By Anchor Capital
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South African Market Review
South African markets closed lower yesterday, with the benchmark index snapping its three day winning streak. Gold miners, Harmony Gold, AngloGold Ashanti and Gold Fields plunged 8.1%, 4.5% and 4.1%, respectively. Platinum miners, Impala Platinum, Lonmin and Anglo American Platinum plummeted 3.9%, 3.4% and 2.5%, respectively. Trencor dropped 1.7%, after it revealed that it expects its FY14 basic EPS to decrease by 30.0% to 31.0% from the previous year. However, SABMiller rose 0.6%, amid renewed rumours of a takeover bid by Anheuser-Busch InBev. KAP Industrial Holdings advanced 0.4%, after it reported a rise in its 1H15 revenue. The JSE All Share Index fell 0.3% to close at 52,833.48.
UK Market Review
UK markets finished higher yesterday, with the FTSE 100 index notching itshighestlevelsince1999. Meanwhile, data showed that the UK’s annual consumer price inflation eased in January. Diageo topped the gainers, rising 2.5%. Tobacco companies, Imperial Tobacco Group and British American Tobacco advanced 2.2% and 1.9%, respectively. Wm Morrison Supermarkets climbed 1.4%, after the company announced price cuts of over 50.0% across a series of staple products in a bid to lure customers and reverse the decline in sales. Bucking the trend, InterContinental Hotels Group dropped 1.7%, after the company posted a fall in its FY15 revenue. The FTSE 100 Index advanced 0.6% to close at 6,898.13.
US Market Review
US markets ended in the green yesterday, following reports that Greece intends to ask for an extension of a loan agreement. Waste Management surged 5.2%, after reporting a better-than-expected 4Q14 profit and strong earnings guidance for FY15.Starwood Hotels & Resorts climbed 2.7%, after the company announced the resignation of its President and CEO, Frits van Paasschen. Starbucks added 0.5%, after the company announced the launch of its delivery subscription service. However, Amazon.com slid 1.7%, following reports that the US FAA might have shot down its drone delivery plans. The S&P 500 Index rose 0.2% to settle at 2,100.34, while the DJIA Index climbed 0.2% to close at 18,047.58. The NASDAQ Index advanced 0.1% to finish at 4,899.27.
Asia Market Review
Markets in Asia are trading on a firmer footing this morning. In Japan, Hitachi surged 4.7%, amid reports that the company was widening its bank ATM business in India. Sony Corporation added 1.3%, ahead of its CEO, Kazuo Hirai’s update on the company’s new business plan due later in the day. In Hong Kong, MGM China Holdings gained 1.5%, despite reporting a wider-than-forecast 4Q14 loss. Market in South Korea are closed on account of a holiday. Yesterday, the Kospi Index ended 0.2% higher to settle at 1,961.45. Today, the Nikkei 225 Index is trading 1.0% at 18,161.24, while the Hang Seng Index is trading 0.1% at 24,819.78.
Commodities
At 06:00 SAST today, Brent crude oil rose marginally to trade at $61.26/bl,
Yesterday, Brent crude oil rose 2.3% to settle at $61.23/bl, amid growing concerns of conflict in Ukraine. Meanwhile, the Iraqi government threatened to withhold oil exports if Baghdad fails to deliver the nation’s share from the budget.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.3% to $3.65/bushel.
At 06:00 SAST today, gold prices dropped 0.2% to trade at $1,207.25/oz. Investors will be focusing on today’s minutes of the latest Fed meeting for further indications on when the Fed might start to hike interest rates. Yesterday, gold declined 1.8% to close at $1,209.89/oz, amid hopes that a compromise would be reached between Greece and its international creditors.
Yesterday, copper declined 1.8% to close at $5,659.75/mt, amid concerns of demand in China. Aluminium closed 0.3% lower at $1,798.50/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar. Going forward today, market participants will look forward to the consumer price inflation reading in South Africa for further direction. Additionally, investors would keenly eye the minutes of the latest US Federal Reserve meeting for clues about an expected interest rate rise in the world’s largest economy.
The yield on benchmark government bonds rose yesterday. The yield on 2015 bond advanced to 6.22% while that for the longer-dated 2026 issue rose to 7.63%.
At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R11.6674, while the euro is trading 0.2% lower at R13.3062. At 06:00 SAST, the British pound has declined 0.1% against the South African rand to trade at R17.9124.
Yesterday, the euro advanced against most of the major currencies on renewed hopes that the Greek government might continue to get funding as the eurozone finance ministers stated that they were ready for another round of talks on Greece’s debt problems on Friday. The euro was further supported after the ZEW survey showed that economic sentiment in the eurozone rose for February.
