SA Platinum Stocks Update

Implats preferred.
Then Amplats.
Then Lonmin.

SA Listed Property Update - June 2013

The sector has now given back all of the first quarter’s impressive gains and is flat year-to-date.
As a result of last week’s price declines, the one year forward yield on the listed property sector has risen to 7.3%, while prospects for medium-term growth in distributions remain unchanged at 7% to 8% per annum.

Might be attractive to enter the sector at these levels. By way of indication, Growthpoint hit R23 this week, placing it on forward yield of 6.73%. R22.15 if possible will give an investor a 7% forward yield. 

Institutional money at equity overweight extremes

From Reuters article: "Great Rotation" may have already begun

"While this switch may be small, it helped boost the equity weightings of U.S. pension funds and insurance companies - a $25 trillion industry - to 45 percent at the end of the first quarter, the highest level since 2007, according to JP Morgan."

What is unclear is the seeming contradiction between this statement in the article and the image that they subsequently link to: "until now, the available data showed the flows driving stocks have come out of money markets, not fixed income."

Which makes me wonder how Alan Higgins can say "equities are under-owned at institutions. They are rebuilding. You are likely to see more of this over time."

Vodafone stupidity

I was about to build a large position in Vodafone on the basis of the Verizon Wireless takeout. Thankfully i managed to get out before this disaster occurred.

We all make mistakes. The reason I was willing to go heavily long Vodafone was that I believed the Vodafone board would have learnt from their prior decade of poor acquisitions. It seems that I was mistaken. Reminds me of Warren Buffett: "Always try to invest in a company that a monkey could run and still reward shareholders because eventually a monkey will run it."

RECM on ArcelorMittal SA

Daniel Malan in the latest RE:CM commentary makes the bull case for ArcelorMittal SA.
The investment case relies primarily on a cyclical argument and that ACLJ.J looks good compared to historical multiples. Most interesting for the Bull case is this paragraph:
   
   Two recent corporate actions in the domestic 
   steel industry put much-needed perspective on 
   the valuations afforded by the market at present: 
   A BEE company called Nemascore is buying 
   Russian parent company Evraz's 85% stake in 
   JSE-listed Evraz Highveld Steel for R3bn, valuing 
   it at R30 per share - a substantial premium to the 
   market price of R13 at the time; A consortium 
   including the IDC and Shanduka bought Scaw 
   Metals from Anglo American in April 2012 
   for R4.6bn. Sell-side analyst Brian Morgan of 
   brokerage firm BNP Paribas Cadiz estimates that 
   on a value per installed ton of capacity basis 
   these transactions value Mittal SA in a range 
   from R60 to R74 per share.

That is all very good. However, it should be noted that both Evraz and Scaw are smaller operations, and are therefore more likely to hit full plant capacity, arguably the most important factor in profitability. ArcelorMittal SA's facilities are just too big for the South African market, and it is extremely unlikely that it will ever consistently operate at full capacity. So replacement cost and book-value valuations are relatively meaningless in this instance. Evraz and Scaw have also been making profits in the most recent quarters, the same difficult trading environment as ArcelorMittal SA has produced losses. At R32 a share, ACLJ.J could go to R50, but in the absence of getting back to the preferential iron ore agreement at Sishen, it's unlikely that it will ever be more than that.