Upload
others
View
3
Download
0
Embed Size (px)
Citation preview
AFENA INSIGHTSQuarter ended September 2015
2
Quarter ended September 2015
CONTENTS
01 Business Insights
Khulekhani Dlamini ............................................................................ 3
02 Market Insights (Equity)
Mila Mafanya ...................................................................................... 7
03 Market Insights (Fixed Income)
Tsitsi Hatendi .................................................................................... 11
04 Botswana Insights
Alphonse Ndzinge ........................................................................... 16
05 Results Season: Stay Focussed
Grant Cloete ..................................................................................... 19
3
BUSINESS INSIGHTSKhulekani Dlamini
01
4
Khulekani DlaminiChief Executive Officer
“I not only use all the brains that I have,
but all I can borrow”
~ Woodrow Wilson, US President
I would like to offer warm greetings to all. This is my first engagement
within this publication from this new seat. For those of you who have seen
the Game of Thrones’ throne – this seat feels the way that one looks i.e.
powerful but challenging to sit still on for long periods. It is for this reason
that, off the bat, I would like to thank and commend my predecessor, friend
and partner, Tebogo Naledi, for having lifted as heavy as he has for as long
as he has. Under Tebogo’s stewardship, Afena is closing in on its 10th year
of having opened its doors. We are walking through this door of the ‘double
digits’ with enough scratches, experiences and new knowledge as a typical
10 year old child would.
5
BUSINESS INSIGHTS
While this journey has been nothing but bumpy, we find ourselves with over R12 billion
in AUM, covering a variety of asset classes with two operations both out in South Africa
and Botswana. We find that we share the bread that our clients and our efforts (and Mr
Market at times) yield with 32 colleagues and their families. Through our CSI initiatives,
we have reached into a few homes to try and share what little we currently have. Through
all of this, we remain mindful of just how blessed we are to be in the position to be of
service in the manner we have and further intend to be.
A special mention does need to go to those who held our hands in the early days as
funders and providers of assets for us to manage. We want to thank those who were our
colleagues and partners in the early days, toiling with us as we to aimed make our mark
on the South African financial services landscape. We want to further observe protocol
by thanking the regulators in all jurisdictions we are in for having been collaborative and
cooperative partners.
As we strike forward, we do so with renewed purpose and vigour. Our resolve and will to
serve our clients and our society has been renewed and brought sharply into focus. We
are reorganising ourselves so as to do things better, quicker and with clear intent. Within
the firm, we are making sure that there are clear lines of accountability, responsibility
and more nimble decision making. Every member of the business needs to be better
engaged so as to be able to serve our clients.
Our intent is simply to be relevant. The contractual savings space, in the jurisdictions we
operate in, runs into trillions of rands. Our ability to decide how some this capital can
generate financial and social returns, at acceptable risk, is an art and a science we intend
to continue to master by improving ourselves while inviting our intellectual betters to
join forces with us. We are also quite clear that there is a lot of collaboration, alignment
and common purpose that can be explored with our peers so as to better be part of the
change we want to see.
In the early days we categorically indicated that we followed a style agnostic investment
philosophy while valuation remained at the core of how we selected assets to invest our clients’
and personal capital. This approach remains true. As we go forward, our intent is to introduce
clarity for our clients and their intermediaries with regards to this how we implement this
investment approach and what expectations should be had with regards the returns we
generate and their commensurate volatility. This should serve to make us fit for purpose for
our clients. To date we have had investment outcomes that have not been at the levels we find
satisfactory for ourselves and ultimately, our clients. This is the clear focal point of what needs
to change and all due force and resources are being engaged to affect the change.
6
We also intend to expand our investments solutions platform, in line with our intentions to
serve our clients and generate returns at appropriate risk for them. While this will take time
to fully manifest, our current planning fully takes into cognizance the fact that we intend to be
more than a boutique. We have already seen our actively managed fixed income products see
their first full year of being in existence. While still nascent, their performance is quite strong
and allows us to further expand our platform.
