A trillion dollars is the new billion – and it is becoming more common

Trillion dollars new billion company business
WEEKLY MARKET REPORT

It is a hard number to get your head around but increasingly a trillion dollars is coming up in everyday business conversations.

Just to put that into perspective, if you pay off $1 a second, it would take you 12 days to pay off an interest free debt of $1 million, 32 years to pay off $1 billion and an amazing 32,000 years to pay off $1 trillion.

That gives you a good idea that those 12 zeroes following a one is a seriously large number, which is why it is somewhat extraordinary to see it now coming up so often.

First trillion dollar company around the corner

It is now looking increasingly likely that the world will see at least one company with a trillion dollar market capitalisation this year – and that is a trillion US greenbacks too, not inferior Australian dollars.

Indeed, the total value of all Apple shares trading is already more than $1.2 trillion Australian dollars, with Amazon also a trillion dollar company at $1.04 trillion and Google parent company Alphabet is tantalisingly close at $996 billion.

Apple looks likely to be the first to crack the $1 trillion mark in US dollars and with the continuing growth in the US technology sector, it is not an impossible dream to imagine that all three of these global giants could scale the trillion dollar value this year.

Trillion dollars visualised
One trillion dollars visualised using double stacked pallets of $100 notes.

So what lies behind this massive growth in value for these big technology companies – is it all hot air?

Well definitely not, with another trillion dollar number supporting what seems on the surface to be a monster valuation.

Revenue supports the big valuations

Sales from the top ten largest US tech companies are expected to top US$1 trillion in 2018, based on Wall Street estimates.

Thompson Reuters figures see the combined revenue of the top ten rising US$146 billion, or 15.7 per cent, this year to reach US$1.078 trillion.

That sort of revenue growth and global reach gives some context to the gains in share market valuation and show it is not just another tech wreck waiting to explode.

Indeed, some of the technology companies on the top ten list such as Apple, Microsoft and IBM have been around for 40 years or more, so they are hardly a flash in the pan overnight success.

However, it would be safe to say that the rapid growth of the big global technology companies into trillion dollar mega-companies dwarfs any previous wealth creation the world has seen.

The US doesn’t have all of the big numbers though, with annual online sales in China recently passing the US$1 trillion mark.

Governments in the trillions of dollars as well

Just to prove that things are always bigger and better in the United States, that trillion dollar number comes up quite often when you discuss their government finances as well.

Under President Trump, annual budget deficits are expected to reach the US$1 trillion a year mark, which is a lot when you consider that the federal budget overall is US$3.8 trillion.

However, if you want a truly staggering number – and an explanation for the ballooning budget deficit – take a look at the total of US national debt, which is US$21 trillion.

Personal debt in the US is also standing at a mammoth US$19 trillion.

By contrast, Australia is a bit of a laggard, although our total credit outstanding is still an impressive $6.8 trillion and private debt is $2.8 trillion.

Government debt is $795 billion but with interest and annual Budget deficits, that will head inexorably towards the trillion dollar mark.

Then there are those individuals in Australia who are worth over a billion dollars, how long it will be till we see the first trillionaire seems only a matter of time.

Wesfarmers takes a massive hit

Wesfarmers (ASX: WES) has taken a big hit in deciding to end its disastrous attempt to expand its Bunnings Warehouse chain into the United Kingdom and Ireland.

It has now sold the entire Homebase hardware chain for a single British pound and will book a loss of up to 230 million pounds ($375 million).

The conglomerate said the Homebase chain it bought in 2016 and 24 pilot Bunnings stores it had opened will be sold to restructuring firm Hilco Capital.

Wesfarmers was hoping to repeat the success of its earnings powerhouse Bunning hardware chain in the UK and Ireland, but instead ran up heavy losses after misreading the market and alienating Homebase’s existing customers.

The company paid $705 million for Homebase in 2016, but wrote down the value of the venture by $1 billion in February.

