By Anchor Capital
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In a challenging 2014 economic environment, financial and industrial shares buoy the JSE.
January last year started off not with a bang but rather a whimper for the South African (SA) market as an emerging market sell-off ensued and the rand reached a five-year low against the greenback. It was also the month in which the five-month long platinum industry strike started (it ended in late June only to be followed shortly thereafter by a five-week National Union of Metalworkers [NUMSA] strike), while Jacob Zuma was re-elected president in May. Labour disruptions, power cuts, high unemployment and gaping budget and current account deficits put off already wary investors. Added to that, SA failed to shake off fundamental weaknesses as the economy shrank in 1Q14 (the first time since 2009), while growth in 2Q14 and 3Q14 failed to breach the 2% mark. April inflation came in above the South African Reserve Banks’s (SARB’s) 6% target range. 2014 was also the year in which Nigeria overtook SA as Africa’s biggest economy.
Globally, markets were impacted by the collapse of the oil price, brought on by a combination of lower demand and oversupply. By the end of December Brent crude had dropped to a five-and-a-half year low of $57.35/barrel after the Organisation of Petroleum Exporting Countries (OPEC) in November surprised markets by keeping oil production steady despite an oversupply. On the geopolitical front, Russia’s invasion of Ukraine set in motion a chain of events which has radically impacted the Russian economy and the rouble, as the West imposed sanctions on Moscow. In Iraq and Syria the advances made by Islamic militants increased investor concerns, while Israel’s military strikes on Gaza and worries about the spread of Ebola further added to global tension and stock market pressure.
On the positive side, global market support has come from an expanding US economy which finally took off in 2014 (despite the final round of quantitative easing [QE] in October signalling abating levels of stimulus, but not yet outright tightening of monetary conditions). Nevertheless, the economic picture materialising out of China was less rosy as a continuing cooling off of that country’s economy led to commodity shares re-evaluating future expectations as their biggest market saw its growth slow. Also in Asia, Japan surprised markets in September by announcing a further set of QE. European markets underperformed, remaining under pressure as concerns around deflation escalated. In December, political turmoil in Greece further revived investor concerns around the eurozone.
On the JSE, the All Share Index crossed the 50,000 point mark for the first time in early June, reaching a high of 52,242.1 on 29 July. The index ended 2014 c. 7.6% higher, although it closed below the 50,000 level at 49,770.6. The Resi-20 Index ended the year 17.8% lower, while MoM it recorded a 2.5% rise. Commodity prices suffered, but while the platinum and gold price were both losers this year, palladium fared better and during the period of the platinum mine strike the price of palladium increased c. 30%. Last month platinum fell to a five-year low, hovering around the $1,220/oz level – well below its 2008 peak of c. $2,300/oz, while in early September iron ore reached its lowest level in 5 years.
The Indi-25 was up 14.4% YoY and 1.0% MoM, while the financial sector was the best performing sector on the JSE this past year (the Fini-15 rose 22.7% YoY and 0.1% MoM) as local financial counters outperformed despite the collapse of African Bank Investments Ltd (Abil – which was placed under curatorship), Moody’s downgrading the SA banking sector and the higher interest rate environment. The rand ended 2014 on the back foot as it lost c. 10% of its value YoY against a resurgent greenback, while MoM the local currency was down 4.4%.
Top-20 shares: 2014
(Table available in the PDF version)
As December is a quiet month we thought it best to start this edition off with the best performers of 2014. Although Anchor Group is not listed on the main board of the JSE the share price performed phenomenally since its listing on 16 September 2014, ending the year at R7.20/share (a record high) and rocketing 260%, head and shoulders above the rest, from its pre-listing issue price of R2.00/share. Thus, with Anchor Group emerging as the best performer overall on the JSE for 2014, we thought it would be amiss of us not to highlight this performance. After starting 2014 with assets under management (AUM) of R2.8bn, the Group ended the year with group-wide AUM in excess of R6.0bn. The company’s market cap currently stands at close to R1bn.