Finally I would like to acknowledge our shareholders. In these challenging times, not
only have they indicated intent to support the firm; they have done so with aplomb. Our
internal shareholders continue to operate with high intent, dedication and integrity,
once again, in our endeavour to serve our clients. Our external shareholders have also
continued actively collaborating with us and showing us their support. It is with this in
mind that I would like to introduce and welcome our two non-executive directors Iqbal
Khan and Sebastian Patel. These gentlemen have outstanding financial services pedigree.
Sebastian is an actuary with a great track record at Nedbank Corporate as well as
Brimstone within the Corporate Finance space. Iqbal Khan was a Chief Operating Officer
at OMIGSA. Albeit they have been involved for only a few weeks, their impact is already
being felt. We intend to foster a great, productive and collaborative relationship going
forward. I personally would like to thank our outgoing non-executive directors, Tiloshani
Moodley and Gerhard Kotze for their great efforts and support.
Finally, as Afena Capital, we are aware that we are not only an instrument of change
locally but a part in South Africa’s ambitions at global relevance. This is a great
responsibility that we take quite seriously and a challenge that we relish. My election
to this seat is an honour, a privilege and a responsibility that I take very seriously and
intend to execute to the best of my abilities. There are challenges ahead, but with the
alignment of our clients, colleagues and shareholders, these challenges will be but
molehills on this long journey to being of service.
BUSINESS INSIGHTS
http://boutique.we/
7
MARKET INSIGHTSEQUITY
Mila Mafanya
02
8
Mila MafanyaDeputy Chief Investment Officer, Portfolio Manager
Global market correction made in China
The 3rd quarter of 2015 began in the same vein the 2nd quarter ended, with
investors focused on the continuation of the Chinese stock market crisis
following an astounding 17% collapse in prices in the last two weeks of June.
Chinese shares fell another 10.8% in the month of July with the contagion
increasingly spreading to other emerging markets which registered returns
of -6.9%.
The growing concerns over China’s slowing economy occupied the headlines during
the quarter despite countless efforts by the Chinese government to revive the economy
using monetary and fiscal means. In a last ditch effort to stimulate its economy, the
People’s Bank of China devalued their currency in August which fuelled a weakening in
neighbouring Asian currencies, a further plunge in commodity prices and a broad-based
equity market sell-off. Global equity markets fell 6.8% in dollars in August with negative
returns in all regions, sectors and countries.
9
MARKET INSIGHTS: EQUITY
By September investors were fretting over emerging market over-indebtedness amid
slowing economic growth and plummeting currencies. These concerns manifested in
further investor flows out of emerging markets, with Latin American & Asia hardest
hit; dragging equities in emerging markets as a whole down 3.0% in dollar terms in
September. With all the uncertainty over China and emerging markets, the US Federal
Reserve Bank delayed the long anticipated lift-off of interest rates during their September
sitting.
The quarter ended as the worst quarter in four years with global equities down 9.3%
in dollars dragged lower by emerging markets which closed 17.8% lower and to a lesser
extent developed market equities which fell 8.3%. The declines in emerging market
equity returns were exacerbated by weakness in emerging market currencies which
contributed almost a third of the fall in those markets posing a serious drag to hard
currency investors. The global correction in the 3rd quarter was broad-based in nature
with all regions, sectors and countries posting negative returns. Naturally, global equities
gave investors the lowest returns of the traditional asset classes with global bonds
delivering their 1st positive return quarter over the last 12 months.
SA equity market lagged largely due to rand weakness
SA equities fell 2.1% in rands during the quarter, with dollar investors
experiencing further losses due to the rand weakening by 12.1% against
the US dollar. Following on from a stable July month, the JSE ALSI buckled
with global markets in August falling 9% to lows last seen in the 1st week of
January of this year before recovering to close the quarter only down 2.1%.
In a similar manner to the global context, equities in SA delivered the lowest
return amongst the asset classes with cash and bonds returning 1.6% and
1.1% respectively.
The global backdrop of weak emerging market currencies and falling commodity prices
distinguished the winners from the losers in the quarter.
Companies with significant exposure to offshore markets, termed rand hedges, were
the standout performers with Beverages (25.1%), Tobacco (17.4%) and Steinhoff (10.3%)
leading the charge as the rand weakness took hold. SABMiller’s (SAB) outperformance
was spurred on by the emergence of details in late September of the long-speculated
acquisition of SAB by global-leading brewer ABInbev.
