Highlights of the Week of November 11, 2013

PetroChina-Company-Limited-PTRPetroBras

Dear PGM Capital Blog readers,
In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of November 11, 2013.

  • On Wednesday, November 13, Petro-China announced that it will buy Petrobras Peru assets.
  • Ambev 5:1 stock split effective on November 11, 2013.
  • World Gold Council, Q3-2013, published on November 14, 2013.

PETRO-CHINA TO BUY PETROBRAS PERU ASSETS:
In China’s latest move to secure crucial energy supplies, the country’s biggest fully integrated Oil Company PetroChina ((HKE:0857.HK), announced last Wednesday, November 13, 2013, that it will acquire a Peruvian subsidiary of Brazilian state-owned PetroBras (NYSE: PBR),  Petrobras Energia Peru SA for US$ 2.6 billion.

PetroChina stated that the purchase will help expand the scale of its oil and gas operations in Latin America and drive the sustainable development of its overseas business.

Petrobras Energia Peru holds 100% interest in two blocks and 46.16% interest in one block in three of Peru’s oil and gas fields. PetroChina said the blocks combine for an output of 800,000 tons/year of oil equivalent, with sizeable recoverable reserves. The company’s revenue in 2012 from core businesses, US$ 600 million with US$ 102 million net profit.

Petrobras confirmed the deal and stated that, this operation is an important stage in Petrobras’ divestment program as laid down in its 2013-2017 business plan, unveiled last March, which foresees divestment of holdings worth US$ 9.9 billion, including some exploration assets in Africa.

Below Chart shows the all-time stock price history of Petrobras (NYSE: PBR) versus PetroChina (0857.HK)

PBR VS 0857.HK ALL TIME CHART

AMBEV 5:1 STOCK SPLIT EFFECTIVE ON NOVEMBER 11, 2013.
On Friday November 8, 2013, shareholders of Brazilian brewer Companhia de Bebidas das Americas (NYSE: ABV), or AmBev, approved a five-for-one share split, effective on Monday, November 11th, 2013.

In a statement, AmBev said that shareholders will receive five shares for each corresponding common and preferred share. The number of AmBev shares in circulation will jump to 3.5 billion compared with 700 million currently, the company said.

On Monday, November 11th, 2013, the company started trading on the NYSE under a new Symbol (ABEV) with ISIN-Code US02319V1035.

The share split should make AmBev’s shares more attractive to local investors in Brazil. AmBev shares have surged this year on strong beer sales in Brazil, where it dominates the market, which has pushed the shares out of the range of individual investors in that country.

On Friday, November 8th 2013, AmBev’s locally traded shares closed at 244.98 Brazilian reals. Ambev ADR shares closed Friday, November 8th in New York at US$ 37.20.

About Ambev:

Ambev operates in 14 countries in the Americas and its portfolio includes beers like Antarctica, Brahma, Bohemia, Skol, Stella Artois and soft drinks like Guaraná Antarctica, Soda Antarctica, Sukita and the innovations H2OH! and Guarah.

As the largest PepsiCo bottler outside the United States, it sells and distributes PepsiCo products in Brazil and other Latin American countries, including; Pepsi, Lipton Ice Tea and Gatorade by agreement of franchising. It is controlled by Anheuser-Busch InBev.

Below chart shows the all-time stock price of Ambev up to Friday, November 2013.

AMBEV ALL TIME STOCK PRICE CHART

AMBEV (NYSE: ABV), ALL TIME STOCK PRICE CHART

As can be seen from above chart, the company’s stock increased with 1306.53 percent, since it went IPO in June of 1997.

WORLD GOLD COUNCIL Q3-2013 REPORT
On Thursday, November 14, 2013, the World Gold Council, produced its Q3-2013 report.

Highlights:

  • Jewellery: The jewellery sector delivered another quarter of solid year-on-year growth as consumers across the globe, encouraged by lower average prices, showed an increasing demand for higher carat pieces.
  • Investment: Demand for bars and coins grew 6% to 304.2 tonnes, with growth mainly coming from Asia and the Middle East, including Turkey. Outflows from ETFs slowed to 119t.
  • Technology: Q3 was another period of robust demand for gold in the Technology sector. Demand related to the use of gold in electronics has shown the most resilience, aided by demand for tablets and smart phones.
  • Central Banks: Central banks continued to accumulate gold, albeit at a slower rate than the elevated levels seen in 2012. Year-to-date, global central bank gold reserves have increased by almost 300 tonnes.
  • Supply: The supply of gold in the third quarter fell by 3% from the same period in 2012. A sharp contraction in the supply of gold from recycling accounted for the decline as mine production increased by 4%.