On the main board, among the winners last year, Telkom (+150% YoY) was the best performer with its closest competitor (Sibanye Gold) coming in second spot with a 83% YoY gain. In 2013 Telkom had gained 67% YoY and its strong performance last year seems to indicate that investors like the company’s cost reduction plan, despite its fixed-line business continuing to drop and its mobile segment being under pressure. Press reports have indicated that part of Telkom’s appreciation could be attributed to the hope that a deal with MTN would address the losses at Telkom Mobile.
Despite the 1.4% YoY drop in the gold price and operational headwinds, certain gold counters such as Sibanye (and Gold Fields [+59%]) put in exceptional performances. In December it was reported that Sibanye, the year’s second-best performer on the main board, was among a group of around 10 companies interested in Anglo American Platinum’s Union mine. Sibanye had indicated earlier in the year that it planned on making an acquisition in the platinum sector.
In third position on the main board, Zeder Investments had a bumper year gaining 75.6% YoY. The PSG-controlled agribusiness concluded its largest transaction ever (valued at over R2.5bn), where it acquired all of the shares in Agri Voedsel not already held by Zeder (Agri Voedsel shareholders were offered Zeder shares in return). This boosted its investments in agriculture to over R10bn. Zeder is also the largest single shareholder of unlisted farmers’ retailer, trade and services group, Kaap Agri. In October Zeder released interim results which showed that the value of its underlying investments increased by 32% YoY to R6.93/share. Among the top-20 performers, Zeder was followed by Astral Foods which recorded a 68.2% share price increase. In November the Group released sterling results, reporting an 88% surge in operating profit, while headline earnings jumped 99% YoY.
Although the Fini-15 was up 22.7% and the financial sector performed well, the only financial counters to feature among the top-20 stocks were Capitec Bank (+63.2%) and FirstRand (40.9%), with the latter reaching a new 52-week high in December. Capitec was followed in seventh spot by Pioneer Foods which gained 62.9% YoY. In a move that was positively received by investors, Pioneer last year spun off its poultry and stock feeds business, now listed separately on the JSE main board as Quantum Foods.
Locally, the performance of listed property surprised on the upside despite an increasing interest rate environment with Resilient Property Income Fund’s share price gaining 52.3% YoY, while New Europe Property Investments (NEPI), with a 40.7% YoY increase, just managed to squeeze into the top-20 best performers.
In ninth spot, Tongaat Hullet recorded a YoY gain of 52.1%, followed by Aspen whose continued growth in both developed and emerging markets saw its share price gain 51.1% YoY. Brait was up 51.0% for the year with the Group receiving a R26.4bn windfall from the sale of its stake in Pepkor Holdings, although this transaction saw the stock decline from its highs given that the sale price for Pepkor was well below the market-implied valuation of that asset at the time when the transaction was announced. Brait also confirmed last month that it was investigating investment opportunities in which to deploy the Pepkor proceeds.
RMI Holdings posted a YoY gain of 48.9%. The company reported a 28% YoY rise in full-year headline EPS in September, with the good results buoyed by its stakes in Momentum, Discovery, and Outsurance. Despite warning in December that its ambitious target for opening Burger King outlets would be slashed from 100 to a revised target of 60 by the end of June next year, Grand Parade Investments (GPI) recorded YoY growth of 46.6%. Since selling its gaming interests (GrandWest casino and several limited pay-out machine operations), Burger King has become GPI’s most important operational asset, with cash now also comprising half the share price.
2014 rand weakness helped buoy so-called rand-hedge shares or those defensive shares deriving their earnings from overseas with Netcare, which has hospitals in the UK, up 45.8% YoY. Pallinghurst Resources’ (also up 45.8% YoY) Gemfields auction in December saw it report auction revenues of $43.3mn (R497.5mn), the highest ever achieved at any Gemfields auction. Pallinghurst owns 48% of London-listed Gemfields, which is the world’s largest producer of gemstones. In September Pallinghurst reported increased annual earnings before interest, tax, depreciation and amortisation of $59mn vs $1.2mn in the year-before period, while net profit rose to $16.7mn from a $23mn loss in the prior-year period.
