24 - Looking for market value by sdsdfqw21


									Volume: 21
Issue: 19                                                                      24th October 2007

Looking for market value
There was a time when investors strongly believed in the “Efficient Market Hypothesis,
but modern computer modelling has convincingly
shown that share markets are not rational in their
behaviour. That is why there is no better place for the                     Company news
street wise investor to get rich quickly.               For the past several issues we have been
The hypothesis was first expressed in 1900 by a French  publishing a comprehensive record of all
mathematician named Louis Bachelier in a dissertation entitled              JSE company reports. Since there is no
                                                                            longer any financial publication of record
"The Theory of Speculation”. In essence it argued that over time
                                                                            in South Africa, we believed this could be
share market prices accurately reflected the sum of all                     a valuable service for our readers.
economic events that impacted upon them. So, it was argued, if              However it does take up considerable
you were caught out by the market the probability was that you              space. So, in the issue of October 10 we
simply did not possess ALL of the information. In the mid 1960s             asked you to comment.
this view gained considerable sway when it was espoused by                  The result was a divided opinion. Nobody
US academic Paul Samuelson who was then a world leader in                   thought it clogged their system to
contemporary economic thought and who went on to win the                    download so much material. Some said
1970 Nobel Prize for economics.                                             they valued it but others said they could
Increasingly, however, modern studies have shown that on a                  search out such data for themselves
                                                                            using web search engines.
day to day basis markets conform more to the principles of
                                                                            What most added, however, were general
random walk; in other words investors are like a flock of sheep             comments about how The Investor could
who run hither and thither driven more by rumour and emotion                be improved by including in it exactly the
than by hard facts. The market is, in fact, often wrong and it is           material which we regularly publish each
this factor, together with the amazing power of compound                    Friday in Richard Cluver Predicts and
interest, which provides such a great speculative opportunity for           monthly in the Prospects newsletter.
those investors who take the trouble to arm themselves with as              We too would love to oblige and include
many facts as possible in order to be able to make reasonably               such material. But to be fair, nobody
accurate value judgements.                                                  would then see any reason to pay the
                                                                            subscription costs for the Prospects
Nevertheless there remains a solid body of opinion that believes
                                                                            service….and then how would we pay the
in the Efficient Market Hypothesis. Their explanation for the               bills at RCIS?
failure of empirical studies to justify the hypothesis is that              We have decided accordingly to continue
analysts have so far failed to identify all the causative                   publishing company reports but will
ingredients of the perfect mathematical model. Others, and here             restrict the service to those of the week of
we get into conspiracy theory, believe that a select few top                publication!

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Page 1
investors have identified them have kept the secret to themselves. This latter view is used to explain
why a small number of investors have been able to outperform the market over long periods of time, in
a way which is difficult to attribute to luck. These include world-renowned: investors like Peter Lynch,
Warren Buffett, George Soros, and Bill Miller whose strategies are to a large extent based on identifying
markets where prices do not accurately reflect the available information, in direct contradiction to the
efficient market hypothesis which explicitly implies that no such opportunities exist.
Among the sceptics is Warren Buffett himself who has argued that the EMH is not correct, on one
occasion wryly saying "I'd be a bum on the street with a tin cup if the markets were always efficient" and
on another saying "The professors who taught Efficient Market Theory said that someone throwing
darts at the stock tables could select stock portfolios having prospects just as good as one selected by
the brightest, most hard-working securities analyst”.
Buffet’s contention is that having correctly observed that the market is frequently efficient, adherents of
the theory incorrectly go on to conclude that it is always efficient. Adherents to a stronger form of the
EMH argue that the hypothesis does not preclude - indeed it predicts - the existence of unusually
successful investors or funds occurring through chance.
Now if you apply logic to share market investment, it should be obvious that ultimately there is only one
factor which propels the prices of individual shares upwards and that is rising corporate profits which
might or might not be the consequence of a favourable economic climate or rumours of developments
which might boost corporate profits. When markets as a whole rise the underlying cause is almost
invariably a surplus of money engorging the financial system. The converse similarly applies inasmuch
as a sudden withdrawal of this surplus triggers many market crashes. Furthermore, the agencies which
control this supply are usually central banks or governments
usually with a political agenda.
Day-to-day market price fluctuations in price are, in turn,
either the consequence of overall market direction changes or
rumours of events that investors think are likely to influence
corporate profits either positively or negatively. This is why,
for example, when a particular market sector is perceived to
be doing well and a leading representative of that sector
reports significantly improved results, the consequence is
                                                  often a fall in
                                                  that company’s
         Do you read                              share price:
                                                  simply because the company’s performance, although
         Prospects?                               very good, nevertheless failed to live up to over-optimistic
                                                  market expectations. In the long-term, however, the price
     The natural complement to                    of a share will with reasonable accuracy mirror any
                                                  changes in company profits. Thus, for example, my graph
                                                  (above) illustrates how the price of Standard Bank shares
                                                  has grown by a compound annual average rate of 21.8%
  The Investor tells you HOW to annually for the past 20 years reflecting the fact that
                   invest                         earnings per share have grown at 20.47% annually and
          Prospects tells you                     dividends at 23.37%. However, as the graph makes clear,
                                                  notwithstanding the almost clockwork predictability of this
           WHERE and WHEN                         company’s profit performance, there were times of
       For details visit our web site             extreme price volatility when an astute investor could
www.sharefinder.co.za                             have bought the shares at a significant discount to their
                                                  true value.
                                                  So what happens when we examine the price
                                                  performance of a portfolio of the leading dividend growth