10
In line with the performance of resource companies in the global setting, resource
companies in SA dominated the laggards during the quarter, in light of slowing China
economic growth and declining commodity prices. Industrial metals lost 39.8% of their
value whilst platinum mining fell 26.7%. The industrial metals performance was driven
by the continued decline of Kumba Iron Ore (KIO) in an environment of lower iron
ore prices. Adding to the woes of platinum sector was the breaking of the Volkswagen
diesel scandal in late September given that platinum is the preferred metal for catalytic
converters in diesel vehicles.
Weakness in emerging market currencies also contributed to some underperformers in
the quarter which included Aspen Pharmacare (APN) and MTN. Aspen fell 18.3% in the
quarter, lagging emerging market pharmaceuticals by 22.3% on the back of disappointing
results which were hit by foreign exchange losses given the strength of the US dollar.
MTN reacted poorly post their results, falling 20% during the quarter, as investors grew
increasingly worried about the possibility of a dividend cut given their exposure to oil-
currencies where there is increased risk of not being able to repatriate cash out of those
countries.
Amongst the sectors in the JSE ALSI, property fared the best generating returns 8.8% for
the quarter, followed by industrials (0.8%) and financials (-1.1%), with resources lagging
with a decline of 17.9%.
MARKET INSIGHTS: EQUITY
11
MARKET INSIGHTSFIXED INCOME
Tsitsi Hatendi
03
12
Tsitsi HatendiFixed Income Portfolio Manager
Living through the markets in Q3 felt like being on a roller coaster. It
seems almost unfathomable that people put so much weight on whether
the Federal Reserve Bank (the FED) would hike rates or not. China did
not help matters much as the Chinese stock exchange tumbled and the
Yuan devalued; causing the FED to worry that the world’s second largest
economy might cause global destabilisation. A 25 basis point hike would
not derail the US economy but once lift off occurs, the FED would have
to be on a hiking path, so their decision not to hike in September is
understandable. Till lift-off occurs, we will continue to see volatility in equity,
bond and currency markets and low global growth does not help issues.
On the local data front, CPI dropped to 4.6% from 5% YoY in August. This was mainly on
the back of a 51c/litre cut in the petrol price and lower electricity tariff increase (off the
high base in July). With lower demand side pressures coming through, markets have a
very subdued inflation outlook for the coming months.
13
MARKET INSIGHTS: FIXED INCOME
The consumer outlook is dismal, reiterating GDP concerns from a consumption point of
view. The FNB/BER’s consumer confidence remained anaemic in Q3 2015 at -5; a slight
improvement from -15 in Q2 2015, levels worse than those last seen during the recession
in 2008/2009.
CHART: HCE (PRIVATE SECTOR SPENDING) GROWTH VS CONSUMER CONFIDENCE
Sources: SARB, BER
Vehicle sales remained weak, contracting 8.2% YoY in August versus -4.1% expected
and -6.1% previously. Vehicle sales should remain low given current market conditions,
compounded by declining business confidence and consumer sentiment. Passenger
vehicle sales growth was -8.3% YoY from -8.7% YoY in July; this is the sixth consecutive
month of declines. Vehicle exports were positive at 12.3% YoY in August, but down from
24.4% YoY in July; base effects due to Mercedes Benz’s capacity expansion will fade from
September.
HCE y/y LHS Consumer confidence RHS
9
6
3
0
-3
30
20
10
0
-10
-20
2000 2002 2004 2006 2008 2010 2012 2014
% c
hang
e Index
14
MARKET INSIGHTS: FIXED INCOME
CHART: VEHICLE SALES IN CONTRACTION FOR FIVE CONSECUTIVE MONTHS
Source: NAAMSA, SBGS Analysis
Retail sales in July dropped to 3.3% YoY from 3.8% YoY. General dealers had the biggest
drop MoM at -5.6%; whilst Pharmaceuticals had the highest MoM increase at 10.2%.