Coronation Fund Managers increased its share price by 44.0% YoY. In November the company reported a 38% surge in profit after reaping more inflows than its peers, while net income rose to R2bn vs R1.45bn a year earlier. AUM rose20% YoY. Despite strikes, higher petrol prices, increases in the interest rate and unemployment locally, clothing and homewares retailer Mr Price Group had a bumper year with its share price ending 43.5% higher YoY. The cash-based retailer reported a 23% increase in 1H profit in November, even as most retailers were facing a gloomy outlook in a difficult operating environment. Rounding out the top-20 performers of last year were Kap Industrial Holdings Ltd (+42.0%), and the aforementioned FirstRand and NEPI.
Bottom-20 shares: 2014
(Table available in the PDF version)
On the flipside, the top-20 worst performers were littered with mining companies, although the overall worst performer for the year was the one of the few industrial companies in the bottom-20, Ellies Holdings (-75.8%). While there was a rally in Ellies’ share price in December on speculation that the company would benefit from Eskom’s power cuts, this was not enough to counter what was the Group’s annus horribilis. . After losing 30% of its value in 2013, last year saw the Ellies share price trampled further as the bad news emanating from the Group included an announcement that it would delay repaying its debt until it had raised money through selling assets and a rights issue as well as a profit warning. In its 1H15 results, which were released last month the company said that revenue dropped sharply to R299.08mn vs R406.00mn posted in 1H14. The Group also reported a headline loss of ZAc13.17/share vs headline EPS of ZAc25.09 in the same period last year.
Hot on its heels, among the top-20 losers, was Coal of Africa (-66.1%), another company that had also seen a significant (49%) YoY loss in its share price for 2013. Coal of Africa has been on a downward spiral since late 2012 and the share price remained under pressure in December following two company statements revealing a delay to the sale of its troublesome Mooiplaats colliery and a restructuring of the capital raise announced in August. Business Day also reported in December that farmers and local communities had obtained a court order halting some of the initial work at the site of the company’s proposed Makhado coal mine in Limpopo.
Eqstra Holdings (-57.6% YoY), which had the unfortunate timing of listing in 2008 (the year global stock markets crashed), came in third-spot among the worst performers. The industrial equipment lease and rental group reported a headline earnings per share drop of 26.3% in the year to June, with its overall performance also impacted by a tough operating environment which was hit by mining strikes and industrial action in the construction and civil engineering sector.
Assore (-56.1%) and Kumba Iron Ore (-45.9%) were two of the biggest losers this past year as the iron ore price continued to plummet throughout 2014 ending the year c. 50% lower. As China currently consumes c. 80% of global iron ore, Kumba is extremely dependent on Chinese demand, thus Kumba (and Assore) are likely to remain under pressure in 2015. In December, Kumba also said that it would cut capital expenditure, jobs and other costs to improve its performance.
Bell Equipment (-50% YoY), which has seen its share price face significant pressure in 2014, announced plans in December to embark on a review of all its cost structures group-wide which could include restructuring and shedding of jobs. This as the Group’s mining industry customers delay spending in the face of falling commodity prices. It was followed by DRDGold which posted a further 48.4% drop this past year.
Pinnacle Holdings recorded a 46.7% share price decline in 2014, while LonMin and Impala Platinum, lost 40.7% and 38.4% YoY, respectively, as the latter two companies continued to be impacted by last year’s five-month long labour strike and the lower platinum price. Impala released a trading update in December indicating that its headline EPS and basic EPS for 1H15 would be more than 20.0% down YoY primarily due to lower production from Impala Rustenburg, industrial action and safety stoppages at Marula and the precautionary closure of the Bimha mine at Zimplats.
Construction counters including Stefanutti Stocks (-37.5%), Aveng (-34.2%) and Group Five (-27.9% YoY) featured prominently among 2014’s biggest losers as lack of government infrastructure spending and news emerging towards the end of the year that the Competition Commission had announced its referral to the Competition Tribunal of a complaint around bid-rigging related to contracts for the construction of 2010 Soccer World Cup stadia, impacted sentiment in the sector. Aveng also released a trading statement for the six months ended 31 December 2014, stating that it expected its headline EPS to decline by at least 45.0% YoY.
