2015-04-02

By Anchor Capital

Click here to view this Anchor Capital review as a PDF

Property shares soar as resources and construction counters fall

March was a volatile month on global markets with stocks surging after the US Federal Reserve’s (Fed’s) latest (more dovish) statement in mid-March, before coming under pressure again towards the end of the month as investors sold off on the back of weak Chinese economic data, mixed US economic reports and rising Middle East violence. Global commodity prices were the biggest losers while on the JSE property and banking stocks led the field as resource counters, for the most part, closed in the red. Oil prices were relatively volatile during the month with the price of Brent crude ending March c. 11.9% down. Although US crude oil inventories increased during the month under review, oil prices spiked after Saudi Arabia launched airstrikes on neighbouring Yemen before prices retreated again.On the international economic data front, US releases were mixed. 4Q14 GDP came in unchanged at 2.2% (as previously estimated) despite hopes of an upward revision, while home sales edged up slightly and the US composite PMI rose to a six-month high. In Asia, China released disappointing manufacturing PMI which contracted to an 11-month low. On the bright side, eurozone business and consumer confidence picked up in March as economic activity in the region expanded to a 46-month high, boosted by lower oil prices, a weaker euro and increased confidence on the back of the major European Central Bank (ECB) stimulus package. The Greek debt situation continued to put pressure on the region and by the end of the month Greek officials were still in talks with eurozone creditors as signs emerged that Greece’s list of reforms might not be enough to allow a first tranche of bailout funds to be released.

Locally, the All Share Index fell back from the all-time highs it reached in February, ending the month 2.2% down at 5,2181.9 (YTD the index is still up c. 4.8%). The RESI-20 gave back the previous month’s impressive gains (and then some), dropping 10.3% MoM. The FINI-15 closed in the black (+1.6% MoM), while the INDI-25 ended the month 1.1% in the red. March was a rollercoaster ride for the rand as US dollar strength saw it fall to 13-year lows before recovering to end the month 4.1% down vs the greenback. After February’s 5.5% MoM drop, the gold price lost a further 2.1% in March as it looked increasingly likely that the Fed may gradually start raising interest rates this year. The platinum price (and platinum counters), were on a downward spiral in March, as a global resources sell-off resulted in platinum hitting five-year lows while iron ore prices continued to plummet.

On the economic data front, locally the rand was slightly cheered by the latest current account data as the 4Q deficit narrowed more than initially expected on the back of a rebound from strikes in mining and manufacturing, while lower oil prices cut import costs. The SA Reserve Bank (SARB) Monetary Policy Committee (MPC) unanimously decided to maintain the repo rate at 5.75%, albeit with more hawkish rhetoric than before. SARB leading indicator data for January 2015 disappointed, with a 2.2% YoY contraction (its worst performance since July 2012), while the constrained electricity supply, pummelled rand and the global resource sell-off continued to weigh on sentiment.

Top-20 performers: March 2015

CAPITEC BANK HOLDINGS LTD

PSG GROUP LTD

MIX TELEMATICS

LIBERTY HOLDINGS LTD

EOH HOLDINGS LTD

RHODES FOOD GROUP PTY LTD

AFROCENTRIC INVESTMENT CORPO

STEINHOFF INTL HOLDINGS LTD

ATTACQ LTD

RESILIENT PROPERTY INCOME

ROCKCASTLE GLOBAL REAL ESTAT

STANDARD BANK GROUP LTD

FOUNTAINHEAD PROPERTY TRUST

ZEDER INVESTMENTS LTD

DIPULA INCOME FUND-B

MPACT LTD

NASPERS LTD-N SHS

THE FOSCHINI GROUP LTD

PIONEER FOODS LTD

MONTAUK ENERGY HOLDINGS LTD

Full details availble in the attached PDF

MoM Capitec Bank (+28.1%) was the best performer on the JSE in March. Following the release of robust results which showed a 26.8% YoY rise in its FY15 diluted EPS on the back of new client growth, Capitec’s share price continued to climb closing at a new high of R525.01/share on 31 March. The company is now well on its way to breaking into the elite FTSE JSE Top-40 index. PSG Group (+20.9% MoM) was the second-best performer with fleet and mobile asset management solutions provider, Mix Telematics (+20.5% MoM) coming in a close third. PSG released a FY15 trading statement last month indicating that it expects FY15 headline EPS to be between 33.0% and 36.0% higher YoY. In February Mix Telematics reported 3Q15 results, which showed that revenue was up 13.5% YoY to R351.50mn, while its total subscription revenue grew 15.4% on an annual basis to R253.70mn. The company also upped its guidance for FY15 revenue, subscription revenue and adjusted EBITDA. In March Mix Telematics released a cautionary stating that it was in the process of investigating “strategic alternatives”.

Liberty Holdings, which posted a rise in FY14 revenue at the end of February, came in fourth place, climbing 18.7% MoM. It was followed by technology Group, EOH Holdings (+17.5% MoM) which continued its upward trajectory after reporting a 26.4% YoY rise in headline EPS on the back of a 39.4% YoY increase in revenue (to R4.60bn) for the six months ended January 2015. The company also said last month that it planned to increase its black economic empowerment (BEE) stake to further strengthen the business.

