By Anchor Capital
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South African Market Review
South African markets closed in the green yesterday, with no domestic macro releases and US markets closed on account of President’s Day. Platinum miners, Anglo American Platinum, Aquarius Platinum and Lonmin climbed 3.9%, 1.3% and 1.2%, respectively. Retailers, Woolworths Holdings, Mr Price Group and Massmart Holdings advanced 1.9%, 0.4% and 0.4%, respectively. ArcelorMittal South Africa rose 1.2%, extending Friday’s gains. On the downside, Gold miners, Gold Fields and Sibanye Gold fell 3.9% and 1.8%, respectively. Impala Platinum plummeted 1.3%, after it projected its basic EPS for 1H15 to decline by 77.0% and 67.0% from the previous comparable period. The JSE All Share Index rose 0.1% to close at 52,995.89.
UK Market Review
UK markets finished lower yesterday, as investors awaited the outcome of the meeting between eurozone officials and Greek Finance ministers. Centrica fell 2.9%, after a report indicated that the firm would announce job cuts and a reduction in its spending plans during its FY15 results later in the week. Astrazeneca declined 1.8%, after its asthma treating drug was ruled by a US court as invalid. Peers, Shire and GlaxoSmithKline slipped 0.8% and 0.7%, respectively. On the brighter side, SABMiller advanced 1.9%, after reports emerged that a group led by 3G Capital is planning to acquire the company. BHP Billiton climbed 1.3%, after it sold its gas business in Pakistan to oil and gas explorer Tri-Resources. The FTSE 100 Index declined 0.2% to close at 6,857.05.
US Market Review
US markets were closed yesterday for the Presidents’ Day holiday.
Asia Market Review
Markets in Asia are trading mostly firmer this morning. In a noteworthy development, talks between Greece and eurozone finance ministers over the country’s debt broke down yesterday. In Japan, Lixil Group eased 0.6%, after the company announced a sale of convertible bond worth JPY120.00bn. However, Suntory Beverage & Food added 1.2%, after reported an increase in its FY14 sales. In Hong Kong, Citic Securities and Haitong Securities advanced 1.7% and 1.0%, respectively. In South Korea, Hyundai Motor advanced 2.9%, amid news that the company would spend around USD1.80bn by 2020 to increase its production capacity and invest in R&D of new vehicles. The Nikkei 225 Index is trading 0.1% lower at 17,991.21, while the Kospi Index is trading 0.2% firmer at 1,961.26. The Hang Seng Index is trading 0.4% in the green at 24,820.38.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.5% to trade at $60.19/bl. Yesterday, Brent crude oil rose 0.8% to settle at $59.88/bl, amid escalating violence in Libya. Meanwhile, Kuwait’s oil minister stated that oil prices would continue to rise this year as supply fell.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices remain unchanged at $3.66/bushel.
At 06:00 SAST today, gold prices declined 0.3% to trade at $1,228.34/oz. Yesterday, gold gained 0.2% to close at $1,232.55/oz. Meanwhile, debt talks between Greece and eurozone finance ministers collapsed after Athens rejected a proposal to request a six-month extension of its international bailout as “unacceptable”.
Yesterday, copper rose 0.2% to close at $5,764.00/mt. Aluminium closed 1.0% lower at $1,804.50/mt.
Currencies
In the absence of major economic releases yesterday, the South African rand was broadly firmer against its major counterparts. The domestic currency strengthened against the Euro, as discussions between Greece and Eurozone finance ministers collapsed after the Greek government rejected a proposal to request a six-month extension of its international bailout as “unacceptable”. Moving ahead, market participants will keep a tab on the NAHB housing market report in the US for further direction.The yield on benchmark government bonds rose yesterday. The yield on 2015 bond advanced to 6.03% while that for the longer-dated 2026 issue rose to 7.57%.