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of £84.60 or by monthly subscription of £8.23. Payments can be made by credit card.
Page 2
companies? My next graph (on the right) tracks
the performance over the past five years of a
portfolio consisting of equal value investments
in ten shares which five years ago were the
dividend growth leaders: Adcorp, CMH,
Medclin, Mr Price, Nuworld, Remgro,
Richemont, Santam, Truworths and Wesco.
The red least squares fit line on the graph
shows that the compound annual average
growth rate in the value of this portfolio was
43.6% while the compound annual average
dividend growth rate of the portfolio was
The implication of this difference in growth rates is that the market is undervaluing such shares by
12.2% annually and dramatically more so whenever a significant market decline occurs. And it is
precisely this lack of market efficiency that gives people like Warren Buffet his profitable edge: which
has enabled Buffet to become the world’s second wealthiest man. To illustrate this point, note that a
great buying opportunity existed in July 2006 when the shares in this portfolio could have been bought
at a considerable discount to their underlying value. Had one done so, instead of growing at just
43.96% annually, one would have had a portfolio which was now growing at 69.1%: that is nearly two
thirds faster.
So we have the basis of a formula here for generating exceptional wealth. One, you need a means to
be able to identify companies which will go on year after year growing both corporate profits and the
dividends that they pay their shareholders at a better than average rate. That is how you create a basic
portfolio. Next, you need a surplus of income which will enable you to not only ride the profit wave
upwards but simultaneously save up additional capital sums which will allow you to buy aggressively
whenever share prices fall to exceptional lows— during, in other words, periods of exceptional market
irrationality. If you are unable to save up sufficient money between such occasions then you need a line
of credit which will allow you to similarly cash in on such situations.
Either way, this is logically a ticket to immense fortune. Of course there is a little more to it than that,
otherwise one could simply apply least squares fit trend lines to the graphs of every share that is
enjoying superior dividend growth rates and be a buyer whenever the price falls below that line. What
you need to know is whether the company of your choice is able, notwithstanding the occasional profit
hiccup that can severely damage market sentiment, to keep on growing its profits in the long term.
Does it, in other words, possess a unique product like Cocoa Cola which guarantees that no competitor
can ever really challenge its market dominance or
has it managed to develop such a superior
management system that it will always bounce
back no matter what political or economic setback
might occur in the short-term, noting that in
respect of such companies, a minor setback
which temporarily damages profitability and
inevitably disrupts the even growth of share
prices, represents an outstanding buying
A local example of such a share is Sasol whose
share price over the ten years from October 1997
has grown at a compound annual rate of 21.6%
which is precisely the same rate as dividends
have grown. The red trend line illustrates this fact while the green line illustrates what has happened to
earnings per share.
So note what opportunities have existed to buy this share at a deep discount to its true value. Had you
bought the shares in February 1999 you would have seen your money grow at 36.8% annually or in
April 2003 which would have delivered compound 39% annually or in March this year at 129.5%.
But not all companies are as easy to identify as Sasol and Coke. So how can one identify such
companies? We will take a closer look in the next issue of The Investor, but owners of the ShareFinder
programme need look no further than the Quality List Grade number: the search is done for you there!
Page 3
     Brokers’ Views
     When the markets go south                by William Fraser
A year ago we wrote about how we were all feeling wealthier, how the local share market was
roaring, with precious metals at multi-year highs, and how our property market was booming.
We felt on top of the world. But we cautioned then that markets typically follow cycles and that
corrections often follow bull markets.
Prescient words, you might say. But the fact that the market will turn south is not rocket science. While
investment experts can seldom accurately predict when exactly the market will turn, or the magnitude or
duration of the downturn, what they do know is that it will come following any period of exuberance in
asset prices. That begs the question: What strategy should investors follow to preserve, and grow their
assets despite these market cycles? While there is no secret formula to preventing capital losses over
the short term, there are a couple of basic principles that have proven to be successful over the long
    • Invest for the long term. There is little an investment manager can do to prevent volatility,
       including the loss of some capital, over the short term. Focusing on, and investing in, securities
       that offer the potential for real appreciation over the long term is a key strategy amongst the very
       successful investment management firms globally.
    • Preserve capital created during times of abundance. Don't be lured into the excitement of
       further potential riches through unproven strategies or 'get-rich quick' schemes. These seldom
       prove successful; rather, they usually fail. If you outsource your investments to a third party, be
       it through a unit trust or via a private client share portfolio, enquire about the manager's track
       record through the past periods of market weakness. Focus on
       their long term track record, and their ability to steer a ship
       through rough waters. Positive compounding is a powerful             You can test the
       force (as is negative compounding).
    • Ensure your investment strategy is appropriate given your                  new
       risk profile and stick to your guns. Don't make rash
       decisions based on short term volatility in markets, nor on          ShareFinder
       advice from friends or relatives. Regret is a waste of energy.
       Not all managers are experts in all strategies, however. Ensure
       the manager you've selected can deliver on your expectations.
       If you don't have the skills to select an appropriate investment
       strategy, then get professional assistance. The cost of paying
                                                                               at no cost for
       an investment manager or investment advisor for a                         one week
       professional service is small in relation to the potential losses
       that may arise from incorrect and uninformed investment
                                                                              1) Go to:
    • Don't be fooled by fancy stats ratios when assessing the
       success of a unit trust manager in managing risk.                      2) Click on “What’s
       Statistical ratios such as betas, tracking errors and Sharpe                 New” in the Products
       ratios do not measure risk at all. They are backward looking,                menu.
       and not absolute measures, but rather relative to a specific           3) Download your free
       benchmark. In an uncertain world, risk is the potential to lose              trial version of the
       money. Investment managers should focus on the future, and                   ShareFinder Mobile.
       be proactive in dealing with unexpected events. Fundamental
       research and a well diversified unit trust portfolio help to
       reduce absolute risk.
William Fraser is a fixed interest portfolio manager and is also
                                                                            * NB          Existing ShareFinder
                                                                              users this is not for you!
responsible for economic research at Foord Asset Management.
Page 4
Changing the way indices are constructed
                                         By Ian de Lange of ShareNet
Professor Jeremy Siegel, well known US investment advisor and author, wrote a paper called The
‘Noisy Market’ Hypothesis which discussed the thinking on fundamentally weighted indices. These
have been in the news lately where managers are launching various styles of newly constructed
To date the world has largely had capitalisation-weighted indexation. Most indices around the world track their
markets by way of weighting shares based on their market capitalisations. Thus a company with a market cap
of R2 billion has a far greater weighting in a portfolio compared to a company with a R500m market
capitalisation. Any price movement on the former share price will be exaggerated 4 times when compared to
the price movement of the latter share.
It’s the very reason that the Anglos and Billiton have such an impact on the index. Only one of the world’s
widely followed indices does not construct using market cap weighting, i.e. the US's Dow Jones index, which
is a simple average weighting of the top 30 shares on the New York Stock exchange.
In recent years a lot of work has been done on constructing an index that is not weighted according to the
mere size of a company, but on a fundamental criteria. The logic is sound. In the standard index construction,
a company that has experienced no change in fundamentals, but a 10% increase in share price, will, all else
being equal, have a 10% greater weighting in the index at the next rebalancing.
The assumption for the construction of the typical indices is the “efficient market hypothesis” which assumes
that at any time the price of a share represents its best, unbiased estimate of the true underlying value of the
share. It does not say that the price is ALWAYs equal, but that its impossible to tell which are over or under
valued and so constructing a portfolio based on market cap weightings is the best method.
But as indexing has caught on, especially in the US as a viable alternative to active management, so cracks
started to appear in the efficient market hypothesis, which therefore produced some doubt in the index as the
best means to construct a portfolio. Research has shown that over time, the performance of two categories of
shares could not be explained by the standard asset pricing mechanism of the efficient market hypothesis,
namely: small stocks earned an outsized return compared to their risks, and stocks with low price to earnings
ratios had significantly higher returns than stocks with high PE ratios.
The current paradigm shift has and continues to move to the view that says – the price of a share is not
always the best estimate of its true underlying value of the company. This is because there are a lot of other
factors that come into play other than merely rational investors basing decisions on the underlying
fundamentals. This is where fundamental indexation comes into its own, looking to create an index where the
shares are weighted on underlying fundamentals and not the price. These fundamentals could be sales,
                                                           profits, dividends, etc. Therefore price movements will
                                                           not play a part and so over time a share with superior
                                                           fundamentals will carry a higher weighting than a
          Advertise in                                     share with inferior fundamentals.
                                                          There are numerous ways in which a fundamental
          The Investor                                    index can be created. This can include numerous
                                                          weightings on per share data (e.g. PE, EPS, DY,
                                                          Cash flow per share etc), it can include one ranking
                                                          criteria e.g. dividend yield, or it could be based on
    It costs just R85 per                                 gross sales, revenues, cash flow and dividend etc.
column centimetre* to carry                               With the introduction of the new indices and the
                                                          accompanying funds raises the benchmark for active
your marketing message in                                 management. There is not one way to construct an
                                                          index and many of the new fundamentally weighted
                                                          indices don’t recognise the benefits of small and mid
               The Investor.                              sized companies as superior investments.
                                                          It’s important to understand the bias of your
 For details phone Lyndy on                               investment portfolio and the potential for over or
                                                          under performance.
        031 2621722
Page 5
ShareFinder Mobile for R1 150
RCIS is proud to announce the launch of the revolutionary new ShareFinder Mobile that
takes all the guesswork and decision-making out of share market investment.
Designed as an ultra-easy-to-use share market investment system for people on the move, the
ShareFinder Mobile combines many of the portfolio-building and monitoring features of the
ShareFinder Professional at an extremely affordable price tag. There are:
  No daily data downloads to worry about
  No bills to pay for expensive data services
  No complicated charts to try and understand
  A portfolio-builder that tailors 10-share portfolios to your personal needs
  An alert system that tells you when to buy and sell
Conceived with the busy executive in mind; for the kind of person whose only spare time is
waiting in airport lounges, the ShareFinder Mobile was designed to operate on a pocket
computer. It will, however, function equally well on a standard desk-top computer and will
shortly also operate on new-generation cell phones.
With just two or three clicks of a mouse it will tailor a blue chip share portfolio to your personal
risk profile, generating portfolios which under practical testing throughout the 2003-2007 bull
market have dramatically outstripped the performance of the top-performing unit trusts.
Unlike competing computer programmes which carry extremely costly price tags—sometimes
as much as R25 000— and which are linked to internet data services costing up to R2 000 a
year, the ShareFinder Mobile is offered as a subscription service costing just R1 150 a year
and there are no additional costs whatsoever.
It offers you:
         1) The tools to help you draw up an investment plan tailored to your personal needs.
         2) A systematic portfolio builder that enables you to scientifically minimise risk and
            maximise capital and income growth rates.
         3) A weekly overview of leading world markets accompanied by a graphic commentary of
            changing trends.
         4) A personal portfolio analyser which will keep watch over your investments and suggest
            periodic changes.
         5) A round-the-clock seven-day-a-week alert system which will signal you by e-mail if
            emergency action is called for. Shortly we hope to add a facility that will also send you a
            cell phone SMS so you will be alerted to the need for action wherever you are during the
The ShareFinder Mobile system operates from the RCIS servers where your portfolio is
subjected to a daily automated analysis. Should the need for action occur, you will be sent an
immediate e-mail. In addition, at the end of each week Mobile subscribers will receive an e-
mailed update that will automatically update the programme.
Having been rigorously beta tested for many months during its final development stages, the
ShareFinder Mobile is now ready for you. During the latest 2003-2007 bull market, its top-
performing portfolio achieved a compound annual average growth rate of 87.4% while its
income-growth portfolio where dividend growth is more important than share price growth
significantly outperformed both the Satrix 40 and the Sage Resources fund.
To order it, log onto www.sharefinder.co.za and go to the order form on the left-hand menu.
Next scroll down through our list of products and services and click on the Mobile.
* If you want to use this software to its maximum advantage, it is highly recommended that you
read Richard Cluver’s book “The Philosophy of Wealth” ISBN No: 0 9583067 61 which can
also be ordered from Richard Cluver Investment Services at a cost of R120 including postage.

