The Burgundy 2018-04-20T17:14:46+00:00

Tobacco Sector: Social Compact to Solve Mother of All ESG Puzzles

Please find below a link to the latest issue of The Burgundy. Dominance enjoyed by wide moat companies attracts government regulation and scrutiny. For tobacco companies, such regulation is often premised on protecting customer choice or reducing social harm. Since the turn of the 20th century, success for tobacco companies has been predicated [...]

SA Banks: Should You Buy Customers?

The recent downgrade of the credit of South African banks to speculative status has blown a big hole in the industry’s steady expansion into the rest of the continent in pursuit of growth from favourable demographics and low banking penetration rate. In so doing, banks have failed to weigh the cost of this [...]

Productivity in Mining

Since mining companies do not control commodity prices, they forecast demand to drive decisions on production and capital investment. As no communication occurs between the various players globally, mining companies fall prey to the strongest form of game theory; they all do the same things at the same time while hoping for differentiated [...]

The Anatomy of a Good Thing

In January this year, cyclical companies assumed market leadership from high quality companies.  Yet our portfolio kept up admirably with this regime until June.  Since then, resource equities have put on a spectacular show of pace.  As these companies do not lend themselves to quality, we do not hold them bar BHP Billiton. [...]

Disruption in the Print Media Industry

At First Avenue, we focus extensively on the ability of a company to build, and invest in, a sustainable economic moat that drives value creation. However, disruptive business models are often the ‘curveball’ that can destroy existing value. We therefore pay close attention to these forces in our investment analysis. It is particularly [...]

When it is Bad to have Good Choices

Let’s take it from the top. The top of the cycle, that is.  As the market corrects, anticipating a roll-over in the economy, investors behave in a way you would expect any rational, thinking person to do: either they abandon the equity market – if they haven’t already – or they seek out [...]

What Drives Gold

The value of gold is the price of gold You will have noticed the stand out performance of South African gold equities since the start of the year and perhaps wondered why they are doing well this time. Gold equities are in fact (poor) derivatives of the metal itself, and so it is [...]

Mining in SA: A Tragedy of the Commons

SUSTAINABILITY OF THE SA MINING INDUSTRY The investment case in South African resource equities, as in all other equities, should be premised on sustainability.  In other words, if factors responsible for economic value creation in mining are not renewable, then mining companies cannot sustain the valuations investors place on them, regardless of the [...]

A Mobile Telecoms Perspective Part 2

ICASA TAKES STRONG STANCE AGAINST HIGH TARIFFS. In our previous note, we explained how the structure of the local mobile telecoms industry has led to inefficient outcomes for consumers.  An effective duopoly of MTN and Vodacom has resulted in pricing and tariffs that are amongst the highest in the world.  We showed high [...]

SA Mobile Telecoms – A Price War?

Over the past year, Cell C and 8ta have disrupted the SA mobile market by introducing aggressively priced data and voice offerings. These come against a backdrop of an implicit duopoly in the local industry that is protected by a strong ‘network effect’. Initially supported by high termination rates, high voice prices are [...]