At 06:00 SAST, the euro declined 0.1% against the US dollar to trade at $1.1404, while it has weakened 0.1% against the British pound to trade at GBP0.7428.
Economic Updates
The National Statistics has indicated that, on a monthly basis in the UK, the consumer price index eased 0.9% in January, more than market expectations for a fall of 0.8%. The consumer price index had registered an unchanged reading in the prior month.
In the UK, the non-seasonally adjusted PPI core output climbed 0.2% in January on a monthly basis, higher than market expectations for an advance of 0.1%. PPI core output had registered a flat reading in the previous month.
The house price index in the UK recorded a rise of 9.8% on an annual basis in December, more than market expectations for an advance of 9.5%. In the previous month, the house price index had climbed by a revised 9.9%.
The SNB President, Thomas Jordan, citing a stronger Swiss franc, signalled that the central bank stands prepared to intervene in the foreign exchange market to combat the “overvalued” currency, which is posing a threat to various sectors exposed to international competition.
The ZEW Institute has reported that the economic sentiment index in Germany rose to a level of 53.00 in February, compared with a reading of 48.40 in the prior month. Markets were anticipating the economic sentiment index to advance to 55.00.
The ZEW Institute has reported that the economic sentiment index advanced to 52.70 in February, in the eurozone, compared with a reading of 45.20 in the previous month.
The Federal Reserve Bank of New York has reported that the NY Empire State manufacturing index registered a drop to 7.78 in the US, in February, more than market expectations of a fall to 8.50. In the previous month, the NY Empire State manufacturing index had recorded a reading of 9.95.
The NAHB/ Wells Fargo has reported that the housing market index in the US dropped unexpectedly to 55.00 in February, compared with a level of 57.00 in the previous month. Market expectations were for the housing market index to climb to a level of 58.00.
In January, on a monthly basis, the Westpac leading index in Australia registered a rise of 0.1%. In the previous month, the Westpac leading index had recorded a flat reading.
The BoJ reiterated its aggressive monetary stimulus program as it targets to stimulate economic growth and counter a threat of deflation. Further, the BoJ provided an upbeat assessment of the country’s output indicating its confidence that additional monetary stimulus will not be required.
Corporate Updates
South Africa
Grindrod Limited: The transportation and logistics company, in its trading statement for FY14, stated that it expects headline earnings to increase between 2.0% and 7.0% from the previous year. However, the company expects its headline EPS to drop between 7.0% and 12.0% to between 110.40c and 104.50c, compared with the previous year, as a consequence of the share issue during the year. It expects its EPS to be between 153.30c and 143.40c, which is a decrease of between 23.0% and 28.0% compared with the preceding year.
KAP Industrial Holdings: The apparel company, in its 1H15 results, revealed that revenue from continuing operations was up 9.4% to R8.11bn, compared with the corresponding period a year ago. Its fully diluted headline EPS from continuing operations stood at 18.90c, compared with 16.00c reported in the same period a year ago. It further stated that its diversified logistics division continues to grow its African business in partnership with its customers.
Trencor Limited: The company, in its FY14 trading statement, indicated that its basic EPS is expected to decrease by 30.0% to 31.0% from the previous year. It further stated that it anticipates headline EPS to be between R5.78 and R5.83, compared with headline EPS of R7.93 reported a year ago.
Curro Holdings: The company, in its reviewed provisional results for FY14, indicated that revenue increased 52.0% to R1.00bn, compared with the previous year. Its diluted headline EPS rose to 17.40c from 12.70c posted in the preceding year. In FY15, the company planned to invest about R0.60bn on the expansion of existing campuses; develop three new schools at Waterfall estate, Sitari and Hillcrest; invest R0.25bn in land banking of various key sites and investigate potential acquisitions.
Aveng Limited: The company, in its 1H15 financial statement, stated that revenue dropped 13.7% to R23.86bn from the preceding year. Its diluted EPS stood at R0.89, compared with R0.78 reported in the previous year.
Net 1 Ueps Technologies: The company’s business unit, Zazoo, announced that it has collaborated with Microsoft and Cell C to sponsor a R1.00mn worth of VCpayTM voucher to consumers that purchase the new Microsoft Lumia 535 on a Cell C contract. It further stated that the new device is available on Cell C’s talk and data contracts from 1 February 2015, and an initial batch would be packaged with the VCpayTM voucher for new owners to use in completing a purchase of their choice when using the VCpayTM service.