Page 6
                          Readers’ Views
We thank RC for this light-hearted contribution:
KINDERGARTEN TEACHER: To get to the other side.
PLATO: For the greater good.
POLICEMAN: Give me ten minutes with the chicken and I'll know why.
ARISTOTLE: It is the nature of chickens to cross roads.
SADDAM HUSSEIN: This was an unprovoked act of rebellion and we were justified in dropping 50 tons
of nerve gas on it.
CAPTAIN JAMES T. KIRK: To boldly go where no chicken has gone before.
MARTIN LUTHER KING, JR: I envision a world where all chickens will be free to cross roads without
having their motives being called intoquestion.
MACHIAVELLI: The point is that the chicken crossed the road. Who cares why? The end of crossing
the road justifies whatever motive there was.
FREUD: The fact that you are at all concerned that the chicken crossed the road reveals your
underlying sexual insecurity.
GEORGE W. BUSH (2): We don't really care why the chicken crossed the road. We just want to know if
the chicken is on our side of the road or not. The chicken is either with us or it is against us. There is no
middle ground here.
DARWIN: Chickens, over great periods of time, have been naturally selected in such a way that they
are now genetically disposed to cross roads.
EINSTEIN: Whether the chicken crossed the road or the road moved beneath the chicken depends
upon your frame of reference.
NELSON MANDELA: Never again, will the chicken be questioned for crossing the road. This is an ideal
for which I am prepared to die.
THABO MBEKI: We need to establish if really there is a
connection between the chicken and the road.
MUGABE: For all of these years the road has been owned
by the white farmers, the poor underprivileged chicken has
                                                                     Advertise in
waited too long for that road to be given to him and now he
is crossing it in force with his fellow war veteran chickens.        The Investor
We intend taking over this road and giving it to the
roadless chickens so that they can cross it without fear of It costs as little as R85 per
retribution from Britain who promised money to institute      column centimetre* to carry
road reform. We will not stop until all roadless chickens     your marketing message in The
have roads to cross and the freedom to cross them.
ISAAC NEWTON: Any chicken in the universe shall               Investor.
always cross a road perpendicularly to the side of the        The Investor is published fortnightly on
road, and in an infinitely long straight line at uniform      Wednesdays. Current readership 3715. A full
speed, unless the chicken stops due to an                     page measures 18 cms wide by 26.5 deep.
unbalanced reactive force in the opposite direction of the    Column width 9 cms. Copy deadline noon on
chicken's motion.                                             Monday ahead of publication accompanied by
ZANU (PF) Spokesman: The chicken did not cross the            payment made by EFT to Richard Cluver
                                                              Investment Services, First National Bank,
road. This is a complete fabrication. We don't even have a
single chicken in our country as the whole world knows. All Branch Code 223 526
the chickens were bought and consumed by the long-            Ac No: 588 001 2935
suffering masses at give-away prices when we sent out
our comrades to enforce what our enemies are now              Our discounted cost for a full page with colour
unpatriotically and maliciously referring to as the largest   is R4 500
                                                              Half page R2700
closing down sale in the world.
                                                              Quarter Page R1400
JACOB ZUMA: I am gravely suspicious that this question Single column measuring 1 cm deep by 9cms
is being asked with a malicious intention to trap me, send wide R150
the Scorpions to raid my chicken run, haul me before the      Front page ad (Max permitted size 3.5cms
courts and charge me for sodomizing the chicken that          deep double column) @ R200/cm.
walked across the road towards me as it was running
away from an advancing light shower! Awuleth' umshini         For details phone Lyndy on 031
Page 7
wam' ........!!!                                              2621722
World Market View
Secondary Sources: Supply-Side, SWFs, Mortgage Fraud
A roundup of economic news from around the Web.
Supply-Side Lies: James Surowiecki, writing for the New Yorker, examines what he calls the
lie of supply-side economics and why the idea has continued to proliferate despite little
mainstream support from economists. “The cynical explanation for the persistence of the
supply-side dogma is that it’s simply cover for cutting taxes for the rich. But the supply-side
orthodoxy has flourished for other reasons, too. To begin with, the absurd idea that tax cuts
pay for themselves is based on an idea that is not at all absurd, which is that tax rates can
have an impact on people’s behavior.”
The SWF Boon: Andy Mukherjee of Bloomberg writes that the rise of sovereign wealth funds
are a boon to the asset-management business. “Although the projections differ, they all
suggest that an enormous sum of money will be channelled into global assets through
sovereign wealth funds. And that’s giving rise to concerns in the West about both the likely
investment strategy of these funds and their style of functioning… [Sovereign wealth funds]
must take higher risks to fulfil their mandate of
earning a higher return than is possible on official Want to test ShareFinder?
reserves. And the key to doing that successfully, Would you like a ShareFinder agent to call
given the unattractive civil-service pay structures on you, install the program and explain how
prevalent almost everywhere in Asia except           to profit best from using it? You will be
Singapore, is to fork out business to external       under NO obligation to buy!
managers.”                                           Once installed on your computer, you will be
                                                         free to use it for the next 60 days in order to
Mortgage Fraud: On the Econlog blog, Arnold explore the wide range of facilities offered by
Kling points out that the high-rates of loan        this cutting-edge range of software. There are
defaults under 12 months implies fraud. “In         ShareFinder agents in many centres:
recent years the share of mortgages going to        Bloemfontein Maarten Kruger mggw@vodamail.co.za
nontraditional investors (meaning not Freddie       Ph 051-5223486/ 0721601197
                                                    Cape Town Graham Veitch graham.v@vodamail.co.za
Mac or Fannie Mae) went up. Put this together       021 438 9008
with the high rate of early-payment defaults, and Dalton Steve Casey caseys@uclho.co.za
my guess would be that a lot of fraud has taken Ph 082 492 7238
                                                    Durban North Alan Pugh-Jones apj@ananzi.co.za
place. The new players on Wall Street thought       Ph 031 564 5697/ 083 637 9644
they were buying genuine mortgage loans. I          East London & Transkei Graeme Alexander
would not be surprised to find that they were just graemealex@telkomsa.net Ph 047 531 0679/ 531 0679
helping a lot of small-time operators steal a quick Gillitts Neil Mare avisionaday@yahoo.co.uk
                                                    Johannesburg South /West Keith Ryan ialley62@mweb.co.za
few million dollars each.”                          Ph 011 8231624/ 082 6011516
                                                         Johannesburg North Farid Essack farid@tradersupport.co.za
Less Support for Farmers: A new report from              Ph 011 807-0824 082-925-7936
the OECD finds a decrease in government                  Hillcrest (Natal) Ian Elves ielves@ionet.co.za
support for farmers amid a rise in food prices,          Ph 2627706/ 083 2519753
                                                         Pietermaritzburg Allan Robinson allanrobinson@intekom.co.
though the overall level of support remains              za Ph 033 3473937/ 0832319200
strong. “Support to US farmers fell to 11% of farm       Pinetown Ph Jimmy Gilchrist jimgill@pacer.co.za
receipts last year from 16% in 2005. The report          Port Elizabeth Deon Schoonraad deon.schoonraad@absamail.
                                                         co.za Ph 041 360 4400
says further reforms are needed to reduce price          Pretoria North Dr Mervyn Campbell mervyn@shift8.co.za
support of commodities such as sugar and milk            Ph 012 5465306 (H) & 084 5800680 ©
and to use payments to achieve other goals such          Witbank/Middleburg Lenny Govender goldx@absamail.co.za
                                                         072 2496249
as protecting the rural environment.”                    ShareFinder franchisees are all experienced programme
                                                         owners who are able to pass on their experience to others
MANY CENTRAL BANKERS in the developing                   and earn easy money in the process. If you would like to join
                                                         their ranks please contact Richard on 031 2621722
world are grappling with a dramatic reversal of
fortune. A decade after countries from Russia to
Page 8
India to Brazil battled currency crises, they're now struggling with currencies strengthening too fast.
11:40 p.m.

China needs to allow its currency to appreciate more rapidly, Paulson said, while arguing that
structural reforms will also be necessary to ensure growth.

Oil prices are hovering near historic highs, but consuming nations shouldn't expect quick relief from
OPEC, the world's only source for big, quick supplies.

Cold weather hasn't hit the Northeast yet, but record heating-oil prices mean high heating bills are on
the way for many residents. 12:17 a.m.
• Go Figure: Keeping Home Heating Costs Down

More homeowners are filing for bankruptcy to try to stay in their homes. Many are turning to the less-
familiar Chapter 13.

