Jozi, Jozi. Zero. Zip. Nil. Nothing. Luto. Niks. And then a whole lot of other expletives that I can think of to explain zero. Zero is good when it means points or goals conceded, weight gained after a holiday or incorrect answers, but when talking about US jobs created, zero is the wrong number for about everybody. Markets (let me rephrase, the bulls) across the world were hurt by a worse than expected jobs number, time to fire the expectations predictor bots. Sentiment for the best part of the day was weak as it was, and heading into a long weekend ahead of the Labor Day holiday in the US, saw more folks bail.

At the end of a sorry session in Joburg (the weather at least was stunning) the Jozi all share index had fallen 608 points or 1.96 percent to close up shop at 30479 points, financials and banks feeling the punch in the kidneys (or guts) the hardest. In fairness to those two sectors the selling was pretty much broad based. The last 40 days have been tough out there, that is for sure. The only winners, surprise, surprise were the gold miners, up over two percent after all was said and done.

AVI Limited (which used to be one of my favourites) reported full year numbers to end of June 2011. How does this company differentiate themselves from the others in the sector? The way that they have positioned themselves is as a "branded goods" company. In fact their website says as much: "Single-mindedly focussed on their growth and development, our brands span a range of hot and cold beverages, sweet and savoury snacks, fresh and convenience foods, out of home ranges, cosmetics, shoes and accessories, and apparel." You would know favourites like Five Roses, Ellis Brown, Frisco, Bakers Biscuits, Willards and then some other high end fashion brands, like Jimmy Choo and Kurt Geiger.

The commentary part is interesting, the fashion brands, shoes, has been strong, the food and beverage portfolio have performed well in a competitive environment. Their words, not mine. So, shoes before eating, which makes sense, because eating is cheating. Group revenue grew nearly 6 percent to 7.69 billion ZAR, headline earnings rose to 750.8 million ZAR an increase of 32.3 percent. Reason for that as the company points out is because of "higher operating profit and lower net finance costs." HEPS from continuing operations is 248.2 cents per share with a final dividend for the year of 75 cents, bringing the total to 125 cents. The stock trades at 32.75 ZAR a share. So, you could say, neither cheap, nor expensive.

In the discontinued operations the Alpesca and Denny operations basically add nothing, so there is no impact in the overall number. Both businesses have been sold, or are in the process of being sold. The outlook segment reveals something that I have not seen for a while, the group has engaged in hedging, check it out: "the Group has a material level of forward exchange cover in place to protect the cost of imports and commodity costs have started to soften, both of which will allow more leeway to manage the balance between price, volume and profitability with the flexibility that constrained trading environments require." Phew, you can either get it completely right, or completely wrong.

The group plans to continue to focus on costs as the consumer is expected to fumble around in the dark as the economy chugs uphill. But AVI will continue to look for opportunities, both locally and regionally, the surrounds. I like the business as a whole, a good management team delivering time after time. There is very little exciting, but perhaps that is what you are looking for if you are investing in this company. If you own them, continue to do so.

This is interesting. Anglo American is divesting from their 16.8 percent stake in Palabora Mining, a little over a month after some really good results from the copper miner. See the coverage here at: Palabora Mining reports very good results. OK, boring headline back then. But that is the least of the worries of Palabora mining, because the process is actually being led by Rio Tinto who have indicated that they want to sell their 57.7 percent stake and Anglo are going along for the ride. Imagine being the board (who were probably aware of this, I am guessing) waking up and finding that almost three out of every four shares needs another shareholder. The company currently has a market capitalisation of just shy of 6.9 billion ZAR.

And it looks dirt cheap. So why the sale by the two key stakeholders? Anglo American's official line is as follows:

"Palabora's principal asset is a copper mine in South Africa which also produces vermiculite and magnetite and, while studies are under way for a potential extension to the copper mine's life from 2016 to 2030, the operation is no longer of a sufficient scale to suit Anglo American's investment strategy."

In fact, the Rio Tinto website substitutes the word Rio Tinto in the same Anglo American statement, check it out ---> Rio Tinto announces intention to divest shareholding in Palabora. Written by the same people. Here is the catch though for existing shareholders, including the big two shareholders, an offer to all of Rio Tinto's and Anglo American's shareholding would mean an offer to all minorities too, in terms of the South African companies act. The next question, who would buy all of it, and would there be a premium? The short answer I think is that both these companies think this asset is non-core and would take the ruling price. That is my sense.

The stock looks cheap, but that could be to someone else's advantage. Is it naughty to suggest that the current climate for miners in South Africa pushed the two stakeholders to do this, or have they recognized that the asset is a little tired and that they are going to move on? Any insight on what the two shareholders might be thinking?

Byron's beats has a look at the biggest construction company in South Africa. Not Murray & Roberts.

