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Belly flop

08 August , 09:14 am

Market scorecard

US markets ended the day mixed. The S&P 500 had a tough afternoon, but almost crawled back to par with defensive sectors like utilities and consumer staples doing the heavy lifting. The Nasdaq did better, notching its 17th record high of 2025. Nvidia and Apple both fared well.

In company news, Intel slipped 3.1% after Donald Trump called for the CEO's resignation, because he has Chinese roots, despite being an American citizen who was born in Malaysia. Elsewhere, language-learning app Duolingo jumped 13.8% after reporting stellar earnings. How long is your streak? Lastly, Crocs got stomped, down a brutal 29% after admitting that cost-cutting, consumer belt-tightening, and tariff headaches would all crunch their revenue.

Izolo, the JSE All-share closed up 0.49%, the S&P 500 fell 0.08%, and the Nasdaq was 0.35% higher. Not too bad, really.

Our 10c worth

Byron's beats

Yesterday, weight-loss drug maker Eli Lilly reported solid numbers before the opening bell, which easily beat expectations on all fronts. Revenue increased by 38% to $15.5 billion thanks to big volume growth from Zepbound and Mounjaro. Mounjaro, primarily marketed for diabetes, grew sales from $3.8 billion last quarter to $5.2 billion. Zepbound is the same formulation but is sold as a weight loss drug; that grew sales from $2.3 billion last quarter to $3.3 billion.

Impressively, gross margins increased from 80.8% to 84.3%. As the sales of these weight-loss drugs ramp up, the margins are increasing too. Remember, the big spending has already been done on developing these products.

Having said that, they are still investing $3.34 billion or 21% of revenue on R&D, looking to keep their drug pipeline well primed. It's good to know that their scientists are working to discover the next big thing, we don't want our hard-working employees (as shareholders, we are the boss) standing still.

Lilly's sales and profit guidance was also very encouraging with healthy hikes in sales and earnings expectations coming through from the management team.

The numbers were served up like a hearty plate of lamb stew - rich and satisfying - only to be spoiled by the unexpected release of data from a late-stage trial of an oral version of the GLP-1 drug that slightly underperformed expectations. It was like a heavy-handed sprinkle of coriander, overpowering the dish. Lilly stock fell 14.1% on the day.

Eli Lilly's obesity pill orforglipron is supposed to be the blockbuster alternative to the injectable versions, and is expected to hit the market later this year. In late-stage trials it led to average weight loss of 12.4% of the patient's body weight over 72 weeks, lower than the 13 to 15% which had been expected. The trial also showed that a few patients dropped out due to negative side effects, the usual gastro-intestinal discomforts.

The difference between 12% and 13% weight loss on a 120 kg person is only 1.2 kgs. We think that the market is overreacting. Lilly's Chief Scientific Officer and president of research labs, Daniel Skovronsky, said during the Q&A portion of the company's earnings call on Thursday "This is as good as it gets for GLP-1 monotherapy with a once-a-day small molecule tablet."

Eli Lilly is dragging, but keep in mind that almost all healthcare stocks are taking strain this year, the Trump administration is not going easy on the sector. We believe that Eli Lilly will be the least affected by tariffs and other regulations because they are an all-American company.

We think that this is a long-term buying opportunity into what we believe is a great theme. Most Vestact clients are in the red on their Eli Lilly position. We are sorry about that, but more patience is going to be required.

One thing, from Paul

Here's my Friday advice: try to avoid being economically dependent on the state.

The economics editor of the Australian Financial Review, John Kehoe, noted recently that "more than half of [Australian] voters now rely on government for most of their income, through public-sector wages, welfare benefits or subsidies". That was according to a new report by the Centre for Independent Studies, a right-of-centre liberal think tank.

Here's the crunch point. "This isn't just an economic issue, it's a cultural and political tipping point. When over half the population is paid by the state, cuts become unthinkable, deficits become permanent, productivity falls, and taxes move in only one direction: up."

Of course, South Africa passed this point a while back, with many voters dependent on government hand-outs, which is why we have the problems that we do with populist politicians and fiscal recklessness. We need to grow our way out of this problem.

Michael's musings

What does it mean to be rich? For some, it simply means not having to worry about money, for most though, it is usually measured on a relative basis to those around them. Have a look at the table below to see how your wealth compares to the rest of the world. It is from a new book by financial blogger, Nick Maggiulli - The Wealth Ladder.

It might be surprising to hear that having a net worth of over $100 000 (R1 800 000) puts you in the top 17% of the global population. The top 17% in the US though have over $1 million, a completely different wealth level. One of the reasons why we like backing US companies is because their home customers are rich, which is a massive help in creating new companies and driving innovation.

Bright's banter

Figma's IPO went live last Friday and has set a new benchmark for tech listings. Priced at $33 per share, the stock surged as much as 333% on debut, closing at $115. That valued the collaborative design platform at a staggering $70 billion, more than triple Adobe's failed $20 billion acquisition offer, that was blocked by regulators.

The company raised $1.2 billion in the process, but the bigger story is the wealth creation for early shareholders. At IPO, its founder, Dylan Field, was worth around $5 billion; Index Ventures with $7.2 billion; Greylock Partners with $6.7 billion; and early investors like Sequoia and Kleiner Perkins are also sitting on billion-dollar stakes. Each of those venture firms have made more from Figma than the total size of the fund they used to back it, and impressively, none allocated more than 15% of their fund's capital to the investment.

The Figma listing is a signal that tech IPOs are back and that investors are hungry again for scalable, cloud-native platforms with real community engagement and strong products with high demand.

Figma, often described as the "Google Docs of design," didn't overpromise or overprice its IPO; it simply went and did it. In doing so, it opened the door for other high-growth names like Canva, Stripe, or Databricks to test the public markets.

Signing off

Asian markets are treading water this morning, taking their lead from Wall Street's indecision overnight. Traders remain cautious as US reciprocal tariffs kicked in overnight, keeping sentiment choppy.

In local company news, Life Healthcare is rewarding shareholders with a special cash dividend of 235c per share after sealing a R13.9 billion deal to sell LMI to Lantheus Radiopharmaceuticals in the UK. Meanwhile, AdvTech is expanding its East African footprint, snapping up Kenya's Regis Runda Academy for roughly R172 million.

US equity futures are in the green pre-market. The Rand has strengthened to around R17.72 to the greenback.

Happy Friday!