YTD numbers, Hardware was most resilient at 6.3% YoY growth. While we’re not seeing
negative growth numbers in retails sales, the numbers are not robust either, and taking
more of a sideways pattern of just bumbling along.
CHART: REAL RETAIL SALES AND SACCI’S TRADE EXPECTATIONS INDEX (TEI)
Sources: Stats SA, SACCI
50
40
30
20
10
0
-10
-2-
-30
-40
-50
20
15
10
5
0
-5
-10
90
70
50
30
Jan-
07
Sep
-07
May
-08
Jan-
09
Sep
-09
May
-10
Jan-
11
Jan-
13
Sep
-11
Sep
-13
May
-12
May
-14
Jan-
15
Vehicle sales
% y
/y%
y/y
Index, sa
-8.2
2005 2007 2009 2011 2013 2015
StatsSA real retail sales growth (LHS) TEI (RHS)
15
The threat of a downgrade by Fitch on the 4th of December remains, as headlines in early
September made it clear that the rating agency sees the country’s risk increasing. Given
that they’ve had a negative outlook on SA for almost two years, the move would not come
as a surprise and should be priced into bond yields. The downgrade would bring Fitch
in line with the other two rating agencies. As for impact on the World Government Bond
Index (WGBI), only Moody’s and S&P are considered and on long-term local currency
rating, meaning it will only be an issue after a three notch downgrade from S&P and a
two notch downgrade from Moody’s.
One bright light in this sea of darkness was the current account balance which narrowed
to 3.1% versus 3.7% expected and 4.8% previously. Merchandise imports decreased by
1.4% in Q2 2015. The physical quantity of crude oil imports shrank by 31% in Q2 due
to planned maintenance shutdowns at several oil refineries. As a percentage of total
merchandise import volumes, the volume of crude oil imports receded from 11.7% in Q2
2014 to 7.3% in Q2 2015. Products such as petrol and distillate fuel increased from 4.2%
to 8.5% of overall merchandise import volumes in Q2.
CHART: CURRENT AND TRADE ACCOUNT DEFICITS AS % OF GDP
Sources: Stats SA, SACCI
MARKET INSIGHTS: FIXED INCOME
Trade account
Current account of which: dividend and interest payments
2005 2006 2007 2008 2009 2010 2011 20132012 2014 2015
4
2
0
-2
-4
-6
-8
% G
DP
16
BOTSWANA INSIGHTSAlphonse Ndzinge
04
17
Alphonse NdzingeChief Investment Officer (Botswana)
The local Botswana market experienced moderately better fortunes (than
other emerging markets) with equities relatively flat (-0.4%) and bonds
returning 2.9% for the quarter. Having said that, domestic economic growth
expectations were revised downwards due to the intensification of electricity
and water shortages as well as the slowdown in demand in global markets
for our key export, diamonds.
The recent asset shifts from equities to bonds reflect a nervous market with low growth
expectations, and underline once again the importance of maintaining a diversified
investment strategy. We focus on the underlying fundamentals and long-term growth
prospects of our investments, not short-term price movements. For all the current
volatility, we accept this as the inevitable bumps along the road on the journey towards
meeting our clients’ long-term objectives.
18
BOTSWANA INSIGHTS
Domestic Fixed Income and Macro
Local bonds (FABI) had a solid quarter, rallying after the 50bps policy rate cut to post an
index return of 2.9%. The Monetary Policy Committee (MPC) meeting was held on Au-
gust 6 and the bank rate was cut to 6.0% which came as a bit of a surprise to the market.
In reaching its decision, the MPC noted the current state of the economy as well as the
domestic and external economic outlook, including the inflation forecast, suggested that
easing monetary policy is a step in the right direction, while remaining consistent with
maintaining inflation within the Bank’s medium-term objective range of 3 – 6%.
Q2 2015 GDP growth dropped to 2.5% y/y compared to 3.4% y/y for Q2 2014. Mining
value declined by 8.0% attributable to a decline in diamond and copper/nickel produc-
tion. The economy continued to be constrained by the decrease in value added by Water
& Electricity sector (down 41.1% y/y). This decline is largely attributable to the Electric-
ity sector which has been contributing negatively to the economy since Q1 2012 due to a
substantial increase in intermediate consumption.