Wesfarmers managing director Rob Scott said a comprehensive review of Bunnings UK and Ireland (BUKI) concluded that the business was capable of returning profits over time, but a turnaround would require more cash to be ploughed into the business in the short term.

“The materiality of the opportunity and risks associated with a turnaround are not considered to justify the additional capital and management attention required from Bunnings and Wesfarmers,” Mr Scott said.

“A divestment under the agreed terms is in the best interests of Wesfarmers’ shareholders and will support the ongoing reset and repositioning of the Homebase business.”

“The investment has been disappointing, with the problems arising from poor execution post-acquisition being compounded by a deterioration in the macro environment and retail sector in the UK,” Mr Scott said.

“While it is important that we learn from this experience, this should not discourage our team from being bold and diligent in pursuing opportunities to create shareholder value.”

Small cap stocks this week

Aussie stocks slid this week with the small ordinaries index following its larger cousin to marginal declines.

However, the doom and gloom was rather modest as both indices held on to key psychological support levels, namely 2,800 in the small ordinaries and 6,000 in the ASX 200.

Several small cap companies stood out and bucked the solemn mood, recording healthy gains on the back of strong news out this week.

Compumedics (ASX: CMP)

Compumedics raised its commercial haul for the month so far up to almost A$20 million in new sales commitments this week after announcing new distribution agreements with three of the company’s long-standing distributors.

The deals are spread across the company’s most lucrative market: China.

The Australian medical device company has now managed to install more than 2,000 units of its hardware in more than 600 hospitals and more than 333 universities across China.

The commercial traction for its sleep, neuro-diagnostic and monitoring systems has been so good that seven of the top ten hospitals in China now have Compumedics equipment installed.

Investors sure agreed with the high-flying sentiment and helped Compumedics shares to a 17% gain on Friday.

MGC Pharmaceuticals (ASX: MXC)

A vertically-integrated medical cannabis operation from the heart of Europe is a step closer for MGC Pharmaceuticals after the Maltese government passed final legislation allowing the production of cannabis for medical use.

MGC is confident of finalising formal agreements with the Malta Medicine Authority in the coming weeks and has already embarked on a hunt for real-estate, confirming that it is on the lookout for a 4,000-square-metre plot of land to serve as its production and cultivation facility.

The rationale behind the move is to use Malta as a commercial launch pad into Europe, and Germany in particular — currently the region’s largest market for medical cannabis.

Winchester Energy (ASX: WEL)

The Permian basin in the US is currently producing around 3.3 million barrels of oil per day, which equates to 32% of total US oil production.

In amidst surging US production that’s being supported by resilient crude oil prices, several smaller names are competing for interest — even Australian small cap oilers.

Winchester Energy is on a mission to complete a horizontal well at its White Hat oil field in the Permian basin. The oil explorer is confident of success and means to reinvigorate its fortunes by transforming a previously vertical well into a horizontal alternative that bears higher flow rates.

The new horizontal well is targeting a virgin reservoir pressure zone with results likely to make or break sentiment for the company. Existing shareholders have been patiently awaiting explorational progress and Winchester is hoping to deliver, by boosting production from White Hat up past its previous high of 277 barrels oil per day.

One other prospect that has raised interest and anticipation in its drilling schedule is a fracturing and production test of the Wolfcamp shales in the Bridgford#1 vertical well, to be carried out by project operator US Energy.

Yojee (ASX: YOJ)

Yojee is gradually shedding its small cap tag by signing commercial deals at a rate of knots. The blockchain-powered logistics enabler signed up DB Schenker, one of the world’s largest and most exclusive logistics names to a provisional deal lasting 4 months.

The deal follows on from previous deals with UPS and SILA earlier this year. DB Schenker has agreed to implement Yojee’s platform into its e-commerce and last mile operations including warehousing, route optimisation, cross-docking and customer-facing experiences.