Recently listed, Rhodes Food Group (+16.1% MoM) saw the Competition Commission approving, without conditions, the merger whereby Rhodes would acquire 100% of fruit-juice product manufacturer and distributor Pacmar for R165mn. The company has also agreed to buy Boland Pulp‚ a puree maker‚ and Deemster‚ a company that focuses on pickled foods‚ as it looks to diversify its business. Black-owned, diversified investment holding company AfroCentric gained 15.4% MoM, after it indicated that its revenue increased 8.4% YoY in 1H15 to R1.02bn. It was another month of double-digit gains for retailer Steinhoff (+13.0% MoM) following February’s 12.6% rise as investors looked for rand hedges to protect them from local currency weakness. Listed property related (and rand hedge) counters put in a robust performance in March with Business Day writing that the sector has outperformed local equities, bonds and cash for a number of months now. YTD SA-listed property (as measured by the performance of the FTSE/JSE SA Listed Property Index), has delivered a total return of 13.7% according to Avior Research. Property developer (and another recently listed counter), Attacq ended the March 12.8% higher after reporting that its net rental income for the six months ended 31 December was up 78.0% YoY to R423.22mn. The Group also recorded 5% growth in its net asset value (NAV) per share to R15.52 for the period. Last month the company said that it was forging ahead with the restructuring of its investments, announcing that it was now the sole shareholder in the Attacq Waterfall Investment Company, which has the rights to the Waterfall Estates development which includes residential and office space in Midrand.

Resilient Property Income Fund declared distribution growth of 16.3% (significantly ahead of the 12% expectation), and closed March 10.9% higher. The company’s results were buoyed by “accretive acquisitions” of lower LSM (living standards measure) regional malls as well as by strong returns from its investments in property funds. Another property fund, Rockcastle Global Real Estate (+10.7% MoM) said last month that it planned to invest EUR750mn in Poland by purchasing ready projects and developing new ones. The firm launched its Polish operations by buying a shopping mall for EUR52mn and is preparing for four other takeovers of malls with aggregate retail space of 200,000 square meters. The rand-hedge play also announced a further share issue in March to fund its offshore growth.

Standard Bank Group (+10.2% MoM), said in early March that it would spend most of the $690mn it received from the sale of its global markets unit to capitalise its SA business and to invest in fast-growing African countries including Nigeria, Angola and Mozambique. The bank released FY14 results during the period under review which showed that headline earnings from continuing operations increased by 20% YoY to R21.1bn, driven by healthy earnings growth of 15% YoY and a lower credit loss ratio. However, growth in HEPs was wiped out by losses from the global markets business which it has now sold.

FountainHead Property Trust’s share price increased by 10.0% MoM as news emerged that Redefine had started an attempt to acquire Fountainhead’s retail-dominated portfolio after receiving support from Fountainhead unitholders. In August last year the Redefine bid to buy the company failed due to lack of support. The current proposed deal will see Redefine buy the remaining 34.1% of Fountainhead it does not own in exchange for 85 new Redefine shares for every 100 Fountainhead units (vs 2014’s offer of 82 shares for every 100 Fountainhead units). Zeder (+9.7% MoM), which is part of the PSG stable and invests in the agricultural and food sectors, early last month announced that it had increased its holding in Quantum Foods to 26.41%. Zeder also has significant exposure to Pioneer Foods. In a recent article Moneyweb noted that Zeder has delivered a 96% return over the past 12 months.

Real Estate Investment Trust (REIT) Dipula Income Fund and MPact both rose 9.3% MoM. In March Dipula announced that it had entered into agreements to acquire the Umzimkhulu Shopping Centre (KwaZulu-Natal) and Corporate Industrial Park (Polokwane) from two different sellers. Once implemented, and together with other previously announced transactions, Dipula’s portfolio will increase to R5.7bn, consisting of 56% retail, 25% industrial and 19% offices in gross lettable area (GLA), across South Africa. Paper and plastics packaging company, Mpact released FY14 results, which showed that revenue increased 11.9% YoY to R8.62bn, while diluted EPS was ZAc256.90 vs ZAc230.50 posted a year ago. The company also said that it had resolved to pursue a broad-based BEE ownership transaction through its wholly-owned subsidiary Mpact Operations Proprietary Ltd.

Naspers N shares and The Foschini Group both ended the month 9.2% higher. Naspers closed Tuesday at an all-time high of R1,870.00, pushed up by its Chinese Internet subsidiary, Tencent and the weaker rand. Tencent, in which Naspers owns a c. 34% stake, reported net income growth of 51% YoY in its December quarter. Clothing retailer, Foschini said early last month that it planned to nearly triple its number of stores across the rest of Africa over the next five years. The company recently paid GBP238mn for upscale UK apparel retailer, Phase Eight, in a deal that will also give it access to European markets.

Finally, Pioneer Foods rose 8.7% MoM, while Montauk Energy Holdings came in at 20th spot with a monthly gain of 7.7%. Pioneer last month said that it was planning acquisitions in at least five more African countries. The diversified foods company recently completed the $7mn purchase of a 50.1% stake in its Nigerian competitor, Food Concepts (which operates quick-service restaurants and bakeries in Ghana and Nigeria).