September headline inflation printed at 2.9% on the back of lower domestic fuel prices,
modest domestic demand pressures, and benign foreign price developments. Credit
growth continued to drop with the June credit growth rate at an eight year low of 7.4%
y/y. The September Government Bond and Treasury Bill Auction reflected a similar
theme of recent auctions. The auction was oversubscribed and yet marginally under allot-
ted by the central bank. This latest auction was oversubscribed with total bids of P2.4bn
compared to available issuance and actual allotment of P800m and P788m respectively.
Fund managers focused on matching duration for longer dated liabilities for their annu-
ity books whereas commercial banks absorbed short-dated instruments for liquid asset
regulatory requirements.
The Pula was under significant pressure versus major currencies due to heightened risk
aversion for emerging markets and falling commodity prices weighing heavily on the
Rand. For the period, the Pula depreciated 7.3% against the USD and gained 6.9% versus
the Rand.
19
RESULTS SEASON: STAY FOCUSSED
Grant Cloete
05
20
Grant Cloete Head of Client Management
RESULTS SEASON: STAY FOCUSSED
“Results season is here!”
Utter those words loud enough in any investment company or securities firm and watch
the faces of the analysts morph into ones of agony (or ecstasy, depending how seasoned
they already are). They know what’s coming. To these souls the task ahead will feel like
trying to offload a laden cement truck using nothing else but a teacup… Oh and it has to
be completed within five minutes.
So what is this ‘results season’?
It’s a period of the year when a barrage of company information floods the market
and one has to make sense of it all as the clock ticks away. Companies listed on stock
exchanges around the world are required to report / publicise their financial positions
within set periods after their respective financial year-ends. In some cases these
companies are required to report on a bi-annual and quarterly basis as well. Financial
year-ends for these companies tend to aggregate around the months of June and
December. As one can expect, the ensuing three months tend to be quite busy for the
investment world.
21
Understanding this Results Season phenomenon…
Much of the hype stems from Wall Street where companies generally report their
earnings to the market on a quarterly basis. In the US, this period is known as ‘Earnings
Season’ and lasts for around six weeks after each quarter-end (December, March, June,
September).
CHART: THE EARNINGS SEASON ‘HYPE’ CREATED IN THROUGH NEWS FLOW
Stories per Week Containing the Words “Earnings” or “Guidance,” Thousands
Source: LPL Research, Bloomberg
Why the big fuss?
Many industry pundits will have you believe that ‘Time’ is the enemy during these
periods. Management (Chief Executives etc.) of these listed companies, use these
windows of opportunity to communicate not only their financial results, but also new
information around products, strategic and leadership changes etc.
Faced with this new information, the investment community now needs to distil what lies
before them (read plug away at their Excel models) to arrive at a new ‘valuation’ or ‘share
price path’ of the company in question. Not too difficult you might say. Perhaps not but
when there are many companies reporting simultaneously, keyboard punching goes into
overdrive and anxiety (temporary insanity) sets in.
12
8
4
0
Dec-13 Jun-14 Dec-14
RESULTS SEASON: STAY FOCUSSED
22
Typical buzz words that float about the market around report season…
These buzz words generally refer to the immediate reaction of the market to its
initial expectations of the companies’ reported earnings. Used often enough in quick
succession, these words could have the effect of influencing sentiment (read share price
performance) in a negative or positive way.
Do these results seasons increase activity in Stock Markets?
During periods of heightened investor anxiety spurred on by corporate surprises, share
prices tend to be particularly volatile. While we are not saying that earnings / results
seasons cause erratic share price behaviour, it is interesting to note that volatility spikes
tend to happen around the July-September and December-February periods South Africa
(SA) – around the time the companies report to the market.
