It has been a while since I put something down on this blog. It has been a tough couple of months for traders and investors alike. Market doesn't want to go higher due to the Euro debt crisis despite there clearly being some compelling valuations.
Here are the trades I am still playing with plus one new trade:
Old Mutual at under R14 (ADDED)
I'm not a huge fan of insurers but Old Mutual has a lot going for it. Its being tarred with the Euro crisis but remember that a lot of its profits come from South African operations and a lot of its valuation is linked to its stake in Nedbank. It is battling to kick on at the moment but Goldman Sachs recently upgraded the share to a buy.
Nikkei
As mentioned in the previous post, there has been a pretty predictable 9400 - 9800 band starting to form. Everybody is talking Japan at the moment and how cheap it is. You don't even have to believe in a super rebound in the markets to score. Scale 250 - 350 points each time and you can build a decent return here.
Brait at R17.50
Sure there is a lot of speculation around Brait at the moment, but it has two very solid assets underneath it in the form of Pep and Premier Foods. As it stands you are basically getting these businesses plus some cash and paying next to nothing for the other assets. Sure in some cases you probably shouldn't be paying much for them and without the dividend Brait is a less compelling investment story but if they can stick to generate long-term ROE of 20% odd you are going to find few investments that can match this.
African Bank Investments Limited
I maintain what I said in the earlier post - you get a dividend of 5%, you have a solid and cash generative business on an undemanding price to earnings multiple which doesn't have to support capital intensive investment banking businesses. Simple, stupid kind of investment?
Vividend Income Fund
Another of those investments which slot into the simple, stupid investment category is Vividend. There is nothing complicated about this new property listing. It is ungeared, nice portfolio and with a well respected management. You are picking up about 6% yield after tax and the price is off its highs. Definately worth a nibble.
Nothing else really jumping out at me.
I quite like the new Africa ETN from Standard Bank and have added a debit order for it from next month. Will see how that product evolves.
Showing posts with label Old Mutual. Show all posts
Showing posts with label Old Mutual. Show all posts
Saturday, June 18, 2011
Monday, March 2, 2009
Going long
Geez another rout on stock markets yesterday and the Dow Jones went below our 6800 target briefly closing at 6763 points down 299 points.
Big news of the day on the international front was that AIG reported a US$62bn loss for the quarter and on the local front the speculation is running riot (For the nth time!) that Old Mutual will offload their Nedbank stake.
What was interesting though was that despite the rout on US equity markets, the Alsi only moved down 0.43% and at this very moment in time the Nikkei has given up only 49 points and at one stage was threatening to go green. While the US takes the pain the rest of the world seems to be taking a back-seat ... a chance to look for a short term bounce?
I started going long in late trade on Monday, pretty much across the board.
You're probably thinking I'm a little loco going out on a limb here and going long but I think one has to stick to their convictions in some instances - I said 6800 was close enough to my short-term "low".
Also watching the Rand / Dollar exchange rate, I think this is where the kicker is going to come from over the next few days. The Rand slipped to R10.50 to the dollar and there doesn't seem to be too many reasons for it to go stronger either. I wouldn't be surprised if it fell to R11 to the dollar by the end of the week and that will provide a bit of upward momentum for our index - particularly if international markets take a bit of a breather...
Will see how it plays out
Big news of the day on the international front was that AIG reported a US$62bn loss for the quarter and on the local front the speculation is running riot (For the nth time!) that Old Mutual will offload their Nedbank stake.
What was interesting though was that despite the rout on US equity markets, the Alsi only moved down 0.43% and at this very moment in time the Nikkei has given up only 49 points and at one stage was threatening to go green. While the US takes the pain the rest of the world seems to be taking a back-seat ... a chance to look for a short term bounce?
I started going long in late trade on Monday, pretty much across the board.
- Long Gold
- Long Sasol
- Long Old Mutual (yeah yeah I know.... but there results are coming out so its worth a punt)
- Long Absa
- Long Remgro
You're probably thinking I'm a little loco going out on a limb here and going long but I think one has to stick to their convictions in some instances - I said 6800 was close enough to my short-term "low".
Also watching the Rand / Dollar exchange rate, I think this is where the kicker is going to come from over the next few days. The Rand slipped to R10.50 to the dollar and there doesn't seem to be too many reasons for it to go stronger either. I wouldn't be surprised if it fell to R11 to the dollar by the end of the week and that will provide a bit of upward momentum for our index - particularly if international markets take a bit of a breather...
Will see how it plays out
Wednesday, November 12, 2008
Too big to fail?
With the US automakers in dire straits at the moment, I’ve read a lot of commentary that says General Motors, Ford and Chrysler are “too big to fail” and the government HAS to bail them out. In Old Mutual, South Africa has its own business that in theory is “too big to fail”, but one that I am going to stick my neck out and say can and will fail.
Do I think the US carmakers will be bailed out? Yes I do.
Do I think it will solve their problem? Not a sausage.
Let’s be realistic – the operating environments for these car manufacturers is not going to change over 2009. The reality is that even if they cut some costs, shut down some lines etc, the US tax payer is going to have to acknowledge that when they cross that fat black line of bailouts, they’re going to be tied into paying at least another year of bailouts to make for an orderly exit.
Lets pick an arbitrary figure of US$15bn per quarter to keep these 3 firms afloat – that is 60 BILLION dollars a year just to keep 3 businesses afloat. With the GM and Ford Credit arms being so stretched, I see this house of cards collapsing and THAT will be the shock to the system that leads me to my next assertion – the straw that breaks the back of Old Mutual.