At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R11.6428, while the euro is trading unchanged at R13.2230. At 06:00 SAST, the British pound has declined 0.1% against the South African rand to trade at R17.8982.
Yesterday, the euro declined against the major currencies as Greek debt talks broke down. On the macro front, data showed that trade surplus in the Eurozone widened for December. Going forward, investors would keenly eye the ZEW sentiment data in the Eurozone for further hints.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.1359, while it has risen marginally against the British pound to trade at GBP0.7389.
Economic Updates
The Deutsche Bundesbank, in its latest monthly report, signalled that the German economy could register a stronger growth than current forecasts. Furthermore, Germany’s central bank attributed consumer spending as the main factor behind the increased momentum, adding that the country could also benefit from a weaker Euro.The non-seasonally adjusted trade surplus in the eurozone expanded to EUR24.30bn in December. The eurozone had posted a revised trade surplus of EUR21.20bn in the prior month.
MNI, Deutsche Boerse Group, has indicated that compared to a reading of 53.70 in the previous month the MNI business sentiment index fell to a level of 52.80 in February, in China.
In January, on an annual basis, the house price index dropped 5.1% in China. The house price index had registered a drop of 4.3% in the previous month.
The minutes of the Reserve Bank of Australia’s (RBA) latest monetary meeting revealed that a deteriorating economic outlook led the central bank to cut cash rate to a new record low of 2.25% in February meeting, in order to provide additional support to demand.
Corporate Updates
South Africa Impala Platinum Holdings: The platinum company, in its trading statement for 1H15, revealed that it expects headline EPS to be between R0.53 and R0.77, which is between 45.0% and 63.0% lower than that reported in 1H14. After the impairment of property, plant and equipment as a result of the partial collapse of the Bimhaoperation at Zimplats, its basic EPS is expected to drop between 77.0% and 67.0% to between R0.33 and R0.48, compared with the same period previous year.
Astral Foods: The company, in its trading statement for 1H15, stated that it expects headline EPS to increase by atleast 120.0% or R4.65/share, compared with the same period in the previous year.
Clientele Limited: The company, in its 1H15 results, indicated that its net income was up 4.4% to R0.92bn from the previous year. Its diluted EPS was 55.03c, compared with 54.65c posted a year ago.
Merafe Resources: The company, in its trading statement for FY14, indicated that it expects to report headline EPS of between 8.00c and 8.80cor between19.0% and 26.0% lower, compared with10.8cposted in FY13. It further stated that the decrease is primarily attributable to the accelerated depreciation arising from the scrapping of certain assets, additional depreciation arising from Project Lion II and increase in borrowing costs.
Sappi Limited: The forest and paper products company stated that it is planning to save $30.00mn in annual interest payments by selling bonds to refinance as much as $500.00mn of debt. It further stated that it would target European markets to refinance bonds due in FY18 and FY19.
Accelerate Property Fund: The company announced that it has entered into an agreement to acquire the entire issued ordinary share capital of Parktown Crescent Properties Proprietary Limited(PCP) and 30.0% of the issued ordinary share capital of Wanooka Properties Proprietary Limited, representing the remaining shares in Wanooka not already owned by PCP.
Backtrack on minerals ‘risks SA’s credibility’: The government’s decision to reopen debate around the pricing of mineral sales has created mistrust and put its credibility at risk internationally, says Anglo American CEO Mark Cutifani.
Anglo writes down Minas Rio again: Anglo American has for the second time written down its newest mine, the $8.40bn Minas Rio iron-ore project in Brazil, impairing it by $3.90bn as gloom around the iron-ore market deepens.
Pressure on Group Five’s earnings to remain intense: A spate of less-than-impressive results by WBHO, Group Five and Aveng shows that market conditions might be worse than what investors initially perceived and has condemned the construction & materials index to six-year lows.