In early December, African Rainbow Minerals (-37.0% YoY) released a 1H15 trading statement indicating that its headline EPS was expected to be c. 45.0% lower YoY. The company attributed the decrease in headline earnings to the recent drop in US dollar export commodity prices.
SA’s second-biggest drugmaker , Adcock Ingram, which was at the centre of a takeover bid between Bidvest and Chilean pharma group, CFR Pharmaceuticals, last year posted a YoY share price decline of 30.9%. Allied Electronics pref shares recorded a 30.4% YoY drop, while Exxaro Resources and ArcelorMittal declined by 30.2% and 30.1% YoY, respectively. Diversified resources group Exxaro continued to struggle in 2014, despite the company reporting an 11.0% YoY increase in both interim earnings and dividend this past August. The drop in its share price also saw Exxaro falling out of the JSE’s Top-40 companies in terms of market cap in December. ArcelorMittal’s woes continued on the back of its exposure to iron ore. A global oversupply of iron ore, increasingly negative demand trends out of China and no real catalyst to push prices higher continued to weigh on the share price.
A difficult operating environment saw African Oxygen lose 27.1% YoY. Lower demand for commodities and a stronger US dollar put further pressure on BHP Billiton (-23.2% YoY). At the same time the lower oil price, which dropped to another five-and-a-half year low, impacted the company which also has oil and gas interests all over the world.
Top-20 shares: December 2014 performance
(Table available in the PDF version)
In a major turnaround, some of November’s worst-performing shares, including York Timber, Ellies, Pinnacle, Stefanutti Stocks, Brait, Group Five and PPC featured prominently among December’s top-20 performers. Among these York Timber gained 33.3% MoM, emerging as the best performing share in December, followed by Ellies (+19.1% MoM) and Pinnacle Holdings (+17.1% MoM). A stronger gold price in December (up 1.8% MoM) saw gold counters propped up with Harmony Gold (+14.8%), Sibanye Gold (+11.9%) and Gold Fields (+10.3%) all eking out good gains. Harmony was also buoyed by Van Eck Associates Corporation’s decision to more than double its stake in the company suggesting, according to SP Angel Corporate Finance, an improvement in investment funds’ outlook for gold miners after stock prices plunged.
Kap Industrial Holdings rose 13.7% MoM, while JSE Ltd gained 12.7% MoM. Redefine International (+12.2% MoM) said in late December that it had acquired the remaining 50% stake in Ciref Nepi Holdings from its JV partner, NEPI, for EUR3.40mn. Famous Brands (12.1% MoM) announced the acquisition of a controlling 75% stake in Cater Chain Food Services, a local business distributing mainly red meat products to customers across SA and into certain other African markets. Stefanutti Stocks, up 12.1% MoM, was followed by the above-mentioned Sibanye Gold and Gold Fields.
Brait gained 9.3% MoM in December after recovering from its poor November performance when the share price declined on the back of the lower-than-expected sale price of its Pepkor stake. Group Five was up 9.0%, while RCL Foods gained 9.0% MoM and Cashbuild ended the year 8.0% MoM higher. PPC, which revealed in December that it had received a merger proposal from AfriSam Group, climbed 7.5% MoM. Capitec Bank gained 7.5% with Mediclinic increasing 7.0% MoM, while Zeder Investments was up 6.3% MoM and Delta Property Fund rose 6.1% for the month.
Bottom-20 shares: December 2014 performance
(Table available in the PDF version)
Among December’s worst performers were five shares that also featured among the biggest losers of 2014. These included Coal of Africa which recorded the biggest MoM decline – down 28.3%, DRDGold (-21.9%), Bell Equipment (-18.0%), Eqstra Holdings (-17.3%) and Assore (-17.1%). Hospitality Property Fund lost 15.8% followed by JD Group (down 13.8%), which last month agreed to sell its loss-making consumer-finance unit to a BNP Paribas SA unit for R4.60bn in cash, allowing it to focus on furniture sales. African Rainbow Minerals (-10.9%) came under pressure after indicating that its 1H15 headline EPS is expected to be 45.0% lower YoY. Pan African Resources lost 10.6% MoM, while Metair Investments dropped 9.4% and Illovo Sugar ended the month 9.2% lower.