CHART: SA VOLATILITY INDEX
Source: I-net
26%
22%
18%
14%
10%
Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
RESULTS SEASON: STAY FOCUSSED
23
Some insights from our Analysts and Portfolio ManagersFrom the last results season (July 2015 to September 2015) we’ve selected a few
companies that reported during the period. Our analysts have taken time to distil the
results and formulate views of those businesses going forward. Their comments below:
Sun International (SUI) results
Allan Bothma, CFA ( Investment Analyst)
When SUI reported its FY15 earnings, the numbers were in-line with their previous
guidance but somewhat behind what the market was expecting; driven by FX losses in
Nigeria and start-up losses at the Ocean Club Casino in Panama. The SA economy is
showing no signs of any meaningful improvement in the short term, while, in Chile the
short term outlook is for lower growth than in recent years. As a result, the group expects
the subdued trading conditions, experienced in the second half of the 2015 financial year,
to continue for the year ahead.
CHART: SUI REVENUE, EBITDA AND MARGINS
Source: Company reports, Afena Capital
6000
5000
4000
3000
2000
1000
0
1H14 2H14 1H15 2H15
Revenue EBITDA EBITDA margin
Group result
28,1%
4963
1397 1488 1611 1560
52905007 5263
29,7% 29,6%
30,5%
RESULTS SEASON: STAY FOCUSSED
24
CHART: SUI REVENUE SEGMENTATION
SA LATAM Management ActivitiesOther African operations
Source: Company reports, Afena Capital
The investment case for SUI is primarily driven by a few factors namely:
• the expansion of its Latin American (LATAM) business, to create the largest LATAM
gaming company in the world, while reducing the group’s concentration risk to
South Africa, and the Western Cape specifically.
• In addition, post the Peermont transaction which would add Emperors to the stable,
SUI will look to rationalise the South African portfolio, to only have exposure to
those high quality casino assets (GrandWest, Menlyn, Emperors Palace, Boardwalk
and Sibaya) and strategic casinos.
Revenue breakdown at FY15A
10%
14%
71%
5%
RESULTS SEASON: STAY FOCUSSED
25
Shoprite (SHP) resultsZahira Osman, CFA (Portfolio Manager, Investment Analyst)
Shoprite’s reported results were in-line with Afena’s expectations but somewhat behind
what the market (consensus) was expecting. While the group reported credible revenue
growth and increased market share over its competitors, the concern has been around
the ability to retain its elevated margins and profitability.
TABLE: SHP SEGMENTAL PROFITS AND MARGINS
Trading ProfitJune 2014
RmJune 2015
RmGrowth
%Margins 2014 2015
Supermarkets RSA 4 751 5 268 10.9 RSA 6.18% 6.20 %
Supermarkets Non-RSA 673 741 10.1 Other 1.44 % 1.53 %
Furniture 196 205 4.6 Non-RSA 4.55 % 4.42 %
Other Divisions 94 114 21.3 Furniture 4.90 % 4.54 %
Total 5 714 6 328 10.7 Aggregate 5.59 % 5.57 %
Source: Company presentations, Afena Capital
The group’s margins (Gross and EBIT) appear to have peaked in their 2013 Financial
Year while their returns on equity and assets are considerably lower than they were five
years ago.
RESULTS SEASON: STAY FOCUSSED
26
Gross Margin
14%
20%
15%
20%
14%
20%20%21% 21%
13%
21%
15%
20% 21%
14%
19%20%
21%
18%
0.22
0.2
0.18
0.16
0.14
0.12
0.1
1998
1999
2000
2001
2002
2008
2005
2011
2014
2003
2009
2006
2012
2015
2004
2010
2007
2013
Hits
Ave
CHARTS: SHP MARGIN AND PROFITABILITY
Source: Company reports, Afena Capital
EBIT Margin
2%
1%
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
1998
1999
2000
2001
2002
2008
2005
2011
2014
2003
2009
2006
2012
2015
2004
2010
2007
2013
Hits
Ave
4%
3%
5%
2%
5%
3%
6% 6%
4%
2%
6% 6%
2%
5%
3%
6%
4%
ROE0.45
0.40.3
0.250.2
0.150.1
0.050
1998
1999
2000
2001
2002
2008
2005
2011
2014
2003
2009
2006
2012
2015
2004
2010
2007
2013
Hits
Ave
23%
30%27%
38%
23%
33%32%
24%22%
11%
29%
24%
35%
22%
16%
37%
29%
24%27%
ROA0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
1998
1999
2000
2001
2002
2008
2005
2011
2014
2003
2009
2006
2012
2015
2004
2010
2007
2013
9%
5%
9%
6%
13%
6%
11%
7%
10%
2%
9%
6%
12%
9%
4%
12%
8%
11%
RESULTS SEASON: STAY FOCUSSED
27
Aveng (AEG) resultsAmber Raath (Investment Analyst)
Aveng reported a loss of 144c per share for its financial year ending 30 June 2015. Their
Construction & Engineering Africa division delivered a material loss at the operating
profit level, whilst its remaining three divisions (Construction & Engineering Australasia,
Mining and Manufacturing & Steel) all suffered declining operating margins. In the past,
Aveng had a strong cash underpin from the sale of Holcim in FY2007, which investors
appreciated as a buffer during tough economic times. Due to significant problem
contracts such as the Queensland Curtis LNG Pipeline Project that have incurred
significant cost overruns and material working capital outlays, this cash buffer has
been consistently eroded over the past seven years to the point where Aveng had to raise
almost R2bn via a convertible bond issue during FY15; whilst management have asserted
that a rights issue is not necessary at this time, it is still a point of concern for investors.