Rep. Barney Frank introduced a bill that would overhaul the way mortgages are offered, securitized
and supervised.
October 23, 2007, 6:35 pm
Economic Impact of Wildfires Approaches $1 Billion
The wildfires spreading through Southern California this week are costing the local economy about $45
million a day from the 350,000 residents who have been displaced from their homes, according to
Moody’s Economy.com. The 1,300 homes already damaged translates into $785 million in property
damage, the firm says.
The fires have scorched almost 400,000 acres since Sunday. The greatest economic impact will be on
the San Diego area, write economists Marisa DiNatale and Ryan Sweet. Under a worst-case scenario,
in which all 69,000 endangered homes were destroyed, the total residential property damage would hit
$42 billion, they say. The California governor’s office is updating the damage figures here.
“Using other natural disasters as benchmarks, the affected economy typically experiences an
acceleration in employment growth in the months following the disaster as homes and damaged
property are rebuilt and repaired,” the economists write. “Given the relatively small share of San Diego’s
economy that will be directly affected by the fires, it is unlikely they will have any lasting impact on the
local economy.”
Several U.S. wildfire disasters this decade have topped the $1 billion mark for damages and costs,
according to Commerce Department estimates. The last to take such a large hit on Southern
California came in fall 2003, burning more than 743,000 acres, destroying 3,700 homes and leading to
more than $2.5 billion in damages and costs. -Sudeep Reddy

Countrywide Loan Modifications a Drop in Macro Bucket
Countrywide Financial Corp.’s decision to help 52,000 borrowers by restructuring $16 billion worth of
adjustable rate mortgages is “welcome news but rather insignificant in macro terms,” says Zoltan
Pozsar of Moody’s Economy.com.He writes: “For context, Countrywide’s announcement affects only
6.6% of the subprime ARM loans that will reset between November of this year and December 2008. It
affects an even smaller proportion, 4.3%, of the unsecuritized, option, Alt-A and subprime ARM loans
that will reset over the same period. It is also equal to 6.7% of all subprime ARMs that have already
reset since January 2007 of this year. Thus what seems like a large number is a small fraction of the
outstanding problem loans. Further, it is unclear whether these restructurings will be performed on
unsecuritized or securitized loans; if the former, the impact could help Countrywide’s bottom line but not
He                                              adds that while Countrywide may be able to modify some
of     http://www.tdwaterhouse.co.uk/           its borrowers’ terms, many originators are out of business
                                                    and thus unable to do the same. “In many cases, the
                                                    task of helping homeowners restructure their loans
                                                    would fall to mortgage servicers, who may not be able
                                                    to do so.” Loan servicers, he says, have “razor-thin”
                                                    margins and extra servicing costs could wipe those

Page 9
margins out; and the interests of the ultimate owners of mortgages may vary.

London Market Report by James Cumming
Yesterday the FTSE100 closed at 6,514 or 4.72% up for the year, while the FTSE250 closed at 11,359, up
1.62% for the year to date. The Dow Jones is up 8.61% so far this year and the NASDAQ is up almost 14%.
Interestingly, the German stock market as measured by the DAX has returned 18.9% for the year to date,
buoyed by improved economic activities and consumer confidence in that country.
Last week marked the 20th year anniversary of Black Monday, to celebrate this, global stock markets fell 2 -3% on
Friday and Monday of this week. Fears that the US sub-prime lending problems were starting to affect other
economic sectors raised its head and sparked the sell-off. The Chief Financial Officer of Caterpillar warned of the
growing possibility of a US recession next year during their earnings announcement last Friday. Caterpillar’s
revenue and earnings for the last quarter was lower than expected, citing the slow down in the building sector
reduced demand for its machinery.
We can expect more such earnings disappointments from companies seemingly unconnected to the sub-prime
and credit markets. Currently US consumer spending accounts for about 72% of the American GDP, up to the
early 2000’s this figure had been closer to 60%. This recent increase has been funded by home equity
withdrawals, now that house prices in the US are falling in most areas, there is very little, or even negative, equity
left in the housing market, putting consumer spending under pressure. This has already started to affect demand
for goods and services provided by US and global companies. Countries like China and India which export as
much as 22% of their goods to the US will see demand for their goods wane, only to be exacerbated by the
weakening dollar. Perhaps a stronger euro will spur European consumers demand for imported goods, making up
some of the shortfall.
Now back to the LSE, it is always interesting to look at the
sector performance to better understand what is driving the                                               Month Year
indexes. Below, is a table setting out the main sectors of                    Name                  Close    to    to
the FTSE350 (a combination of the FTSE100 and                                                               Date Date
FTSE350 shares) to better understand their performance FTSE 350 Mining                             22863.0 -0.37 45.83
attribution compared to the FTSE350 index for the period FTSE 350 Industrial Engineering 4006.2 6.19 21.4
from the start of the year ( this table is available on the      FTSE 350 Electronic & Electrical
www.sharefinderonline.co.uk website):                                                               2250.2 2.63 15.09
What is striking is that sectors which have performed well
                                                                 FTSE 350 Oil & Gas Produces        8135.3 3.92 12.64
are those more exposed to global demand, such as energy,
technology and Industrials, most likely due to demand from FTSE 350 Personal Goods                  9675.8 1.92 6.16
growing economies such as India and China. Another item          FT-SE Mid 350                      3412.0 1.03 4.27
of interest is the personal goods sector, which has most         FTSE 350 Food Producers            4511.6 5.55 3.73
likely done well due to their non-discretionary nature and       FTSE 350 General Financial         8286.9 1.13 2.89
tend to be good defensive stocks.                                FTSE 350 Travel & Leisure          6256.2 3.28 -6.0
Those sectors that have fared poorly can be broadly
                                                                 FTSE 350 Banks                     9768.6 -1.13 -13.26
described as local market based or discretionary consumer
items. To a certain extent, financial companies and banks FTSE 350 General Retailers                2213.0 1.54 -14.45
have been negatively affected by the sub-prime blow up           FTSE 350 Real Estate               3851.1 -7.0 -32.84
and still much uncertainty surrounds them, but they still        FTSE 350 Industrial Metals         6624.9 -2.15 -61.4
earn a substantial proportion of their income in the UK.
Real estate has performed poorly this year, largely due to concerns of a property bubble earlier on in the year,
which has only been made worse by the credit crunch. It is unlikely that there will be much change in ranking as
the growth economies will continue to perform well while the domestic economy slows slightly.
Looking at interest rates, the Bank of England decided to hold its rates at 5.75% at their October meeting as
widely expected. As mentioned in a previous UK review, the Bank has adopted a wait-and-see policy until a
clearer picture emerges from the credit squeeze. A rate cut would have been a welcome relief for banks and for
UK home owners who have mortgages, but lower interest rates could spur inflation as there is already signs of
inflationary pressure in the economy from high oil prices and the higher cost of food. Currently inflation stands at
1.8%, just below the governments 2% target.
The European Central Bank (ECB) also kept its rates unchanged at 4% for October. This comes despite the
strength of the euro which set a new high against the US Dollar of $1.4284 at the start of this month. The French
president, Nicolas Sarkozy has put pressure on the ECB to cut rate in order to reduce the value of the euro to
make European exports more competitive.
Much uncertainty still surrounds Northern Rock. Yesterday the government extended its guarantee on savers
deposits, including interest payments until the credit markets return to normal. The Bank of England confirmed
that it had received offers to buy part or all of the bank, but will make a decision on its future options by February
2008. The news of the guarantee extension boosted Northern Rock’s share price up by 35p or 20% to 207.5p.
The Fed is due to make an interest rate decision announcement on Halloween (31 October), many market
participants expect another rate cut. The US dollar is likely to continue its downward slide against other major
currencies as investors start to seek higher interest rates for their money elsewhere.
Page 10
London Investment Calling
Forth Ports is underpriced
The red least squares fit mean line on the graph to the right highlights the fact that over the past
seven years Forth Ports shares have climbed at a compound annual average rate of 23.2%
making these shares an attractive
long-term investment.
More importantly, like so many other
cases where property has been a
major share price driver in the past,
the shares are now trading at a
significant discount to their true value
as is evident by the fact that the blue
daily price line in the graph has fallen
well below the red mean line.
That said, the speculative element in
the pricing of this share is very
evident when one compares the
earnings growth rate of 11.41%
compound over the past decade and
dividend growth rate of 15.38% with
the share price growth rate. Clearly
the item that has attracted investors in the past Forth Ports runs a group of regionally based
is the 400 acres of development land on               ports in the central belt of Scotland and Tayside.
Edinburgh’s waterfront. But that said, a property Grangemouth is Scotland's largest container
company that can pay a consistently-rising            port, serving both the Glasgow and Edinburgh
dividend over a decade or more and                    Metropolitan Regions.
simultaneously offer the speculative appeal of
                                                      The Port of Tilbury is London's major
prime commercial land must offer great appeal
to the contrarian investor.                           distribution hub for South East England.
On an earnings yield of 5.2%, the shares are still Forth Ports also has a port terminal operation at
a little costly relative to the British investment    Chatham in Kent operated under the Nordic
grade average of 9.2%, but compared with the          banner.
return offered by British long bonds, the shares The company also provides marine services,
are almost exactly on fair value of 105.2%. The controlling navigation in the Firths of Forth and
company achieves a return of 10.75% on capital Tay as well as operating its own towage fleet.
employed and 15.51% on shareholders’ equity, Its property division owns 400 acres of land
figures that are somewhat below the market            available for development and forms the major
averages of 12.5% and 20.49% respectively.            part of Edinburgh's waterfront, just 10 minutes
The fairly sharp decline in share prices follows      from the city centre.
the company’s September announcement of a
pre-tax profit of £12 million for the six months to
June 30, a drop of seven per cent compared with the same period a year ago. Britain's last-surviving
listed ports operator said the ports side of its business had been the better financial performer, with
ports operating profit up 12 per cent to £16.5m, while the property side of the group booked a loss of
£500,000, compared with a profit of £2m last time. Chief executive Charles Hammond said: "Overall,
the first half of the year has been successful. "As in prior years, we will see an improved second half
performance from our ports business. The quality of our ports' contracts and revenues continues to
strengthen, providing a secure and growing income stream and platform for further growth.
"In property, we remain focused on growing the value and potential of our unique Waterfront
development assets."
Forth, saw group revenues rise by three per cent to £74.4m. The company saw ports operating profit up
12 per cent to £16.5m. Revenue increased to £72.4m, compared with £68.1m before. However, that
was offset by the expected reduction in property profits. Helping drive the performance of the ports unit
was a combination of volume increases and a tight control of operating costs, said Mr Hammond.

