By Anchor Capital
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South Africa Market Review
South African markets closed higher yesterday. Harmony Gold Mining, Sibanye Gold and AngloGold Ashanti advanced 4.5%, 4.3% and 1.2%, respectively. Northam Platinum, Royal Bafokeng Platinum and Anglo American Platinum climbed 3.8%, 3.8% and 2.1%, respectively. Telkom SA SOC rose 2.8%. Media reports indicated that the company is suing its competitor, Neotel, for causing damage to its underground cables in Hillcrest. Standard Bank Group, Barclays Africa Group and FirstRand gained 2.3%, 2.1% and 2.0%, respectively. Shoprite Holdings and SPAR Group advanced 2.5% and 2.2%, respectively. However, Rebosis Property Fund and Allied Electronics dropped 10.6% and 3.2%, respectively. The JSE All Share Index climbed 0.7% to close at 48,961.06.
UK Market Review
UK markets finished in positive territory yesterday, closing higher for the first time in FY15. Aggreko advanced 3.0%, after it stated that it anticipates a slight rise in its FY14 earnings on the back of winning a two-year contract in Argentina and extending another contract in Africa. Persimmon added 0.9%, after the company announced that it sold an additional number of homes in FY14 and at higher prices. On the downside, easyjet fell 2.3%, despite reporting a rise in the number of passengers flown. J Sainsbury dropped 2.1%, after it issued a difficult outlook for the remainder of FY15. The FTSE 100 Index advanced 0.8% to close at 6,419.83.
US Market Review
US markets ended in the green yesterday, following the release of upbeat US private sector employment and trade data. Healthcare sector stocks, Biogen Idec and Alexion Pharmaceuticals climbed 5.6% each. PepsiCo rose 2.9%, after reports indicated a possible acquisition of the company by 3G Capital Partners. Halliburton, Anadarko Petroleum and Exxon Mobil advanced 2.7%, 1.6% and 1.0%, respectively. CVS Health surged 1.8%, as its drug store sales remained boosted due to the intense flu season. On the other hand, Micron Technology dropped 2.3%, after revealing disappointing 2Q15 sales outlook. The S&P 500 Index advanced 1.2% to settle at 2,025.90, while the DJIA Index rose 1.2% to close at 17,584.52. The NASDAQ Index climbed 1.3% to finish at 4,650.47.
Asia Market Review
Markets in Asia are trading firmer this morning, tracking overnight gains on Wall Street and as concerns over a likely Greek exit from the Euro bloc waned. In Japan, Kirin Holdings advanced 2.1%, amid reports that its annual sales are expected to surpass market expectations. Panasonic gained 2.0%, after launching new model of televisions that can supposedly run the Firefox Internet browser. In Hong Kong, China Mobile added 1.2%, after its subsidiary in Hong Kong hiked fees for its 4G plans. In South Korea, Samsung Electronics edged 0.6% higher, as operating profit outlook for the October-December period exceeded market expectations. The Nikkei 225 Index is trading 1.9% in the green at 17,198.28, while the Kospi Index is trading 1.0% higher at 1,903.16. The Hang Seng Index is trading 0.5% in positive territory at 23,799.16.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.4% to trade at $50.38/bl. Yesterday, Brent crude oil fell 0.1% to settle at $50.16/bl., after data released by the US Census Bureau and the Energy Information Administration (EIA) showed that the nation’s crude exports climbed 34.0% to an average of approximately 502.00k bls a day in November. However, the US EIA’s report revealed that crude stockpiles in the country dropped 3.06mn bls to 382.40mn bls in the week ended 2 January.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 2.4% to $3.69/bushel, amid concerns that the dry weather in South America is likely to damage farm output.
At 06:00 SAST today, gold prices declined 0.3% to trade at $1,208.05/oz. Yesterday, gold declined 0.6% to close at $1,211.41/oz., after the release of the upbeat ADP employment and trade data in the US.
Yesterday, copper declined 0.6% to close at $6,182.50/mt. Aluminium closed 0.4% higher at $1,761.75/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, despite the ADP’s report showing that private sector employment in the US increased more-than-expected in December. Additionally, trade data released in the US revealed that trade deficit in the nation narrowed more-than-estimated in November. Later today, traders will keep a tab on the SACCI business confidence survey and reserves data in South Africa along with the initial jobless claims data in the US for further direction.
The yield on benchmark government bonds fell yesterday. The yield on 2015 bond fell to 6.23% while that for the longer-dated 2026 issue declined to 7.70%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R11.6989, while the euro and the British pound are trading flat at R13.8340 and R17.6576.
