By Anchor Capital
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South African Market Review
South African markets closed higher on Friday, amid hopes of a new Greek debt deal after Germany softened its stance. Rhodes Food Group climbed 6.0%, after its wholly owned subsidiary announced three acquisition agreements. Truworths International, Woolworths Holdings and Famous Brands climbed 4.9%, 2.2% and 1.2%, respectively. Sasol advanced 4.0%. Exxaro Resources advanced 3.6%, despite indicating that its FY14 net operating profit and EPS is expected to show decrease of more than 20.0% from the previous year, mainly due to the non-recurring pre-tax impairment loss. However, Barclays Africa, FirstRand and Nedbank Group plunged 1.0%, 0.9% and 0.3%, respectively. The JSE All Share Index rose 0.4% to close at 53,035.26.
UK Market Review
UK markets finished higher on Friday, led by a rise in mining sector stocks. Glencore topped the gainers and added 3.0%. Standard Life advanced 2.7%, after the firm announced a significant increase in its FY15 earnings and assets under management. Energy sector stocks, Tullow Oil and Royal Dutch Shellrose 2.3% and 0.9%, respectively, as crude oil prices ended above $60/bl. On the downside, International Consolidated Airlines Group fell 2.3%, after a senior Irish government official stated that the firm’s offer to acquire a 25.0% holding in Ireland-based Aer Lingus was not persuasive enough. The FTSE 100 Index advanced 0.4% to close at 6,915.20.
US Market Review
US markets ended in the green on Friday, as Greek and European finance officials reached an agreement on a four-month extension on Greece’s bailout. Intuit jumped 6.2%, as its 2Q15 revenue and earnings beat market estimates. Newmont Mining advanced 4.6%, while Laboratory Corporation of America Holdings and Public Service Enterprise Group rose 3.4% each, after their 4Q14 results came in above market expectations. Cabot Oil & Gas added 1.3%, following better-than-expected 4Q14 revenue. However, Iron Mountain tumbled 5.5%, as the company’s 4Q14 results fell short of market expectations. The S&P 500 Index rose 0.6% to settle at 2,110.30, while the DJIA Index climbed 0.9% to close at 18,140.44. The NASDAQ Index advanced 0.6% to finish at 4,955.97.
Asia Market Review
Markets in Asia are trading mostly higher this morning, after Greece reached a deal with eurozone to extend its bailout programme by four months. In Japan, Terumo Corp. climbed 1.1%, following a report that the firm’s FY15 earnings would reach a record. However, Takata Corp. dropped 2.5%, after US authorities announced that they would start fining the firm for not entirely cooperating on an enquiry into exploding airbags. In Hong Kong, Industrial and Commercial Bank of China and Bank of Communications climbed 0.4% and 0.2%, respectively. In South Korea, Samsung Electronics added 0.1%, amid news that it would acquire US based mobile wallet provider LoopPay. The Nikkei 225 index is trading 0.6% higher at 18,443.82. The Hang Seng index is trading marginally lower at 24,830.88, while the Kospi index is trading 0.4% higher at 1,969.14.
Commodities
At 06:00 SAST today, Brent crude oil advanced 0.4% to trade at $60.04/bl. On Friday, Brent crude oil rose 0.8% to settle at $59.79/bl.
On Friday, the Illinois North Central No.2 Yellow corn spot prices fell 1.4% to $3.63/bushel.
At 06:00 SAST today, gold prices rose 0.1% to trade at $1,203.52/oz. Meanwhile, market participants will keenly eye on an upcoming vote in Greece to put in place reforms required to get further loans from the eurozone. On Friday, gold declined 0.4% to close at $1,201.94/oz, after eurozone officials agreed on a deal to extend Greece’s bailout by four months.
On Friday, copper declined 1.0% to close at $5,708.00/mt. Aluminium closed 1.4% lower at $1,774.50/mt.
Currencies
On Friday, the South African rand strengthened against the US dollar. Meanwhile, the Markit flash manufacturing Purchasing Managers’ Index (PMI) data in the US came in better than market expectations for February. With no major domestic economic releases today, investors will keenly eye Gross Domestic Product and leading indicator data in South Africa due tomorrow for further direction.
The yield on benchmark government bonds rose on Friday. The yield on 2015 bond advanced to 6.21% while that for the longer-dated 2026 issue rose to 7.64%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R11.6464, while the euro is trading 0.1% up at R13.2587.
On Friday, the euro advanced against most of the major currencies, but declined against South African rand. Meanwhile, eurozone finance ministers agreed to Greece’s request for an extension to its bailout programme late Friday. Greek officials have to list out reforms which will be scrutinised by its international creditors today. On the macro front, data showed that the flash reading of manufacturing PMI in the eurozone rose for February but came in below market expectations. Moving ahead, investors will keep a tab on German Ifo indices data due later today.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.1385, while it has gained 0.1% against the British pound to trade at GBP0.7402.
Economic Updates
In January, retail sales slid 0.3% on a monthly basis in the UK, more than market expectations for a drop of 0.2%. Retail sales had climbed by a revised 0.2% in the previous month.
The Office for National Statistics has reported that, in the UK, the public sector net borrowing has posted a deficit of GBP9.40bn in January, compared with a revised surplus of GBP9.90bn in the prior month. Market expectations were for public sector net borrowing to announce a deficit of GBP9.30bn.