Page 11
You can't really say the cycle is back by looking at real underlying interest rates for these remain pretty

This suggests the SARB hasn't really suppressed growth so far. Only a sustained change in real interest rates
and/or in the real trade-weighted Rand might change our growth trajectory. Nonetheless, cyclicality hasn't left us.
And can we be quite sure about the SARB not changing real interest rates much in coming months?

Nominal interest rates on our mortgage bonds do behave cyclically. The question is how bad could things get?
For some while it looked as if things couldn't go wrong. CPIX inflation had plunged deeply and it seemed that was
going to remain the fashion forever.

If only. In retrospect, CPIX inflation became suppressed only for a while, but those gains didn't really get a lasting
opportunity to bed down. Serial setbacks ordained otherwise. The main suppressants were a firm Rand and Asian
import prices. It also helped there was slack in resource and product markets.
But Rand firmness turned out to be temporary. The oil shock of earlier years kept deepening. A worse food price
shock hit. Resource slack was used up through our steady diet of high growth.

We had to rediscover the limits of our growth ability, also scoring a few own goals in the process, by holding back
mining through regulatory issues, manufacturing through cost issues, encouraging labour market scarcities to
deepen and push up premiums, allowing infrastructure bottlenecks to worsen. This was aside of more enduring
shortcomings in our micro-makeup.

There is no great difficulty in getting spending to expand, especially when external constraints are temporarily
dissolved. The great challenge is for output to outperform. To overwhelm the economy's productive capacity with
too much spending invites overheating, especially if some productive capabilities are being handicapped.

Average wage trends are no longer doing 6.5%. These are up nearer 7.5%. Businesses are no longer absorbing
accelerating cost increases through higher productivity gains and cost-cutting. Instead they are increasingly
passing on such pressures in higher price increases, going by BER business opinion surveys in retailing,
wholesaling and manufacturing.

Infrastructure providers are set to join that bandwagon next year, when financing a large part of their growing fixed
investment from internal sources.

With prosperity especially flaunted at the top, and by those with access to credit, is it a wonder that the working
classes wish to imitate the middle classes, never mind the upper classes? Nothing wrong with prosperity, except if
it wets appetites well in excess of what can be produced. Importing may be effortless in the presence of copious
capital inflows, but local production just couldn't quite stay the course set by spending, except to run into
shortages, mainly of talented skills.

The resulting premiums, and the demands generated by those who don't want to be left behind, started
generating pricing heat. The SARB was apparently prepared to see how far we could take this economy without
overstepping the boundaries of our limitations. But even it didn't wait too long. It started raising interest rates as
long ago as June 2006, and it has matched rising CPIX inflation every step of the way.

The bad news is that CPIX has another 0.5% to 1% to go before it peaks. Judge for yourself whether the SARB
will match this step for step, with six months and two MPC meeting to go to the expected CPIX peak. But where to
                                                        Natural optimists see only even higher oil and food prices,
               www,fnb.co.za                            labour demands and infrastructure burdens. That could
                                                         mean an even higher inflation trajectory, pushing inflation
                                                         expectations higher, potentially deepening any wage-price

                                                          Natural pessimists see things recoiling. Difficult to say on
                                                          oil and food, but no commodity price trends in a straight
                                                          line forever. Higher interest rates and firming Rand do
Page 12
                                                          erode affordability, inviting spending cutbacks. So what will
                                                          break the inflation camel's back and when? And what
                                                                                  Books to
Don't try to pick the month as base effects may distort the overall picture.
At some point we could get lucky externally, with oil and food deflected,
while headwinds of higher rates and firmer Rand may eventually curtail
                                                                                  guide your
domestic appetites and overheating of the economy.
If CPIX inflation then starts to fall back, re-entering the 3%-6% SARB
target range, do expect at some point for the SARB to let up as well,             success
allowing rates to shadow CPIX lower, keeping real underlying rates mostly                         • The
                                                                                                  Philosophy of
First things first, though. We are facing an indeterminate inflation bulge,                       Wealth
fed by external and internal forces. The SARB is seemingly prepared to                            How to identify the
match it every step of the way until it capitulates.                                              long-term share
                                                                                                  market winners
As inflation subsides anew, it will be for the SARB at some stage to let up,                                   R120
and ease its policy stance, cutting interest rates.
                                                                                                  • Footsteps To
But first we need to face up to this latest tightening phase and complete                         Fortune
some unfinished business.
                                                                                                  How to identify
The SARB is taking a dim view of inflation, with Governor Mboweni                                 medium-term
saying so at least three times in public in recent weeks. The SARB                                investment shares
has reason to do so. CPIX inflation is already for some months well                               and effectively time
above the official target zone of 3%-6%, and it is projected to go                                the market R120
higher, possibly breaching 7% in the 1H2008.
                                                                                                  • Investment
Various factors are driving inflation higher, both in an overall and in an
underlying sense. The overall CPIX index is especially being driven higher
                                                                                                  Without Tears
by external price shocks. The main contributors over the past two years                           Richard Cluver’s
have been oil, food and the Rand . But even in an underlying sense, when                          original best-seller:
excluding oil and food, we find that inflation pressures in the economy are                       how to get started
widespread and rising, with August and September registering 5%.                                  on the share market
Although mostly everybody, including the SARB, project CPIX inflation                                            R80
higher in the short term, only to fall off once again thereafter and within the
upper half of the target zone through 2009, there appears to be little                            • How To Make
reason for comfort.                                                                               A Million
Nearly every major contributory factor is still pushing in the wrong
                                                                                                  A step-by-step guide
direction, with barely any exceptions, and then only uncertainly. Oil gave
                                                                                                  to the creation of
the impression earlier in the year of coming off towards $60, but this was
                                                                                                  investment wealth
only a temporary respite. Since then we have seen new highs well over
$80. Global oil dynamics favour steadily higher prices, with possible shock
events capable of spiking the price.
                                                                                                 • 300 Ways To
Agricultural prices overseas have been boosted by prolonged adverse
weather conditions, strong demand growth especially in fast growing
                                                                                                 Make Your
developing countries, and the substantial and growing draw off into                              Money Grow
biofuels. Our agricultural prices are increasingly globally determined.                          300 Investment
Although we have had a good start to our new planting season, much can                           growth solutions
still happen to influence our agricultural prices. Meanwhile high agricultural                                  R80
                                                                 prices are
                 Www.internaxx.lu                                yet to fully                    • Making Money
                                                                 feed through                    With the
                                                                 to our                          Mutuals
                                                                                                 How to win as a unit
                                                                                                 trust investor

                                                                 manufactured food prices, indicative of a still evolving
                                                                 price bulge.

                                                                 Domestically, the worrying feature is the labour
Page 13                                                          market, where wage trends are rising. Also,
companies are increasingly passing on their higher commodity and labour costs by way of higher prices, as
already signalled for some quarters by BER business opinion surveys in retailing, wholesaling an manufacturing.
From next year we can also expect higher infrastructure tariffs, especially for electricity.

The SARB has lifted interest rates now seven times by 0.5% in 15 months. This is gradually eroding household
consumption growth, especially in interest rate-sensitive areas such as durable goods and housing. As growth
eases off somewhat into next year, we may see somewhat less upward pressure on underlying inflation.
Meanwhile global conditions favour higher precious metal prices as well as ongoing strong capital inflows. Along
with our elevated interest rates, this is likely to keep the Rand supported near 6.00-7.00:$, hopefully also
suppressing imported and domestic inflation.