The deal is a significant step for Yojee considering DB Schenker’s sheer size and level of global influence in the sector. If the 4-month trial works out as hoped, Yojee could see an even larger share price jump than the 30% rise its shares experienced on Tuesday.

Nanollose (ASX: NC6)

A batch of botched wine could possibly have led to one of the most commercially fortunate discoveries.

Nanollose’s concept of “fermented fashion” originated in 2006 when founder Gary Cass, an agricultural scientist and winemaker, made a faulty batch of wine which fermented to result in a “leather-like” material after drying out.

Twelve years on (in which the company shed buckets of blood, sweat and tears) the leather-like material has been transformed into a ground-breaking eco-friendly fabric made from the “world’s first” plant-free viscose-rayon fibre.

Nanollose is now gearing up to market its unique fabric with its first public outing occurring this past week at the Planet Textile Summit in Vancouver, Canada.

Actinogen Medical (ASX: ACW)

Actinogen received multiple doses of good news this week after the biotech company received the all-clear from the DSMB to continue its landmark phase 2 XanADu study.

The company also announced that it had welcomed a new cornerstone investor onto its shareholder register, as part of a $15 million capital injection from a US-based biotech investment fund.

Not wanting to leave its existing shareholders in the lurch, Actinogen has immediately moved to offer a share purchase plan valued up to $15,000 per shareholder.

Birimian (ASX: BGS)

Birimian shareholders were celebrating with glee this week after the lithium explorer turned gold producer at the stroke of a politician’s pen in Mali.

The Minister of Mines and Mali’s President officially signed a decree to extend the mineral exploitation permit held by Société des Mines de Morila to the Viper and N’tiola permit areas in southern Mali. It was a move long expected by patient shareholders, who finally got their wish this week.

The news means that Birimian could soon see gold revenues flowing assuming its project partner (Société des Mines de Morila) begins producing gold from its tenements at the Massigui gold project.

Meanwhile, elsewhere in Mali, Birimian is gradually making progress at its flagship Goulamina lithium project. The explorer received a developmental boost from Goulamina earlier this week after discovering two geochemical anomalies.

Livetiles (ASX: LVT)

One of Australia’s best and brightest tech companies announced an all-share acquisition of Hyperfish (one of Microsoft’s biggest working partners) this week for around $3.7 million.

Hyperfish and its artificial intelligence catalogue of products will be assimilated into LiveTiles broader product package that keeps on growing and becoming more effective with each passing month.

The duo is expected to drive continued growth for the Hyperfish business unit and thereby create multiple synergies for LiveTiles as the parent company. It’s a deal that will take Hyperfish “to the next level,” according to Hyperfish co-founder Brian Cook.

Upon completion of their intended integration, LiveTiles and Hyperfish will service a customer base of over 500 organisations and are already licking their lips at the raft of early cross-selling opportunities that can be offered to existing customers.

West Wits Mining (ASX: WWI)

Another small cap company that caught my eye this week was West Wits which took a big step towards joining the ranks of the junior gold producers after the South African mining regulator accepted its mining rights application for the Witwatersrand Basin Project (WBP).

West Wits has plans to become the only ASX-listed conglomerate gold producer with operations in both the Pilbara and Witwatersrand Basin – the world’s biggest gold deposit.

The regulator said that a final decision will be reached for the mining right within 300 days.

“The Board’s strategic intent to transform WWI into a junior miner with successful operations in the Witwatersrand Basin and Pilbara region is now well underway,” the company announced.

At the same time as it is getting mining approval in place for several sites in South Africa, West Wits is also looking to use its expertise in mining conglomerate gold in Australia, at its Tambina and Mt Cecelia projects.

The week ahead

The main economic data releases in Australia next week are home prices, building approvals and business investment.

The US starts the week with the Memorial Day public holiday but follows that with a deluge of important data, covering economic growth, employment and the US Federal Reserve’s preferred measure of inflation.

Chinese manufacturing and services purchasing manager gauges are also potentially market moving releases next week.

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