SATRIX

Sanlam Investment Holdings Ltd (SI) 

Sanlam Investment Holdings Ltd (SI), a wholly owned subsidiary of Sanlam Limited and part of the cluster of investment businesses in the listed Sanlam group, has concluded an agreement* to acquire the remaining 50% shareholding in Satrix Managers Pty Ltd (Satrix). SI, which has been the underlying manager for Satrix since inception and previously held a 50% stake, made the strategic move in line with rapid growth in the index tracking market locally and globally.

Johan van der Merwe, CEO of SI, says the passive investment space is an increasingly important one. “According to a Blackrock report, the 2000 to 2010 compound annual growth rate for global ETF assets has been over 30%. This growth is mainly attributable to the fact that ETFs provide fast and efficient access to the financial markets, are liquid, transparent and cost-effective. South Africa has been a relatively late starter with assets growing from R0.25bn in 2000 to R17.5bn in 2008, but local demand is fast gathering steam.”

Van der Merwe said Satrix is synonymous with index tracking in South Africa and is the most sought-after brand in its segment, and he was therefore delighted to have it fully added to the SI stable to complement its strong active management capabilities. “We helped establish Satrix in 2001 as the first ETF in South Africa and it has been a true success story. It currently manages approximately R11.6bn of assets and boasts strong performance: Satrix DIVI fund has returned 74% over the past 3 years and Satrix RAFI which has done 70% over the same period (vs. the top 40 index which is at 52%).”

Read full   article at  

http://www.fanews.co.za/article.asp?Company_News_Results~1,Sanlam~1055,Sanlam_Investments_acquires_remaining_stake_in_Satrix_Managers~11901
Graph:  Standard Bank Securities

UPCOMING EVENTS

Source: SBG Securities

VODACOM AND MTN

Here follows a brief overview of two of South Africa's telecommunications companies:

Vodacom 

Vodacom was founded in 1994 but only listed on the JSE in 2009. It operates in South Africa, Lesotho, Mozambique, Tanzania and the DRC.

They released their annual results today, Pieter Uys, Vodacom Group CEO commented:

“Our first year of trading as the new red Vodacom has been a big success. Our customer base has expanded 30% to 48 million, we’ve invested R8.7 billion in our networks and we’ve achieved the number one net promoter score in South Africa and in two out of our three measured International markets. From a financial perspective, thanks to building the top line and also managing costs, EBITDA is up 11% and HEPS is up 8%. The International customer base has now reached 19 million, an increase of 36%, and this segment has passed the important milestone of generating positive free cash flow. Overall, the team delivered a very solid performance and the platforms for growth are well established. The 24% growth in Group free cash flow supported a higher dividend of 710 cents and helped us deliver a 45% total shareholder return.”

Current Share Price - R102.74

MTN

MTN was founded in 1994 and listed in 1995. They operate in South Africa, Swaziland, Zambia, Uganda, Rwanda, Botswana, Nigeria, Cameroon, Congo, Ivory Coast, Benin, Ghana, Guinea Bissau, Guinea, Liberia, Iran, Afghanistan, Cyprus, Sudan, Syria and Yemen.

On 7 March 2012 they released their annual results: Revenue for the year ended 31 December 2011 increased to R121.9 billion (2010: R114.7 billion). Profit before tax jumped to R37.6 billion (2010: R28.1 billion), while profit attributable to equity holders of the company rose to R20.8 billion (2010: R14.3 billion). Furthermore, headline earnings per share grew to 1 068.6cps (2010: 760.6cps).

Current Share Price - R132.49

Read more on above at:

Standard Bank Securities

http://www.vodacom.com/news_article.php?articleID=1227&pid=press_ir

http://www.mtn.co.za/AboutMTN/Pages/MTNGroup.aspx

CORONATION RELEASES INTERIM RESULTS

Coronation Fund Managers published their Interim results this morning. 


Who are they?

Coronation Fund Managers Ltd. is one of Southern Africa's most successful third-party fund management companies. It is a pure fund management business which offers both individual and institutional investors access to local and global expertise across all asset classes, including specialist Global Emerging Markets, Africa and Private Equity units.