UK and US
United Stationers: The wholesale distribution company, in its FY14 results, stated that net sales grew 4.8% to $5.33bn from the previous year. However, its net diluted EPS edged down to $3.05 from $3.06 reported in the preceding year. The company further stated that in FY15, it would continue to invest in a common operating/information technology platform and rebrand the company which would result in a charge to earnings in the 1Q15 and incremental operating expenses of approximately $15.00mn in FY15.
Sykes Enterprises: The IT consulting and IT-enabled services company, in its FY14 results, indicated that revenue was up 5.1% to $1.33bn, compared with the previous year. It stated that the net diluted EPS rose to $1.35 from $0.87 posted in FY13. The company anticipates that in FY15, its revenue would be in the range of $1.30bn to $1.32bn.
Phillips 66: The company’s interests in three pipeline systems would be bought by Phillips 66 Partners LP for a total of $1.01bn to expand its operations in Texas.
Hammerson Plc: The company, in its FY14 results, indicated that gross rental income from continuing operations rose to GBP206.50mn from GBP176.00mn reported in the previous year. Its basic and diluted EPS from continuing operations stood at 95.70p, compared with 45.30p posted a year ago. Additionally, the property company announced the appointment of Pierre Bouchut as a non-Executive Director with effect from 13 February 2015.
Acacia Mining: The mining company, in its FY14 results, indicated that revenue from continuing operations rose to $930.25mn from $929.00mn posted the preceding year. It reported basic and diluted EPS from continuing operations of $0.22, compared with a loss of $1.81 recorded in the previous year. For FY15, the company expects to see increased production of between 0.75mn oz to 0.80mn oz of gold.
Fidessa Group: The company, in its preliminary FY14 results, indicated that revenue was down 1.4% to GBP0.28bn from the preceding year. Its diluted EPS stood at 75.80p, compared with 83.50p reported a year ago. The company expects market conditions to improve in FY15, which would lead to a gradual increase in its growth rate from the level achieved in FY14.
Hunting Plc: The energy services company, in its operational update for FY15, revealed that it does not believe that analyst estimations should be relied upon as an accurate indicator of the company’s FY15 financial performance. The company stated that this is not the right stage to provide financial guidance for FY15. Furthermore, it expects that declining global rig counts and commodity prices would feed through to its profitability for the year ahead. Most of the company’s businesses expect the full impact of the lower oil price environment to be felt from 2Q15.
Infinis Energy: The energy company, in its 3Q15 trading statement, stated that it has delivered a solid operational performance over the period. The company also indicated that its management remains confident that the current trading remains in line with expectations for FY15.
AstraZeneca Plc: The drug making company announced that the US District Court for the District of New Jersey ruled US Patent No. 7,524,834, called as the ‘834 patent”, protecting Pulmicort Respules in the US, is invalid. The company stated the decision would not impact its guidance for FY15 which includes expectations for sales revenue to decline by mid-single digit percent and core EPS to rise by low single-digit percent, both at constant exchange rates.
Land Securities Group: The company announced that it has unconditionally agreed to purchase the leasehold interest in a 1.90 acre site at 21 Moorfields, EC2 for GBP16.50mn excluding vendor’s overage.
Playtech Plc: The gaming software development company announced the acquisition of UK-based Yoyo Games Limited to penetrate into the casual gaming space.
NMC Health: The healthcare providing company stated that it has secured underwriting commitments for an $825.00mn financing facility from a number of international and regional banks through its subsidiary, NMC Healthcare LLC. In the healthcare division, the company intends to expand both organically and via acquisitions to achieve the objectives of the updated group strategy. The company further stated that since its IPO, it has continued to grow its distribution business and revenue has grown by a CAGR of approximately 9.0% between FY11 and FY13.
Genus Plc: The animal genetics company announced that it has signed an agreement for the acquisition of 51.0% of the share capital of In Vitro Brasil S.A. through ABS, its bovine genetics business, for a total investment consideration of GBP4.60mn in cash, including an upfront capital commitment.