Bottom-20 performers: March 2015

KUMBA IRON ORE LTD

AVENG LTD

ARCELORMITTAL SOUTH AFRICA

AQUARIUS PLATINUM LTD

HARMONY GOLD MINING CO LTD

LONMIN PLC

ALLIED ELECTRONICS COR-A SHR

ALLIED ELECTRONICS CO-N SHRS

MURRAY & ROBERTS HOLDINGS

ANGLO AMERICAN PLATINUM LTD

AFRICAN RAINBOW MINERALS LTD

TRUSTCO GROUP HOLDINGS LTD

IMPALA PLATINUM HOLDINGS LTD

ANGLO AMERICAN PLC

SIBANYE GOLD LTD

LEWIS GROUP LTD

DISTELL GROUP LTD

MERAFE RESOURCES LTD

TONGAAT HULETT LTD

RAUBEX GROUP LTD

Full details availble in the attached PDF

Amongst the shares on the top-20 MoM losers list, 13 companies also feature in the bottom-20 YTD performers ranking. The losers list is mostly made up of resource stocks (especially platinum counters), with building and construction shares featuring prominently as the lack of government spend, negative sentiment and ongoing fines and allegations around collusion continue to weigh on the industry. Nevertheless, Kumba Iron Ore which dropped 31.9% MoM was March’s worst performing stock. This as the price of iron ore plumbed a record trough, dropping to a 10-year low of $51/tonne due to a global supply glut and slowing economic growth in China.

Kumba was followed by Aveng which saw its share price plummet 28.0% MoM. It emerged last month that Aveng has now been included in the R428mn+ civil damages claim lodged against Wilson Bayly Holmes-Ovcon (WBHO) by the City of Cape Town for colluding on the tender for the 2010 World Cup Green Point Stadium construction. It also didn’t help that in February, Aveng reported a 58% YoY drop in its half-year profit, blaming it on labour disruptions and a slowdown in public building projects. Weaker commodity prices, a volatile global steel industry which saw Chinese demand drop in 2014 for the first time since the year 2000 and a potential conflict with the South African government over pricing weighed heavily on ArcelorMittal which saw its share price retreat a further 27.4% in March.

Other resource stocks were also not spared and with the platinum price plummeting to c. 5-year lows of $1,125.75/oz, platinum stocks including Aquarius Platinum (-26.7%), Lonmin Plc (-24.9%), Anglo American Platinum (-19.9%) and Impala Platinum (-18.8%), were pulled down with it. The price of the metal is down 5.1% YTD on the back of lower expected demand from the automobile sector and higher mine supply.

The gold price recorded a second consecutive monthly drop in March. This follows January’s stellar performance when the yellow metal rose 8.1% for the month on the back of demand from China and India which fuelled its climb. March’s drop in the gold price came as a rise in US interest rates appeared more and more likely following Fed chair Janet Yellen’s dovish comments that the US central bank would likely raise interest rates later this year. The lower gold and platinum price resulted in losses in gold and resources stocks with Harmony Gold, African Rainbow Minerals (ARM), Anglo American, Sibanye Gold and Merafe Resources dropping by 26.4%, 19.2%, 16.4% 15.9% % and 13.2%, respectively.

Besides Aveng, other construction stocks also saw significant losses. These included Murray & Roberts (-21.3%), which posted poor results in February, and Raubex (-12.6%). Raubex recorded a share price drop despite the company indicating in March that it expected FY15 EPS and headline EPS to be between 5% and 15% YoY higher.

Allied Electronics (Altron) A and N shares were down 23.9% MoM while Trustco, a diversified Namibian Group with interests in the banking, insurance and investment sectors in Namibia, SA and Brazil dropped 18.9% for the month. Altron released a trading update in late March stating headline EPS for FY15 was expected to be more than 40% lower YoY (less than ZAc113). Trustco, which also has a burgeoning property portfolio, said in February that it took a loss on its Africa insurance division due to the continuing operational cost of the insurance business in South Africa with the launch of its new product line and distribution channel this year.

Furniture retailer, Lewis Group, which recorded a 23.9% YTD rise to end February, gave most of these gains back in March as the share price retreated 15.6% MoM. With c. 70% of Lewis’ sales being on credit, last year’s collapse of African Bank, ongoing strikes, high unemployment rates and the soaring debt levels of an already constrained South African consumer has seen sentiment for the sector in which it operates remain under pressure. Finally, drinks-maker Distell and Tongaat Hulett were down 14.3% and 12.8% MoM, respectively.

Top-20 performers: 2015 YTD

FORTRESS INCOME FUND LTD-B

CAPITEC BANK HOLDINGS LTD

EOH HOLDINGS LTD

RHODES FOOD GROUP PTY LTD

CASHBUILD LTD

LIBERTY HOLDINGS LTD

THE FOSCHINI GROUP LTD

ROCKCASTLE GLOBAL REAL ESTAT

PSG GROUP LTD

DIPULA INCOME FUND-B

STEINHOFF INTL HOLDINGS LTD

NORTHAM PLATINUM LTD

PIONEER FOODS LTD

RESILIENT PROPERTY INCOME

NASPERS LTD-N SHS

NET 1 UEPS TECHNOLOGIES INC

MONDI PLC

MONDI LTD

MONTAUK ENERGY HOLDINGS LTD

FOUNTAINHEAD PROPERTY TRUST

Full details availble in the attached PDF
For the most part, the top-20 YTD and top-20 monthly performers included the same shares with 14 of the 20 stocks appearing on both lists. The exceptions were Fortress Income Fund (the best performer YTD with a 78.7% gain), Cashbuild (+42.5% YTD), Northam Platinum (+25.6% YTD), Net 1 UEPS Technologies and Mondi Plc (both up 23.0% YTD), while Mondi Ltd rose 22.8% YTD. As with the top-20 monthly performers, property, food and rand-hedge companies were the YTD star performers.

Fortress reported good results for the six months ended December, declaring overall growth in distributions of 19.64% YoY and indicating that it expected to also achieve overall growth of c. 20% for FY15. The company was also the best-performing property stock of 2014 according to Business Day. Capitec came in second place – gaining 54.4% YTD. It was followed by EOH Holdings in third spot with a 46.6% YTD gain.