Results

Revenue has increased by 11% to R912 million off the strong revenue base achieved in 2011. This has resulted in a 6% increase in diluted headline earnings per share to 86.7 cents (March 2011: 81.7 cents).

See below a graph of Coronation's share price since listing in 2004

What does this mean?

EPS is a measure used to determine the portion of a company’s profit allocated to each outstanding share i.e. (net income - dividends)/average no. of outstanding shares

Diluted EPS is used to measure the quality of the company’s earnings if all convertible securities were exercised (convertible preference shares, debentures, stock options and warrants). Diluted EPS will always be lower than basic EPS.

Read more on the results at http://www.coronation.com/featurelinks/2012%20Interim%20Results_Paid%20Ad.pdf

Read more on the definitions at http://www.investopedia.com/terms/e/eps.asp#axzz1uvGHbCqy

Sources:

Standard Bank Securities

http://www.coronation.com/featurelinks/2012%20Interim%20Results_Paid%20Ad.pdf

 http://www.investopedia.com/terms/e/eps.asp#axzz1uvGHbCqy

PROPERTY SHARES

Ever thought of an alternative to investing in property?

Property Entities are investment vehicles which allow investors to indirectly gain exposure to immovable property. A Property Entity may be defined as an investment vehicle which invests exclusively, either directly or indirectly, in a portfolio of immovable properties and/or derives the majority of its income from property related sources such as rent income, income derived from the management of immovable property portfolios, developmental income and brokerage received on the purchase or sale of immovable property.

Property Entities give investors the opportunity to invest in a diversified portfolio of expertly managed immovable property.

Currently there are four types of Property Entities listed on the JSE, namely: Property Unit Trusts (PUTs), Property Holding and Development Companies, Real Estate Investment Trusts (REITs) and Property Loan Stock Companies (PLSs).

Property Unit Trusts and Real Estate Investment Trusts are exempt from paying tax on income distributed to investors. Property Loan Stock Companies issue Linked Units which comprise of a share and a debenture. Since the majority of the capital structure of Property Loan Stock Companies comprises of debentures and the interest earned on the debentures is distributed before tax, property Loan Stock Companies are able to distribute the majority of their income to investors before tax. Property Unit Trusts, Real Estate Investment Trusts and Property Loan Stock Companies are therefore tax “Conduits”.

The advantages are:

Regular Income Stream

Property Entities are generally considered Income Funds because they distribute the majority of their income to investors on a regular basis (i.e. most Property Entities distribute income on a quarterly basis).

Exposure to Immovable Property

Investors may gain exposure to immovable property with lower initial margins. In other words Property Entities give investors exposure to the benefits of owning immovable property (i.e. rent income and capital appreciation) without large capital outlays.

Liquidity

Property Entities are traded on the JSE and are more liquid than immovable property.

Well Regulated

Property Entities, notwithstanding the JSE Listing Authority, are subject to the REIT legislation particular to the country in which the company is incorporated, the Companies Act as well as their own Articles of Association or the Collective Investment Scheme Control Act.

Price Transparency

The price of a Property Entity security is determined by market forces and is transparent (i.e. is visible to the public).

Some things to consider

Fees

When purchasing the securities of a listed Property Entity through a stockbroker, investors are subject to brokerage as well as other fees. Investors should consider the fees involved when acquiring any investment before committing capital.

Tax

Upon the disposal of the securities of a listed Property Entity, Capital Gains Tax is applicable.

Risk

The price of the securities of listed Property Entities is determined by the forces of demand and supply. Thus investors are subject to market risk as well as other risk factors specific to immovable property.

For more information:

www.jse.co.za

BUY VS RENT

A very very interesting piece I came across worthy of sharing.

Conventional wisdom goes something like this: Go to school. Get a degree. Get a decent job. Get a mortgage. This particular nugget of common knowledge has never appealed to me...

A number of my friends have recently bought properties and I find myself having to explain why I choose not to own the flat that I live in. You see, I’m one of those people who choose to rent and today’s Angle looks at the decision purely from an investment perspective.
Which will give me the better overall return, to pay off a mortgage on my current flat or to rent it and invest the difference available in the equity market?
To answer this question will require a number of assumptions so please bear with me whilst we look at a few important issues.