Financial Times
GSK replaces US pharma head as it tries to stem sales decline: GlaxoSmithKline has replaced the head of its struggling US pharmaceuticals business as the UK group tries to reverse a sharp sales decline in its most important market.
888 Holdings rejects GBP700.00mn William Hill approach: Takeover talks between William Hill and 888 Holdings collapsed on Monday, after one of 888’s founders refused to back a deal that would have given the UK’s biggest high-street bookmaker a leading online gaming platform.
UK watchdog to tackle HSBC on standards: HSBC is facing searching questions from regulators over the quality of its internal checks and culture after the Financial Conduct Authority said it was looking into recent revelations that its Swiss private bank helped clients to evade taxes.
Tesco shareholders back ITV head for chairman: Two of the biggest shareholders in Tesco are pushing for the appointment of veteran retailer Archie Norman as Chairman of the supermarket chain.
Vodafone aims to power up UK business: Vodafone will demand tough remedies from the UK’s competition watchdog overseeing BT’s GBP12.00bn acquisition of EE as part of a high-reaching strategy to expand in its home market this year.
Hammerson benefits from shopping recovery: Pre-tax profits at Hammerson, Britain’s biggest retail landlord, more than doubled as Britain’s economic recovery fed through on to the high street.
Balfour Beatty sells GBP40.00mn wind farm stake: Balfour Beatty has sold a GBP40.00mn stake in its Kent wind farm business as the infrastructure group looks to raise cash amid a string of profit warnings.
African Minerals chief Alan Watling resigns: The Chief Executive of African Minerals has resigned just six months after joining the troubled iron ore miner which has seen its shares suspended from Aim and been forced to shut operations at its largest mine.
Skyscanner optimistic as revenue growth slows: Skyscanner has reported a slowing in annual revenue growth, although the Edinburgh-based price comparison website still saw a more than 40.0% jump in turnover on the back of strong demand for its hotel and car hire searches.
Acacia Mining sees cost cuts and operational changes payoff: Acacia Mining’s cost-cutting and operational changes helped to lift earnings by 5.0% last year, deepening a turnround in performance as the African gold miner tries to assert more independence from Barrick Gold, its Canadian owner.
Actis to set up $1.90bn renewable business in Africa: Actis, the UK-listed private equity group, is to set up a $1.90bn renewable energy business in Africa, in an attempt to tap the continent’s resources and meet its growing demand for electricity.
Transocean to cut its dividend by 80.0%: Transocean, one of the world’s largest offshore drilling contractors, is cutting its dividend by 80.0%, in the latest sign of how the plunge in oil prices is hitting the industry.
Saeta Yield IPO buoyed by positive mood: Saeta Yield, a new renewable energy company spun out of Actividades de Construcción y Servicios, the Spanish infrastructure group, began publicly trading in Madrid on Monday as enthusiasm for new equity issuance in Spain rises.
New York Waldorf hotel’s owner Anbang buys Dutch insurer Vivat: The Chinese financial services group that recently acquired New York’s Waldorf Astoria hotel has turned to the Netherlands for its latest deal, taking control of an insurer owned by the Dutch state.
Infosys buys US software group Panaya: Infosys has bought US-based technology group Panaya in a $200.00mn deal, marking the most significant step in Chief Executive Vishal Sikka’s drive to offer high-end software and boost the outsourcer’s growth.
OCI eyes dual listing for construction arm split: Orascom Construction Industries — the Egyptian conglomerate that attracted a $1.00bn investment from Bill Gates and a group of US investors — is to spin off its construction and engineering arm through a dual listing in Egypt and Dubai, in an attempt to capitalise on improving domestic growth prospects.
Rolls-Royce vows to co-operate with Petrobras investigation: Rolls-Royce has said it will co-operate with Brazilian authorities if they press ahead with an investigation into allegations that it paid bribes to win a contract from Petrobras, the state-owned oil company at the heart of a spiralling corruption scandal.
