Jozi, Jozi. Phew. A ripper here on the local market, one of those rallies that you see not too often, the Jozi all share added 1033 points or nearly three and a half percent to 30752. Huge. Expectations have been set high that the Europeans are going to use the so called Hank Paulson bazooka option, rather than firing off pop guns every now and again. We caught most of the good, although during the day there were suggestions that initial optimism over the EFSF size would not be greatly increased, but "better used". The Greeks pushed through their property tax, which of course in their minds was a much better methodology in terms of collection. In my mind it is an admission of failure of the authorities. The Troika actually heads to Athens to have a look at the progress that the authorities are making in introducing their new taxes and implementing austerity measures. You have to in some way feel sorry for the normal citizens, the folks who are on the receiving end. Change, and austerity, those are always bad.

Company results. What a relief, we were starting to hit the outskirts of the Gobi desert, in terms of the results flow. First up, Capitec results, the darling that continues to impress, and looks great, ball after ball. Cinderella would imply that they used to do the dishes, clean and look after two (ugly) sisters, so perhaps this is a case of better than Cinderella.

The numbers still continue to sparkle like her jewels (I am pretty sure the fairy god mother gave her some), these are interim results to the end of August 2011. The number of active clients increased to 3.2 million, that represents an increase of thirty percent. The branch network increased to 474 outlets, a 12 percent increase on last year. The company grew their employee base by 34 percent to 6351 staffers, awesome, an employer!! Net loans and advances for the period increased by a whopping 85 percent to 13.393 billion ZAR, a bigger first half 2011 than the second half in 2010. Deposits also swelled by 59 percent to 13.6 billion ZAR.

Arrears and provisions seem to be stabilizing, arrears to gross advances and loans stands at 4.5 percent, which is better than this time last year and better than at the full year stage. Provisions might have swelled to 1.1 billion ZAR, but as a percentage of gross loans and advances is 7.6 percent, versus 7.1 percent this time last year and 7.6 percent for the full year.

Capitec are making good progress in their transactional banking income, which grew 54 percent to 361 million ZAR for the first half. Pleasing to see. There were some interesting observations about the unsecured lending market in South Africa from the commentary:

"The South African unsecured lending market has continued to grow in 2011. Credit disbursed during the first quarter grew by 55% to R28.5 billion. This growth is within our expectations and meets the objective of the National Credit Act to make credit available to consumers that did not have access to credit prior to June 2007.In this growing market Capitec's market share grew to 20% (first quarter 2010: 16%).

Consumers' appetite for credit is expected to remain high as the demand for formal housing and durable goods in an increasingly urbanised market continues to grow."

Two things, the "theme" which we have liked for so many years continues to gain momentum, and secondly, Capitec are gaining market share. Urbanisation means a greater demand for credit, this is a developing market phenomenon that should stick around for a few more decades. I saw a map of African Rural versus Urban populations and check it out, most of the desert populations understandably have big urban populations. But on balance, most of Africa is still really rural, check this map out: African Urban Population.

Earnings per share for the half increased 53 percent to 520 cents per share, the interim dividend declared was 125 cents, an increase of 47 percent. When you are growing quickly, you would expect costs to rise, banking operating expenses were up 36 percent, so no surprises there. I guess this is a stock that continues to look expensive, but that is because they deliver blowout results every time. Return on equity was one of the only key metrics that were lower than the last time, down at 29 percent versus 34 percent last time, and at the full year stage.

My overwhelming take away is that this is a good company operating in the sweet spot. Well run, good controls. The share price, well that is very lofty, but has always looked that way. Investors have always paid up for Capitec stock. Not quite the time for the big banks to even worry about a company of this size, yet, but just a reminder of which end of the market is growing. And this company is still in growth mode. One earnings stumble though would see folks revaluate their growth forecasts.

Byron's beats is about to disappear for a while, he heads to the land of the long white cloud to watch the Boks. Exciting for him, let us hope that he can lend them our support. And in keeping with the theme, here is a little more about the Holdsport results!!

About two weeks ago Holdsport came out with a trading update that indicated a 20% increase in earnings against the last comparable period. Yesterday the company that owns Sportsmans Warehouse, Outdoor Warehouse and First Ascent came out with consolidated results for the half year ending 31 August 2011. Core headline earnings came in at R61 million or 159c per share from revenues of R546.9 million which was up 7.2% from last year. There were a few once-off costs and the amortisation of trademarks which brought headline earnings to 141c per share. An interim dividend of 47c was announced. The company is in growth mode so I would definitely expect this cover to increase going forward.

