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 The Sharenet Daily 
Tuesday, 20 March 2012 - 20:00
Top News
SA Business
Company News
Company Results
World Markets (Spot Prices)
JSE Today
JSE Trading Statistics
Major Moves
Index Summary
Latest Consensus Changes / Results Expected
Recent Dividends / Ex Div
Upcoming AGMs
Stock Exchange News Service (SENS)

Earnings and PE

9 March marked the 3rd anniversary of the bottom of the 2007/2008 bear market, where the S&P500 index declined a massive 57% to 9 March 2009 from its October 2007 high. Then in just 2 years, the same index gained 100% from the lows made! Most global stock markets followed a similar pattern.

In trying to understand valuations, let’s revisit some basics. The value of a business is the discounted value of its future earnings at an appropriate discount rate. This should be relative easy to arrive at, but we know that because we are dealing with future uncertainty, there is a range of possible outcomes, hence the ongoing price volatility.

At the core, there are only 2 variables that affect the value of a share of a business – the income that it will generate, and the discount rate applied to that future income stream in order to arrive at a net present value. Expanding on each of these:

• A 100% shareholder has a claim on all of the future earnings generated by that business. Therefore a part shareholder has a proportional share in those future earnings. Some of the earnings will be received by way of a dividend, while typically the bulk will be reinvested back into the business for future growth and hence higher future dividends.

• The discount rate applied to the future stream of income is the second main factor in valuing a company. While the discount rate is affected by the prevailing interest rates, a rational investor will want to apply a higher discount rate to a more cyclical business, while one with superior management, a strong balance sheet and better quality and higher earnings growth, will justify a lower discount rate.

Instead of quoting discount rates, use is made of the price to earnings (PE) ratio, which is more or less the inverse of the discount rate. i.e. a company with steady and growing earnings, a strong balance sheet and quality management will justify a higher PE ratio. This metric is widely used and typically easier to understand.

The effect of the multiplication of these two factors can and does cause the price volatility that we see on a daily, weekly, and monthly basis. For example look at the reported earnings per share for all the S&P500 companies. It peaked in mid-2007 at around $85. Analysts would have been forecasting various forward levels around this, but then came the global financial crisis and earnings fell dramatically to below $10 a share by mid-2009.

As reduced earnings were quickly factored into investor forecasts throughout 2008, so share prices tumbled, eventually ending down almost 60% off the peak. But the interesting thing is that just as quickly as company earnings fell, so they have reversed all the way back up again with the 12 months to the fourth quarter of 2011, with almost all companies having reported, reflecting earnings per share of $87. Forecasts from S&P expect these to rise to $100 for the full 2012.

The chart below reflects S&P500 earnings from 1970 with the massive 2008 dip and subsequent recovery.

Source: Crestmont Research

In addition to the sometimes very volatile earnings, the multiple that investors apply to those earnings has a huge impact on valuations over various periods. I.e. an investor might suffer a loss from a company, which delivers on its expected earnings, because the rating on these earnings goes down. For example earnings may move up as expected from say 23 to 35, but the rating drops from an initial 18 to 10, resulting in a price decline from 414 to 350.

The only certainty with any investment is the price paid. Other than this, an investor does not know the exact details of the future earnings stream or the future price that an investor will be willing to pay for those earnings, making forecasts difficult.

A prudent investor will look at both the level of earnings and the rating of these earnings when making an investment.

Kind regards,

Ian de Lange
021 9144 966

Tue, 20 Mar 2012
Top News
South Africa's rand fell more than one percent against the dollar on Tuesday, breaking a 3-day advance and ending as the weakest performer in a basket of 20 emerging market currencies as the greenback rallied and concern about Chinese growth hit commodity currencies.  Full story