House price returns
First and foremost: what return can one expect from house prices? The longest property index that I’m aware of is the “The Herengracht Index”, constructed by Prof. Piet Eichholtz[1]. This index tracks the transaction values of buildings along the Herengracht, a canal in Amsterdam, starting in 1628. In his paper, Prof. Eichholtz estimates that the real (in excess of inflation) return of the Herengracht Index from 1628 to 1973 was 0.45% p.a. 
Prof. Robert Shiller publishes an index of house prices in the United States of America. In his book, Irrational Exuberance[2], Prof Shiller shows a graph of the real house prices since 1890. This index is updated on his website, www.irrationalexuberance.com. At present, the index suggests that USA house prices have increased by an annual real rate of 0.14% since 1890. If we only focus on the period since 1966, the real return was 0.18%  p.a.
In South Africa, we can look at the Absa House Price Index. This index only goes back to 1966 but suggests that South African house prices have increased by a real amount of 1.5% p.a. over this period.
Based on the above, I think that assuming that house prices in South Africa increase at a rate of 1.5% p.a. in real terms is a fair, if not aggressive, assumption.


Mortgages
Since we are looking at the long term average returns, I will also focus on the long term average mortgage interest rates. The prime lending rate in South Africa has averaged 14% since 1966. Over the same period, inflation has averaged 9.3%.
If we assume that the bankers will like me and offer me 1% below prime, I should be able to borrow at an average of 13% over a 25 year period. For the purposes of our exercise, let us also assume that my friendly banker would require me to put down a deposit equal to 15% of the purchase price.

Property Costs
Let us further assume that the value of the (modest) home I am renting is R1.7million and that its market-related  rental is R8 000pm with annual increases linked to the value of the property.


Property ownership costs
In buying, owning and selling a property, one will incur many costs. A quick bit of research suggests that the cost involved in purchasing a property lies in the order of R40 000. This covers the cost to register a bond and to conduct the transfer, but not the actual transfer duty which is calculated according to the purchase price of the property. I estimate the ongoing costs of ownership in the order of 1.7% of the property value per year. This would cover insurance, levies, maintenance, rates and taxes.
When one ultimately sells the property one inevitably incurs agents commission (in the order of 5.5% to 7.5% + VAT) and capital gains tax on any growth above the R1.5 million concession offered by SARS.


The equity market
My alternative to a property purchase is an investment in the South African equity market.
Over this same period starting in 1966, the JSE All Share Index has delivered an annual return (including dividends) of 8% in real terms. So, allowing for some generous asset management and other transaction fees, let us assume that the return that one can earn over the long-term from an equity investment would be inflation plus 6%.


A model of investment return
Right, those are the assumptions. Now let us look back to the initial question: Which will give me the better overall return, to pay off a mortgage on my current home or to rent it and invest any surplus funds in the equity market?
If I rent, I can invest the money I would have to have disbursed as a deposit and in respect of the initial property costs on Day One and can add to the investment for so long as the rental costs are below the monthly mortgage payment. This will require some financial discipline. If rents increase to a level higher than the mortgage payment, I will fund the difference out of the returns the investment generates.
At a current rent of R8 000 per month, the rental yield on the property is some 5.7% p.a.
This chart below shows the net value of an investment in the equity market, compared to the value of my 
flat if I were to sell both investments at different stages over the period of the mortgage.

According to the model that I built on these assumptions, I will be in a better position in 25 years by renting this property. In fact, by the time that I have settled the mortgage, I will have some R3.2million more than what I could realise selling the flat.
Do note that this calculation is particularly sensitive to the rental yield that I start with. My model suggests that as long as I can rent for a yield of below 6%, I will be in a better position by renting rather than buying.
For those who would like to construct their own model, here are all my assumptions:

• Purchase price of R1 700 000
• 15% deposit (R255 000)
• Long term borrowing rate of 13.0% (1% below the average prime rate of 14.0%)
• 25 year mortgage
• Inflation of 9.3% p.a. (the South African average since 1966)
• House price growth of 1.5% in real terms
• Maintenance, insurance, rates and levies of 1.7% of the property value
• Transfer duties of R53 000
• Initial purchase costs of R40 000
• Sales commission of 6.5% + VAT
• Capital gains tax of 10% on the gains if more than R1 500 000.

