In­vestors turn­ing their ack in Buf­fett, BHP, BAT

In­vestors miffed at Oz and Blank­fein

Finweek English Edition - - Front Page -

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.

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