In terms of the divisions Sportsmans Warehouse is the big revenue driver with 72% from its 33 stores while Outdoor Warehouse brings in 24%. First Ascent brings in just 4% but is growing very quickly, 28% from last year. Like I mentioned in my note when the update came out, the company looks cheap in comparison to its retailer peers. I think a conservative prediction of full year earnings would be around 300c per share. The stock trades at R31 giving it a forward PE of 10.3.

I say this is conservative because in the prospects they remain optimistic regarding trading conditions in the second half. This is because the period includes Christmas which as you can imagine is vital for the company. I would also imagine that sales now, and throughout the beginning of summer would be increasing because people are more active when the weather is good. In terms of new stores, the company added one Sportsmans and one Outdoor Warehouse for the period while a further 2 new stores will be opened within the financial year. It doesn't sound like a lot but the company only had 49 stores in the previous reporting period. 4 new stores represents an 8% increase.

Usually I prefer the bigger companies but I feel this company offers a lot of value and potential. That is because I think their brands are fantastic. Agreed, the industry is extremely competitive with Mr Price Sports and potentially Walmart offering the lower end stuff while stores like TotalSports and brand retailers offer the higher end products and services. Still when you think sports retailer in SA you think Sportsmans Warehouse. They offer that shopping experience you just cannot find anywhere else. In a country with good weather, active citizens and a growing middle class, they fall in a good space.

New York, New York. It was a whole lot better than the scoreboard suggested, even though that looked good after all was said and done. At one stage the gains for the Dow and S&P 500 were threatening three percent on the day, but stocks actually pared the gains and ended with half of those. But that is good anyhow, I guess we would have taken that at the start. The bounce back was largely led by the materials sector, something that we know better as commodities!!

The genius of Meredith Whitney was back at work, she cut her earnings prediction for Goldman Sachs. Who apparently rule the world somehow, Lloyd Blankfein is not really visible for the supreme leader. Forget that, the whisper is that Goldman are actually going to make a modest loss for the last quarter, that does not sound like the Goldman that I know, the share price has been crushed this year, year to date the stock is down 41 percent. Versus the S&P 500 which is down six and a half percent. The best of the bad bunch is JP Morgan, which is down 25 percent for the year. Bank of America Merrill Lynch is the worst of the grouping, down 51 percent YTD. Yech. They (the major banks listed in New York) are all traded below current price to book, except for Wells Fargo. Nobody trusts the book though. And most of them are trading on historical multiples of less than ten times earnings, which leads me to believe that everyone is anxious about future earnings.

On MarketWatch consensus on JP Morgan (which trades at 31.57 Dollars a share) for the next fiscal year is 5.68 Dollars worth of earnings. Seemingly Mr. Market does not believe this, so I am guessing that the estimates are horribly wrong. Morgan Stanley, which trades just shy of 15 Dollars sees analysts pencil in 2.77 cents worth of earnings for the next fiscal year. AND, so the list goes on. I guess if you wanted to use the phrase in response to these stocks looking cheap "it is about the economy dummy", I am guessing that you might well be right.

If you had to ask me to pick three, in order I would say Wells Fargo, JP Morgan and as an outsider, I am going to side with that Buffett guy on Bank of America. But you are not asking me what I think of the sector, not a big fan really, too much stuff going on in the background way underneath the surface. Just to get an idea what we are talking about, think about the recent trading loss from the fellows over at UBS. And Paul once pointed out a picture of the UBS trading floor and asked the question, what number of strategies are these guys all dreaming up in order to maximise their bonuses?

Tell me, Paul certainly has a point, that seems very different from the types of mom and pop banking that we became used to in the past. Thanks, but no thanks, this is not the greatest sector to be invested in. That line that I started with a couple of days ago when Jamie Dimon basically said to his daughter that a banking crisis is something that happens every six to eight years.

Commodities and currencies corner. Dr. Copper is slightly lower at 336 US cents per pound, the gold price is much higher at 1653 Dollars per fine ounce, whilst the platinum price is steady after taking some heavy knocks, last at 1557 Dollars per fine ounce. The oil price is lower at 83.68 Dollars per barrel. The Rand is weaker after a run (after getting crushed), 7.88 to the US Dollar, 12.30 to the Pound Sterling and lastly 10.72 to the Euro. A bit mixed here at the get go, up and down, oscillating between positive and negative. European policy makers are talking about the EFSF and various votes are still happening, Germany tomorrow remember, that is a big vote!!!

Sasha Naryshkine and Byron Lotter
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