The ALSI – never to recover?

One of my favourite financial writers is Vic De Klerk who writes for FinWeek, among others. He wrote a very interesting article in the latest FinWeek which I thought I would share with you.

He reckons that the ALSI will not recover to its high of 32 000 in the next 20 years! That’s quite a statement!

He says that it wont recover unless the share prices of the heavyweights at least doubling or rising 200% or 300% from current levels. He says that can only happen if “we again have a runaway demand for commodities, as was the case six months ago”. He says “that runaway demand was in turn the result of the best five year growth period ever in the world economy.”

He goes on to say that “in Japan, after two decades, the Nikkei hasnt come anywhere near its previous peak”. He says that in SA the same will happen if resource shares don’t rise sharply again, like they did 5 years ago

Follow on from the multiplier effect

On the 29th of October I posted an article written by Stephen Mulholland that I found in the FinWeek about the Multiplier Effect. In a later edition some guy named Wilhelm Loock wrote back with a response to Stephen. I found it interesting and a nice follow on from that article.

Wilhelm writes:

“The 4 businessmen were caught in a relentless credit trap. Even if all 4 businessmen were sitting around a table together, with each 1 ready to recieve his R100 and pass it onto the next person he owed it to, that was simply not possible as none had the money to start with.”

He continues:

“A possible solution could have been in a reverse stream in kind. In other words, instead of paying R100 in cash, the woners offered one night if free accomodation to the baker, the baker R100 of bread to the butcher, the butcher R100 of meat to the garage; and the garage then elivering R100 of fuel to the boarding house free of charge.”

“However, an arrangment such as that might not have satisfied the needs of all parties. For example, the baker may have wanted fuel rather than one nights accomodation. The situation would, of course, not have arisen if each one paid cash initially. But that didnt happen and the mutual debt relationship continued until the salesman turned up.”

“His R100 was the trigger allowing every individual to pay his debt. Unknowingly, the salesman had acted as a moneylender or a banker. His R100 didnt appear but was repaid after it had served as an “advance” and the owner of the boarding house had used it (like an investment).”

“In fact, the role of the R100 as a loan is so obvious that the salesman could rightly have demanded free drinks during the 3 hour period he sat at the bar – as interest on his loan.”

Mulholland’s story offers to valuable lessons:

1. The role of banks in the current business world
2. Since the salesman offered the R100 before he had recieved the service it was in fact a saving that made the advance possible

Following Uncle Wilfie – Part 4

I last spoke to you about my great Uncle Wilfie over a month ago at the end of October.

You can read a summary of the “Following Uncle Wilfie” posts here.

On the 23rd of October, I invested R40k into the recommended shares at the recommended prices and ended up with the following:

1. 72 ANG shares at an average price of R185 (R13 320)
2. 156 HAR shares at an average price of R85 (R13 260)
3. 197 GFI shares at an average price of R67.5 (R13 298)

Today the shares are as follows:

1. ANG – R226
2. HAR – R83
3. GFI – R79

Therefore my portfolio has grown in just over a month from R39 878 to R44 783 which is a tidy 12.3% return. Due to the fact that this is what Unclie Wilfie says is “just the start”, there are some exciting things to look forward to with this position.

Let’s see what happens!

MTN Revaluation

It’s been a while since my last post but I am sticking to my mantra of not posting at all as apposed to posting rubbish!

MTN (MTN) is a share that I am heavily invested in and I’ve written about it a few times on this blog so when I receive an interesting report about it I publish it.

A group of analysts sent me this:

Operational Review

MTN Consensus

 MTN’s operations are forecast to deliver 27m net ads in 2008 with group ARPU of US$16. Nigeria is 41% of group EBITDA, South Africa is 24%. Relative to the primary peer group, only Vimpelcom (Russian operator)can rival MTN’s return profile relative to its valuation metrics.

View

EMEA operators report ARPM declines by 10% annually while capex per minute remains unchanged, depressing returns. To date, South African operators have bucked the trend. We expect competitive/regulatory pressure to lead to higher sustainable capex and lower returns, limiting upside.

Catalyst:

MTN has a very well understood growth profile with high ARPU investments coupled with a low share price due to market gyrations offering an opportunity. The upside has been somewhat limited by our new capex forecast methodology which trims R33bn or R18 per share off MTN’s value, relative to the old method of per subscriber or per MoU.

Valuation

We value MTN at R128 on a DCF- based SoTP valuation. South Africa is 23% of the valuation, while Nigeria is 47%. A local relative multiples approach is supportive, while MTN is fair value relative to its EMEA peer group. A risk-adjusted valuation delivers fair value of R91 under extreme conditions. This limited downside offers further support for the stock.

Risk:

MTN has a historical relationship with EMBI spreads where price action is competitive pressure from well-capitalised operators our secondary concern.

The target price for MTN according to Standard Bank is R150.