Source:

PGM Capital comments:

Petro-China versus PetroBras:

The acquisition of Pebrobras, Peru assets by PetroChina, clearly shows that the state owned oil and gas companies of Brazil and China are heading in the opposite direction. On the one hand PetroBras is disinvesting, by selling or liquidating an asset or subsidiaries in order to increase its cashflow, while on the other hand PetroChina is using its robust cashflow to acquire assets in order to increase its reserves and diversify its portfolio.

The stock price of both companies clearly shows in which direction the companies are heading.

Disclosure:
We have a BUY rating on the stock of Petrochina and have it in our own personal portfolio, while on the otherhand we have a Hold to moderate SELL rating on the stock of PetroBras and have reduced our postion in this stock.

AMBEV:

We weren’t surprised at all with the 5:1 stock split of AMBEV, we have a BUY to STRONG BUY rating on the stock and are accumulating the stock in our own portfolio. We believe that based on the company’s fundamentals it will continu to outperform its peers.

Below we have listed the company’s stock split history since it went IPO in 1997

Split Date Split Ratio
June 9, 2005  120 : 100
December 28, 2010  5 : 1
November 11, 2013  5 : 1

We believe that the current split have made the stockprice of the company more attractive for the retail investor, which will have an upwards pressure on it.

World Gold Council Q3-2013 report:

This report, clearly shows the discrepancy between the physical Gold market, in which we see robust buying by mainly countries in the EAST, in contradiction with the selling in the electronic (future) market.

With decreasing supply the price of Gold in the longer term has only one way to go, which is UP.

On December 23, 2013, the U.S. Federal Reserve (the FED) will celebrate its 100th birthday, so we thought it was time to take a look at this institution.

The FED, unlike any other federal agency, is owned by private and public shareholders.

The FED and other Central Banks have the following reasons for being at war with gold:

  • Gold restricts a country’s ability to create unlimited amounts of fiat currency.
  • Gold is the only money that exists outside the control of politicians and bankers. The FED would like to control all aspects of the global economy, and gold is the last defence of the individual who wishes to protect his or her wealth.
  • Historically, gold serves as the most stable measure of purchasing power. Gold owners begin to measure risk in terms of ounces of gold, and this provides a broader perspective — the “gold perspective”. It takes into account factors that are considered unquantifiable through the narrower “fiat perspective” that banks and financial media prefer to use. It also shows up real inflation.

History shows countries following the gold standard have a higher standard of living, stronger morals, and an aversion to costly wars.

Thanks to the FED’s irresponsibility, foreign governments and investors are exiting the dollar and U.S. Treasuries, leaving the FED as the buyer of last resort. This has painted the Fed into a corner, because it will be difficult, if not impossible, to curtail its bond and CDO purchases through its QE program, or to raise interest rates without crashing the markets.

The main thesis  is that gold will continue rising because several exponential, long-term and irreversible trends will continue forcing the need for greater and greater government debt, and government debt is the main driver of the price of gold, as can be seen from below chart, for the past decade, debt and the gold price have shared a conspicuously close relationship.

Total-Public-Debt-OutstandingLast but not least it is worth mentioning that:

The gold held by the FED and the United States has not been officially audited since 1953; there are several credible indications that this gold has been leased or swapped, and probably has several claims of ownership. Germany’s Bundesbank was told in January 2013 that it would have to wait seven years to repatriate 300 tonnes of its gold currently held by the Federal Reserve Bank of New York. The only plausible explanation for this delay is that the gold  might not be available.

Before following any investment advise, please consider your investment horizon, financial position and risk tolerances and keep in mind that precious metals as well as stocks of their miners and stocks of emerging market companies may be very volatile and that sharp corrections may happen in the short term.

Until Next Time

Eric Panneflek

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