Market Scorecard
Last night Trump dropped two executive orders on the tech industry. The first was targeted at TikTok, as expected, and the second was aimed at WeChat and Tencent. The target on Tencent was not expected. The ramifications for us in South Africa is that Tencent is down between 5% and 10% today, meaning Naspers and Prosus will be down too. These executive orders will be challenged in court but they come into force in 45 days, probably before any clarity can be granted by the courts. The problem with the orders is that they are vague, where they speak of banning transactions with Tencent. What does that mean? In the case of Tencent, they already have stakes in Tesla, Spotify, Snap, Reddit, Riot Games and Epic Games.
Looking at overnight data, China reported a healthy 7.4% rise in exports for July, where a contraction of 0.2% was expected. Their imports though contracted by 1.4% for July. The data shows that the global economy is recovering, just not in a straight line.
Yesterday the JSE All-share closed up 0.05%, the S&P 500 closed up 0.64%, and Nasdaq closed up 1.00%.
One thing, from Paul
Uber (NYSE:UBER) had second quarter results out last night, and they were weak. Weaker than a weak cup of tea. They racked up a loss of $1.02 per share, worse than the estimate of $0.86. Revenues were a bit better, $2.24 billion where the street had only expected $2.18 billion.
All this was to be expected, as no-one could really use their ride-hailing services during the Covid-19 lockdowns. UberEats was operational and saw some good growth, but that business is smaller and has worse margins than the taxi service.
As I pointed out a month ago, a modest number of Vestact clients own Uber shares in New York portfolios. I got very excited when they listed on the NYSE in May 2019 and we bought a fair bundle of shares at listing day at $42 per share. I am a fairly significant shareholder myself.
During the Covid-19 washout the stock price fell to $21. Urgh! Since stay-at-home orders eased, ride traffic has picked up a bit - people are still anxious about getting into a shared vehicle. In America right now, there is apparently a shortage of cars for sale. Once the virus subsides, people will go back to the Uber model. It's cheaper to have someone else own the wheels.
In other news, this week Uber bought UK-based Autocab, which sells software to the taxi and private hire vehicle industry. Autocab operates in 20 countries globally at this stage, and has its HQ in Manchester.
I know that some people think I'm insane and that Uber will never make any money, and is a dog with fleas. Why own it? Just wait I say! They had gross bookings across their operations (the total value of the mobility services provided to customers) of over $10 billion. In a while they will be back to their prior target gross booking level of about $25 billion per quarter. I back CEO Dara Khosrowshahi to turn a profit from that throughput in short order.
After the results release, Uber's share price is down a bit, trading at around $33.50 per share. Current shareholders should hang in there. You'll have to trust me on this one.
Byron's Beats
Yesterday MTN (JO:MTNJ) released interim results for the first half of the year. Revenues grew to R84.1bn from R72.5bn and operating profit jumped to R23.3bn from R15.4bn. This resulted in earnings per share more than doubling to R4.30 from R1.95 last year.
The market was already told about these great numbers a few weeks back in a trading statement. It jumped 8% on that day. Yesterday when the full details came out the share price dropped 1.4%.
The share now trades at R60. If it makes R4.30 every 6 months, you get your money back in 7 years assuming all things remain the same. That is very cheap for a listed business!
Data revenue jumped 32.7% to R22.7bn and fintech (mobile banking) jumped 18% to R6.1bn. At face value these numbers look outstanding. Not just that, they are operating in growing sectors with exciting prospects. Take a look at the graphs below showing the trends of their businesses during and after lockdown.
Why is the share so cheap? The geographies MTN operate in would be the clear cut answer in my opinion. They cannot be an acquisition target for a western firm because of their operations in Syria and Iran. They are sensitive to the oil price because they operate in oil rich nations. They are constantly targeted by bankrupt and corrupt governments and they struggle to repatriate profits.
That is why they have announced their intention to exit their Middle Eastern businesses in the next 3 to 5 years. They will keep their focus exclusively on Africa now.
At these levels MTN has a lot of upside potential. But because of the risks mentioned above there are always potential disappointments around the corner. If you own them, keep hold of them. If you are looking for a deep value buy and have a strong stomach, I would add a few at these levels.
Michael's Musings
Last week Ben Carlson, the writer of the blog 'A wealth of common sense', spoke about How millennials can close the wealth gap. He speaks about how millennials got dealt a bit of a bad hand with the financial crisis hitting as soon as they were getting into the job market.
He goes on to talk about how we need to just play the hand that we have been given. Focus on the things that we can control and try to play to our strengths. This is advice that we can all learn from, particularly when it comes to equity investing. We can't control what markets do, but we can control how regularly we invest and how long the money is invested.
One of the biggest advantages Millennials have is that they are better educated than previous generations and that they have a longer life expectancy. These are two massive advantages because it means we should earn more over our lifetimes. Start saving early and don't fret the small moves in the market.
Bright's Banter
Nintendo reported its best second quarter earnings in 12 years thanks to the record sales of its latest social simulation game "Animal Crossing: New Horizons". The Japanese gaming company also saw its profit increase by more than six times from a year earlier.
Net revenues came in at 358.1 billion yen, up a staggering 108% year-on-year, which led to operating profits increasing by more than six times to 106 billion yen ($1 billion). This was the best April-June quarter since 2008 when the Nintendo Wii was selling like hotcakes. The biggest driver of profits was the 10.6 million sales of the game "Animal Crossing: New Horizons" which now topped 22.4 million copies since its launch in March, making it Nintendo's second best-selling game ever.
The game has driven more people into buying the Nintendo Switch and Switch Lite which sold 5.68 million units for the quarter, up almost 3 times. I personally tried to buy one at the end of March, it was sold out everywhere. Their supply chain was grossly affected by the Covid-19 pandemic as they experienced a lot of production delays which still persist in South Africa but are largely over in other countries.
Nintendo is going to retain a lot of these new users it gained during the pandemic as people spend more time at home post the pandemic. The majority of people buying Nintendo products have been purchasing the games online which means higher margins for the game maker. Nintendo had great timing considering it released the blockbuster game at a critical moment at the beginning of lockdown and before Sony introduced the PlayStation5 and Microsoft (NASDAQ:MSFT) brought out the Xbox Series X.
Below is an infographic showing the lifetime unit sales of Nintendo's family of consoles.
Infographic courtesy of: Statista
Signing off
It's the first Friday of the month which means it is US job's day. The expectation is for their unemployment rate to improve to 10.5% from the current 11.1%. We head into the weekend with uncertainty in Washington about signing a new stimulus package for the US economy. The JSE All-share is lower this morning and the Rand is weaker at $/R17.55.