CHART: AVENG NET CASH UNDERPIN
Source: Company reports, Afena Capital
2000
2001
2002
1H20
08
1H20
09
1H20
10
1H20
11
1H20
12
1H20
13
1H20
14
1H20
15
2H20
08
2H20
09
2H20
10
2H20
11
2H20
12
2H20
13
2H20
14
2H20
15
2008
2009
2010
2011
2012
2013
2014
2015
2005
2003
2006
2004
2007
10000
8000
6000
4000
2000
0
-2000
Aveng Net Cash R’m
RESULTS SEASON: STAY FOCUSSED
28
CHART: AVENG SHARE PRICE PERFORMANCE
Source: I-Net
The Aveng share price movement is reflective of the market’s sentiment towards the
share, the sector and its prospects. With the unfavourable outlook for the construction
sector, Aveng management are attempting to stabilise the business through cauterising
and exiting unprofitable contracts and businesses.
BHP Billiton (BIL) results Shoaib Vayej, CFA (Portfolio Manager, Investment Analyst)
Billiton delivered a full year result which was slightly behind our expectations. The
performance of its petroleum business was understandably impacted by the rapid decline
in oil prices over the financial year. Billiton remains a well-diversified mining business
so while the petroleum business’ delivery was not quite as expected, there were other
parts of the business which have surprised.
AVENG LIMITEDWeekly 1999/07/04-2015/09/06
00 0402 06 0801 0503 07 09 10 1211 13 14 15
7000
6000
5000
4000
3000
2000
1000
0
RESULTS SEASON: STAY FOCUSSED
29
CHART: BILLITON’S SUPERIOR MARGINS TO PEERS AS WELL AS COST IMPROVEMENT PROJECTIONS.
Source: Company reports
60
50
40
30
20
10
100
75
50
25
Leading margins through the cycle(Underlying EBITDA mrgin2, %)
Unit cost continue to fall rapidly3(US$ per copper equivalent tonne)
Significant cost improvements with more to come(index, FY12=100)
FY06 FY09 FY12 FY15
WAIO Queensland Coal Escondida Black Hawk
FY06 FY08FY07 FY09 FY10 FY12FY11 FY13 FY14 FY15
BHP Billiton Peer group range
FY12 FY15 FY16e
Grade adjusted accordingly2
RESULTS SEASON: STAY FOCUSSED
30
Billiton continues to exercise measured control over its capital spend – the bulk of which
is discretionary. While product volumes are likely to dip even further as the world waits
for a recovery, the fruits of Billiton’s cost-cutting initiatives and discretionary capex
spend will help support the business’ profitability. Also, our view is that Billiton’s capital
expenditure flexibility implies that the payment of its dividends is sustainable – a view
we believe, is not shared with the broader market.
CHART: BILLITON’S DIVIDEND YIELD RELATIVE TO THE SHAREHOLDER WEIGHTED INDEX’S
Source: I-Net
So the question begs…
“Will an on-the-fly investment decision, based on new information, yield superior
portfolio performance in the end?” Well, this simply depends on the investment strategy
and whether the investor is long or short term focussed.