UK and US
Medtronic Inc.: The medical technology and services company, in its 3Q15 results, indicated that revenue was $4.32bn, compared with $4.16bn posted in the same quarter last year and the market estimated revenue of $4.25bn. Its EPS stood at $1.04, better than the estimated EPS of $0.97.
Devon Energy Corporation: The natural gas and oil producing company, in its FY14 results, indicated that total operating revenue increased 88.2% to $19.57bn from the previous year. Its diluted EPS from continuing operations was $3.91, compared with a loss of $0.06/share. The company has reiterated its oil production growth outlook of 20.0% to 25.0%.
Waste Management Inc.: The company, in its FY14 results, indicated that its operating revenue increased marginally to $14.00bn from $13.98bn recorded in the preceding year. Its diluted EPS rose to $2.79 from $0.21 reported in the previous year. The company expects its adjusted diluted EPS to be between $2.48 and $2.55, an increase of between 8.0% and 11.0% when FY14 is adjusted for divestiture earnings.
Vornado Realty Trust: The real estate investment trust, in its FY14 results, indicated that revenue dropped 1.2% to $2.64bn from the previous year. However, its diluted EPS rose to $4.15, compared with $2.09 posted a year ago.
Analog Devices Inc.: The semiconductor company, in its 1Q15 results, indicated that revenue increased 22.9% to $0.77bn from the same period in the prior year. The company reported diluted EPS of $0.57, compared with $0.48 posted in the same period a year ago. The company expects its revenue to be between $0.81bn and $0.83bn in 2Q15.
FirstEnergy Corporation: The diversified energy company, in its FY14 results, indicated that its basic non-GAAP operating EPS stood at $2.56, compared with $3.04 reported in the previous year. It estimates its FY15 non-GAAP EPS to be between $2.40 and $2.70. Meanwhile, media reports revealed that Anthony J. Alexander, the former CEO and now executive chairman of the company would leave the board, effective 1 May.
CF Industries Holdings: The manufacturer and distributor of agricultural fertilisers company, in its FY14 results, indicated that net sales were down 13.4% to $4.74bn from the previous year, due to lower average selling prices for nitrogen products. However, its diluted EPS rose to $27.08 from $24.74 recorded a year ago.
Boston Scientific Corporation: The medical equipment and devices company announced the settlement of the breach of merger agreement lawsuit brought by Johnson &Johnson against Guidant Corporation, stemming from its acquisition of Guidant. It has agreed to pay Johnson & Johnson $600.00mn in connection with an 11-year-old deal gone awry.
Starwood Hotels & Resorts: The company announced the retirement of Frits van Paasschen as President, Chief Executive Officer and a Director from the board.
Neurocrine Biosciences: The company announced that it has commenced an underwritten public offering of shares of its common stock to raise aggregate proceeds of approximately $225.00mn.
InterContinental Hotels Group: The restaurant company, in its preliminary FY14 results, indicated that revenue was down 2.4% to $1.86bn from the previous year. Its diluted EPS from continuing and total operations stood at $1.56, compared with $1.39 reported in the preceding year.
John Wood Group: The energy services company, in its FY14 results, revealed that total revenue from continuing operations was up 14.3% to $6.57bn from the preceding year. Its diluted EPS increased to $0.86 from $0.79 in the previous year. The company anticipates in FY15 to demonstrate relative resilience in a challenging market.
HICL Infrastructure Company: The infrastructure investment company announced a new investment in France, being the EcoleCentraleSupelec PPP Project in which it now has an 85.0% ownership interest. The total consideration for the investment is EUR3.40mn, comprising a loan stock subscription obligation payable upon construction completion.
Financial Times
UK approves world’s biggest offshore wind farm: The world’s biggest offshore wind scheme has been given the go-ahead off the coast of Yorkshire, in a move the government said was likely to create hundreds of jobs.
Hanergy’s Li taps shadow lenders to fund group’s startling growth: China’s richest man has been loading up on high interest shadow banking loans — and selling off a private jet — to fuel the rapid growth of the most valuable solar company in the world.
Chesapeake accuses McClendon of stealing secrets: Aubrey McClendon, one of the pioneers of the US shale gas boom, has been accused of stealing trade secrets from Chesapeake Energy, the company he founded and where he was chief executive until FY13.
Oil rally fades on oversupply fears: Oil’s recent rally eased on Tuesday as Brent crude fell below $61.00 a barrel on fears of growing supply and a build up in stocks.
Dragon Oil still fired up for bid on Petroceltic: Dragon Oil, the cash-rich explorer with production assets off Turkmenistan, has signalled that its previous takeover target Petroceltic International remains in its sights, amid attempts by the leading investor in its potential prey to oust its chief executive.
