Byron Beats the Streets
Our markets locally fell 0.9% as tensions in Ukraine seemed to flare and spook markets all over the world. Shots were fired between pro-Russian separatists and the Ukrainian military which sparked fears that the situation could be getting worse. Here is the full story from Time Ukraine Sends Troops to Curb Unrest in the East.
There are 7 billion people on this planet with so many diverse cultures and religions. Throw in thousands of years of history and you are bound to get tensions. I am not trying to play down the seriousness of this matter but these things happen. They have happened in the past and they will carry on happening in the future. Markets get spooked over the short term but in the long run businesses still operate on a day to day basis as usual. Events like these include natural disasters, bank runs, defaults, dictatorships, bad weather the list goes on. And so do we, we carry on and keep calm. Humans are extremely adaptable, that is why we dominate the planet. Please remember that I am talking about this in the context of the market, not on specific scenarios which can be treacherous.
The biggest news we had from our locally listed businesses was a production report from BHP Billiton. I say locally listed instead of just local businesses because from my most recent calculations BHP get 0.81% of their profits from South Africa. Ouch, far from a local business. Michael will cover that report in detail.
The US market bucked the trend as good earnings beats were the talk of the day. As I have mentioned before, markets are determined by under lying earnings and what the market expects these earnings to be. The S&P index gained 0.7% while the Nasdaq added 0.3%
One of these releases was a from a Vestact stalwart Johnson & Johnson. The business beat expectations and upgrades from analysts came flying in. Here are their financial highlights, for the full release click on the link
JNJ Reports 2014 First Quarter Results.
"Net earnings and diluted earnings per share for the first quarter of 2014 were $4.7 billion and $1.64, respectively. Excluding special items, net earnings for the current quarter were $4.4 billion and diluted earnings per share were $1.54, representing increases of 7.8% and 6.9%, respectively, as compared to the same period in 2013.
Johnson & Johnson delivered strong first-quarter results driven by successful new product launches and the continued growth of key products. Our talented colleagues around the world continue to bring meaningful innovations to patients and customers, addressing significant unmet needs. We also advanced our near-term priorities and long-term growth drivers, positioning us well to deliver sustainable results."
This is another one we will summarise for clients next week.
Another significant release was from Coke a former Vestact recommended stock. We took it off our list in February last year when they were trading at $38. Today they are at $40. Regardless of these short term moves (yes 1 year is short term for us) we feel the move away from unhealthy sugars will hurt this business. Here is a summary of the results from The WSJ titled
Coke's Global Soda Volumes Decline.
Michael's musings: BHP Pushing forward
BHP Billiton released their 9 month production report this morning, the report does not contain financial numbers but still gives us a good idea of where the company is heading.
The following is the opening line of the report.
"BHP Billiton maintained strong momentum in the nine month period ended March 2014 with record production achieved for four commodities and at 10 operations"
The biggest increase in production was in Metallurgical coal, with an increase on 24% YTD compared to 2013 YTD figure. The big increase is from them brining online the new mine, Daunia, and complemented by record production numbers from all the Queensland mine's (9 in total).
The second biggest increase in production was Iron Ore, which is up 21% YTD compared to the 2013 YTD figure. Most of the increased production has come from their Western Australian mines where they are busy with a major scale up of the mines. Based on their half year results released in February the Iron Ore division was 32 percent of revenue and accounted for 52.5 percent of EBIT. The Iron Ore price over the last year has been declining, so the increased production of the Iron ore will be good for the Revenue figure, but the margins for the second half of the year won't be as good as the first half.
BHP Billiton have said that they may want to focus on their core assets being Copper, Iron Ore, Petroleum and Potash going forward. They reiterated this consideration in the report,
"As we announced to the market on 1 April 2014, we continue to actively study the next phase of simplification, including structural options, but we will only pursue options that maximise value for BHP Billiton shareholders ". All of the core divisions showed growth in production numbers which bodes well for their plans going forward.
The production report gives you a limited picture of the works of the company because increased production without cost controls is a bad thing. I do not think that is the case here though, BHP have quality assets that are at the lower end of the cost curve which means that they can increase production and still have that increased production costing them less than rivals. Being on the lower end of the cost curve also means that their mines stay profitable under a scenario of a big drop in resource prices, which is where you want to be.
Given BHP's quality and diversified assets they are still our favourite stock to give your portfolio some resource exposure.
We are up today. That Chinese GDP number came in higher than expected. I saw a headline titled China Economic Growth Slows to 7.4%. Oh how we wish our growth was slowing to that level. Us and everyone else. Here is a summary of that data from Business Insider
China Economic Growth Continues to Slow.
Sasha Naryshkine, Byron Lotter and Michael Treherne
Email us
Follow Sasha, Byron and Michael on Twitter
011 022 5440