Yesterday, the euro weakened against most of the major currencies, after data released in the eurozone revealed that the preliminary consumer price inflation readings in the region eased more than anticipated for December. Going forward, investors will eye eurozone’s producer price inflation and retail sales data and the Bank of England’s policy meeting later today for further direction.
At 06:00 SAST, the euro slipped 0.1% against the US dollar to trade at $1.1828, while it has remained unchanged against the British pound to trade at GBP0.7836.
Economic Updates
National Association of Automobile Manufacturers of South Africa has indicated that new vehicle sales in South Africa recorded an unexpected rise of 10.7% on an annual basis in December. In the prior month, new vehicle sales had risen 0.9%.
Statistisches Bundesamt Deutschland has indicated that, in November, on a monthly basis, retail sales in Germany advanced 1.0%, compared with a revised rise of 2.0% in the prior month. Markets were anticipating retail sales to advance 0.2%.
The number of people unemployed dropped 27.00k in December, in Germany, compared with a revised drop of 16.00k in the previous month. Markets were expecting the number of people unemployed to drop 6.00k.
Eurostat has indicated that, on an annual basis, the preliminary consumer price index fell 0.2% in December, in the eurozone, more than market expectations for a drop of 0.1%. The consumer price index had recorded a rise of 0.3% in the prior month.
In the eurozone, the unemployment rate remained steady at a level of 11.5% in November. Markets were expecting the unemployment rate to record a steady reading.
Statistics Canada has reported that the international merchandise trade deficit in Canada widened to CAD0.64bn in November, following a revised international merchandise trade deficit of CAD0.33bn in the previous month. Markets were anticipating the country’s international merchandise trade deficit to drop to CAD0.20bn.
In December, the seasonally adjusted Ivey PMI in Canada dropped to 55.40, higher than market expectations of a drop to 53.00. In the previous month, Ivey PMI had recorded a reading of 56.90.
The ADP private sector employment registered a rise of 241.00k in the US, in December, following a revised increase of 227.00k in the prior month. Market anticipations were for the private sector employment to advance 225.00k.
Trade deficit in the US narrowed to $39.00bn in November, from a revised trade deficit of $42.20bn in the prior month. Markets were anticipating the country’s trade deficit to drop to $42.00bn.
Minutes of the US Federal Reserve (Fed) Bank’s latest monetary policy meeting held on 16 & 17 December, 2014, indicated that majority of policymakers agreed that the US central bank would not consider increasing interest rates before April 2015.
Corporate Updates
South Africa
Telkom SA SOC: Media reports indicate that the company is litigating against its competitor, Neotel, and one other company, for R363,744.00 for causing damage to the company’s underground cables in Hillcrest.
Sacoil to move quickly on new asset in Egypt: OIL and gas company, Sacoil Holdings plans to start producing from its recently acquired Egyptian oil field, Lagia. The move could generate the first oil revenue for the company.
Medupi’s new technical problems place SA at risk: Media reports indicate that fresh technical problems encountered during the commissioning of the first of the six 800MW generation units at Eskom’s Medupi power station, is likely to put South Africa’s electricity supply at risk.
UK and US
Monsanto Co.: The company, in its 1Q15 results, stated that its net sales dropped to $2.87bn from $3.14bn posted in the same period earlier year. Its diluted EPS from continuing operations stood at $0.47, better than market estimates of $0.35/share. The company confirmed its FY15 ongoing EPS guidance in the range of $5.75 to $6.00.
WD-40 Co.: The company, in its 1Q15 results, stated that its net sales rose to $96.35mn from $95.54mn reported in the similar period preceding year. Its diluted EPS was recorded at $0.73, worse than market expected $0.80/share. The company sees its FY15 EPS in the range of $3.07 to $3.18, versus market consensus of $3.11/share.
Resources Connection: The company, in its 2Q15 results, stated that its revenue advanced to $151.50mn from $145.97mn recorded in the corresponding period year ago. Its diluted net EPS rose to $0.21 from $0.18 posted in the same period year ago.
EXFO Inc.: The company, in its 1Q15 results, stated that its sales climbed to $56.72mn from $56.00mn recorded in the same period year ago. Its basic and diluted net EPS stood at $0.02, worse than market estimates of $0.04/share. The company forecasts its sales to be between $52.00mn and $57.00mn for 2Q15, while IFRS net results are expected to range between a net loss of $0.03/share and net earnings of $0.01/share.