The Foschini Group was down 8.5%, while Barloworld and Anglo American Platinum both lost 8.4% MoM and Adcorp Holdings closed 8.3% down. With the lower platinum price, other platinum companies including Royal Bafokeng Platinum (-7.8%) also came under pressure. This was exacerbated by market participants booking profits on mining sector stocks following their gains earlier in the month.
Blue Label Telecoms (-7.7% MoM) fell after revealing that it was no longer in discussions with an unnamed party that had expressed an interest in acquiring it. Imperial Holdings (-7.5% MoM), Exxaro Resources (-7.1% MoM) and Kumba Iron Ore (-6.9% MoM) accounted for the remainder of the top-20 worst performers in December.
Looking ahead, investors will likely face volatility as market participants digest high valuations of selected sectors (largely industrials), where earnings delivery is key and, on the other hand, low share prices of resources companies, but sharply declining earnings bases. 2014 saw huge divergences in sector performances and we don’t expect this to recur to the same extent this year, meaning that stock selection will likely play a bigger part in determining returns for 2015.
South Africa Market Review
South African markets closed in the red on Friday, led down by gold miners and telecom sector stocks. Sibanye Gold, AngloGold Ashanti and Gold Fields plummeted 3.6%, 3.2% and 0.2%, respectively. MTN Group, Vodacom Group and Telkom SA SOC fell 2.0%, 1.7% and 0.6%, respectively. MTN SA CEO had stated earlier last week that squeezing networks led by growing domestic demand might require higher capital expenditure and cost cutting by telecom companies. Nedbank Group, Barclays Africa Group and FirstRand declined 1.9%, 1.2% and 1.1%, respectively. On the upside, Hospitality Property Fund, Octodec Investments and Capital & Counties Properties climbed 6.5%, 5.3% and 0.5%, respectively. The JSE All Share Index dropped 0.5% to close at 49,518.48.
UK Market Review
UK markets finished lower on Friday. Housing sector stocks, Barratt Developments and Persimmon dropped 2.2% and 0.8%, respectively, after data inundated that mortgage approvals in the UK declined to a 17-month low in November. Royal Bank of Scotland Group fell 1.3%, following a report stating that it might face a penalty of around GBP5.00bn for its role in selling toxic mortgage-backed securities in the US. Mining sector stocks, Anglo American and Rio Tinto slipped 1.3% and 1.0%, respectively. On the upside, easyJet advanced 0.7%, as a slide in crude oil prices increased the outlook for reduced fuel charges. The FTSE 100 Index declined 0.3% to close at 6,547.80.
US Market Review
US markets ended mostly lower on Friday, after data indicated that the pace of US manufacturing activity slowed more than expected in December and US construction spending dropped unexpectedly in November. Nabors Industries, Denbury Resources and QEP Resources declined 3.8%, 2.6% and 1.1%, respectively, tracking a drop in crude oil prices. D.R. Horton, Lennar and PulteGroup tumbled 1.3%, 1.2% and 0.9%, respectively. On the upside, Vertex Pharmaceuticals, Laboratory Corporation of America Holdings and Quest Diagnostics advanced 3.6%, 3.3% and 2.9%, respectively. The S&P 500 Index dropped marginally to settle at 2,058.20, while the DJIA Index rose 0.1% to close at 17,832.99. The NASDAQ Index fell 0.1% to finish at 4,726.81.