I will assume the following for the alternative investment

• An initial investment of R348 000 (R255 000 + R53 000 + R40 000)
• A gross rental yield of 5.6% of the property value at beginning of year
• A real return of 6% p.a. form the investment in the JSE.
• 10% capital gains tax liability

Some elements that I have excluded:

• The cost of appliances, furniture and DSTV that is included in my rental agreement
• There are benefits to the ease at which a mortgage allows you to leverage yourself at opportune times
• The special levy that the body corporate is currently charging to upgrade the lift in the building
• Some people will benefit from the forced saving a mortgage provides
• The luxury of having a landlord who I can call to sort out the mess when the geyser bursts in the middle of the night
• The fact that a man’s (or woman’s) home is his castle and that it feels good knowing that you can drive a nail into the wall (or break the wall down) if you want to

[1] Eichholtz, Piet M. A., A Long Run House Price Index: The Herengracht Index, 1628-1973. Available at SSRN: http://ssrn.com/abstract=598 or doi:10.2139/ssrn.598

[1] Shiller, Robert J, Irrational Exuburance, www.irrationalexuberance.com

This was written by Henno Vermaak.

HOW MUCH IS ENOUGH WHEN IT COMES TO INVESTING IN RA'S?

Tax deductions have become a talking point ever since Trevor Manual's 13-year term as Finance Minister. He introduced Capital Gains Tax and Residence Based Tax in an attempt to 'spread it around.' Retirement investments have not been left untouched either, and while it's still true that RAs offer the best bang for your buck long term, there are some that are speculating that the downside to investing in retirement funds is the taxable income created on withdrawal of the benefits. They say 'you just pay the whole lot back.' But is that really true? Take a look at our figures and observations and decide for yourself.

If the taxpayer's intention is to stay invested until retirement there can be little case to invest through any other medium than a retirement fund (pension, provident or retirement annuity find). The combination of a tax deduction on the investment coupled with tax-free growth and partial taxation on withdrawal is hard to beat.

The downside to investment in retirement funds is the taxable income created on withdrawal of benefits. Some say that 'you just pay the whole lot back.' So the purpose of this article is to analyse the taxes on withdrawal and ask the question 'at what point does a retirement fund become tax inefficient?'

The effect of change over the past 10 years on tax thresholds

The National Budget Speeches from 1994 to 2000 were pretty pedestrian affairs and little changed in the RSA tax system. Tax reform in the new RSA only really got going from the 2000 national budget speech going forward.
The emphasis of Trevor Manuel's 13-year term as Minister of Finance was to 'spread it around' and to try and reduce the tax burden on the individual taxpayer, particularly the lower income earner. This was achieved by implementing other forms of tax such as Capital Gains Tax ('CGT') and Residence Based Tax ('RBT').
From 2000 onwards the bulk of the monetary value of the annual adjustment to the individuals' tax tables has been concentrated on the lower income earner. And every attempt has been made to cut a fairer deal for those earning below R20 000 a month in 2012 money terms.

New Tax Tables - 

Annual Income Bracket	Basic	Marginal
0 to R160,000		18%
R160,001 to R250,000	R28,800	25%
R250,001 to R346,000	R51,300	30%
R346,001 to R484,000	R80,100	35%
R484,001 to R617,000	R128,400	38%
R617,001 and over	R178,940	40%
Rebates
Primary	R11,440
65 and older	R6,390
75 and older	R2,130

 

• Every taxpayer has a tax threshold of R63 556
• Taxpayers over 65 attain tax threshold at R99 056 and
• Taxpayers over 75 attain tax threshold at R110 889

And the net result is that taxpayers earning less than R120 000 per annum only pay 4% of the individuals' tax burden today.

To be continued...