Rhodes Food Group rose 42.7% YTD, followed by Cashbuild in fifth position. Cashbuild last month reported a 31% YoY increase in interim operating profit due to what it termed a “continued focus on margins within the competitive environment”. Despite tough trading conditions, Cashbuild grew its revenue by 12% YoY to R3.97bn, while gross profit rose 16% YoY to R941.9mn. Rand hedge, Liberty Holdings shot up 36.8% YTD, followed by The Foschini Group which zoomed up 35.5% for the quarter.

Among the other YTD top-performing property counters the likes of Rockcastle Global Real Estate (+34.0%), Dipula Income Fund (+29.0%), Resilient (+23.8%) and Fountainhead Property Trust (+21.9%) recorded significant gains in 1Q15. The Financial Mail noted in a recent article that local property companies were slow to start their offshore expansion. The publication writes that in 2006 the Resilient Group was the only JSE-listed property player with interests outside SA (besides Liberty International). However, a drive into offshore and African real estate markets has now become a major theme as more and more local property players look outside the country for growth opportunities, thereby offering a rand hedge to investors struggling with the weak currency.

Northam Platinum seemingly defied the falling platinum price by posting a significant YTD gain. In March, the company’s shareholders overwhelmingly approved a R6.6bn BEE deal that would inject R4bn of cash into the company and also give Northam 35.4% black ownership. In February, Net 1 UEPS Technologies (which also posted double-digit YTD gains) announced the establishment of its new subsidiary in the UK – Zazoo Limited. The intention was for it to oversee the global expansion of its mobile payments and value-added services businesses. Net1 chairman and CEO Serge Belamant recently explained that the group’s prospects and pipeline were “extremely exciting, particularly as they reflect opportunities in the mobile space, which is the payment paradigm of the future”.

Pioneer Foods has seen a 24.4% YTD gain in its share price, while other rand hedges among the top-20 YTD performers included Liberty Holdings (+36.8% YTD), Steinhoff (+28.0% YTD), Naspers (+23.4% YTD), Mondi Plc (+23.0% YTD), Mondi Ltd and Montauk Energy Holdings (both up 22.8% YTD).

Bottom-20 performers: 2015 YTD

AQUARIUS PLATINUM LTD

MURRAY & ROBERTS HOLDINGS

AVENG LTD

KUMBA IRON ORE LTD

PPC LTD

LONMIN PLC

ARCELORMITTAL SOUTH AFRICA

IMPALA PLATINUM HOLDINGS LTD

GRINDROD LTD

TONGAAT HULETT LTD

NIVEUS INVESTMENTS LTD

INVICTA HOLDINGS LTD

RAUBEX GROUP LTD

TIGER BRANDS LTD

AFRICAN RAINBOW MINERALS LTD

ALLIED ELECTRONICS CO-N SHRS

MERAFE RESOURCES LTD

AFRICAN OXYGEN LTD

ALLIED ELECTRONICS COR-A SHR

CORONATION FUND MANAGERS LTD

As mentioned with the top-20 YTD performers many of the same shares (13 out of 20) featured in both the MoM and YTD bottom-20 rankings, with most of these counters coming from the construction and resources sectors. A battered platinum price resulted in Aquarius Platinum emerging as the worst performer YTD – down 39.6%. It was followed by construction group Murray & Roberts (-35.6%) and another building and construction firm, Aveng (-35.4%) in third place.

The fall in the iron ore price over the past few months has battered Kumba Iron Ore (-35.0% YTD) while excess steel capacity worldwide and volatile prices drove ArcelorMittal share price down 28.5% YTD. Shenanigans at PPC (-33.3% YTD) has seen its share price buckle. Although a decision by the PPC board to decline the proposed AfriSam merger seemed to be welcomed by the market it was not enough to prevent the cement producer from featuring prominently among the top-20 worst performers YTD.

A plummeting platinum price also resulted in other platinum counters such as Lonmin (-33.1%) and Impala Platinum (-22.4%) recording huge YTD losses. Grindrod (-22.3% YTD) released disappointing results at the end of February, posting a revenue drop of 11.2% YoY to R13.9bn and a decline in diluted HEPS of 9.4% YoY to ZAc107.1. In tenth position, Tongaat Hullet has fallen 22.2% YTD followed by investment holding companies, Niveus (-20.0%) and Invicta Holdings (-19.5%). 2014 was a tough year for Invicta as SA faced ongoing strike action in mining and manufacturing (both sectors in which Invicta has significant exposure) and the share has not recovered as yet. The difficult local operating environment for construction counters and negative sentiment towards the sector also weighed on Raubex (-17.5%), while weak local demand, a cash-strapped consumer and a poor performance at its Nigerian Dangote Flour Mills unit continued to negatively impact Tiger Brands (-17.0% YTD).

Beleaguered resource counter ARM closed 16.9% down YTD, followed by Altron N shares with a 16.2% YTD decline and Merafe Resources which has seen its share price retreat 16.0% YTD. Altron A shares and Afrox, which is in the middle of a restructuring exercise, are both down 15.2% YTD. Afrox’s restructuring comes as the Group posted a 62% YoY drop in headline EPS to ZAc36.2 for the year ended 31 December (vs ZAc95.3 the previous year). The company’s Financial Director Nicholas Thomson said in early March that rising labour, fuel and electricity costs, combined with the weak rand, had negatively impacted its margins and production. Finally, Coronation Fund Managers came in at 20th position with a YTD slide of 14.7%.