South African shares wilted on Tuesday on renewed concerns about China's growth outlook with resource stocks including Anglo American leading the wider market down.  Full story
More than 30 bombs struck cities and towns across Iraq on Tuesday, killing at least 52 people and wounding about 250, despite a massive security clampdown ahead of next week's Arab League summit in Baghdad.  Full story
Responding to an international petition, celebrity tweets, and spreading public outrage, the U.S. Justice Department opened an investigation on Monday into the shooting of a black teenager by a neighbourhood watch captain who escaped arrest.  Full story
Prime Minister Mario Monti began a final push on Tuesday to forge a deal with trade unions on labour reform that marks a crucial test of his ability to revive Italy's chronically uncompetitive economy.  Full story
Financials and commodity-linked stocks were among the top fallers as European shares retreated from eight-month highs on Tuesday, after waning growth in China and. . .  Full story
Britain's top share index suffered its sharpest fall in two weeks on Tuesday, as concerns over materials demand in top consumer China hit commodities-linked. . .  Full story
Renewed concerns about China's economic growth weighed on global stocks and boosted bonds on Tuesday, while oil prices dropped more than 1 percent on. . .  Full story
U.S. stocks fell on Tuesday after a 3-day winning streak for the S&P 500 on concerns that China's economy may be slowing down.. . .  Full story

Gold fell for the first time in four days on Tuesday, hampered by the strength in the dollar, which profited from the growing. . .  Full story
U.S. stocks fell at the open on Tuesday, taking a breather after the S&P 500 advanced for a third straight session and moved. . .  Full story
Hong Kong shares finished lower in weak Tuesday trade, underperforming most Asian peers as investors took money off the table with the ongoing. . .  Full story
European shares fell for a second day on Tuesday, as investors continued to take profits after a rally to an eight month high. . .  Full story
SA Business
A South African lawyer said on Tuesday he was preparing a class action lawsuit against leading gold mining firms on behalf. . .  Full story
The number of people employed in South Africa's formal sector inched up only 0.3 percent in the fourth quarter of 2011. . .  Full story
Anglo American is looking for thermal coal assets in Australia and Indonesia, especially as prices of potential targets have come down,. . .  Full story
Fatalities are falling in South Africa's mines as the industry is subjected to a surge of inspections, and the country's mines. . .  Full story

Anglo American said on Tuesday it was looking to acquire iron ore assets in Australia and Africa as it strives to increase its footprint in the sector.. . .  Full story
Company News
JD Group Ltd. ("JD Group") and Steinhoff shareholders were referred to the important dates and times in respect of the partial offer as set out in the circular to JD Group shareholders dated 11 February 2012. JD shareholders are further referred. . .  Full story
Linked unitholders are advised that the following individuals have been appointed as independent non-executive directors of the company with effect from 20 March 2012. Both individuals will serve on the board and audit and risk committee of the company: * Dr. . .  Full story
Company Results
Revenue for the year ended 31 December 2011 shot up to R176 million (2010: R108.6 million). Gross profit soared to R72.2. . .  Full story
Revenue for the year ended 31 December 2011 increased by 9% to R1.6 billion (2010: R1.5 billion). Operating profit jumped by. . .  Full story
Turnover increased to R1.7 billion (R1.3 billion). Gross profit rose to R388.6 million (R308.4 million) and operating profit improved to R145.7. . .  Full story
Sales went up to R858.6 million (R792.6 million) but profit from operations more than halved to R23.8 million (R56.8 million). Profit. . .  Full story
World Markets (Spot Prices)
NameTimeRPMove% Move
JSE Overall17:0033878.56-335.51-0.98%
JSE Top 4017:0030026.43-369.10-1.21%
JSE Gold16:592423.36-16.00-0.66%
JSE Financial17:0024749.08-80.62-0.32%
JSE Industrial17:0037541.65-95.13-0.25%
JSE Indust 2516:5931508.83-111.25-0.35%
JSE Resource16:5950562.83-1269.85-2.45%
DJ Futures19:4013110.00-70.00-0.53%
DJ Ind19:4113183.73-55.40-0.42%
SP 50019:561405.16-4.59-0.33%
FTSE 10018:355891.41-69.70-1.17%
All Ords07:384365.60-15.60-0.36%
NZSE 5006:463487.011.040.03%
NameTimeRPMove% Move
Gold/R kg19:564029655310.13%
Brent Crude19:56124.13-1.42-1.13%
Rand / Dollar19:597.60350.07200.96%
Rand / Pound19:5512.03480.09340.78%
Rand / Euro19:5510.06640.09180.92%
Rand / NZD04:576.2216-0.0023-0.04%
Rand / AUD19:557.9823-0.0177-0.22%
Yen / Dollar19:5883.60000.22500.27%
Euro / Dollar19:550.75570.00050.07%
Dollar / Euro19:591.3228-0.0009-0.07%
Pound / Dollar19:550.63050.00140.22%