Old Mutual is a funny business. Very successful in the Nordic regions and South Africa, management instead has decided that its real future lies in places like China and the US. So far the expansion plans have been littered with very expensive failures, that the company has been able to gloss over with the impressive gains in the equity markets.
Over the last few 12 months the company has plummeted from R23 odd a share to around R8.50 a share. Ouch. In the meantime they paid over the top for an acquisition in China and they’ve been pissing into the wind with something like US$400m in capital to deal with problems in their Bermuda book and the US life operations.
The company has said that shareholders shouldn’t worry because it has US0.8bn in capital reserves but this figure does exclude money they need to still release for their Chinese acquisition and a final dividend which now looks increasingly under threat.
But something occurred to me the other day – Old Mutual’s capital problem is two-fold. They may have the capital – but where does that capital sit? In London or in SA? The answer is that a big chunk of that capital in fact sits in South Africa (one of the few places where they are making good money).
Foreign exchange regulations are going to be very tough to move that capital off shore should their international ops take much more strain. At the end of the day, if they sell off Mutual & Federal, the capital will remain in South Africa, as would a big chunk of an asset such as Nedbank.
I personally don’t think Old Mutual’s (international operations) can survive the shocks to the system that another (sudden) 15% decline in equity markets could produce. But more importantly it’s the operating environment that has me the most worried.
A mistake I think is being made, in that we’re not giving enough credit to the ‘suddenness’ of events.
Six months ago, we didn’t ‘expect’ to be discussion trillion dollar bailouts and the failure of some of the world biggest companies.
People are going to lose their jobs and it is not going to be a gradual dip spread out over next year, where systems can adjust. People are losing their jobs NOW, businesses are closing down NOW, governments are retrenching people NOW.
Consumers are stretched beyond breaking point – there is no savings base of any kind behind them – their cash is gone and the only way they can keep going is to source credit. When that tap is turned off they cut expenses – insurance, medical aid, pension fund contributions (which they will cash out irrespective of tax consequences – when you need money you need money).
Conclusion
While Old Mutual’s South African operations will probably survive, I suspect that the risk of failure in its international businesses must be extremely high at the moment. SA will probably be cushioned by a pretty strong business model (despite the grief they are given) and the cash flow from the sale of Mutual & Federal, even if they walk away with far less than the business should be worth….
Do I think the US carmakers will be bailed out? Yes I do.
Do I think it will solve their problem? Not a sausage.
Let’s be realistic – the operating environments for these car manufacturers is not going to change over 2009. The reality is that even if they cut some costs, shut down some lines etc, the US tax payer is going to have to acknowledge that when they cross that fat black line of bailouts, they’re going to be tied into paying at least another year of bailouts to make for an orderly exit.
Lets pick an arbitrary figure of US$15bn per quarter to keep these 3 firms afloat – that is 60 BILLION dollars a year just to keep 3 businesses afloat. With the GM and Ford Credit arms being so stretched, I see this house of cards collapsing and THAT will be the shock to the system that leads me to my next assertion – the straw that breaks the back of Old Mutual.
Old Mutual is a funny business. Very successful in the Nordic regions and South Africa, management instead has decided that its real future lies in places like China and the US. So far the expansion plans have been littered with very expensive failures, that the company has been able to gloss over with the impressive gains in the equity markets.
Over the last few 12 months the company has plummeted from R23 odd a share to around R8.50 a share. Ouch. In the meantime they paid over the top for an acquisition in China and they’ve been pissing into the wind with something like US$400m in capital to deal with problems in their Bermuda book and the US life operations.
The company has said that shareholders shouldn’t worry because it has US0.8bn in capital reserves but this figure does exclude money they need to still release for their Chinese acquisition and a final dividend which now looks increasingly under threat.
But something occurred to me the other day – Old Mutual’s capital problem is two-fold. They may have the capital – but where does that capital sit? In London or in SA? The answer is that a big chunk of that capital in fact sits in South Africa (one of the few places where they are making good money).
Foreign exchange regulations are going to be very tough to move that capital off shore should their international ops take much more strain. At the end of the day, if they sell off Mutual & Federal, the capital will remain in South Africa, as would a big chunk of an asset such as Nedbank.
I personally don’t think Old Mutual’s (international operations) can survive the shocks to the system that another (sudden) 15% decline in equity markets could produce. But more importantly it’s the operating environment that has me the most worried.
A mistake I think is being made, in that we’re not giving enough credit to the ‘suddenness’ of events.
Six months ago, we didn’t ‘expect’ to be discussion trillion dollar bailouts and the failure of some of the world biggest companies.
People are going to lose their jobs and it is not going to be a gradual dip spread out over next year, where systems can adjust. People are losing their jobs NOW, businesses are closing down NOW, governments are retrenching people NOW.
Consumers are stretched beyond breaking point – there is no savings base of any kind behind them – their cash is gone and the only way they can keep going is to source credit. When that tap is turned off they cut expenses – insurance, medical aid, pension fund contributions (which they will cash out irrespective of tax consequences – when you need money you need money).
Conclusion
While Old Mutual’s South African operations will probably survive, I suspect that the risk of failure in its international businesses must be extremely high at the moment. SA will probably be cushioned by a pretty strong business model (despite the grief they are given) and the cash flow from the sale of Mutual & Federal, even if they walk away with far less than the business should be worth….
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