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Market Scorecard
There was green on the screen yesterday. Global markets were flying thanks to stronger than expected manufacturing data out of China. Asian markets are still in the green this morning, but off their earlier highs. On the local front our market was flying too. The only companies under strain were the dual-listed stocks. A strong Rand hurting their local share prices.
Not good news for us though was the news from the tax man, Sars misses revenue collection target for fifth year in a row. If SARS collects less than expected, our budget deficit is higher than expected which pushes up our debt to GDP ratio. The need for economic growth can not be emphasised enough. As the pressure on consumers increases, tax compliance decreases. Economic growth will empower the consumer again, increase tax collections, decrease debt to GDP ratio, improve Eskom's prospects and improve South Africa's debt rating. As you can see, growth solves a whole host of South Africa's problems.
Yesterday the JSE All-share closed up 1.15%, the S&P 500 closed up 1.16%, and the Nasdaq closed up 1.29%.
Our 10c Worth
One thing, from Paul
The world of investment is always exciting, and always evolving. High rates of company revenue growth always attract investors. The recent IPO of the world's second-best ride hailing company Lyft was well received, and even though the company has never made a profit, its market capitalisation is now above $20 billion.
If that sounds scary, consider unlisted property leasing company WeWork. Actually they prefer to call themselves a "community co-working space operator". WeWork doubled its revenue, net loss and membership between 2017 and 2018. The group now has a presence in 425 facilities in 100 cities in 27 countries, including Johannesburg. Its major financial backer is SoftBank, which is an investment holding entity comparable to Naspers.
WeWork has grown its annual revenue by over 100% for each of the past eight years. Sounds amazing, must be a strong buy, right!? However, its revenue in 2018 was only $1.82 billion and its net loss for the year was $1.9 billion. So, losses exceed revenue? Hmm.
I worry that office space is really just office space. WeWork is really just renting space, adding edgy features and selling shared work areas to other companies. True, they are branching out into residential units and related services, but how wide can they go? Is this really a transformational business, or is it the kind of thing that can only work when the economy is booming and smaller businesses are expanding? Time will tell.
Byron's Beats
Here is another good news South African business story. Mzansi-made footwear brand Veldskoen gets backing from US billionaire Mark Cuban.
Now this is a topic I can talk about well because I am an absolute sucker for Veld Skoene. These guys have a great online presence and a few years back I ordered a pair of Farmer Greys. A little boring compared to some of the funky names and colours they offer such as The Pinotage (red), J-Bay (blue) and The Bloem (Orange).
The article/podcast goes on to say that Mark Cuban and Ashton Kutcher took a 50% investment in the company's US venture with a plan to expand the product throughout the country. If you are a big fan of Shark Tank (it is on Netflix) like me you will know that both of these celebrities frequent the show. Their social media presence is going to be huge for a South African shoe that has become a global fashion statement. Between the 2 of them they have 4.4 million followers on Instagram.
The company plans to keep production in SA and export around the globe.
What you may not know is that Long4Life also own a 49% stake in the original business. So you can add Brian Joffe to the list of expert advisors. Expect big things from this proudly South African brand.
Michael's Musings
Last week a few articles about the 4% Rule crossed my computer screen. The 4% Rule deals with how much you can withdraw from your retirement savings each year and is something financial advisors use to work out how much money you will need to retire.
Here is more information on how it works - Wealthy Maths: The 4% rule and What's your number? 3 tips for calculating how much you need to stop working at any age.. Here is a link talking about the assumptions and limitations of the rule - The 4% rule isn't an endpoint, it is a starting point.
My personal retirement plan is to try to amass a large enough capital base, which will allow me to live off of dividend distributions and not need to ever sell any capital. I'm not sure that I will ever truly stop working though, so a small side income will help subsidise the dividend income. All this is only 30 - 40 years away, so time will tell how this turns out.
Bright's Banter
When we think of the most profitable companies in the world we tend to lean towards technology or biopharmaceutical companies with super high margins right. New data from Moody's revealed that state-backed oil giant Saudi Aramco netted a breathtaking $111.1 billion in net income last year.
That's the same as Apple ($59.5 billion), Google ($30.74 billion) , and Facebook ($22.17 billion) combined! Aramco basically runs circles around other oil companies like Royal Dutch Shell ($23.9 billion) and US giant Exxon Mobil ($20.8 billion). This is the first disclosure from the Saudi national oil producer as their financials have been under wraps for over 75 years.
Why would Aramco want their financial affairs to be public knowledge? Well, the company was testing if the bond market had any appetite for their paper and they managed to raise $10 billion in funny money in the process. This is part of their grand plan to eventually list parts of the company on the markets.
The biggest risks to Saudi Aramco's fortunes is the fact that all their earnings stem from just one country (big geographical risk) and everything is dependent on the performance of the oil price. Did I mention that Aramco lives and dies by the whim of the Saudi government? I wonder though who still wants to invest in an oil company in 2019 because it ain't gonna be me!
Linkfest, Lap it Up
Not the guys who should be hacked. What do you say to clients, sorry? Hackers Hijacked ASUS Software Updates to Install Backdoors on Thousands of Computers
Society and social media can cause change - European parliament votes to ban single-use plastics.
Vestact Out and About
The founder of our US broker was on the box last night - The Watch List - Ted Weisberg
Paul is mentioned is this Business Day market wrap, talking about the resource stocks - Rand strengthens on Moody's reprieve.
Signing off
The JSE All-share is higher this morning and the Rand continues to strengthen. There is not much data out today, but during the morning Theresa May is meeting with her cabinet to try forge a way forward after the UK parliament rejected another four Brexit proposals. The EU is now starting to lose their patience.
Sent to you by Team Vestact.