Still, the forces driving inflation higher seem to have gained quite a foothold, with inflation expectations also
drifting higher. It may well take more time and effort to corral CPIX inflation and to anchor it once again deeper
within the target zone, with expectations similarly bedded down. So far the risks remain on the upside, explaining
the SARB's grim determination to raise interest rates high enough to contain this inflationary threat to our long-
term growth performance.

Whether the SARB has raised interest rates for the last time in this cycle a fortnight ago, with only pausing now
ahead, and possibly mild cuts in the 2H2008 and 1H2009, will depend entirely on global conditions next year
shaping our external inflation shocks, the manner in which our labour force and businesses choose to respond in
their wage demands and pricing decisions, and how the Rand fares.

Though we may be near a cyclical interest rate peak, much depends on global conditions and our own responses
going forward. Early December will witness yet another interesting Monetary Policy Committee meeting at the
SARB, just a week ahead of the crucial ANC leadership election. Will they, or won't they, raise interest rates 'one
last time'?

Our inflation situation reminds me of the tragic dilemma faced by a young woman in Victorian times.

There are four things we need to know about her. Firstly, Victorian times favoured the ideal of slimness, just like
today, except that then whalebone corsets were the fashion. In those far off days they already knew one-size-fits-
all, except that for them it meant that whatever your dimensions, you had to somehow fit into a given corset of
rigid proportions.

Secondly, the young woman in question was genetically inclined to run to fat, which today is more easily
accommodated, but not then if you wanted to be fashionable.

Thirdly, she had a lusty appetite for rich food, which tended to add to her weight problem.

Fourthly, most cruelly, she had a father who wished her at all times during the day to wear her one-size
whalebone corset.

It doesn't require much imagination to see where all this led. An immovable corset. A girl running to fat and
expanding daily. A father who wouldn't give an inch. What was she to do? Suicide through fasting?

Now consider South Africa 's modern problem. She is also subjected to the fashions of the time, in her case
inflation targeting. An immovable CPIX target range of 3%-6% is set in stone, not unlike the whalebone corset of
Victorian times. Genetically we face outside influences beyond our control, in this case oil and food price inflation.

In addition, we are also insatiable in our appetites, in two ways. We incline to consume lustily as individuals,
indeed overtaxing our productive abilities and creating inflation heat in our labour and product markets.

But our public sector, having to expand our infrastructure at a greatly accelerated pace, is wanting to at least
partially fund its huge financing needs internally by increasing tariffs much faster than CPIX, and thus contributing
to the inflation heat.

                                                                          Like the young woman in Victorian times,
                                                                          this is a circle that can't be squared. The
                                                                          natural inclination, from within and without,
                                                                          is to generate more inflation heat than the
                                                                          target corset can accommodate.

                                                                          With a father unwilling to chuck the corset,
                                                                          but indeed insisting that despite
Page 14
exogenous factors beyond our control, and despite private appetites and public funding mechanisms politically
condoned feeding inflation momentum, the corset's measurements will not be changed.
What is a poor girl to do? Suicide through fasting, allowing the SARB to raise interest rates and accept a firmer
Rand until the bodyweight has wasted away sufficiently to fit once again in the corset? Such cruelty!
How about chucking the father instead of the corset? In other words, instead of having to accept politically
condoned administrative price increases (other than oil) well ahead of inflation, this should be seen for what it will
do to the broader economy.
Or is the adequate funding of infrastructure and the finances of the institutions involved paramount, and
households just need to free up some bodyweight in their gross consumption so that our needed fixed investment
can take place without overheating the economy and without prompting higher inflation pressures?
But what if fathers' don't let themselves be chucked? What if, heaven forbid, they know better what is good for the
rest of us? The corset sales agent is the innocent party in the matter, like our SARB today. If the political father
says that whalebone corset will be fitted, it will, snugly or tight, easy over or as painful as it comes.
The moral of the story? Pick good genes, preferably a world without oil and food price shocks. Know temperance
in all things, forgoing lusty spending appetites like the plague, applying a little self-denial once in a while. Lastly,
look out for a more sympathetic father, or barring that possibility, an understanding lover, who will keep the public
sector at bay while lovingly still allowing you your chocolates, if within the whalebone corset of choice, it being the
fashion of the times.
For we want to remain acceptable to broader society, not so? In which case rigid corsets and slimness go
together, even while having your chocolates and eating them.