Richardson Electronics: The company, in its 2Q15 results, stated that its net sales dropped to $33.84mn from $35.44mn registered in the similar period previous year. Its total diluted net loss per share was reported at $0.07 from a net income of $0.03/share reported in the same period prior year.
Facebook: The company revealed that the number of video posts per Facebook user has increased 75.0% globally and 94.0% in the US, in the last 12 months. Additionally, the company revealed that its WhatsApp messaging unit has topped the 700.00mn monthly active users milestone.
Alexion Pharmaceuticals: The drug maker announced that its plans to use its Soliris blood-clotting treatment that could have helped kidney transplant patients accept their new organ did not meet its goals in the second phase of testing.
lululemon athletica: The company announced the appointment of Stuart C. Haselden as the new CFO, expected to be effective 2 February 2015.
Galectin Therapeutics: The company announced that final results from its Phase 1 trial showed that GR-MD-02 had an effect on a serum biomarker and liver stiffness, which indicates a potential for therapeutic effect on fibrosis that calls for further investigation.
NephroGenex: The company announced that it has received positive Scientific Advice from the European Medicines Agency (EMA) regarding their Phase 3 program with Pyridorin, for treating diabetic nephropathy. The EMA indicated that the current Phase 3 program might be adequate to support a marketing authorization application for full market approval in Europe.
Persimmon Plc: The homebuilder, in its trading update, revealed that it delivered a strong performance in FY14 with an increase of 17.0% in legal completions to 13,509 new homes. Its revenue increased to GBP2.60bn from GBP2.10bn posted in the previous year. In FY14, the company fulfilled 13,509 legal completions, with an average new home selling at a 5.0% premium over FY13, at GBP190,500. The company remains confident of a further improvement in operating margins for 2H14, which would underpin significant growth in pre-tax profits and excellent cash generation for FY14.
J Sainsbury Plc: The company, in its 3Q15 trading statement, stated that its total retail sales fell 0.4%, excluding fuel, and 2.5% including fuel. Its like-for-like retail sales were down 1.7%, excluding fuel, and down 3.9%, including fuel. The company further stated that over 29.50mn customer transactions were recorded in the seven days before Christmas and over 1,000 product prices reduced since the company announced its GBP150.00mn price investment. Looking ahead, the company stated that the outlook remains challenging, and currently expects 4Q15 like-for-like sales to be similar to that of 1H15, when it reported a decline of 2.1%.
Galliford Try: The housebuilding and construction company, in its 2H14 trading update, announced that it was trading well and in-line with its expectations. It further stated that net debt was below GBP40.00mn compared with GBP85.90mn reported a year ago, despite the increase in the landbank. The company expects its housebuilding revenue to be up on the prior half year period.
Interserve Plc: The support services and construction group, in its trading update, indicated that since the interim management statement on 12 November 2014, it has continued to perform in-line with expectations. It further stated that it has recently completed the GBP25.00mn acquisition of esg Group and has begun its integration with the latter’s existing welfare and education businesses. The company also stated that it has recently formed a joint venture with the Rezayat group of Saudi Arabia, to provide facilities management services in the region.
WPP: The company announced that its wholly-owned operating company, Wunderman, has acquired a majority stake in Binarix S.A.C., a leading digital marketing agency in Peru.
easyJet Plc: 6,681.04 The company, in its passenger statistics update for December 2014, announced that the number of passengers increased by 3.2% to 4,634,977 from 4,490,538 reported in December 2013. The load factor also rose to 88.4% in December 2014 from 87.9% reported in the same period a year ago. The company further stated that the number of passengers for the rolling 12 months ended December 2014 increased by 6.5% to 65,348,876 from 61,332,803 reported in the same period last year. The load factor also rose to 90.8% in the rolling 12 months ended December 2014 from 89.3% reported in the same period a year ago.
Aggreko: The company announced that it has signed a two year contract to provide an additional 150MW of diesel-fuelled power in Argentina. The agreement was awarded by Energia Argentina following a period of negotiation. Additionally, the company has agreed to extend its existing 300MW of capacity with the same customer, for approximately two more years. The company expects a small boost to its FY14 trading profit after reaching a debt deal as part of one of the contracts.
Entertainment One Limited: The company announced the completion of its acquisition of a 51.0% stake in The Mark Gordon Company, creating an independent studio joint venture that would produce and finance premium television and film content for the major US networks and international distribution.