South African Market Review

South African markets closed higher yesterday. MTN Group climbed 5.9%, following peaceful elections in Nigeria, the telecommunication company’s biggest growth market. Meanwhile, media reports revealed that the company would be outsourcing its South African retail operations to Brightstar Corp. and around 800 jobs may be affected. Platinum miners, Anglo American Platinum, Aquarius Platinum and Lonmin rose 3.7%, 2.4% and 1.2%, respectively. Barclays Africa Group, Capitec Bank and Nedbank Group advanced 2.7%, 1.9% and 1.3%, respectively. Among gold miner, Harmony Gold gained 4.4%, while its peers, Sibanye Gold, Gold Fields and AngloGold Ashanti dropped 3.6%, 3.0% and 2.7%, respectively. The JSE All Share Index rose 0.2% to close at 52,281.14.

UK Market Review

UK markets finished higher yesterday, after the nation’s manufacturing PMI advanced to an eight-month high in March. Banking sector stocks, Barclays and Lloyds Banking Group climbed 2.8% and 1.4%, respectively. Energy sector stocks, BG Group and BP added 2.7% and 1.2%, respectively, amid a rebound in oil prices. Royal Dutch Shell rose 1.2%, after the US government approved offshore oil & gas drilling in the Alaskan Arctic. On the losing side, Kingfisher dropped 3.3%, giving up gains from the prior session following the company’s plans of store closures at its B&Q chain. The FTSE 100 Index advanced 0.5% to close at 6,809.50.

US Market Review

US markets ended in the red yesterday, as disappointing US private employment and manufacturing data weighed on investor sentiment. Macerich dropped 6.6%, after its board of directors unanimously voted to reject Simon Property Group’s revised offer to acquire the company. Mylan declined 2.4%, after the company priced the 35.00mn shares sold by Abbott Laboratories in a secondary public offering at $58.35/share. General Motors slid 2.0%, after its March vehicle sales came in below market estimates. However, Murphy Oil, Devon Energy and Marathon Oil advanced 2.2%, 2.1% and 2.0%, respectively. The S&P 500 Index fell 0.4% to settle at 2,059.69, while the DJIA Index dropped 0.4% to close at 17,698.18. The NASDAQ Index declined 0.4% to finish at 4,880.23.

Asia Market Review

Asian markets are trading in the green this morning. In Japan, Orix Corporation advanced 2.1%, after a report indicated that the company is considering reducing the size of a planned equity purchase in Hyundai Securities. Sony Corporation rose 4.1%, after it stated that it plans to cut its stake in Olympus Corporation by 50.0%. In Hong Kong, Country Garden Holdings climbed 4.5%, after it announced that it might issue new shares to Chinese insurer Ping An Insurance Group for $813.00mn. In South Korea, SK Innovation and S-Oil added 2.5% and 2.1%, respectively, following higher crude oil prices yesterday. The Nikkei 225 Index is trading 1.6% firmer at 19,341.79, while the Kospi Index is trading 0.1% higher at 2,030.68. The Hang Seng Index is trading 0.4% in the green at 25,193.94.

Commodities

At 06:00 SAST today, Brent crude oil fell 0.4% to trade at $55.57/bl. Yesterday, Brent crude oil rose 4.6% to settle at $55.81/bl, as negotiations over Iran’s nuclear programme continued, dampening expectations of an immediate deal that would increase Iranian crude-oil exports. A weaker US dollar also lifted oil prices. Meanwhile, the US Energy Information Administration stated that US crude oil inventories rose by 4.80mn bls in the last week.Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 2.0% to $3.61/bushel.

At 06:00 SAST today, gold prices remained almost unchanged to trade at $1,203.90/oz. Yesterday, gold gained 1.7% to close at $1,203.98/oz, as the US dollar retreated after downbeat macro data, sparking speculation that the US Federal Reserve might delay an interest rate hike.

Yesterday, copper rose 0.1% to close at $6,068.00/mt. Aluminium closed 0.3% lower at $1,775.50/mt.

Currencies

Yesterday, the South African rand strengthened against the US dollar, after the ADP employment report showed that US private employers added jobs, below market expectations in March. The US dollar was further pressured after the ISM data showed that the US manufacturing sector grew at a slower pace in March. Separate data indicated that the Kagiso PMI, which measures activity in South Africa’s manufacturing sector, improved in March, but less than market estimates. Going forward, investors will eye the US non-farm payrolls report scheduled on Friday and trade balance and factory orders data in the US, due later today, for further direction.The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.04% while that for the longer-dated 2026 issue fell to 7.71%.

At 06:00 SAST, the US dollar is trading flat against the South African rand at R11.9944, while the euro is trading 0.1% higher at R12.9154.

Yesterday, the euro advanced against most of the major currencies but declined against South African rand. In the macro front, the final manufacturing PMI’s for March for the eurozone and its key economies of Germany, France and Italy all came in above expectations. Later today, traders will monitor the ECB’s monetary policy meeting accounts.

At 06:00 SAST, the euro advanced marginally against the US dollar to trade at $1.0768, while it has remained almost unchanged against the British pound to trade at GBP0.7260.

Economic Updates

The Bureau for Economic Research has indicated that the manufacturing PMI rose to a level of 47.90 in March, in South Africa. The manufacturing PMI had registered a reading of 47.60 in the prior month.On an annual basis, new vehicle sales remained flat in March, in South Africa, less than market expectations for an advance of 0.2%. In the previous month, new vehicle sales had risen 1.1%. In the UK, the manufacturing PMI registered a rise to 54.40 in March, meeting market expectations. The manufacturing PMI had registered a revised level of 54.00 in the previous month.