Company reports
Standard Bank Group Limited - Cautionary announcement: Shareholders are advised that Standard Bank has
entered into negotiations which, if successfully concluded, may have a material effect on the price of the group's
ordinary shares. Accordingly, shareholders are advised to exercise caution when dealing in the group's ordinary
shares until a further announcement is made. It is anticipated that a further announcement will be made by the
end of this week, 26 October 2007.
Corporate Real Estate Fund SA Corporate Real Estate Fund has acquired a 25% stake in Oryx Properties
Limited, the second biggest primary listing on the Namibian Stock Exchange. The acquisition of 14 109 055 Oryx
units has been funded by the issue of 43 135 554 SA Corporate units to the vendors, says Craig Ewin, CEO of SA
Corporate and head of listed real estate at Old Mutual Investment Group Property Investments. He says the
acquisition follows approval by the SA Corporate board in August of a strategy to invest up to 5% of the portfolio
value in property assets elsewhere in Africa which offer acceptable returns and sovereign and property
risk levels. "The opportunity to invest in Oryx arose recently and matched these criteria perfectly. The deal, which
will be earnings neutral for SA Corporate in year one, provides a platform for further expansion into Africa".
A property loan stock company, Oryx holds a N$727 million portfolio of 19 Namibian properties. Ewin says Oryx
has shown solid growth in distributions since its listing in December 2002 and has sound fundamentals for the
future, with 93% of its debt fixed at low rates and an excellent 99% tenancy level. Ewin says most of the portfolio
is located in Windhoek, the engine room of the stable Namibian economy. Retail at 62% constitutes the bulk of
the portfolio, with industrial warehousing and showrooms accounting for 26% and a small office component for
12%. The portfolio flagship is Maerua Mall, a 48 027m2 regional shopping centre which is the dominant retail
offering in Windhoek. SA Corporate is underweight in regional shopping centres and this provides an increased
exposure through a top quality mall. Ewin says Maerua Mall, where more than 80% of the tenants are South
African national brands, has performed well in recent years. "There is further interest from South African retailers
for a presence there."
Beige Holdings Limited - Results of the annual general meeting: The board of directors wish to announce that
all the resolutions were unanimously passed with the exception of the resolutions placing unissued share
under the control of directors, the general authority to allot and issue shares for cash and the special resolution for
the general authority to repurchase shares.
PSV Holdings The business of PSV grew revenue organically by 57% compared to the same period last year.
The substantial growth in the business was facilitated by a major investment in inventories and debtors. In
addition, it was decided to sacrifice cash flow in favour of margin by taking advantage of discounts offered by
suppliers, contributing to the increased profitability of the Group. The Group's HEPS remained virtually unchanged
at 4,26 cps (August 2006: 4,21 cps), being impacted by the introduction of our BEE partners, namely, Vunani
Capital Holdings (Pty) Limited ("Vunani") and Mapi Investments (Pty) Limited ("Mapi") as additional shares were
issued and a R1,5 million IFRS 2 cost was provided for in the income statement. The Group's adjusted HEPS
Page 15
after adding back the IFRS 2 cost is 4.96cps, 17,9% up compared to the August 2006 HEPS.
The Group achieved an acceptable 21, 96% (August 2006: 26, 82%) working capital ratio and focused on
improving stock and credit management. The comparable period of August 2006 reflects the assets and liabilities
of the Colvic companies which were disposed of in November 2006. Consequently, comparison to the August
2006 balance sheet is not meaningful and as a result, balance sheet movements in this section will be compared
against the final results as at 28 February 2007. In this light the Group's balance sheet strengthened as the net
asset value per share increased to 83,04 cps (February 2007: 76,62 cps). The current ratio improved to a healthy
2:1 compared to 1, 5: as at the end of February 2007. The Group's debt: equity ratio increased to 24, 72%
(February 2007: 11,49%) mainly attributable to the acquisition of a new head office building and additional
infrastructural capex to underpin the substantial organic growth enjoyed in the first six months.
Overall profitability for PSV was however maintained due to infrastructural overheads remaining the same
percentage of revenue as the previous financial year despite the increased organic growth. As a result, operating
margins (before the IFRS 2 BEE cost) remained at 12,36% (February 2007: 12,68%) in line with forecasts.
Management is confident that margins will be maintained at this level into the future.
Trading in the six months under review are the best ever experienced since the inception of PSV 19 years ago.
PSV also celebrated a relationship spanning 19 years of spares supply to the Group's very first customer, Royal
Swazi Sugar Corporation in Swaziland. The successful completion of our two BEE transactions favourably
positions the Group to compete aggressively for tenders within the mining and parastatal sectors in South Africa.
The Group successfully completed a large petrol dispenser supply contract for Zimbabwe and aggressive
tendering on projects has secured various contracts for lining solutions, pumps and dispensers exceeding R400
million over the next five years. PSV and three of its subsidiaries have relocated into a new office and workshop
facilities based in Greenhill Industrial Estate, Germiston, adding further to cost-saving initiatives.
Value Group Limited - Unaudited interim financial results for the six months ended 31 august 2007: Turnover
increased by 10% from R485,6 million to R535,1 million. This increase arose mainly from rate increases and
organic growth of new customers in the latter half of the prior financial year. The commencement of the National
Credit Act had a negative impact on vehicle utilisation and freight volumes in June and July 2007. Volumes were
below May 2007 and that of the 2006 comparative months. As a result, volume growth over the period was
marginal. As mentioned in the 2007 year-end press release, management expected reduced interim profits in
comparison to the previous interim period. Rate pricing pressures and increased costs reduced earnings. The
operational costs of the provision of logistics services, is far exceeding inflation. In particular, wage rates have
increased by 11% in the current year and similarly in the prior year. As a result, operating margins before
depreciation decreased from 13,4% to 10,4%, and operating profit after depreciation was reduced by R10,6
million from R33,4 million to R22,8 million. Increased debt levels coupled with escalating interest rates contributed
to net interest costs growing by R3,6 million, to R8,5 million. Headline earnings per share declined by 46% from
10,0 cents to 5,4 cents per share. Notwithstanding the reduction in headline earnings, cash generated by
operations remained strong and was reduced by 9% from R65,8 million to R60,1 million. Strict working capital
management remains a key focus. Excluding the trade receivables of the clearing and forwarding division, trade
debtors days at 31 August 2007 amounted to 49. Management has, and continues to devote substantial time,
effort and resources on improving the profitability levels of the Group. This has encompassed the following:
- Re-pricing of various customers' rates. Certain rates were found to be inadequate for the services rendered and
rates were adjusted accordingly, albeit not to management's satisfaction. A large portion of customers accepted
increases whereas others moved to new service providers. Rate pressure within the Group's customer base is
highly evident as a result of retailers imposing heavy margin pressures on our customers. - In collaboration with
certain customers, various provisions of supply chain services have been remodelled to limit rate increases by
improving efficiencies and at the same time, reducing costs. - Management has renewed its focus on improving
truck rental vehicle utilisations and margins. New contracted revenue has been secured which will increase
utilisations and margins. A programme of de-fleeting older vehicles will commence in January 2008.
The Group has invested in improving its operational IT systems to facilitate further reporting and customer
integration. The financial modules of the integrated IT solution are functional, yet have not yielded the anticipated
benefits. The system has been externally evaluated and a decision regarding the direction thereof will be made
shortly. Subsequent to August 2007, the Group was committed to additional vehicle capital expenditure
amounting to R54,3 million. Vehicles were purchased to expand and replace the car and truck rental fleet and in
addition, to fulfil contracted orders. These commitments will be funded out of borrowings.
The recent increase in prime overdraft rates will increase borrowing costs and may curb consumer Christmas
spending. Management's initiatives to address the pricing and cost pressures, have improved the earnings of the
Group when comparing these results to those achieved in the second half of the 2007 financial year. The
improvement however, is far short of what is required. Despite this, increased volumes from the expanded
customer base in conjunction with the corrective action undertaken should result in the Group reporting
improved earnings for the 2008 financial year. Due to the material reduction in earnings and the capital
expenditure commitment, it is considered prudent that no interim dividend be declared.
Caxton & CTP Publishers: Shareholders are referred to the results announcement dated 28 August 2007 and
are advised that the board has declared an ordinary dividend of 50 cents per share; and - a 6% preference
dividend of 12 cents per share and a participating preference dividend of 445 cents per share has been declared,
in respect of the year ended 30 June 2007. The salient dates of the declaration are as follows: last day to trade in
order to be Friday, 30 November 2007 eligible for the dividend shares trade ex-dividend Monday, 3 December
Page 16
2007 record date Friday, 7 December 2007 payment made Monday, 10 December 2007 Shares may not be
dematerialised / rematerialised between Monday, 3 December 2007 and Friday, 7 December 2007 both days
Cargo Carriers Limited - Trading statement: Shareholders are advised that CRG's headline earnings per share
for the half year ended 31 August 2007 is expected to be 10.6% above the headline earnings per share for the
comparative period last year. However, earnings per share for the same period are expected to be 31.7% below
the earnings per share for the comparative period last year. The primary reason for the difference in movement
between the headline earnings and earnings per share for the current period is due to the impairment of assets in
the Zimbabwe operations of the group. The financial information on which this trading statement is based has not
been reviewed nor reported on by CRG's auditors. The announcement of the interim results for the half year
ended 31 August 2007 is expected to be published on or about 26 October 2007.
Alliance: Alliance, now an integrated mining company, began as a specialist software supplier which focused on
the development, installation and support of HR and payroll solutions for customers within the mining industry.
This part of the company is still very much alive but is now accompanied by seven other subsidiaries. The initial
`data component' now makes up 18% of the company with the remaining 82% focussed on mining and mining
services. Due to the change in the composition of the company, its name will change to Alliance Mining
Corporation Limited in November 2007 as detailed below. Listing on AltX enabled Alliance to expand its mining
and mining related services substantially. Its subsidiaries are Alliance Data, the original company that specialises
in access control, payroll systems and inventory control for mining clients; Sindele Mining, a contract mining
business; Rangeview Trading, an alluvial diamond business and Rockcap a company with an international client
base specialising in grouting in the mines. The grouting`secret formula' sets and fortifies quickly enabling mine
ceilings to be reinforced.
Thanda Bantu is a project engineering company that outsources mechanical and civil expertise and Mel Fix &
Supplies installs electrical and electrical-rail to mining clients. One of Alliance's latest acquisitions, Galvrite,
galvanises steel with zinc which reinforces it and protects against corrosion for use in the mining and construction
industries. The demand for galvanised steel has recently increased substantially due to the construction boom
and the growing platinum mining industry. Alliance's last division, Omphamba Human Resources supplies the
other divisions and the mining industry with skilled labourers, including engineers. The service incorporates all
labour aspects including labour relations and contract hiring. The focus for the next six months will be organic
growth within the acquired companies.
Kelly Group - Trading update for the twelve months to September 2007: Kelly Group's shareholders are advised
that for the twelve months ended 30 September 2007 the Group's earnings per share ("EPS") and headline
earnings per share ("HEPS") have increased from 23 cents per share to between 65 cents per share and 75 cents
per share. Earnings before interest, tax, depreciation and amortisation is expected to have increased by between
25% and 35% while Revenue is expected to be between 15% and 25% higher than the corresponding reporting
period last year. The Group's pro forma EPS and HEPS, after adjusting for shareholder interest paid during the