Aer Lingus names Stephen Kavanagh as chief executive: Aer Lingus has appointed a new Chief Executive as the Irish airline continues to negotiate a potential EUR1.40bn takeover by International Airlines Group.
RPS: Slipped 3.1% to 240.60p after about 2.0% of the company changed hands at 242.00p.
SABMiller: Gained 1.9% to GBP35.24, helped by a report that AB InBev shareholder 3G Capital has been working on a takeover of the South African brewer and Coca-Cola bottler.
Lex:
Japan: easing questions: Expect much sucking of teeth and cocking of heads at the Bank of Japan’s two-day policy meeting, which ends on Wednesday this week. Core inflation was 1.0% back then; it was just 0.5% in December. Many economists say it could tip into negative territory by the summer. The big drop in oil continues to push down prices. Data from the UTokyo Daily Price Index, which tracks supermarket point-of-sales data, suggests that the shopper’s “deflationary mindset” which so bothered BoJ governor Haruhiko Kuroda last October remains. Without further action how can the BoJ expect to hit its stated CPI target of 2.0% within (roughly) two years of the start of the programme in April FY13? Another round of government-bond purchases could unsettle investors by further impairing liquidity, given that the BoJ has already committed to buying up nearly 90.0% of new issuance from the finance ministry. More easing action would also run counter to Mr Kuroda’s recent argument that lower oil should give a longer-term boost to the Japanese economy. Indeed, fourth-quarter GDP data this week showed that consumer sentiment has recovered only slightly following last year’s tax increase. So what to expect? No change, probably, and a lot of warm words from the governor about an imminent recovery, almost two years on from the launch of Kurodanomics.SanDisk: long-term memory: Welcome to the world of SanDisk, a maker of Nand memory (a type of storage technology). Its shares are down a sixth since the company cut its guidance last month. SanDisk has not specifically named Apple, saying only that it lost a “large” client. Apple accounted for a fifth of SanDisk’s revenues in FY13. SanDisk is counting on growth in its enterprise business — which sells memory products to data centers and the like — to help make up for the loss of revenue. It expects to return to revenue growth by the second half of this year. The enterprise business has already been growing fast, with revenues more than doubling in the fourth quarter from a year earlier. Demand from data centres is robust. And SanDisk has been making acquisitions. While growth in data centre demand may help in the short term, the longer term holds bigger challenges. Nand memory is nearing its physical limits, at least for the two-dimensional chip. The next step is 3D Nand, which can fit more bits in a smaller space. Samsung has begun volume production of 3D Nand; Hynix is expected to begin volume production this year. SanDisk will be piloting its 3D technology this year and begin volume production next year. And its retail business (USB sticks and memory cards) accounts for a third of sales, but is shrinking.
CBS: radio silence: TV has been the centre of attention recently, with speculation about a reunification of Viacom and CBS, the cable and broadcast television groups assembled by Sumner Redstone. The two were split in FY05, with the cable networks such as Nickelodeon and MTV going with Viacom and the broadcast assets placed in CBS. CBS shares have doubled since the split, a performance twice as good as the S&P 500. With its highly-rated primetime line-up and NFL broadcast rights, Chief Executive Les Moonves has extracted high fees from TV distributors to carry CBS programmes. So radio operators have turned to consolidation. Cumulus, whose enterprise value is $3.50bn, has grown quickly by spending $3.00bn on acquisitions in recent years. The consequence of those deals is that its net debt is a steep 7 times earnings before interest, tax depreciation and amortisation. Cumulus shares nearly tripled in FY13 but they have halved since early FY14 because of an ad slump. A CBS/Cumulus tie-up could work nicely. Both have about $1bn in revenue. How to divide up ownership is tricky but could be negotiated. Still, CBS should not be in any rush to exit radio. Its 117 radio stations are in large US cities such as New York where, often, it also owns a local TV station. It can sell ads across the two platforms, as well as on the websites they share.
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