the question to them should be, how long do you intend to own this company for? If the answer is forever, for instance, they would have told me the same on Aspen (which we do own for clients), or SABMiller (which we don't own for clients) 5 years ago.
So let us rewind. 5 years ago, SABMiller was trading at an average price through the year of 190 odd Rand, earnings per share for the year were just over 9 Rand a share, hardly a bargain at 22 times earnings. Fast forward to last year, 2014, where the stock traded at an average price of 500 Rand a share on earnings per share of 21.45 Rand, again an average rating of 24 times earnings, ten percent more expensive than 5 years prior.
The thing that struck me however when wanting to do this exercise is that if you had bought Breweries (as it is commonly known) at 190 Rand, five years later the earnings would have been less than 8 times what you would have paid back then. In fact the dividends, all added up over the five year period from 2010 through 2014 is closer to 38 Rand in total, you would have got back one fifth of your money already in distributions from the company. Obviously less the 15 percent in recent years.
So whilst not knowing what the future holds and whether or not SABMiller will grow at the same rate in the past, as well as a weakening Rand juicing up the Rand returns, all these factors are unknown to the broader investment community. What I do know about the company is that in years to come their product will be seen as increasingly easy target to tax, let us face it, their product used in excess is hardly good for social cohesion.
Another example that we can use right now, today, seeing as we are about to cover the results of MTN is that the company is paying an annual dividend of more than some of our first clients paid for the stock around 12 odd years ago. That is right, if you paid around 12 Rand all those years ago, you are rewarded with getting that amount back today from the company, by way of dividends.
I remember the company being so expensive, it was trading on 30 years worth of earnings back then, paid a pittance (less than one percent yield) and was going to run into problems in Nigeria. It was just too risky and when the share price got closer to 25, I remember reading an extremely detailed analyst report that suggested that MTN was grossly overpriced and was definitely a sell. The value people would not touch it with a barge pole, too expensive.
And that is my conclusion, I cannot understand that if you say your time frames are very long, 10 years plus, and in the same breath say that you have no desire whatsoever to pay 25 years worth of historic earnings, the math does not always add up. I have no way of knowing when a crisis will come along and whether or not we, or anyone else would have the foresight to recognise that is the cheapest price that we are going to get.
Events like late 2008 and early 2009 in equities markets do not come along very often, a 50 percent draw down in equities markets happens twice in your investment life, on average. A 20 percent draw down happens once every few (three) years and 30 to 50 percent about once a decade. If you are going to sit on the bid and wait for that opportunity whilst the market might double from here and then halve, I am happy to get paid dividends and not get anxious about the price paid in the time being. Your investment thesis is no more superior to anyone else.
To leave off, here is a quote from Charlie Munger that explains just how far and few between these "things" are:
"You can argue that if you're not willing to react with equanimity to a market price decline of 50% two or three times a century, you're not fit to be a common shareholder, and you deserve the mediocre result you're going to get compared to the people who do have the temperament to be more philosophical about these market fluctuations."
MTN results today. This is for the full year to end 2014. They supply a mobile phone service, something that has become essential to our lives and the 223 million people who use their networks. Revenue for the full year is up only 6.4 percent to 146 billion Rand, EBITDA margins increased by 150 basis points, EBITDA increased by 10.2 percent to 65.5 billion Rand. Astonishing. HEPS clocked 1536 cents, up 8.9 percent. The dividend was a record 1245 cents for the year, 800 cents in the second half. Subject of course to a 15 percent withholding tax, that is 680 cents. For the full year that amounts to 1058 cents per share. At a current share price of 211.74 Rand the company trades on 13.78 times price to earnings multiple with a post tax dividend yield of 5 percent. Or just shy, 4.99 percent. We will flesh these out over the coming days.
Things we are reading
It feels like the turn of the last century, where flight was still new and people were coming up with the most efficient and safe ways to fly -
Solar plane set for record-breaking world tour
A look at where natural gas has come and where the industry may be heading -
Golden scenarios: A promised golden age of gas is arriving but consumers are cashing in well before producers do.
A look at the next generation finger print scanner -
Qualcomm's new fingerprint sensor should be better than Touch ID. Having a better scanner is also the next step in data security and a move away from having to remember passwords.
Home again, home again, jiggety-jog. We've had a decent start today amongst our recommended stocks. MTN is up nicely on the solid numbers while Discovery continues to surge post their results a few weeks back. The overall bourse is being dragged by the resource stocks as that sector remains volatile along with the underlying commodities. Solid retail numbers just came through from Europe, thats always a good sign.
Sasha Naryshkine, Byron Lotter and Michael Treherne