Asia Market Review
Asian markets are trading mostly firmer this morning. In Japan, Nidec gained 1.3%, amid reports that company would hike its full-year dividend to JPY80.00 from JPY60.00. Panasonic added 0.4%, amid media reports that the company plans to acquire a majority of Singapore’s RFNet Technologies. In Hong Kong, Fosun International rose 0.6%, after an Italian rival cancelled its bid for hospitality giant, Club Méditerranée, paving way for the company to make an offer. In South Korea, SK Innovation and S-Oil declined 3.1% and 2.3%, respectively, tracking a drop in crude oil prices. The Nikkei 225 Index is trading 0.3% in the green at 17,502.79, while the Kospi Index is trading 0.6% lower at 1,914.22. The Hang Seng Index is trading 0.3% higher at 23,926.02.
Commodities
At 06:00 SAST today, Brent crude oil fell 2.0% to trade at $54.60/bl. Asim Jihad, a spokesman at Iraq’s oil ministry, stated that the nation plans to increase its crude oil exports to 3.30Mb/d this month. On Friday, Brent crude oil fell 0.1% to settle at $55.69/bl. Media reports revealed that oil supplies in Iraq and Russia surged to the highest level in decades.
On Friday, the Illinois North Central No.2 Yellow corn spot prices fell 0.1% to $3.68/bushel.
At 06:00 SAST today, gold prices advanced 0.4% to trade at $1,193.14/oz. On Friday, gold gained 0.5% to close at $1,188.39/oz.
On Friday, copper declined 0.7% to close at $6,321.00/mt. Aluminium closed 1.1% lower at $1,805.25/mt.
Currencies
On Friday, the South African rand weakened against the US dollar, despite the release of the ISM report showing that manufacturing Purchasing Managers’ Index (PMI) in the US dropped more than expected in November.
The yield on benchmark government bonds rose on Friday. The yield on 2015 bond rose to 6.45% while that for the longer-dated 2026 issue advanced to 7.99%.
At 06:00 SAST, the US dollar is trading 1.3% higher against the South African rand at R11.7355, while the euro is trading 0.2% higher at R14.0135. At 06:00 SAST, the British pound has declined 0.4% against the South African rand to trade at R17.9401.
On Friday, the euro weakened against most of the major currencies, after the final manufacturing PMI numbers in the eurozone was revised down for December. Meanwhile, the British pound gained ground against the South African rand, despite data indicating the Markit manufacturing PMI in the UK dropped unexpectedly in December. Later today, traders will eye Eurozone Sentix investor confidence, German consumer price inflation data along with construction PMI reading in the UK for further direction.
At 06:00 SAST, the euro slipped 1.1% against the US dollar to trade at $1.1941, while it has gained 0.7% against the British pound to trade at GBP0.7812.
Economic Updates
Markit Economics has indicated that the manufacturing Purchasing Managers’ Index (PMI) in the UK fell unexpectedly to 52.50 in December, compared with market expectations of a rise to 53.60. In the prior month, the manufacturing PMI had registered a revised reading of 53.30.
In the UK, the number of mortgage approvals for house purchases registered a drop to 59.00k in November, compared with market expectations of a fall to 58.60k. In the previous month, number of mortgage approvals for house purchases had recorded a level of 59.40k.
The Bank of England has indicated that net lending to individuals in the UK advanced GBP3.30bn in November. Net lending to individuals had recorded a revised advance of GBP2.70bn in the previous month.
In France, the final manufacturing PMI recorded a drop to 47.50 in December, compared with a reading of 48.40 in the previous month. Market expectations were for manufacturing PMI to drop to 47.90. The preliminary figures had indicated a fall to 47.90.
Markit Economics has reported that, in December, the final manufacturing PMI advanced to 51.20 in Germany, compared with a level of 49.50 in the previous month. Markets were expecting manufacturing PMI to climb to a level of 51.20. The preliminary figures had also indicated a rise to 51.20.
In the eurozone, the final manufacturing PMI recorded a rise to 50.60 in December, compared with a level of 50.10 in the prior month. Market expectations were for the manufacturing PMI to advance to 50.80. The preliminary figures had recorded a rise to 50.80.
In December, the ISM manufacturing activity index fell to a level of 55.50 in the US, lower than market expectations of a drop to 57.50. In the prior month, the ISM manufacturing activity index had registered a level of 58.70.
