Financially Speaking May 2008

Life’s admin: Do we create this for ourselves? I’ll just hang this out there…

Dear Client,

Now that we’ve all supported the generator industry and allowed the importers and distributors to have made their money on the ‘jennies’, subsequently ‘fueled’ the increased requirements of diesel through this, Eskom says we can stop this shedding issue and we can all carry on as normal. (Just when I’ve bought LED headlights for all in the household and two of those come-on-when-the-power-goes-off lights) Whatever normal is in a country that says there is nothing wrong up North. Well, at least there’s stuff to talk about!! What would a Swiss person talk about around the braai? Probably don’t even braai….

Investment issues

A couple of days ago I attended Allan Gray’s bi-annual presentation to us guys in Durban. As I’ve said before, these guys that talk have half the alphabet behind their names and are very good at analysing balance sheets, income statements, a company’s dividend flow accompanied by the predicted dividend growth, the potential directional movement of the market that a company they have invested in might take etc. But, they are often extremely boring public speakers. They need coaching in this area; from where to stand, to how to speak clearly, to how to manage the microphone, to body language. They need a corporate client of mine to go fix this.

However, and this however means everything a however can mean, they are very clever and very good at what they do. So I listened to the administrative performance of Allan Gray Investment services, like how quickly the call centre is answering the phones when we phone them. Then I listened to the local Chief Investment Officer followed by the Orbis (Allan Gray Offshore) Investment Officer. They are proud of what they have achieved over the past 4 years in South Africa and abroad, but understand that the next four will be different here on SA markets. My meeting on the morning of the same day before this talk also went around some of this hesitant market future.

This earlier meeting was where I enjoyed an hour and a half of exclusive time having tea with Simon Pearce, the CEO of Marriott Income Specialists. He spoke about the value of offshore shares at the moment and then alluded to the changes he expects in the property arena. “Hey, this property thing is over”, he said, when I raised an example of a stagnated development in Hilton. I then spoke about property syndications – investment structures that I have avoiding promoting. He said that due to the current reduction and squeezing of consumer spending, a result of the new credit act, higher rates, inflation, petrol price and etc, the smaller, boutique type or specialist retailers in shopping centres will be the first to lose income. They will then not be able to afford the rent, might close, then the centre owners will not want to have an empty shop so they give a 6 month rental holiday to a new tenant with a much lower rent thereafter. So now you have the retail property market having lower earnings which comes through in negative ways to the property syndications. Those of you in listed property structures like Marriott’s funds do not have the same concerns as they are utilizing the income stream from thousands of tenants in many retail complexes and are able to re-structure those income streams due to the listing of the property funds. In a syndication, the individual owner needs to find another buyer if he or she wished to move out. This is going to become problematic.

Monthly financial advice:

What I do to my bond: Every week I make those electronic monthly payment – domestic workers, spending money to my wife etc. While I’m on the banking site, I usually also pay an extra R50 to my bond. R50 is coffee money, sweets in the café money. We don’t miss it and sometimes doesn’t feel like it was there. But over time, it will do me good in that account.

Until next time
Regards,
Kevin

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.