Stuff Two Turkeys

Among the more compelling possibilities for the coming year, according to one far-seer's Christmas list, is the arrival of one of those rare historical moments in which IPO's can be shorted willy-nilly. Coupling this with her take on British property (knowing she means Spanish, too) and the birth of a new company on the Bolsa de Madrid, IBEX Salad proposes a festive short punt. Stuff two turkeys with one stone, dare we say?

Formed from the cash purchase of control of publicly listed Fadesa by privately held Martinsa in September of 2006 (referred to here), international residential property developer, Martinsa-Fadesa, began trading Monday morning at 18.44€. If we remember (Yahoo! historical quotes not yet functioning), MTF may have reached 18.50 18.98 on the same day and is currently 17.38/17.60, having bottomed out at 17.01 earlier in the session.

Happy Holidays to everyone, from all of us here. And we are talking our book.

Working Two Crowds

In June of 2006, the current writer found himself visited, simultaneously, in his remote mountain stronghold by two groups of anglophones with distinct purposes in mind - one, friends who were looking to buy a piece of property and two, friends who wanted to engage in a bit of tourism. On several occasions, the exhortations and reclamations of buyers, sellers, friends and family all would condense together saturating the already damp cloth that has been waterboarding our frontal lobe since about the age of three. In short, by the end of it all, the writer was prepared to admit to the truth of almost any proposition, however outlandish. Fortunately, however, he was by then only able to divulge the details of his confession in glossolalia. As one of the involved at one point sympathetically put it, "Sorry to ask you another question - I know you're working two crowds - but (insert query to be translated here)".

Lately, we find ourselves again facing the difficult task of serving two masters - being this blog and our other enterprise, The Olive Oil Gazette. It will be immediately evident to the few remaining regular readers of IBEX Salad which of the two is the more intransigent, as the current effort finds itself more and more abandonned with the passing of time and the latter, with a steadily increasing readership of olive oil industry people throughout the world. In this regard, we welcome the arrival of one of the few opportunities in which the two find themselves coincidental as heartily as we would an adept of esperanto in a pentecostal church in Topeka, Kansas...

Because also working two crowds and in dire need of a competent interpreter (for which task we uninanimously recommend ourselves, taking a page from Dick Cheney's playbook) we currently find the large Spanish food manufacturer and marketer, Madrid-listed SOS-Cuétara - especially in light of the company's surprise announcement yesterday that it does and does not (depending upon the language in which you are reading the news) foresee a record production of olive oil over the current 2007-2008 crop season. We think a time line leading up to this most confusing circumstance might be the way to approach it.

July 2, 2007: SOS predicts record Spanish olive oil (more than the 1.4 million tons of 2003-04, if the reader is unaware) crop for 2007-08. (Read source).

Translation: Spot virgin (not extra, as SOS does not market this higher grade) olive oil trading at 2.32€/kg, lowest price since December 2004. Average volumes crossed are at 30-month minima, except for during a brief period in the drought year of 2005-2006, as bottlers attempt to frighten recalcitrant producers into selling at a puny bid with the the threat of massive carryovers going into a record crop, meanwhile buying on a just-in-time basis. Called by the Gazette in July.

July 15, 2007: Industry group, the International Olive Oil Council, claims that worldwide olive oil production in 2007-08 will reach a new record of 3.4 million tonnes. (Source: Reuters Spain, long since deleted).

Translation: The IOOC proposes a massive promotional campaign in Russia, China and India and seeks funds from the EU to finance it. Problem is, Brussels will not subsidize anything for which there is no need. Hence, the invention of a production surplus for the coming year. Also called by the Gazette in a timely fashion. Spot: 2.29€/kg.

August 31, 2007: SOS announces first half profits up 29% to 13.98 mn euros, with revenues down 5.34% and EBITDA up 25.2%. The company attributes this improvement to better margins in its olive oil business. No mention made of its foundation rice, packaged foods and biscuits enterprises. (Read source).

Translation: Rice and wheat currently trading at highest levels in memory. No margins to be had there. Better hope olive oil doesn't go up.

September 3, 2007: Fortis rates SOS a 'sell'. (Read source).

Translation: Uh-huh.

October 5, 2007: The Junta de Andalucía and the national Ministry of Agriculture announce that the coming year's olive oil production for Spain will round out to about 1,227,000 tons. (Read source).

Translation: Spot: 2.33€/kg.

October 19, 2007: Deutsche Bank rates SOS a 'sell'. (Read source).

Translation: Uh-huh.

November 10, 2007: Italian industry group, ISMEA, says that that country will produce about 500,000 tons of olive oil, 100,000 shy of the previous year. (Read source).

Translation: Kick a man when he's down. Spot: 2.52€/kg.

November 15, 2007: SOS reports that 9-month profits rose 10.8% to 13.5 mn euros, compared to the year earlier period. In the same period, sales fell 3.21% while EBITDA rose 43 pct to 69 mn euros. Again, good results are attributed to a recovery of margins in its olive oil business. (Read source).

Translation: Where have we heard this before?

December 11, 2007: In English, via Thomson, SOS predicts a record of 1.6 million metric tons of Spanish olive oil production for 2007-08 crop year, with a year end carryover of 345,000. (Read source).