Click here for the Sharenet Spot Price page
The JSE Today

Trading Statistics
* Includes all listed instruments on the JSE
Major Moves Up
SharenameSaleMove% MoveVolume
1 BEIGE-PR2  1705345.30.%229153
2 GOLDONE  3994813.68.%286667
3 AFGRI  639549.23.%433670
4 IQUAD  260156.12.%680
5 DELTA  790456.04.%400
6 VILLAGE  189105.59.%6143359
7 EOH  36101905.56.%311782
8 CLOVER  1400705.26.%59953
9 SENTULA  235114.91.%71599
10 ELLIES   300144.90.%646984
11 DISTELL  87003754.50.%2170
12 BAUBA  20994.50.%11041
13 ONELOGIX  19173.80.%25800
14 HULAMIN  800293.76.%134868
15 TSOGO-SUN  1763623.64.%25239
16 ESORFRANK  14553.57.%36150
17 KEATON   295103.51.%53503
18 BLUETEL  695223.27.%817285
19 METROFILE  28993.21.%53400
20 URONE  2400713.05.%9620

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Major Moves Down
SharenameSaleMove% MoveVolume
1 DORBYL  150-20-11.76.%60033
2 HOSP-B  382-43-10.12.%21874
3 GOLIATH  360-40-10.00.%8500
4 MAZOR  165-18-9.84.%3000
5 MRHLD-N  950-45-4.52.%1175859
6 HOSP-A  1177-52-4.23.%971619
7 PBT  192-8-4.00.%7467
8 ANGLO  30300-1230-3.90.%5460791
9 GBGOLD  530-20-3.64.%711205
10 EASTPLATS  352-13-3.56.%36465
11 BILLITON  23849-771-3.13.%3394167
12 TRUSTCO  112-3-2.61.%1070196
13 OMNIA  9451-234-2.42.%99615
14 EXXARO  20318-494-2.37.%1193606
15 CALGRO  464-11-2.32.%33418
16 KUMBAIO  53249-1210-2.22.%647266
17 TRNSHEX  287-6-2.05.%7111
18 ARCMITTAL  5995-120-1.96.%799173
19 MONDIPLCP  7173-140-1.91.%360246
20 STEFSTOCK  1207-23-1.87.%704272

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New Highs
SharenameSaleHighMove% MoveVolume
1 EOH  361036101905.56.%311782
2 BLUETEL  695695223.27.%817285
3 CASHBIL  12350125503502.92.%317653
4 NEDCOR  16984171001050.62.%1175791
5 CAPITEC  1998920000450.23.%34268
6 EXCELL  1151250.11370
7 KGMEDIA  190019250.163892

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New Lows
SharenameSaleLowMove% MoveVolume
1 HARMONY  82888160-62-0.74.%1773849