In March, the SVME manufacturing PMI rose to a level of 47.90 in Switzerland, compared with market expectations of a rise to 47.50. The SVME manufacturing PMI had recorded a reading of 47.30 in the previous month.

The final manufacturing PMI in Germany advanced to 52.80 in March, compared with market expectations of an advance to a level of 52.40. The preliminary figures had indicated a rise to 52.40. In the prior month, manufacturing PMI had recorded a level of 51.10.

In the eurozone, the final manufacturing PMI registered a rise to 52.20 in March, compared with a reading of 51.00 in the previous month. Market expectations were for the manufacturing PMI to climb to a level of 51.90. The preliminary figures had recorded a rise to 51.90.

The Federal Reserve Bank of Atlanta President, Dennis Lockhart, hinted that although US economic growth decelerated during the 1Q15, the nation’s growth is expected to pick up in the 2Q15. He further stated that the US central bank might raise interest rates from June to September.

Compared with a level of 55.10 in the prior month, the final Markit manufacturing PMI in the US advanced to 55.70 in March. The preliminary figures had indicated an advance to 55.30. Markets were anticipating the Markit manufacturing PMI to advance to a level of 55.30.

The Automatic Data Processing Inc. has reported that the private sector employment in the US climbed by 189.00k in March, following a revised gain of 214.00k in the previous month. Market anticipations were for the private sector employment to advance 225.00k.

The Institute for Supply Management (ISM) has indicated that the ISM manufacturing activity index recorded a drop to 51.50 in March, in the US, compared with a reading of 52.90 in the prior month. Markets were anticipating the ISM manufacturing activity index to drop to a level of 52.50.

In February, the seasonally adjusted trade deficit in Australia rose to AUD1,256.00mn, following a revised trade deficit of AUD1003.00mn in the prior month. Markets were anticipating the nation’s trade deficit to rise to AUD1,300.00mn.

Corporate Updates
South AfricaBHP Billiton

: The mining company revealed that its Chairman, Jac Nasser, has been appointed to the board of Koç Holding A? with immediate effect.MTN Group Limited: Media reports indicated that the telecommunication company has agreed to outsource its South African retail operations to Brightstar Corp. and 800 jobs may be affected as it intends to lower costs.

Nampak Limited: The packaging company, in its pre-closing update for 1H15, indicated that the group’s performance benefitted from the continued growth and strong performance of their businesses in the rest of Africa, while the challenging South African trading environment kept the pressure on the performance of its businesses in their home market. The company indicated that it is focusing on cost discipline and manufacturing excellence to maintain its competitiveness in South Africa and its operations in the rest of Africa are likely to continue generating growth in revenue and profit. Further, the company stated that its strategy to accelerate growth in the rest of Africa and to focus on core substrates, namely glass, metal and plastic, remains intact and is supported by a pipeline of growth opportunities.

Acucap Properties Limited: The property holding company announced that it would pay a cash dividend to its shareholders on 28 April 2015. It further revealed that the company’s year-end has been changed from 31 March to 30 June in order to align its reporting timelines with those of Growthpoint, which will be effective from FY15.

Mpact Limited: The paper and plastic packaging company announced that it has completed Broad-based Black Economic Empowerment transaction.

Aveng Limited: The infrastructure development company revealed that Mr Angus William Band would retire as the Chairman of the board, with effect from 30 June 2015. Furthermore, the company announced that Mr Mahomed Seedat who joined the board in July 2012, as an Independent non-Executive Director would succeed Mr Band as an Independent non-Executive Chairman, with effect from 1 July 2015.

UK and US

Monsanto Co.: The agrochemical and agricultural biotechnology company, in its 2Q15 results, indicated that net sales dropped 10.9% from the same period a year ago to $5.20bn. Its diluted EPS from continuing operations was $2.90, compared with $3.15 recorded in the corresponding period of previous year. For FY15, the company expects EPS to be in the low end of the range of $5.75 to $6.00.

Micron Technology: The computer store company, in its 2Q15 results, stated that netsales increased 1.4% from the corresponding period of last year to $4.17bn. Its diluted EPS stood at $0.78, compared with $0.61 reported in the same period of prior year.

Progress Software Corporation: The software company, in its 1Q15 results, revealed thattotal revenue rose 9.2% from the same period of previous year to $81.38mn. However, it incurred a diluted loss of $0.02/share, compared with diluted EPS of $0.21 posted in the corresponding period of last year. The company, in its FY15 revised guidance, stated that it expects non-GAAP revenue to be between $415.00mn and $425.00mn and non-GAAP EPS is expected to be between $1.35 and $1.45.

Sigma Designs: The semiconductor technology company, in its FY15 results, revealed that its net revenue dropped 5.5% from the preceding year to $188.31mn. It reported a net diluted loss of $0.63/share, compared with a loss of $0.32/share posted in the previous year.

Iao Kun Group Holding Co.: The company, in its FY14 results, stated thattotal revenue fell 1.3% from the prior year to $233.82mn. It reported a diluted net loss of $0.99/share, compared with EPS of $0.10 recorded in the preceding year. The company stated that it is providing FY15 Rolling Chip Turnover guidance for its five existing VIP rooms in Macau of between $8.50bn and $10.00bn.

EdapTms SA: The company, in its FY14 results, indicated that total revenue increased 10.5% from the last year to $35.38mn. It reported a diluted loss of $0.03/share, compared with a loss of $0.32/share incurred in the prior year.

