Investors turning their ack in Buffett, BHP, BAT
Investors miffed at Oz and Blankfein
INVESTORS TURNED their backs on some of the big guns over the past week. Among those suddenly to fall out of favour are Warren Buffett’s Berkshire Hathaway, giant Australian mining company BHP Billiton and my favourite, British American Tobacco (BAT). And the Americans have no inclination to pay heed to Goldman Sachs CEO Lloyd Blankfein’s “I didn’t know” – giving that share price a good beating at one stage. In brief, it looks as if the old investment advice “Sell in May and go away” will again be valid this year.
In chronological order, the punishment was more or less meted out as follows: Early last week BAT said its sales volumes – that is, the number of cigarettes sold – worldwide for the quarter to March had fallen by 1%. Investors immediately withdrew their support and on the JSE BAT lost almost R15/share. That’s slightly more than 6%, more than the dividend it’s just paid. It looks as if investors didn’t read further than the introductory remark about the 1% fall in sales: lower down (in the trading update) CEO Paul Adams says: “Our customers are clearly finding economic conditions difficult and volumes suffered as a result of market size declines. However, there was continued pricing momentum and good growth in market share, leading to solid revenue growth.”
In other words, he’s saying the increase in selling prices more than made up for the 1% fall in volumes and that profits are still rising. At BAT’s annual meeting last week chairman Richard Barrows again reminded shareholders the company’s turnover for the 12 months to year-end 2009 was up by 17% and profit by 20%.
That’s when Australia decided the smokers and the miners must pay for its government’s excessive spending over the past two years to ensure the country doesn’t fall into a recession.
Australia has now become the first country that’s going to weed out the smoking habit with ridiculously high excise duty. At the same time, that’s going to make much of Australia’s fiscal deficit go up in smoke, the government feels. But, of course, it’s not quite that easy. For a start, excise duty doesn’t create new income for the country. It’s not BAT that pays it, but Australia’s smokers. And remember: exorbitant excise duty on a packet of cigarettes opens up a wonderful playing field for all those inclined to a bit of fraud and smuggling without paying any excise.
But BAT wasn’t the only well-known South African company that suffered at the hands of Australia’s massive tax reforms last week. South African born BHP Billiton CEO Marius Kloppers said in a special statement the planned increase in mining tax in Australia was going to make the tax rate on BHP Billiton’s earnings in that country increase from 43% to 57%. There’s a lesson in that for Julius Malema. Why nationalise mines? That merely creates new concerns and worries for SA’s Government. Simply increase the mines’ tax rate from 43% to 57%.
Kloppers responded sharply. “The stability and competitiveness of the tax system have been central to the investment in resources in Australia. If implemented, those proposals seriously threaten Australia’s competitiveness, jeopardise future investment and will adversely impact on the future wealth and standard of living of all Australians.”
Who would have thought tax proposals could be just as poisonous for investors as the nationalisation calls by a hot-headed youth leader? Investors don’t like the “new” Australia in the least, and Billiton’s price is already down from R259 to R224/share.