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Index Summary
Index NameRPMove% Move
Top 4030,026.43-369.10-1.21%
Mid Cap47,405.2526.690.06%
Small Cap35,997.26291.640.82%
Resource 2050,562.83-1269.85-2.45%
Industrial 2531,508.83-111.25-0.35%
Financial 159,383.98-36.30-0.39%
Financial & Ind. 3035,136.66-149.15-0.42%
All Share33,878.56-335.51-0.98%
Oil & Gas 28,189.53-447.99-1.56%
Mining 32,615.16-834.05-2.49%
Gold Mining2,423.36-16.00-0.66%
Platinum Mining61.06-.01-0.02%
GENERAL MINING8,246.46-288.12-3.38%
Oil & Gas Producers 15,156.99-240.88-1.56%
Basic Materials 27,895.23-683.84-2.39%
Chemicals 15,356.16-33.93-0.22%
Forestry & Paper 14,153.09-169.43-1.18%
Industrial Metals 30,483.36-591.49-1.90%
Industrials 32,429.422.150.01%
General Industrials 89,311.46192.090.22%
Consumer Goods 32,352.07-195.43-0.60%
Automobiles & Parts 5,242.226.790.13%
Household Goods177.26-3-1.60%
Health Care 39,769.10196.030.50%
Beverages 105.73-1.33-1.24%
Index NameRPMove% Move
Food Producers 59,149.65187.980.32%
Personal Goods 483.90.800.17%
Consumer Services 63,333.20-129.00-0.20%
General Retailers 52,413.8927.240.05%
Travel & Leisure 3,739.526.140.16%
Media 92.45-.21-0.23%
Support Services 2,476.25-27.98-1.12%
Telecommunications 69,696.40369.090.53%
Financials 24,749.08-80.62-0.32%
Banks 46,778.31-221.11-0.47%
Non-life Insurance 41,432.75648.261.59%
Life Insurance 19,944.59-81.19-0.41%
General Financial 2,320.89-7.37-0.32%
Technology 28,792.40455.051.61%
SHARIAH TOP40 3,096.22-52-1.66%
FTSE/JSE SHARIAH ALL3,201.05-46-1.42%
COAL MINING27,261.36-541-1.95%
FTSE JSE Fledgling 5,327.59100.19%
FTSE/JSE Alt X 1,234.95161.33%
CAPPED PROPERTY 336.55-0.20%
RESOURCE 27,920.54-674-2.36%
DIVIDEND PLUS196.00-1-0.26%
FTSE/JSE RAFI 407,098.51-77-1.08%
Capped Top 4015,849.56-182-1.13%
Capped All Share17,138.24-167-0.97%
JSE TABACO 4,938.79-17-0.34%

Click here for the Sharenet Index Summary page
Latest Consensus Changes**
CodeCompany NameStatusUpdated
Results Expected**
ExpectedCompany NameFin. Date
21 Mar 20121TIMEDecember 2011 (Final)
21 Mar 2012ARROWASeptember 2011 (Final)
21 Mar 2012ARROWBSeptember 2011 (Final)
21 Mar 2012DELTADecember 2011 (Final)
21 Mar 2012RANLDDecember 2011 (Final)

Recent Dividends**
Share NameDec-DateLDTPay-DateAmount
ELBGROUP612-03-1912-04-1312-04-23R 0.0600
ELBGROUP12-03-1912-04-1312-04-23R 0.1800
VUKILE12-03-1612-04-0412-04-16R 0.7050
O-LINE12-03-1612-03-2912-04-10R 0.0300
CULLINAN12-03-1612-04-1312-04-23R 0.0100
Ex Div**
Share NameDec-DateLDTPay-DateAmount
SANTAM12-02-2812-03-1512-03-26R 8.5000
SANTAM12-02-2812-03-1512-03-26R 3.5500
IMPERIALP12-02-2212-03-1512-03-26R 3.3843
CAPITEC-P12-02-2912-03-1512-03-26R 3.3658
PSGFIN PREF12-02-2912-03-1512-03-26R 3.3473

Upcoming AGMs**
CodeCompany NameDateStatus
SDHSecureData Holdings Ltd.20/03/2012Confirmed
HDCHudaco Industries Ltd.22/03/2012Confirmed
ZPTZaptronix Ltd.27/03/2012Confirmed