Construction spending recorded an unexpected drop of 0.3% in the US on a monthly basis in November. In the prior month, construction spending had registered a revised rise of 1.2%.
In December, the final Nomura/JMMA manufacturing PMI in Japan remained steady at 52.00. The preliminary figures had recorded a rise to 52.10.
Australian Industry Group (AiG) has indicated that compared with a reading of 50.10 in the prior month, the AiG performance of manufacturing index dropped to 46.90 in December, in Australia.
Corporate Updates
South Africa
No major corporate news for today.
UK and US
General Motors: In addition to the automaker’s earlier announcement regarding recalls, the company has announced new recalls covering certain FY11-FY12 models and certain FY07-FY14 models for Canadian, US, Mexican and exported vehicles that were repaired with defective parts.
Yahoo!: Media reports indicated that the company is considering plans to buy a cable network such as CNN or Scripps Network.
Linn Energy: The oil and natural gas company revealed that it has slashed its dividend and capital-spending plans, in response to the recent slide in crude oil prices.
Ballard Power: The company stated that it has given a termination notice on two licensing agreements in the China market due to material breaches of these agreements by Azure Hydrogen.
BG Group: The company indicated that it has received a payment equivalent to $350.00mn, following an assurance from the Egyptian government to settle up outstanding debts to the energy industry. The company also stated that it continues to look into options for increasing the supply of gas and is working with the government on resolving the outstanding receivable balance.
Aggreko Plc: The company stated that Chris Weston would formally assume his position as Chief Executive Officer in the company.
Afren Plc: The oil producing company revealed that it has secured a cash payment of $17.10mn from its former CEO, Osman Shahenshah, and former COO, Shahid Ullah, in relation to payments made to them that were not authorised by the board. The company has also secured $3.00mn in relation to independent reviews conducted by Willkie, Farr & Gallagher, KPMG and certain legal costs. The company has entered into settlement agreement with former CEO and COO, which release them of claims corresponding to unauthorised payments.
Financial Times
Black Friday surge pushes John Lewis sales to record levels: John Lewis notched up record Christmas figures during a five-week shopping spree, with sales peaking during the Black Friday week, the highest week of sales in the retailer’s 150-year history.
City Link collapse reveals sector’s systemic problems: The collapse of City Link on New Year’s Eve has opened a window into the true costs of parcel delivery in the online shopping era.
Clifden Holdings seeks GBP300.00mn with equity release bond issue: Property investment company, Clifden Holdings, is set to raise as much as GBP300.00mn in a bond issue that will test the market’s appetite for unconventional real estate debt financing in the wake of the financial crisis.
Cold weather fails to lift US natural gas market: The onset of cold weather has failed to boost the US natural gas market, as prices tumble at the start of peak demand season amid record supply from shale formations.
AQR gives London Business School GBP10.00mn to build ‘Davos of finance’: London Business School has been given GBP10.00mn by US hedge fund, AQR Capital, to set up an investment institute and to host what it hopes will become the “Davos of finance”.
Dodge & Cox stockpicking fund bucks trend: As equity market investors moved in droves from active managers to index trackers in FY14, one stockpicking fund that bucked the trend did so in a remarkable way: without spending a cent on marketing.
Top GFI staff seek exit clause if rival BGC bid succeeds: More than 100 senior employees at GFI Group, the US interdealer broker, are seeking changes to their contracts that would allow them to leave the company if a hostile takeover bid by rival BGC Partners is successful.
Allergan takeover saga ended with deal of the year: For the past three decades the great and the good of the pharmaceuticals industry have descended on San Francisco for a week in January. They ostensibly come for JPMorgan’s annual healthcare conference at the historic St Francis hotel, but everyone in the sector knows that the real action takes place in the cocktail bars and restaurants that are dotted around Union Square.
Big pharma waits decision on cancer drugs: Tensions are rising between pharmaceutical companies and the UK government, as the industry braces for a decision on which drugs will be axed from a special fund for expensive cancer therapies.