Regulation holds Gas Natural earnings back: Gas Natural, the Spanish utility company, has reported higher full-year profit, but blamed regulatory changes and currency effects for falling short of market expectations.
BP report predicts Opec comeback: The boom in US oil output that has sent prices tumbling and put America on course to self-sufficiency by the 2030s will slow sharply in coming years, leading to record demand for crude from Opec producers, according to BP.
Stakeholder pushes Petropavlosk for new debt talks: A private investment vehicle has bought a significant stake in Petropavlovsk and is threatening to push the troubled gold miner into bankruptcy unless it renegotiates a proposed debt restructuring.
BNY Mellon restates profits with $598.00mn charge: Bank of New York Mellon has restated the 4Q14 results it announced last month, taking a $598.00mn litigation charge that suggests it is heading towards a settlement of cases including a three-year-old foreign exchange suit filed by the Department of Justice.
US student and car loan delinquency rates rise: A report from the Federal Reserve Bank of New York showed US households boosted their overall borrowings, including credit card loans, mortgages, and student loans, by $117.00bn in the last three months of the year, leaving outstanding debt at $11.83tn.
Goldman pursues Bank of Portugal over BES: Goldman Sachs said on Tuesday it would “pursue all appropriate legal remedies without delay” after the Portuguese central bank confirmed a decision that is likely to impose losses on the Wall Street bank and its clients.
US sets deadline over financial crisis charges: US prosecutors have been given a 90-day deadline to assess whether they have enough evidence to bring cases against individuals linked to the FY08 financial crisis, as attorney-general Eric Holder fine-tunes his legacy before he steps down later this year.
EU seeks to relax securitisation rules: Brussels is making a renewed push to relax rules on an asset class once blamed for poisoning the financial system as it seeks the elusive formula for unlocking credit to households and businesses.
Credit Suisse and Deutsche Bank review junior bankers’ pay: Credit Suisse and Deutsche Bank are reviewing junior bankers’ pay in the latest move by investment banks to boost salaries following public and regulatory pressure to reduce lavish bonuses.
ECB weighs pulling plug on Greek banks: Policy makers at the European Central Bank fear the time is fast approaching when a continued stand-off between Athens and its eurozone creditors could force them to pull emergency funding from Greece’s banks.
Russian cyber suspect heads to US court: The extradition of a Russian man accused of helping to mastermind the largest US data breach is being touted by the authorities as proof of the lengths to which they will go to prosecute cyber criminals.
AstraZeneca lines up pharma critic for board: AstraZeneca has nominated to its board a US scientist who has tweeted strongly critical views of the pharmaceuticals industry — including the UK group’s domestic rival GlaxoSmithKline.
German rules reveal Daimler chief paid EUR14.00mn: Daimler has published the actual take-home pay of its senior managers under new German corporate governance rules — and revealed that chief executive Dieter Zetsche is the country’s second-highest-paid employee at a listed company, having received EUR14.40mn last year.
Pendragon profits accelerate on strong second-hand car sales: Pendragon reported an acceleration in full-year profits as Britain’s largest car dealership benefited from strong demand for second-hand vehicles and its servicing business.
Oborne quits Telegraph with attack over HSBC coverage: The Chief political commentator of the Telegraph quit on Tuesday, accusing the paper publicly of dumbing down its coverage and being under the sway of powerful advertisers, including HSBC.
Alibaba and Tencent battle over Chinese new year ‘red envelopes’: The cash-stuffed “red envelopes” that Chinese traditionally exchange during lunar new year have emerged as the latest battleground in the high-stakes mobile payments war between internet groups Alibaba and Tencent.
Tesco appoints former Dixons head Allan as chairman: Tesco has appointed John Allan, the former chairman of Dixons, as its new chairman, despite some big shareholders pushing for the role to go to veteran retailer Archie Norman.
Revolution Bars plans return to London’s stock market: A chain of bars infused with the revolutionary spirit of Cuba is the latest company to join the pre-election rush to float on the London Stock Exchange as it looks to raise funds for a major expansion.
Money transfer start-up WorldRemit raises $100.00mn: WorldRemit has raised $100.00mn from a leading Silicon Valley investor in one of the largest fundraising rounds for a British technology start-up, valuing the company at $500.00mn.
Apple wins patent for wireless head-mounted display using iPhone: Apple has been awarded a patent for a headset that slots the iPhone in front of the eyes, sparking speculation that it might be preparing to compete in the rapidly developing virtual reality market with Oculus Rift, Samsung’s Gear VR and Google’s Cardboard.
