4Q Results 2014

Apple. Juicy fruit, not my personal favourite, bananas and berries as well as citrus trump apples for me. As a business, Apple Inc. stands head and shoulders above all the other berry products, at least as far as the consumer is concerned. In South Africa, and this is a recent statistic, Paul showed us stats that suggested that only 2 percent of smartphone users in Mzansi own Apple iPhones. I guess cost has a lot to do with it, the iPhone is certainly NOT a cheap product at all.

Last evening, post the market close, Apple Reports Fourth Quarter Results, as per the investor relations part of their website. Revenue of 42.1 billion Dollars (for the quarter!) topped analyst expectations, as did profits of 8.5 billion Dollars or 1.42 Dollars of earnings per share. Of course this was also the close of the financial year, being the fourth quarter.

As you can see from the press release, Tim Cook is quoted as saying: "Our fiscal 2014 was one for the record books, including the biggest iPhone launch ever with iPhone 6 and iPhone 6 Plus." And then in terms of what is lined up for the next couple of months: "we are heading into the holidays with Apple's strongest product lineup ever. We are also incredibly excited about Apple Watch and other great products and services in the pipeline for 2015." All seems rather rosy.

Massive shareholder returns in dividends and buybacks continue, with over 20 billion returned in the quarter, the current program has now seen 94 billion thus far. The buybacks as a standalone were boosted in April to 90 billion Dollars, the 47 cents a quarter dividend equates to (times by 5.933 billion shares) = 2.78851 billion Dollars a quarter. Yowsers. If the Apple shareholders collectively took their money and looked to buy a local business, they would be staring at businesses like Coronation and Gold Fields. Just with the quarterly dividend. Wow. If Apple shareholders were more global in their approach, they could buy (with their dividend flow) in two quarters the entire Blackberry business, and offer them a ten percent premium.

Back to shares in issue however, the power that the buybacks have on earnings further down the line. At this stage last year, there were (adjusted for the 7 for 1 split that took place in June this year) 6,329,139 thousand shares in issue. That is how they show it, and by they, I mean Apple in this set of results. As at the end of this quarter, there are 5,933,845 thousand shares. Around 40 million shares less, or at the current share price close to 100 Dollars, that is 40 odd billion Dollars. Astonishing.

And looking ahead? Guidance for the current quarter, the real big one that includes holiday sales was for revenue between 63.5 billion and 66.5 billion Dollars and margins between 37.5 and 38.5 percent, comparable to the quarter just passed. So what now? Early indications are that this trumped the investor community as a whole, estimates and expectations. As such, estimates have also been shunted higher, meaning that the stock looks even cheaper in the pre market indicated open of 101.27 Dollars. And to think that cash on hand is around 155 billion Dollars of the 584 billion Dollar market cap. 26.5 percent of the market cap is cash.

Where to from here? As a company obviously the new products, the new launches (yesterday it was Apple Pay) of associated software upgrades continue to see loyal customers stay, new ones join up. The iPhone is obviously still the key product, tablet sales globally are flatish, the new iPads look spectacular however. The new operating systems for the Macs is also fabulous, over five gigs however, be prepared!! EPS estimates for the current financial year are around 7.75 Dollars a share, forward on an ex cash basis the stock trades then around ten times earnings. Obviously Mr. Market knows all of this. We continue to recommend this company as a conviction buy at current levels.