Apple results, slight beat, guidance lower

And on that note, let us speak the English that we know and look at a Vodacom trading statement that has been released this morning. Looks excellent at face value. However, this is comparing against a period where there were negative once off charges. But that is the way that it rolls, once offs are exactly that. Results for the year to end March are expected on the 20th of May. And when they arrive, it will show that HEPS will be between 20 to 25 percent more than the 709 cents reported last year. Between 850 to 886 cents, more or less for the full year. So that is good, right? Yes. I suspect that the market will have expected something around here, if not a little less, an upside surprise is always a good thing. More importantly, the yield at current prices is around 7.5 percent. Yowsers. That is excellent.

The conference call was where the juicy parts came however, because initially the stock ramped up five odd percent afterhours, but then sank back. Why? Chinese sales are only single digit, and then perhaps utilisation of cash reserves, although that seems good enough for me. Here is the separate release: Apple More than Doubles Capital Return Program. The repurchase of stock increased by 10 billion to 60 billion (just a little less than 16 percent of the current market cap) and a quarterly dividend boosted to 3.05 Dollars a quarter. That translates to 12.20 Dollars a year, if people are committed to owning the stock for that long. That is a little over a three percent yield. That is the same as Microsoft. Not too sure about you, but I would rather be buying Apple now than Microsoft. At this current run rate, Apple will pay around 11 billion Dollars a year to their shareholders, making them (as they say) one of the largest dividend payers in the world.


A little more on returning that cash to shareholders. It seems strange to borrow money in the US to return to their shareholders, but it makes a lot more sense when you look at the numbers. The company generates an enormous amount of excess cash. And after all, that belongs to the share holders. More information will be released in due course. But why borrow money to pay shareholders? Two things, firstly, 66 percent of sales are from outside of the US, the cost base in the US is a little heavy and most of the R&D takes place at Apple inc. HQ, I am presuming. So the cost base at home is higher than their other operating geographies where retail and distribution is the main focus, obviously with exception to where they manufacture and source the components, that does not take place in all of their 155 countries where the app store is available. Movies in 109 countries. They "cover" 90 percent of the worlds population. So, that is the one thing, a large portion of their profits are from outside of the US.


The second is that most of their shareholders are American. Fidelity, Vanguard, Blackrock, State Street, doing a very quick add together of their biggest four shareholders I get to around 18 percent. Those are the top shareholders. Those are the ones who want the cash returned to them. So the cash needs to be from inside of the US. I really wonder what would potentially happen if the window was opened a bit for companies to return cash to the shores of the US, without facing taxation consequences. Perhaps, and then of course the company wouldn't have to borrow money to pay local shareholders.

To get a really good graphical analysis, Byron found a great piece "written" by Dan Fromer, an ex BusinessInsider employee: Apple's Solid-After-All Quarter In Charts. So what now? There was no excitement in the last quarter, but equally everyone had massaged their expectations lower. And so the years expectations lower. And that is of course why the stock has trended lower over the last two and a half quarters. No new products, visibility thereof low. What else can the company make that is amazingly cool? A watch? Not sure that would be a massive winner, but everyone said that about the iPad. Perhaps the iGlasses. Perhaps glasses and a watch, type on the watch, get the augmented reality on the glasses, no talking to yourself and attracting unwanted attention. A new expensive TV? Maybe. They already have a TV product, margins in TV's are not that great.


As shareholders we are patient. The company is incredibly profitable. The stock looks wildly cheap. The "ecosystem" will continue to become more and more important over time, it is only a 9 odd percent contributor right now. Everyone needs an app for this or that, there will be more of those, more sharing of revenue with people settling into the ecosystem on a permanent basis.