National American University Holdings: The company, in its 3Q15 results, stated that its total revenue decreased to $29.08mn from $31.67mn recorded in the same period a year ago. Its diluted EPS stood at $0.06, compared with $0.04 posted in the corresponding period of preceding year.

McDonald’s Corporation: The company announced enhanced benefits for employees at its company-owned restaurants, including a wage increase and paid time-off for full and part-time crew employees. In addition, the company stated that it is expanding its Archways to opportunities education offerings to provide eligible US restaurant employees at both company-owned and franchised restaurants, with free high school completion and college tuition assistance.

Tesla Motors: The automotive company announced a whole new product line called the Model W, where W stands for a watch.

Marketo Inc.: The provider of engagement marketing software and solutions announced the integration of its Engagement Marketing Platform with the Google AdWords and Google Analytics products, to create more measureable and engaging digital marketing programs that span customer acquisition to sale to advocacy.

Repros Therapeutics: The healthcare company announced that the New Drug Application for its enclomiphene citrate product candidate, formerly known as Androxal®, has been accepted by the US Food and Drug Administration, indicating that the application is sufficiently complete to permit a substantive review.

Standard Chartered: The banking company announced that Viswanathan Shankar, the Group Executive Director, has resigned from the group and Jonathan Paul, SumitDayal, Mark Dowie and Dr Michael Gorriz has been appointed as Group Head (Financial Markets), Group Head (Corporate Finance), Vice Chair (Clients and Products) and Chief Information Officer, respectively.

Antofagasta Plc: The mining company announced that all its mines in the north of Chile have resumed normal operations. This follows unexpected rainfalls which had forced for suspension of operations in its mines for the safety of employees and others who work at the mines.

RSA Insurance Group: The general insurance company announced the completion of the sale of the insurance business of each of its branches in Singapore (RSA Singapore) and Hong Kong (RSA Hong Kong) to Allied World Assurance Company.

Inchcape Plc: The automotive retail and services company announced that Stefan Bomhard has officially assumed his position as Group Chief Executive.

Evraz Plc: The steel making and mining company announced that it intends to make a return of capital to its shareholders of up to $375.00mn by way of a tender offer.

BTG Plc: The specialist healthcare company stated that it has begun selling its drug-eluting bead and embolisation products, DC Bead® and Bead Block®, directly to customers in 11 European countries.

Carillion Plc: The facilities management and construction services company announced that it has been awarded contracts and preferred bidder positions by the Select Property Group, to deliver residential schemes at three site across the UK, and by Highways England worth a total of GBP123.00mn.

Synthomer Plc: The chemical business company announced the appointment of Steve Bennett as its Chief Financial Officer.

Financial Times

Challenger bank Shawbrook valued at GBP725.00m: Shawbrook, the specialist lender, is making its debut on the market in a move that values the Essex-based bank at GBP725.00mn.

London’s digital start-ups secure record funding: London’s fledgling technology companies are continuing to see increasing levels of investment, as new figures reveal that digital start-ups have received record amounts of venture capital money this year.

BT expects price cuts in mobile market after buying EE: BT has warned shareholders that increased competition in the mobile telecoms market is expected to lead to further price cuts after it acquires EE, the largest operator in the UK.

Quindell forgets to mention sale of technology divisions: Quindell – the scandal-hit professional services firm that is selling most of its business for GBP637.00mn – has admitted that it forgot to mention that two profitable technology divisions are included in the deal.

Asos reports 10.0% fall in pre-tax profits: Asos, the online fashion retailer, has reported a 10.0% fall in pre-tax profits to GBP18.00mn with investments in its infrastructure, along with price cuts, hitting the bottom line but helping it regain its footing after difficult trading last year.

Super-rich lose taste for London restaurants: The super-rich are losing their appetite for fine dining in London, according to an annual survey of the world’s top 100 restaurants, with the number of UK eateries dropping by a quarter and every British entry slipping in the rankings.

Mitie profit warning underscores difficulties for outsourcers: Mitie, Mears and Interserve are among companies that have ploughed into the UK market for care at home in recent years, expecting it to be ripe for growth as local governments outsource more contracts.

Peer-to-peer forex platforms come of age: Peer-to-peer foreign exchange platforms are looking to eclipse existing retail currency services in the UK during the next decade, according to the sector.

StanChart’s Shankar leaves to set up private equity fund: One of Standard Chartered’s top five Executives has resigned to set up a private equity fund, in the latest of a series of senior departures to hit the bank.

Low fuel price hits FirstGroup’s US coach service: Lower fuel prices hit passenger numbers on FirstGroup’s Greyhound US intercity coaches in the last three months of FY14 as more people returned to their cars.

Npower buys start-up RUMM to lower charges: One of the biggest suppliers of power to British business is investing in a technology start-up to try to bring down its charges. Rosneft settles legal dispute with Yukos shareholders: Rosneft has settled a long-running legal dispute with former shareholders of Yukos, the Russian energy group it took over after the imprisonment of founder Mikhail Khodorkovsky.

Bishop joins effort to restore faith in UK banking system: Dame Colette Bowe has assembled a diverse board including a bishop, a philosopher and a trade unionist to oversee the task of restoring trust in Britain’s scandal-plagued banking sector.