Yes, we acknowledge that in some cases investors are required to take immediate action
(Buy or Sell) but the ability to see through the noise and separate the wood from the trees
when it comes to frenetic periods is a skill developed over years of practice.
In the words of the karate master, “Mr Miyagi”, from the 1984 classic movie, the ‘Karate
Kid’,
“You stay focus, Daniel-son”
2005 20092007 2011 20132006 20102008 2012 2014 2015
2.42.32.22.1
21.91.81.71.61.51.41.31.21.1
10.90.80.70.60.5
Mean = 0.98
Std.Dev. = 0.37
RESULTS SEASON: STAY FOCUSSED
31
GENERAL DISCLAIMERAll information, recommendations or opinions contained in this document are not intended to
provide exhaustive treatment of any subject dealt with and must be weighed solely as one factor
in any investment or other decision made by or on behalf of any user of the information contained
herein. Such user should consult its own investment or financial or other advisors before making
any decision. Whilst all care is taken by Afena Capital in the preparation of the contents hereof,
no warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability
or fitness for any particular purpose of any such recommendation or information is given or
made by Afena Capital in any form or manner whatsoever. The information in this document
is not intended to and does not constitute financial, tax, legal, investment, consulting or other
professional advice, and Afena Capital does not purport to act in any way as a financial advisor.
Afena Capital shall not be responsible and disclaims all liability for any loss, liability, damage
(whether direct or consequential) of any nature whatsoever which may be suffered as a result
of or which may be attributable, directly or indirectly, to the use of any information, opinion,
recommendation, or service contained in or provided through this document. All portfolio
performance data is calculated by Afena Capital. Performance is analysed and computed utilising
true daily weighted methodology. Where this document contains statements or information
which relate to projections, forecasts or hypothetical data, users should be advised that these are
predictions and that actual performance may differ markedly. Users should also be aware that
short term performance can be volatile and past performance is not necessarily a good indication
or guideline of future performance. As the performance of financial markets fluctuates and is not
guaranteed, an investor may not get back the full amount invested. Users should be aware that
there are inherent risks in the buying and selling of investments.
Collective Investment Schemes in Securities (unit trusts) are medium- to long-term investments.
The value of participatory interests (units) may go up or down and past performance is not
necessarily a guide to future returns. Fluctuations or movements in exchange rates may cause the
value of underlying international investments to go up or down. Unit trust prices are calculated on
a net asset value basis, which is the total market value of all assets in the portfolio including any
income accrual and less any permissible deductions from the portfolio, divided by the number of
units in issue. Permissible deductions may include management fees, brokerage, security transfer
tax, auditor’s fees, bank charges and trustee fees. Unit Trusts may borrow up to 10% of the market
value of the portfolio to bridge insufficient liquidity. A schedule of fees and charges and maximum
commissions is available from Afena Capital. Commissions and fees may be paid and if so, are
included in the overall costs. Forward pricing is used. In order to receive the price of the day, all
transactions must be received before 13h00. Afena Capital is a member of the Association for
Savings and Investments South Africa. The investor acknowledges the inherent risk associated
with the selected investments and that there are no guarantees. The investor furthermore agrees
that Afena Capital will not be liable for the consequences of market influences and consequent
changes in unit prices.
No employee of Afena Capital is entitled to conclude a binding contract on behalf of Afena Capital
unless she/he is a duly authorised representative. Afena Capital (Pty) Limited is an authorised
financial services provider in terms of the Financial Advisory and Intermediary Services Act No
37 of 2002. FSP number: 25033. Company Registration number: 2005/017613/07.
Afena Capital Botswana
Afena Capital South Africa
t +27 21 657 6240f +27 21 671 4658
t +267 3915 990f +267 3915 980
e [email protected] www.afenacapital.com
e [email protected] www.afenacapital.com
PO Box 23883Claremont 7735, South Africa
PO Box 1253 ABGSebele, Gaborone, Botswana
mailto:[email protected]://www.afenacapital.com/mailto:[email protected]://www.afenacapital.com/
_GoBack