China megadeals sway Asia bank rankings: China’s $26.00bn trainmaker merger last week boosted Bank of America Merrill Lynch from third to first in Asia’s FY14 dealmaking rankings, highlighting the importance of state-owned enterprises for banks’ league table credit.
Virtual and augmented reality look to sharpen the picture at CES: Several start-ups and many of the biggest names in technology are lining up to show off their virtual reality headsets at this year’s Consumer Electronics Show in Las Vegas.
BWin Party Digital: Lost 4.2% to GBP1.13 in the wake of its New Year’s Eve profit warning, which broke the truce between it and activist shareholder, SpringOwl.
Lex:
TV Advertising: Very mad men: For television, FY14 was a disappointing year in terms of ratings. That is problematic because the rating dive led to a fall in ad revenue across the sector. Collectively in the third quarter, ad revenues for broadcast networks (NBC, CBS, ABC, Fox) fell 0.3 per cent, while they dropped 0.7 per cent for the group of eight cable network owners such as Time Warner and 21st Century Fox, according to MoffettNathanson. Viacom, whose cable networks include Nickelodeon and MTV, has been outspoken in pointing out that Nielsen only captures viewing on traditional TV, tablets, or phones when viewed within a seven-day window where the original ads remain unaltered. The system misses those who watch several episodes weeks later, or watch through services such as Apple or Amazon. Nielsen is working on ways to measure viewership comprehensively. Netflix has said it does not care about ratings since it relies on subscriptions for revenue. Viacom, regardless, says it wants its proportion of ad revenue that is Nielsen-based to rise from one-third now to a half in a few years. One way to do that is to grow so-called “dynamic ad insertion” where spots are customised for viewers.
US natural gas: withdrawal symptoms: Production from new wells declined quickly once they came on stream. Prices rose as much as sixfold between FY01 and FY05. The success of shale gas changed things, and most gas traders went short long ago. But last year’s frigid US winter tightened supplies, sending the gas price higher. But the inventory number alone does not reflect this year’s increase in gas supply, due in part to new pipelines in the northeast. Previously, producers in areas such as the Marcellus could not get all their gas to market. Now they can. The added supply will more than cover any shortfall, according to the US Energy Information Administration. At nearly 73.00bcf/day, the gas flowing exceeds last year’s by nearly 8.0%. This could add 150.00bcf to supply each month. At that rate any inventory shortage would disappear quickly. So gas prices have resumed their descent, down 29.0% over the past month. Equity traders do not expect much improvement. Shares in US gas explorers have suffered with their oily peers. A price index of gas specialists such as Range Resources, Chesapeake and Southwestern Energy has lost 35.0% since oil peaked in June, only marginally less than an index of oil explorers. Given the added gas supply, US oil explorers, such as EOG, should perform better versus gas specialists in the months ahead (ironically, EOG used to be a top gas producer).
Kaisa: Chairman’s exit troubles: On Thursday, Hong Kong-listed Chinese property developer Kaisa revealed that it was in default on a loan from HSBC. Repayment of the $52.00mn debt, due on 31 December, was triggered by the early December resignation of company Chairman (and big shareholder), Kwok Shing Ying. Shares in Kaisa were closed for the first trading day of FY15 having halved in December. The last closing share price of HK$1.59 values the company at about one-third of its book value. The MSCI China property index trades just below par. The Chinese property sector had a poor FY14: the index eked out a flat return in local currency. Share prices tracked weak data as both house prices and sales volumes fell. But stocks have rallied since the People’s Bank of China eased mortgage access in October. Barclays estimates that inventories fell from 14 months in September to 11 months at the end of November. This may not save Kaisa, which has resorted to raising funds by selling to China Vanke a piece of land in Shanghai bought as recently as August. The move could signify that Kaisa is in more trouble than Sino Life realised when it paid HK$2.90 a share to increase its stake. If so, there may be more asset sales ahead. For Kaisa, that would be a crisis. For quality names such as Vanke it looks more like an opportunity.
*Published with special permission by Anchor Capital (ACG)
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