Morgan Stanley Chief lands $22.50mn pay package: Morgan Stanley Chief Executive James Gorman has received a 25.0% pay rise after the US investment bank handed him $22.50mn for last year. Evraz announces $1.30bn loss and share buy-back: Shares in Evraz, the steelmaker in which Roman Abramovich is the largest shareholder, rallied 4.9% after it announced a $375.00mn plan to buy back its shares as tumbling Russian and Ukrainian currencies boosted its operating profitability in the second half of last year.

Hamleys opens Europe’s largest toy store in Moscow: Europe’s largest toy store opened in Moscow this week as Hamleys ploughed on with expansion plans in Russia despite the collapse of the rouble and the economic crisis in the country.

Daimler set to reward Dieter Zetsche with extended contract: Daimler is set to extend Dieter Zetsche’s contract until FY19, confirming a rapid turnround in fortunes for the Chief Executive of the world’s third-largest premium carmaker.

Guardian Media Group to sell shares linked to fossil fuels: The publisher of the Guardian newspaper has become one of the biggest funds to shun oil and gas companies, saying that it will sell all its investments in fossil fuels due to concerns about climate change.

McDonald’s to raise wages for 90,000 US workers: McDonald’s will raise the wages of roughly 90,000 employees in the US, as the struggling burger chain follows the likes of Walmart in lifting pay amid a national debate over income inequality.

Kraft and Mondelez face wheat trade claim: The two companies created from the former Kraft Foods were accused on Wednesday of manipulating US wheat markets with a “huge” position, in a case that raises questions about the extent to which commercial companies speculate in commodities.

French government weighs in on proposed Dailymotion sale to PCCW: France’s Socialist government has weighed in on Orange’s proposed sale of its Dailymotion video platform, insisting that the telecoms operator explore “all options” before siding with a non-European buyer.

Lex
Etsy: crafts with benefits: Etsy, the online crafts marketplace, does not agree. The company’s IPO prospectus emphasises that Etsy believes in the power of business to create social good. Examples include generous pay for part-time workers and having employees deliver cafeteria compost by bicycle to a nearby farm. As it prepare to go public this month, Etsy will test that thesis in ways far beyond compost. Etsy is a certified “B Corp”, meaning it passes social and environmental metrics set by B Lab, an NGO. To maintain this certification (the loss of which could harm Etsy’s reputation, the company says), it will have to change its legal status by 2016 to be a “public benefit corporation”. These entities are not legally obliged to maximise shareholder value – instead they can consider their public benefit mission as well. Furthermore shareholders enjoy expanded rights to “enforce” the company’s public benefit purpose. This type of entity is a relatively recent development: Delaware, where Etsy is incorporated, introduced public benefit corporations in FY13. None is publicly listed, yet. In today’s market, Etsy may command even richer valuations, as a result of its strong growth record, and positive free cash flow. Moreover Etsy’s path to eventual profits – whether it wants them or not – looks relatively smooth thanks to its strong returning customer base. A similar middleman platform, GrubHub, the food delivery service, trades at 13 times trailing revenues.GoDaddy: stop, daddy: Add 10 investment banks to three private equity firms and one tech IPO, and the result is complex, indebted and expensive. So please welcome GoDaddy to the stock market. This is no early stage start-up. It has been selling domain names and web support services for nearly two decades. Yet it is lossmaking, turning $1.40bn of revenue in FY14 into a $143.00mn net loss. And GoDaddy’s debt looks hefty, partly thanks to a $350.00mn dividend that the owners paid themselves last year. The bulk of the $440.00mn in IPO proceeds will be used to repay a loan from the company’s founder. Even after that, net debt will be roughly four times adjusted earnings before interest, tax depreciation and amortisation. As for valuation, at the $20.00 IPO price, GoDaddy’s enterprise value is 15 times historic adjusted ebitda. (Its ebitda adjustments are generous, adding in items such as change in deferred revenue.) Using revenues, the IPO price implies an enterprise value of less than three times FY14 sales. That might look cheap next to competitor Endurance International, which trades at nearly six times sales. Yet GoDaddy’s shares jumped 30.0% on Wednesday, its first day of trading. Justifying this exalted valuation depends on the speed with which GoDaddy can turn revenue growth (23.0% last year) into profits for its shareholders. This will be tough, given that the company’s growth has relied on hefty marketing spend ($656.00mn over the past five years) and technology investment ($976.00mn in the same period). The company does not expect to be profitable in the “near future”. Daddy may be waiting a while.

Evraz: steel yourself: Steel prices may have dropped in the past year because of worries about overcapacity in China, the world’s largest producer. Yet shareholders in Russian steelmakers could not be happier. Companies such as UK-listed Evraz have performed strongly over the past year, up 160.0%. Compare that to the global sector, up just 8.0%. All good news. Yet the company has disappointed on dividends for years given persistent losses at the after tax level. The shares yield under 2.0%. On Wednesday it announced its third consecutive year of losses ($1.30bn), this time because of foreign exchange adjustments and writedowns on its balance sheet. These adjustments have not damaged cash flow, and leverage has fallen. Evraz’s free cash flow has remained positive at about $1.00bn per year since FY12 as the company has cut its investments. That cash flow has primarily gone to paying down debt, necessary to get its leverage down. Net debt has been cut from 4.5 times ebitda in FY12 to 2.5 times last year. It had enough cash flow left over this time around to plan a buyback worth 8.0% of its outstanding shares, albeit on an already-limited free float of just 21.0%. The market welcomed its generosity, marking up the shares by 5.0%. Evraz even hinted that a special dividend may follow later if cash flow holds up.

The post Anchor Capital: Essential market review, 2 April appeared first on BizNews.com.

Show more