Stock Exchange News Service
20/03/201217:34 Grand Parade Investments Limited - Disclosure of acquisition of
20/03/201217:34 Buildmax Limited - Fairness opinion and withdrawal of cautionary
20/03/201217:33 Buildmax Limited - Amendment to long term incentive plan as set out
20/03/201217:30 Gold Fields Limited - Director`s dealings in securities
20/03/201217:19 Life Healthcare Group Holdings Limited - Dealings in securities by
20/03/201217:10BIFR1 - FirstRand Bank Limited - Listing of New Financial Instruments
20/03/201217:00 m Cubed Holdings Limited - Appointment of director
20/03/201217:00 Blackstar Group SE - Disclosure of acquisition of securities
20/03/201217:00 Cipla Medpro - Dealing in Securities by a Director
20/03/201217:00 Datatec Limited - Notification of change in a major interest in Datatec
20/03/201216:52DIA/DIB - Dipula - Financial effects relating to the acquisition of Bochum and
20/03/201216:26 Nictus Limited - Appointment of Executive Director of Nictus
20/03/201216:00 Witwatersrand Consolidated Gold Resources Limited - Trading update
20/03/201215:41 Adaptit Holdings Limited - Dealings in securities by a director
20/03/201215:37BEG/BEGP2 - Beige - Independent Board recommends to shareholders that they
20/03/201215:22JDG/SHF - JD Group/Steinhoff - Joint announcement by Steinhoff and JD Group in
20/03/201215:16 Securedata Holdings Limited - Results of Annual General Meeting
20/03/201215:00 Old Mutual Plc - Notification of Transactions of Directors, Persons
20/03/201212:44RMBINF - RMB Government Inflation Linked Bond Fund Exchange Traded Fund -
20/03/201212:08 Ingenuity Property Investments Limited - Results of general meeting
20/03/201211:56JOZI03 - The City of Johannesburg Metropolitan Municipality - Interest Rate
20/03/201211:27 Litha Healthcare Group Limited - Appointment of independent non-
20/03/201211:00 Bauba Platinum Limited - Unqualified auditors opinion on the reviewed
20/03/201210:52 Pretoria Portland Cement Company Limited - Dealing in Securities by a
20/03/201210:48 Vukile Property Fund Limited - Appointment of independent non-executive
20/03/201210:30 Santova - Appointment of Directors of Subsidiary of Listed Company
20/03/201210:25 The Bidvest Group Limited - Directors` dealings in securities
20/03/201210:16 Chemspec - Dealing in securities by an associate of a director
20/03/201210:15 Exxaro Resources Limited - Trading of Exxaro ordinary shares on behalf of
20/03/201209:45BIIVU - iVuzi Investments Limited - Listing of Tap Issue
20/03/201209:44BIIND - iNdwa Investments Limited - New Instrument Listing and Tap Issue
20/03/201209:24AA005 - Anglo American SA Finance Limited - New Financial Instrument Listing
20/03/201209:22AA004 - Anglo American SA Finance Limited - New Financial Instrument Listing
20/03/201209:00 African Eagle Resources plc - Results of Leaching Test Work on the Dutwa
20/03/201209:00 DiamondCorp - Lace Mine Independent Engineering and resource reports
20/03/201209:00CCO - Capital & Counties Properties Plc - Hammersmith & Fulham Council adopts
20/03/201208:46 Nutritional Holdings Limited - Renewal of Existing Cautionary Announcement
20/03/201208:29 IFCA - Posting of Circular
20/03/201207:28 Cashbuild Limited - Audited group interim results and dividend declaration
20/03/201207:20 Anglo American plc - Annual Financial Report & Notice of Meeting 2012
20/03/201207:15 Anglo American plc - Publication of Offering Circular
20/03/201207:10 Anglo American plc - Treasury Shares - Transfers
20/03/201207:06 Gold One International Limited - Acquisition by Goliath Gold of Gold
20/03/201207:05 British American Tobacco p.l.c.- Transaction in own shares
20/03/201207:05 Goliath Gold Mining Limited - Finalisation date, abridged pre-listing
20/03/201207:05NEWPLT - Absa Bank Limited - Listing of additional Newwave Platinum Notes

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