Keller Group: The company stated that it has bagged a GBP28.00mn contract at Changi Airport in Singapore, and would vibrocompact the ground as part of the land preparation works for a major expansion of the airport.
Financial Times
Quindell shares surge after Toscafund increases holding: Quindell shares surged more than 20.0% on Wednesday, after Toscafund, the hedge fund, made an estimated GBP12.00mn bet on the insurance claims processing company that has been plagued by short-sellers.
Tesco confirms wave of price reductions: Tesco will on Thursday ratchet up the supermarket price war with cuts of up to 25.0% on hundreds of branded grocery products, as it begins a wave of reductions to stem an outflow of shoppers.
City Link administrators hope to recoup GBP32.00mn: The administrators of City Link, the parcels delivery company that collapsed on Christmas Eve, are owed GBP32.00mn in outstanding invoices from customers, significantly raising the chance that its private equity owners will recoup more than half of their initial investment.
RBS trader arrested in forex rigging probe named in court records: The Royal Bank of Scotland trader arrested last month as part of the Serious Fraud Office’s investigation into alleged rigging of the $5.00trn-a-day foreign-exchange market was Paul Nash.
Bumper year for premium cars made in UK: The new year began with 1,400.00 of Britain’s finest car exports stranded off the coast of the Isle of Wight. But for much of FY14, premium cars made in Britain were flying out of dealerships.
First trader to face jury trial in Libor case parts with barristere: A former trader at UBS and Citigroup, who is the first person set to face a jury trial on Libor-related offences, has parted with his lead barrister in a second shake-up in his legal team.
Sun journalists on trial over payments to public officials: Four senior Sun journalists have gone on trial accused of paying thousands of British pounds to public officials for tips, including GBP100.00k to an employee at the MoD.
Shares at Majestic Wine fall as Christmas discounting hits margins: Shares in Majestic Wine fell more than 17.0% on Wednesday as analysts cut profit forecasts after fierce discounting over the Christmas period hit margins.
Sainsbury third-quarter sales fall 1.7%: J Sainsbury kicked off the big four supermarket reporting period with better-than-expected trading over the festive season, registering a 1.7% year-on-year decline in underlying sales in 3Q15.
Flagship Brevan Howard fund reports first annual loss: Brevan Howard’s $24.00bn flagship hedge fund has reported its first annual investment loss since it was set up 11 years ago – underlining the recent difficulties being faced by one of the world’s largest hedge fund managers.
Eric Bommensath to leave Barclays: Eric Bommensath is leaving Barclays less than a year after the former co-head of its investment bank was put in charge of running down hundreds of billions of British pounds in underperforming assets at its “bad bank”.
Charter Savings Bank enters UK retail banking fray: A company backed by US activist investor, Elliott Management, is to launch an online dedicated savings bank in the UK in the coming months, joining challenger banks seeking to draw customers away from the high street competition.
UBM Chairman and Chief Executive both take medical leave: British events group UBM has temporarily replaced its Chairman, Dame Helen Alexander, and Chief Executive, Tim Cobbold, after both had to take medical leave to have operations.
Boohoo unwraps Christmas profit warning: Shares in Boohoo.com plunged over 40.0% on Wednesday after the online fashion retailer issued a profit warning, blaming heavy high street discounting and the industry’s delivery problems over Christmas.
Fears grow over fallout from Petrobras corruption scandal: Fears are growing over the systemic impact of the corruption scandal at Petrobras, Brazil’s state oil producer, as one of the construction firms linked to the allegations edges closer to default and the country’s credit rating comes under pressure.
Europe’s biggest coal group KW to close four mines: Europe’s biggest coal miner will close four of its mines and axe 4,800 workers in a last-ditch attempt to drag the struggling company back into profit.
Thetrainline.com set for GBP500.00mn IPO: Thetrainline.com, Britain’s largest online rail-bookings company, is set to announce its intention to float on the London Stock Exchange, hoping to tempt investors with the first technology IPO of the year, according to people familiar with the matter.
Top shareholders call for MSCI break-up: Leading shareholders at MSCI are urging the company to consider breaking itself up and putting its famous stock market indices business on the auction block.
Drugmakers threaten NHS with lawsuits over cancer ruling: Drug companies are threatening legal action against an expected decision to halt National Health Service access to a range of expensive cancer medicines.
Kyle Bass plans legal action on pharma patents: Kyle Bass, founder of Dallas-based Hayman Capital Management, plans to mount legal challenges against questionable drug patents as part of an investment strategy that would bet on the share prices of targeted companies falling.