Samsung and Microsoft mobile sales in Europe hit by Apple devices: European sales of mobile phones from Samsung and Microsoft fell more than a fifth in FY14 owing to the success both of Apple’s latest premium devices and low-cost Asian alternatives.
Peers call for UK broadband to be classed as public utility: Broadband should be defined as a public utility to guarantee unimpeded universal internet access for people across the UK, according to a House of Lords report that lays out a vision of Britain’s digital services for the next government.
Medallion profits point to taxi fightback: The biggest listed provider of loans to New York taxi drivers has posted record annual income, dealing a blow to short-sellers betting that the arrival of Uber and other ride-sharing apps will overturn the yellow-cab industry.
Kintetsu pays $1.20bn for APL Logistics: Kintetsu World Express has agreed to pay $1.20bn to buy the logistics business of Neptune Orient Lines, the Singapore-based container shipping company, in a move that will expand the Japanese group’s presence in the US.
InterContinental Hotels: Fell 1.7% to GBP25.45 after reporting a 2.0% drop in annual revenues and a 3.0% fall in operating profit to $651.00mn.
Petroceltic: Rose 1.7% to 135.00p after Dragon Oil said it was “aggressively pursuing” a development acquisition. Dragon, which has $2.00bn in net cash, will be free from early March to make another approach to Petroceltic, having in December abandoned a 230.00p a share proposal.
Lex:
Starwood: eligible for upgrade: Checking in at a hotel is an art. Show up too soon and you end up stewing in the lobby waiting for a room to open up. Show up too late and the room with the sunset view is gone. Hotel investing requires similar timing. On Tuesday, Starwood Hotels and Resorts announced the departure of long-time chief executive Frits van Paasschen. Mr van Paasschen, over his seven year tenure, focused Starwood on global expansion, with an emphasis on marketing rather than property ownership. The strategy was well-received at first but Starwood shares have fallen as much as 15.0% since the beginning of FY14. Starwood’s nine brands include names such as Sheraton, W and St. Regis. By FY16, it forecasts that 80.0% of its rooms will be outside the US. That is the same as the proportion of earnings that it hopes will come from management fees. By avoiding owning hotels, it stays out of the capital-intensive business of maintaining and upgrading properties. Pursuing this strategy means that Starwood is constantly selling owned properties and converting them to a franchise relationship. Last week, Starwood said it would spin off its vacation ownership property business (so-called “time shares”) as another part of its move to the asset-light model.
Pandora: ring pull: Pandora, the Danish jewellery manufacturer and retailer, craves such loyalty. Happy customers not only buy its mainstay charms and bracelets, but plenty of rings, too. The company reported its best ever fourth-quarter earnings on Tuesday. Full-year net earnings totaled DKr3.10bn, which was above expectations. The shares rose 17.0%. The good news is that rings have indeed lured more customers in to the franchise. The proportion of group revenues from rings has swollen from 6.0% to 10.0% in just a year, to DKr1.20bn. That beat the company’s target by a fifth. But this shift has not taken the gleam away from charms — still two-thirds of sales. Not only did group revenues jump in the quarter by 40.0%, but charms alone grew more than a third. Gross margins for the full year increased four percentage points to 70.0%. Yet there is still work to do. Pandora would like to make a better fist of Asia. Japan may remain a tough market for the company, especially with high real estate prices in key shopping districts. China though does offer more for Pandora’s affordable luxury brand. The company looks to retailers such as Swarovski as role models and wants to have 200 shops in China by FY17, up four times. Germany could use a shine as well. Despite its wealth and size, at DKr578.00m it registers less than a third of the UK’s sales.
HSBC: current accountability: Moralists and politicians won’t want to hear this. But the impact of HSBC’s Swiss private banking scandal on the stock’s investment case can be summarised in a word — zip. Shareholders can forgive bad behaviour, as in this instance it is a decade old and as management (under Chief Executive Stuart Gulliver) has proven it can clean problems up. In any case, the business in question barely registers at just 3 % of profit. That does not mean HSBC is an attractive investment. On the plus side, its dividend yield for the next year or two looks juicy at between 5.0% and 6.0%. But you’ll pay a high price for that income. HSBC is still rated at more than its tangible book value — unlike many western peers — with more than its fair share of challenges ahead. With business conduct and other compliance risks mounting, costs are becoming harder to cut. And an income boost from interest rate hikes looks ever more distant. No wonder the near-term target of a 12.0% return on equity, from sub-10.0% now, has been quietly shelved. After four years of restructuring, HSBC has lost momentum. Moral judgments apart, UK rivals Barclays (where a new chairman is about to start) and Standard Chartered (set to get a new chairman and CEO this year) may make more politic investments.
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