Cobbler, stick to your last

A few years ago, my sister and her then fiancé, asked me to be master of ceremonies (MC) at their wedding. While he is Dutch and she had settled in Amsterdam many years ago, they decided to have their wedding in South Africa. Shortly before their wedding day, however, I got a call from my sister, in which she asked me to just slightly adjust my sense of humour for the speeches. To give you some background, I was MC at both of my brothers’ weddings, so she had some idea of what was to come.

The reason for her request was that the Dutch have quite a unique sense of humour in that they take personal jokes, well, personally, and that they may feel offended by some. They prefer humour wrapped in compliments. At the reception venue to my left I had the South African families and friends and to my right, the Dutch families. As I kept the jokes coming, at times the right side of the room roared in laughter, while at other times, the left side laughed. To make a long story short, the wedding was a huge success and the MC, of course, rocked the show.

But border crossing doesn’t only apply to humour. It can also be seen in the workings of international companies. The easiest way to explain this, is to simply refer to recent SENS announcements regarding both local and offshore listed companies:

  • “Trading conditions in the rest of Africa remain relentless as the results attest” – Shoprite trading update on 30 July 2019
  • “Retail trading conditions in Australia remain challenging” – Woolworths trading update, 11 July 2019
  • “In light of the depressed retail trading environment currently being experienced in the UK, Office (the Group’s United Kingdom subsidiary) has entered into discussions with the relevant lenders regarding potential debt restructuring options – Truworths reply to Sky News report, 2 July 2019
  • “The operating performance was impacted by the lower contribution from Hirslanden, offset by an improved performance in the second half of the financial year from Mediclinic Southern Africa and Mediclinic Middle East” – MediClinic results, 23 May 2019

I don’t want you to think that I am singling out these four companies. This trend is clearly visible in many South African companies, whether we refer to MTN’s issues in Nigeria, Sasol’s issues in USA or Brait’s issues in Britain. The moment companies start to look for greener grass on the other side of the fence, their “jokes” become more complicated and the risk of “offending” someone becomes greater – because what work in one country does not necessarily work in another. All things considered, it’s understandable why companies do this, especially when we take a look at the difficult environment our economy finds itself in, not to mention our local currency’s (Rand) performance over the past few years. Companies feel compelled to find success for their shareholders in a more stable environment.

The truth is also that this decision does not mean that South African companies and the way they are managed makes them any weaker compared to their offshore counterparts.

When we take a look at the S&P500 companies’ performance, it becomes clear that things outside of the US border was no laughing matter either. Remember that the S&P500 is an American stock exchange that consists of the 500 largest US-listed companies based on market capitalisation. According to those companies’ second quarter financial results (until 30 June 2019), you will see that up until 29 July, the average earnings growth (source: FactSet) for the S&P500 companies (which combines actual results of companies who have already reported with expected results of companies who still have to report) amounted to -2.6% for the quarter.

Graph: S&P500 earnings growth for the second quarter 2019 (source: FactSet)

Of these companies, those who generated more than 50% of their sales in the USA, enjoyed an average earnings growth of +3.2% over the same period. The most interesting aspect of analysing this data lies in the fact that S&P500 companies that generated more than 50% of their sales outside of the USA, reported an average negative earnings growth figure of -13.6% in the second quarter of 2019.

I would like to conclude by saying first and foremost, that I am well aware of the fact that this data is extremely short-term based, and that one swallow does not a summer make. What I would like to point out to investors, is companies that attempt to run a successful unit across different borders, is no joke. What may work in one country won’t necessarily work in another, so make sure that you keep your finger on exactly what’s happening with the management of your personal share portfolio.

The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. These opinions do not constitute advice.  This is intended as general information and does not form part of any financial, tax, legal or investment related advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for actions taken based on the information contained in this blog. Since individual needs and risk profiles differ, it is always advisable to consult a qualified financial adviser before taking action.


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