Short sellers feel the heat from Chinese solar group Hanergy: Short sellers are sitting on potential losses of more than $300.00mn in a little-known Chinese solar company whose stock has soared in spite of their heavy bets to the contrary.
Rail network BNSF lifts container ban for US west coast ports: The US’s second-biggest rail network on Wednesday lifted a three-day ban on moving some containers to US west coast ports, but expressed continued concern about the severe disruption that forced it into the radical step.
Monster sues Dr Dre’s Beats headphone maker: California audio group Monster is suing Beats, the headphone brand co-founded by hip hop artist, Dr Dre, and acquired by Apple for $3.20bn last year, alleging it unlawfully squeezed the company out of doing business with it before the lucrative deal.
Samsung confirms drop in FY14 profit: Samsung Electronics confirmed its first FY14 profit decline since FY11, but its shares ticked up after its 4Q14 earnings guidance exceeded market expectations.
J Sainsbury: Fell 2.1% to GBP2.30, following a mixed 3Q15 update.
Boohoo: Slumped 42.5% to GBP0.22, after warning that recent sales growth was half the expected rate.
Lex:
Venezuela: bonds and barrels: Lending to the Bolivarian Republic of Venezuela happens to be slightly cheaper these days. Its bonds change hands for $42.00 per $100.00 of their face value. The bond, unlike the barrel, has coupons, and is easier to fit in a drawer. You do have to wait until 2027 for the return of your principal. And the price says you might not get it even then. The predicament for the Venezuela government’s finances seems simple. Yearly oil revenues were about $90.00bn when Venezuelan crude was $100.00/bl. At less than $50.00, revenues will decline precipitously. Debt service this year amounts to $10.00bn. The government could attempt to adjust – say, by cutting imports further and conserving US dollars to pay debt – but bondholders might just as well brace themselves for impact. The simple average bond price in 20 sovereign defaults since 1998 was $49.00 one month later, says Moody’s, so the holders may bet that their recovery on Venezuelan bonds could beat the current price of $42.00. But if Venezuela does default, it might withhold its oil rather than see it seized, or the oil could get caught up in the dispute. It is only 1.00Mb/d. But less supply is just what the oil market needs at present.
European autos: ramping up: The self-driving F015 Mercedes-Benz is exciting, sexy and mostly irrelevant. The automobile business is not about whizz-bang; it is about basics — update the capital consuming monster that is the production line to make cars more cheaply and more cleanly, and sell more of the highest-margin models. Instead, it is Europe that is growing. European sales between January and November last year grew 6.0% over the same period in FY13. In the UK, 2.50m new cars were registered in FY14, a 10-year high and 9.0% increase over FY13. But Europe will not keep growing like this much longer. The improvement is coming from a low base, and sales have been boosted by financial incentives — such as Spain’s scrap incentives and a UK contract purchase scheme — that may not last. So carmakers are trying to cut costs by making as many models as possible from a common platform. Component makers such as Valeo and Continental — whose products allow manufacturers to improve emissions fairly cheaply and quickly — should find plenty of business. In this environment, premium carmakers such as BMW and Daimler look well placed. The luxury market is doing well and they have scope to introduce smaller models (which will help them to meet CO2 targets). If novelties such as the F015 can help them a little way down that road, so much the better.
MSCI: index investing: Underperform an MSCI benchmark, and investors ask questions. When shares of MSCI itself disappoint, it draws similar scrutiny. Understated activist investor, ValueAct Capital, has sent a letter to the board of MSCI. It has been a shareholder for years. ValueAct wonders about the company’s strategy and poor returns, and is also unhappy about how the company has dismissed earlier entreaties. MSCI’s core business provides indices, particularly for international equities, that asset managers use to measure their performance. The company says that $8.00trn in assets are benchmarked to MSCI indices. It also sells risk and portfolio management software. On the surface, MSCI appears to be a fine enterprise. Margins (at the level of earnings before interest, tax, depreciation and amortisation) hover near 40.0%; nearly all revenue is subscription-based; customer retention rates exceed 90.0%. ValueAct is not convinced that the strategy is the right one and asked for a board seat last August — a request that has yet to be accepted. And while the dissident points out that MSCI’s total return lags behind the company’s peers, its shares have nearly doubled since they dropped a quarter in October 2012, when index tracking specialist, Vanguard, dropped MSCI’s services. MSCI is not a terrible laggard. ValueAct is not asking for much. But that adds up to an intriguing fight.
*Published with special permission by Anchor Capital (ACG)
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