Sunday, July 13, 2008

Fortune magazine

Fortune is one of those magazines I subscribe to with mixed feelings. On the one hand it caters to some the worst aspects of US consumerism and an almost adolescent worship of wealth. But it also provides a gritty and useful view of the world of business from a business rather than economics perspective. It's latest issue contains the Fortune 500 Global edition which looks at the performance of the world's biggest firms. I generally look at this carefully noting particularly how Australian firms figure and how the emerging giants of China, India and Mexico are making their impact. I always stick my copy of this particular edition on a bookshelf and refer to it over the coming year - it is an invaluable resource and a great teaching aid.

Another feature of Fortune I greatly respect is that much of its material is online.

On the Fortune 500 listing Australia's own BHP-Billiton is 183rd on the Fortune 500 list but 17th in terms of profits. For every three dollars of sales it makes about a dollar profit. For its size it is one of the most profitable firms on the planet. Amazing!

Barney Gimbel's piece The New New World Economic Order in the same edition (unfortunately not online) is about as eloquent a 2 page summary of where the world economy is going as I have seen. The US, and indeed the developed countries as a whole, are no longer the locomotive of global growth - 54 developing countries surveyed will grow by 6.7% this year even though growth in 31 developed countries averages 1.6%. Voracious consumerism has historically come from the US but its source will soon be elsewhere. By 2020 China will have 700 million middle income earners and India 583 million. Gimbel sees the major threat to the world economy as exploding inflation in developing nations.

Despite some mild misgivings Fortune remains one of my favourite weekly reads.

7 comments:

jc said...

On the Fortune 500 listing Australia's own BHP-Billiton is 183rd on the Fortune 500 list but 17th in terms of profits. For every three dollars of sales it makes about a dollar profit. For its size it is one of the most profitable firms on the planet. Amazing!

Yes it is amazing. What's more amazing is that it is trading at 5.5 times cashflow which means the market has already signed on to a material Chinese/Indian slowdown. If the market changes it's tune on this BHP will fast become an 80 dollar stock.

There are not enough mines in the world to quench the appetite of these fast growing places.

Spiros said...

"the market has already signed on to a material Chinese/Indian slowdown."

Or the market thinks BHP will pay too much for Rio.

jc said...

It doesn't seem to be the case, Spiros as Rio is trading at even more compelling multiples.

The takeover makes a lot of sense as they would be able to extract about $3 billion in savings.

Moreover the market is valuing the RIO side at around the 3.4 ratio.

hc said...

I agree with JC on this one. BHP-Billiton has seemed very undervalued to me for years - and for a long time before the proposed bid for Rio was announced.

People don't like miners and fear commodity cycles - investors have coped a caning in previous cycles.

But I still believe BHP is very undervalued - the Chinese demands to rebuild China are only beginning (and high growth throughout developing countries) suggests BHP & Rio in good positions even as new mines come onstream as prices fall back a little.

Regrettably too I think coal will be the big winner as oil resources dwindle.

jc said...

Harry

here's a prediction from a mining guy I read recently. Sooner than we think China will go Nuke in a big way. They will develop a " Chinese reactor " which like the coal fired furnace and the steel plant will be 40% to 50% cheaper than comparables . They will build 400 reactors and their problem with AGW will be essentially over.

As capital outlay is the biggest part of a reactor they will end up producing very cheap energy.

This sounds very plausible.

conrad said...

I've a better predition for you JC. China will use and develop every possible type of energy they can. China is a huge place, and it doesn't make sense for them simply to use nuclear in less populated areas where there isn't a whole lot of infrastructure since the cost of even small reactors (including decomissioning) is huge. That's why we should hope that things like solar get cheaper than coal quickly.

Kaleberg said...

Fortune used to be much more skeptical and even snarky back in the 1930s & 1940s, but they always had a good business take on things. Their first decade or two you could read them as an encyclopedia of American business. They had an amazing research department, mainly underpaid, uncredited women. They are still better than most, but they are much more credulous and a fair bit lazier than they used to be.

Personally I wish Communist China and Capitalist India the best, but they are far from self sustaining and much of their growth springs from their extremely backward position. It's much easier to go from $1 to $2 than $1,000,000 to $2,000,000.