period, are expected to be between 25% and 35% (i.e. from 70 cents per share to between 85 and 95 cents per
share) higher than the corresponding reporting period last year.
Seardel Investment Corporation Limited - Shareholders are advised that at the annual general meeting of
shareholders of Seardel convened on Tuesday 23 October 2007, in terms of the notice of annual general meeting
contained in the Seardel annual report issued on 25 September 2007, all of the resolutions were passed by the
requisite majority of Seardel shareholders. In terms of an ordinary resolution passed at the above meeting, a
dividend of 12 cents per share will be paid on Monday 19 November 2007 to shareholders recorded in the register
of the company at the close of business on the record date, being Friday, 16 November 2007.
Discovery Holdings Limited - News release: Discovery today launched its much-anticipated investment offering,
Discovery Invest to independent financial advisors around the country Adrian Gore, CEO of Discovery said: "With
Discovery Invest, we believe we have built a comprehensive investment product range that offers investors the
lowest costs in the market and a unique choice of performance guarantees." "Before entering this market, we
looked at the obstacles investors face. Given the risks and complexity associated with investment products,
choosing the right investment fund, the best asset manager and getting the timing right are all daunting dilemmas
for the consumer."
"We also analysed the impact that it would have on consumers' investments if they had the capability to invest
with no fees, and we made cost-efficiency a clear objective." Gore says the global trend to consumerism has had
a marked and positive effect on the South African investment industry. Consumers have benefited in recent
years from lower prices, greater choice and the emergence of a new a breed of specialist asset managers. He
believes it has, however, also lead to individual bearing a greater deal of the risk associated with their
investments. "We've seen a transfer of risk to the individual and a greater degree of product commoditisation.
That's where we believe we can add value."
In addition, Gore says, people are living longer through advances in healthcare and therefore need to save more
for retirement. These factors all contribute to a need for greater protection for investors and more efficient
products. Discovery Invest introduces three fundamental changes to the way people can
protect their savings:
1 By leveraging the tax efficiency of Discovery's existing life assurance platform, a flexible range of investment
wrappers allows investors to tailor their investment product according to their needs;
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2 Investors have the choice to protect themselves against poor investment decisions at pay-out stage by having
their returns adjusted automatically to what would have been the Right ChoiceTrade Mark;
3 Investors that integrate their investments with their existing Discovery Life Plan and their engagement in the
Vitality wellness programme, could pay zero administration fees and asset management fees on Discovery's
Tawana Resources NL - Announcement: Tawana Resources NL is exploring for diamonds in South Africa,
Botswana and Australia. You recently announced that larger than expected
diamonds have been recovered during the first week of processing of the initial bulk sample collected at the
Riverton kimberlite project in South Africa. How much kimberlite has been processed so far? What is the quality of
the diamonds recovered?
MD Wolf Marx: So far we've processed approximately 1500 tonnes, but the important thing is
that it's only partially processed. We're processing the kimberlite in phases with the minus 6 mm free milling
material processed first. The oversize material, plus 6 mm to minus 16 mm is stockpiled for processing later. So
we currently don't have the complete results for the material excavated and we simply don't know the final grade
and diamond quality yet. However, the diamonds recovered so far from the minus 6 mm fractions from certain
areas of the kimberlite are, on average, larger than one would expect from a kimberlite.
How successful are these first results? How do the results compare with expectations?
MD Wolf Marx: The first results were way beyond expectations. The average stone size from diamonds from
kimberlites in that Northern Cape, Kimberley region is around 0.2- 0.25 carat per stone. However, the average
size for the stones we've recovered so far from the main portion of the kimberlite exceeds this. It really came as a
surprise even though we've been told anecdotally by people associated with past diggings there - there are no
proper records of previous diggings on that kimberlite - that the diamonds from Riverton were, in their words, of
`good' size. Of good size normally in the Kimberley region means that they are similar to the diamonds from the
alluvials in the Vaal River, which are known to be very big stones.
What is the remainder of the program in terms of number of samples and tonnes? When do you expect the next
“The total program is to fully process in excess of 2,000 tonnes including the oversize and we're on track to
complete that by the end of November. All the diamonds will then be valued.”
How accurately do results from bulk sampling of kimberlite projects predict the commercial viability of a project?
“The program we're undertaking at the moment will only give a preliminary indication of the commercial viability of
the project. To define a Resource for diamonds under the JORC Code guidelines, one needs to recover at least
2,000 carats to get an accurate valuation of the diamonds from the pipe. This program is designed to get an
understanding of what the diamonds look like, an indication of the grade and the diamond distribution in the pipe.
We know there are at least three different types of kimberlites in the pipe, which is quite common for these sorts
of structures. We need to understand whether they are all diamondiferous and whether there is any difference in
the diamonds between each kimberlite type.
Purple Capital Limited - Trading statement: Shareholders are notified that the company's earnings and headline
earnings per share for the year ended 31 August 2007 are expected to be between 230% and 250% higher than
earnings and headline earnings per share for the corresponding year ended 31 August 2006. The financial
information on which this trading statement is based has not been reviewed or reported on by Purple Capital's
auditors. The results for the year ended 31 August 2007 are expected to be published on or about 7 November
African Media Entertainment Limited - Declaration of Special Dividend: Notice is hereby given that a special
dividend of 200 cents per share has been declared. The reason for the dividend is that AME has surplus cash at
its disposal. The salient dates of the declaration are as follows: - last day to trade in order to be eligible for the
dividend: Friday 9 November 2007 - shares trade ex-dividend: Monday 12 November 2007 - record date: Friday
16 November 2007 - payment made: Monday 19 November 2007. Shares may not be dematerialised /
rematerialised between Monday 12 November and Friday 16 November 2007, both days inclusive.
Sekunjalo Investments Limited - Sekunjalo Investments Limited not involve in supply of faulty condoms to
government: An article regarding the supply of faulty condoms to Government by various companies has
appeared in the media during the last few days. The matter has also been raised by the Independent Democrats
on the 18 October 2007. A company called Sekunjalo is cited as one of the suppliers of condoms of questionable
quality. Sekunjalo Investments Limited and its subsidiary, Sekunjalo Health Care, does not manufacture or
distribute condoms and is therefore not the entity referred to in the media. Mo Kajee, CEO of Sekunjalo
Investments Limited, said, "There are other entities that are registered with the name Sekunjalo, but which are not
part of Sekunjalo Investments Limited or the Sekunjalo Group. It is unfortunate that this has led to confusion with
members of the public thinking that we are in some way connected to this issue. It is therefore critical that our
shareholders, Government and members of the general public be made aware that our company is not involved in
any way and we hope this clears up any confusion which may have resulted due to recent reports in the media."
Eastern Platinum Limited - News Release: Mr. Ian Rozier, President and CEO of Eastern Platinum Limited
reports on operations at the Crocodile River Mine ("CRM") during the quarter Q1-08 ended September 30th, 2007.
The production update for Q1-08 is as follows: Total development in Q1-08 was 2298 meters, up from 2023
meters in the previous quarter, an increase of 14%. The average monthly mining rate during Q1-08 was 107,926
tonnes per month, up from 81,425 tonnes per month in the previous quarter, an increase of 33%. Production and
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sales in Q1-08 were 29,417 ounces of PGM, up from 25,111 ounces for previous quarter, an increase of 17%.
Operating cash costs in Q1-08 were $637/ounce, down from $702/ounce in the previous quarter. "Substantial
progress continues to be made at CRM and we are beginning to see the results of the extensive on and off reef
development during the last year which is integral in developing mineable reserves to support the ongoing
production build up", stated Ian Rozier. As of 22nd October, 2007 the total issued share capital is 668,128,194
Tradehold Ltd - Interim Group Results for the 6 months to 31 August 2007: During the review period Tradehold
sold, through its wholly-owned subsidiary Tradegro, 68 million shares in Instore to Seaham Investments Limited, a
company incorporated in the United Kingdom, for GBP9,96 million. This represents 29,8% of the shares in Instore
and reduced Tradehold's interest from 64,5% to 34,7%. Seaham and Tradegro have entered into a shareholders'
agreement in terms of which they exercise their votes on a consensus basis. This transaction has a material effect
on how Tradehold reports its results. Instore is now considered an associate company and its results are no
longer consolidated. The change in reporting method should be kept in mind when comparing the present
financial results with those of the previous reporting period. Although Tradehold suffered only a small trading loss
of GBP0,5 million during the reporting period, total losses amounted to GBP10,9 million after exceptional losses of
GBP8,7 million and a further loss of GBP1,5 million representing Tradehold's share of Instore losses following
deconsolidation. In addition to the changes in the ownership of Instore the period also saw significant changes in
the board and senior management, the most important of these being the appointment of Peter Burdon,
previously the CEO of Thornton's plc, as chief executive in the place of Trevor Coates. Instore plc During the first
half of the year management's focus was on improving the performance and profitability of the business. A
number of initiatives were introduced to strengthen Instore's position as a leading value retailer. While on the one
hand expanding product ranges in certain categories such as homeware and everyday consumables, a
programme was launched to reduce costs at every level of the business, to raise operating standards in stores
and to improve the supply chain and product availability. After a very good start to the reporting period, trading
conditions became more difficult, also because of exceptionally poor summer weather which had a significant
effect on sales. Total sales for the period nevertheless increased by 4,5% to GBP133,8 million from GBP128,0
million in the corresponding period while the growth on existing business was 4,3%. As the cost of sales remained
almost unchanged at GBP120,7 million, gross profit before exceptional items increased from 6,1% to 9,7% or
GBP13,0 million. Net operating expenses before exceptional items were slightly lower at GBP16,7 million (2006:
GBP17,6 million) and helped reduce the operating loss before exceptional items from GBP9,7 million to GBP3,6
million, an improvement of GBP6,1 million. After exceptional items and interest received the total loss before tax
was GBP5,2 million compared to last year's loss of GBP11,6 million. During the reporting period stock levels were
increased by 22,6% compared to the 2007 year-end to GBP33,3 million to improve product availability in stores.
At the end of the reporting period the company had a net cash balance of GBP10,2 million (2006: GBP11,3
million). Tradehold's property interests are vested in several Moorgarth companies in which it holds the controlling
interest. The portfolio initially consisted mainly of retail properties, and management continues to work closely with
Instore plc in identifying and developing new space for the chain. At the same time Moorgarth has started
diversifying into offices and industrial premises. The reporting period coincided with a troubled time for the UK
property market combined with considerable uncertainty in banking circles. Together these conditions delayed or
derailed a number of transactions. The delays affected mainly planning applications while a number of the large
potential assignments for Moorgarth's project management business, Bowcliffe, were either deferred or cancelled.
However, Moorgarth managed to maintain a high occupancy level in its properties. While a number of acquisition
opportunities were investigated, the price expectation of most sellers does not take into consideration the much
higher cost of borrowing, and the Group has no firm acquisitions in the pipeline. However, the refurbishing of a
number of the properties in the portfolio is continuing. Although market conditions are not expected to change
materially in the second half of the year, the medium-term outlook remains positive for both Moorgarth and

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