Translation: Might this be directed at those Swiss guys that bought into the company in 2000 and now own 16%?

December 11, 2007 (ed. note: no error here): This time in Spanish, SOS forecasts non-record 1.275 mn metric ton olive oil production for 2007-08 crop year which added to carryovers and proposed imports, will make 1.6 million tons of oil available to the market in the current crop year. (Read source).

Translation: We have no trouble pretending that carryovers don't have to be replenished. Let's see if the producers will buy it.

December 12, 2007: Olive Oil Gazette writer, editor and all-round cunning linguist (not to mention licensed olive oil futures trader), Charles Butler Mackay, finding himself more than passing amazed at this philological Rumpus Room, begins his research into the anomaly with the Bolsamania report of analysts recommendations for SOS. Results: 3 strong sells, 3 moderate sells, 1 moderate buy. (Read source).

Translation: Spot: 2.52€/kg - with the new crop on the way in. Gazette guesstimate: 3.50€ by March. SOS' margins? Gee, we dunno. Stock price? Less.

SOS, with a market cap of 1.9 bn euros, free float of 30% and P/E of 155, currently trades at slightly above the 14€ mark - about one euro shy of its all time high. Its apparent relative immunity to the spastic meanderings of world markets in general of late does not seem, at least according to insider trading reports, to be connected to Mr. Salazar's well-publicized desire to accumulate more than his current 16 percent. But we have to say the company has been surprisingly resilient in the face of bad press, bad markets and - the facts. That might be, in the end, the only positive it has going for it.

Hugo And Me

In memory of Roger Smith (1925-2007).

This morning's internet edition of papist, centre-right national pamphlet, ABC, reports that, on the vespers of Venezuela's referendum on proposed changes to the country's constitution (intended to convert the nation into the by-product of one man's personal hallucination), the intended beneficiary of said reforms, President Hugo Chávez, has made two interesting electoral promises. One, he will prohibit the export of petroleum to the United States if violence breaks out following the vote (the obvious assumption here being that he will win), and two, that Juan Carlos de Borbón, Spanish regent and member of the board of directors of Abengoa, S.A. (for all you TLVT dip-divers out there), will be forced to apologize publicly for telling Mr. Chávez to shut his hole at the recently celebrated Iberoamerican Summit. Talk is one thing, but how's he gonna walk the walk? Simply, this never-ending source of irritating and distracting noise will, if the king of Spain does not drop his pants, nationalize all Spanish banking interests within legal reach of Caracas.

Being ardent believers in the hypothesis that we are all one and that the true challenge facing us is to seek out what unites humanity rather than divides it, we are relieved (to put it mildly) to finally find something in common with Mr. Chávez - in this case, our well-documented suspicions about Spanish international banks. Set to be on the receiving end of this populist splintery stick are both BBVA and Santander - the former through its controlling interest in BBVA Provincial and SAN via its 80% of Banco de Venezuela. The two, in no confirmable order, are third and fourth largest in the country.

Regular readers of this column will already know that BBVA is on our list of canines because we do not believe it has come clean on its potential exposure to bad lending practices, being hard to believe that its acquisitions in the southern U.S. had somehow escaped infection. Still no news on that front, but nor do we have any problem imagining that the future profitability of Compass Bank, in the current housing environment, will be hard pressed to justify its purchase price.

Santander, on the other hand, seemed truly to have emerged unscathed from the present troubles. And its stock price, floating supinely within spitting distance of historic highs, as if merely taking the sun on the Dead Sea, shows it. But a couple of recent news items perhaps cast a bit of doubt on the scenario. First (and posted in the last entry), is its quick and profitable resale of the yet-to-actually-be-acquired ABN-Amro asset, Antonveneta. Hard on the heels of this comes this week's story that the bank had sold properties (mainly bank branches) to a Spanish-British consortium for over 2 billion euros. The press release spin is the 860 million capital gain it will book on the deal. But the fact is it is hard to consider it as anything other than a loan to fund its share of the buyout of the Dutch bank. After all, they will be leasing those properties back, will they not? Or is it branchless banking redux? Under those conditions, you can put whatever price you want on the deal - as long as you are willing to pay the return to the buyers with your rent cheques. One suspects that the simultaneously surfacing rumours that SAN is snooping around troubled British bank, Alliance & Leicester, are being placed to calm fears that ABN-Amro may be a bit too big to swallow in the current climate. A sideshow to keep the protestors off the streets, so to say.

Disclaimer: The reader would probably be unwise to attribute rabid anti-socialist sentiments to Ibex Salad on the basis of what he or she has read above on the subject of the current president of Venezuela. We do, after all, remember with a certain fondness the time when Fidel Castro was considered by many to be a veritable modern-day David. And the current writer does recall with perfect lucidity the Jesuit inspired and promulgated intellectual defense of that position - which continues to not be entirely without merit, suffering perhaps more from irrelevance (as do its more rabid detractors) than erroneousness in the paradise in which we currently find ourselves squatting. The real intellectual challenge is to identify a political system or form of government that might actually function to the benefit of all in Latin America, not to cherry pick failures in negative support of a thesis.