The local currency is on FIRE.
At 19:00 on Wednesday night, President Cyril Ramaphosa announced South Africa would be moving to level 1 lockdown. One hour later, US Federal Reserve policy makers indicated they are expecting US interest rates to remain at almost ZERO until the end of 2023.
Wowza that is dovish!
We have economies opening up and we have central bankers bunkering down.
We have people going back to work amid a flood of cheap money entering the system.
That sounds like a recipe for MUCH higher equity markets.
On top of that we've seen broader optimism returning this week. AstraZeneca restarted one of the world's most promising Covid-19 vaccine trials, Chinese economic data prints have been exceedingly positive, and a cloud computing company called Snowflake has attracted a R1 trillion valuation as it is listed into the superheated overseas tech markets.
And, whenever the world is running on positive sentiment, you normally see an exaggerated move into riskier currencies like the rand.
As such, in the last five days we've seen a move from R17.00/$ all the way down to R16.30/$ at the time of writing.
But while everyone else is cheering the stronger rand, savvy investors might do well taking the contrarian view.
At R16.30, I believe now is a good time to shift some local cash into a US based company.
If you’re interested in getting the lowest offshore transfer rates in South Africa send an email to email@example.com
with the promo code MMSEP2020 in the subject line and you’ll get 25% off your international transfer.
The “Future of Finance” will be built on top of this Crypto!
‘Decentralisation' is a word you constantly hear throughout the crypto world. And there's a good reason for this…
It forms the foundation of everything in crypto.
The idea that you don't need to rely on a central authority to make things work - be they financial transactions, contracts, proof of ownership, proof of identity… anything - is what crypto is all about.
And that's where DeFi or ‘decentralised finance' comes in…
Just as bitcoin allows you to make payments without a bank, DeFi allows you to create an entire financial system without banks or central authorities.
And this could overtake every area of traditional finance, because it makes things cheaper and more efficient.
But which company am I talking about?
McDonald’s is a well-known and established international brand. And while you might think McDonald’s is just a patty flippin’ fast-food restaurant there’s a lot more going on beneath the surface.
Don’t be fooled by the burgers and fries!
The chain operates in every corner of the world, and if you saw the film The Founder, you’ll recall much of the McDonalds valuation actually comes from the real estate business.
The McDonald’s business model is quite simple: Sell franchising licenses in a trusted brand that will continue to grow. Then, take out a lease on the property to be used as McDonald’s restaurant and make the franchisees pay off the lease.
Easier said than done though, but BRILLIANT!
In fact, so brilliant, the company currently boasts 39 000 operational stores in over 110 countries with about 93% of these franchised!
How has the company been fairing recently?
Since 2013, the company has seen a marginal decrease in revenue. This trend ended in 2018 after management introduced the Velocity Growth Plan to get back to business. As a result, the end of 2019 saw a minor increase of about 0.25% from the prior year’s revenue levels. Systemwide sales for 2019 increased 4% (7% in constant currencies) to $100.2 billion.
This might not sound exciting, but you should look a little bit deeper.
Instead of going for super-heated revenue growth plays, in this sort of market I believe investors should be focusing instead on the bottom line. A titan like MacDonald’s, shouldn’t be focusing on more stores, it should be ensuring as much of the monolithic revenue line drops down through the income statement into your pocket.
And that is exactly what they’re doing.
Since the early 2000s McDonald’s has consistently managed to reduce their cost of sales, which has steadily increased gross profit.
Furthermore, free cash flow was at $5.7 billion, a 36% increase over the prior year.
That is totally superb!
What’s more, the company returned $8.6 billion to shareholders last year through share repurchases and dividends, marking the successful achievement of the company's targeted return of $25 billion for the three-year period ending 2019.
But what comes next?
Without a doubt, global lockdowns and Covid-19 have affected the company. Looking at the table below you can see the recent impact on sales over the heaviest lockdown period.
So yes… sales got crunched. But then so did the share price. It’s all about valuation.
Clever investors are seeing the decimation in the restaurant industry, and instead of panicking you should be thinking, how do you get involved.
The worst time to buy a restaurant was a month before lockdown, the best time to buy a restaurant is just as the lockdown ends.
Now sure, you can get great leases, buy up cheap kitchen equipment and decor from the destitute mom-and-pop owners.
But who wants that kind of hassle in their lives?
Instead, let’s just buy into an established restaurant chain, and gain exposure to a sector on the rebound.
As Warren Buffett says: “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price”
So, while so many small restaurants have gone bust, let’s instead buy a wonderful juggernaut like McDonald’s which we’re confident will weather this storm.
As company’s CEO Chris Kempczinski recently commented:
“Our strong foundation and the unique advantages of the McDonald’s System, including a high percentage of drive-thru restaurants and investments in delivery and digital, have enabled us to adapt to the changing landscape presented by the COVID-19 outbreak. I am confident in our ability to manage through the immediate challenges and emerge from this pandemic in a position of competitive strength.”
The Brutal Truth About What
Successful Traders Want...
Take a guess?
Money? Cars? First Class plane tickets?
No… This is NOT what successful traders want.
You can achieve this through a normal 9-5 job….
You can achieve this through saving money for years on end.
You can achieve this from starting your own business and working your way up…
Successful traders want something far deeper and MUCH more meaningful…
Are you ready to get started?
Personally, I believe McDonald’s shares will do exceptionally well over the medium- to long-term. What’s more, it’s never been easier for South African citizens to buy offshore companies. You can buy this through a local account or choose to externalise your wealth fully by becoming a direct owner of McDonald’s shares.
If you want to add McDonald’s to your portfolio send me an email on firstname.lastname@example.org
and I’ll help you personally start your international investing journey.