South Africa's biggest construction company, Aveng Group came out with full year results for the year ended 30 June 2011. And how the construction companies have fallen from grace. Aveng is now only 69th on the list of SA's biggest companies with a market cap of R13.1bn. Next on the list is Murray and Roberts with a market cap of R9bn. At its height Murrays was a R33bn company. It must be noted though that Aveng is not a pure construction company and have some other operations in their portfolio. Of their R34 billion revenue (profits in brackets), R9.5bn (R443mil) came from construction and engineering in South Africa and Africa, R13.2bn (R291mil) came from construction and engineering in Australasia and Pacific, R3.6bn (R414mil) came from their mining contracting business and R7.8bn (R321mil) came from their manufacturing and processing of steel and concrete.

So let's see what Aveng have been up to in the last year. Headline earnings were down 36.9% to R1.2bn which equated to R3.06 per share. This was as a result of tough trading conditions in the SA construction sector as well as project execution issues in Australia and some competition commission penalties. However the order book remains strong, managing to grow 19% to R37bn. From a valuation perspective the stock trades at R33.76 and a historic PE of 11. Some may say quite expensive for a construction company in these conditions but at least these guys are still making a good profit and growing that order book. Plus they are trading well below their asset value.

Of the mix you can see from the first paragraph that the mining sector really did well in terms of profit and margin. I guess this is a prime example of how diversifying a portfolio can benefit a company. The reason for the bad performance from the Aussie division is attributable to the floods which delayed projects. It also increased the order book however as relief contracts were handed out. The manufacturing division did better due to an increase in the demand for steel. However volatility in the steel price plus increased competition hampered margins.

As an investment we are not a fan of the construction companies. There is too much project risk (see Murray and Roberts) and the margins aren't great. It's nice to look at these companies however to try and suss out the construction sector. Although earnings were down it was good to see an increase in the order book. At the same time Aveng have weighted their SA order book 80:20 in favour of the private sector which could indicate a pickup in private spend.

From a company perspective this is a good mix. Government has built up a bad reputation in terms of honouring contracts and you don't want to be too exposed to that. In the bigger scheme of things, a good set of numbers from a company operating in a tough industry. The outlook gave no surprises anticipating further tough conditions. However the growth in the order book represents some light at the end of the tunnel. Management said that private sector growth will pick up due to continued demand for commodities fuelled by China. As an investment we prefer PPC in the sector. We will remain patient.

New York, New York. Yech. I kid you not, five minutes prior to the announcement of the big "jobs" number Rick Santelli said that his prediction was zero. And when the number came in at zero, Rick shouted, a big fat goose egg. Be gone predictors, welcome Rick. The nitty gritty of the jobs number from the official release at THE EMPLOYMENT SITUATION – AUGUST 2011:

"Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment in most major industries changed little over the month. Health care continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota."

The last time that the employment number clocked zero was in February 1946. This was post the bloodletting of some of the worst months where troops were decommissioned post WWII. The last zero was seen 785 months ago. Manufacturing jobs were lost, just a few, but that is against the trend. Government jobs continue to be lost at quite a rate, I thought that is what the spending hawks would want to see, less government spend. People unemployed for over half a year still top 6 million, which I guess is not encouraging, and that segment of people account for nearly 43 percent of all the unemployed people in the USA. Sis.

A graph caught my eye, tweeted by Barbarian Capital, now, it looks ugly. BUT, the big but is, if this is the worst financial crisis since the great depression, how would it look if you included that bit? If that period was the worst, and unemployment was at 25 percent plus, then surely this period is not that bad. Is that right?

Another thing that caught my eye was a New York Times article that sees the end of an era. It just can't go on like this forever. I am talking about the US Postal Service. Now, many would have said that this was an essential service, and quite right, it was perhaps one of the most valuable utility companies thirty, even twenty years ago. Sadly, the USPS are a victim of technology. And are bleeding. Check it out: Postal Service Is Nearing Default as Losses Mount.

The problem for the post office in the US is that they cannot hike rates beyond the inflation rate, like UPS or FedEx, because the law prevents them from doing that. But, because they basically are a government agency their productivity levels would be nowhere near the same as the business folks. Volumes are plunging, with 167 billion pieces delivered last year, and the article suggests that by 2020, the number could be only 118 billion pieces. And, again as the article points out, the challenges are too many. All I can say is that there was a place for government to be involved, but if you want something overnight, you are not going to contact the Post Office. But that is the easy part, the hard part is what to do with the nearly 600,000 employees of the loss making operation. The days of government back stopping is over sadly, time to make folks pay up in far flung regions. There is seemingly no happy ending here for the post man.

Commodities and currencies corner. Dr. Copper is last at 408 cents per pound, softer even as the news that once again demand will outstrip supply for a third straight year. And there are going to be supply problems over the coming days. The gold price has once again overtaken the platinum price, last at 1891 Dollars per fine ounce, whilst the platinum price is flat at 1878 Dollars per fine ounce. The oil price is lower at 85.24 Dollars a barrel. The Rand is weaker at 11.44 to the Pound Sterling, 7.09 to the US Dollar and 10.03 to the Euro. We are getting thumped at the start here, and I guess that trend will not reverse any time soon, as the US are away today. On ironically, Labor day.

Sasha Naryshkine and Byron Lotter
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