The Markit Economics has reported that the flash manufacturing PMI eased unexpectedly to 47.70 in France, in February. In the prior month, manufacturing PMI had registered a level of 49.20.
The Federal Statistical Office has reported that, on a monthly basis in Germany, the producer price index registered a drop of 0.6% in January, higher than market expectations for a fall of 0.4%. In the prior month, the producer price index had fallen 0.7%.
The Markit Economics has reported that the preliminary manufacturing PMI remained steady at 50.90 in Germany, in February, compared with market expectations of a rise to a level of 51.50.
The Markit Economics has indicated that, in February, the preliminary composite PMI recorded a rise to 53.50 in the eurozone, compared with a reading of 52.60 in the previous month. Markets were expecting composite PMI to advance to 53.00.
The Euro group meeting on Friday indicated that the eurozone finance ministers granted a four month loan extension to Greece, avoiding a probable financial crisis in March that could have resulted in forced exit of Greece from the currency area. Further, the bailout deal is to be approved once the creditors are satisfied with a list of reforms Greece will submit this week.
The Markit Economics has reported that compared with a level of 53.90 in the previous month the preliminary manufacturing PMI registered an unexpected rise to 54.30 in February, in the US.
The Minutes of the Bank of Japan’s (BoJ) latest monetary policy meeting revealed that three of the board members doubted whether BoJ would be able to achieve its inflation target largely due to slowdown in inflation and declining oil prices. Further, few other members indicated that the gradual decline in oil prices over the last year has slowed down rise in inflation.
Corporate Updates
South Africa
Exxaro Resources: The large coal and heavy minerals mining company, in its trading statement for FY14, revealed that consolidated net operating profit as well as attributable EPS are expected to show a decrease of more than 20.0%compared with the previous year, mainly due to the non-recurring pre-tax impairment loss of R5.80bn of the company’s investment in the Mayoko Project on 30 June 2014.Attributable losses are expected to be between R0.83bn and R1.00bn.
African Rainbow Minerals: The mining company, in its trading statement for 1H15, indicated that its headline EPS is expected to decrease by between 55.0% and 58.0%to between R4.55 and R4.90 from the previous year. Further, its basic EPS is anticipated to be between R3.60 and R3.80, compared with R7.94 posted in the same period a year ago.
Northam Platinum: The platinum mining company, in its 1H15 results, stated that sales revenue was up 32.7% to R3.04bn from the same period a year ago. It reported a diluted EPS of 89.20c, compared with a loss of 24.90c/share.
Trencor Limited: The investment holding company, in its FY14 results, stated that revenue increased 22.2% to R8.06bn from the preceding year. Its diluted EPS stood at R5.42, compared with R7.86 posted a year ago. The company declared a final dividend of R1.95/ share, an increase of 16.0% over the previous year.
Spur Corporation: The company, in its trading statement for 2H14, indicated that its EPS is expected to drop between 25.0% & 30.0%, to between 59.50c & 63.75c, from the same period a year ago.
Pan African Resources: The company announced the appointment of Deon Louw as the Financial Director and would replace Cobus Loots, who will become the CEO.
Rhodes Food Group: The company announced that its wholly owned subsidiary, Rhodes Food Group Proprietary Limited, has entered into three agreements relating to the acquisition of the business assets of Boland Pulp Proprietary Limited, the immovable properties owned by Boland Pulp Properties Proprietary Limited and the business assets of Deemster Proprietary Limited.
SABMiller exit ignites takeover talk: The dramatic exit of SABMiller’s finance director, Jamie Wilson, which shocked company insiders and the investment community this week, could spur Anheuser-Busch In Bev into making its long-expected move on its rival.
UK and US
Deere & Co.: The agricultural machinery manufacturing company, in its 1Q15 results, indicated that total net sales and revenue dropped 16.6% to $6.38bn from the same period a year ago. Its net EPS was $1.12, compared with $1.81 reported in the previous year during the same quarter. The company projects equipment sales to decrease about 17.0% for FY15 and be down about 19.0% for 2Q15 compared with year-ago periods.
Health Care REIT Inc.: The real estate investment trust, in its FY14 results, stated that its total gross revenue was up 16.1% to $3.34bn from the previous year. Its net diluted EPS stood at $1.45, compared with $0.28 posted a year ago. The company, in its FY15 guidance, stated that it expects to report net diluted EPS in a range of $1.70 to $1.80.
Public Service Enterprise: The diversified energy company, in its FY14 results, revealed that its operating earnings were $1.40bn, compared with $1.31bn reported a year ago. Its net diluted EPS rose to $2.99 from $2.45 posted in the previous year. For FY15, the company initiated a net operating EPS guidance of $2.75 to $2.95.
Cabot Oil & Gas: The company, in its FY14 results, indicated that total operating revenue increased 24.4% to $2.17bn from the preceding year. However, its EPS was down to $0.25, compared with $0.67 posted a year ago. For FY15, the company slashed its capital budget, amid a loss in 4Q14 due to plummeting energy prices.
Laboratory Corporation of America: The health care diagnostics company, in its FY14 results, stated that its net sales increased 3.5% to $6.01bn from the previous year. However, its net diluted EPS dropped 5.4% to $5.91 from a year ago. The company expects total revenue growth of approximately 40.0% to 44.0% in FY15.
Iron Mountain: The information management services company, in its FY14 results, revealed that total revenues were up 3.1% to $3.12bn from a year ago. Its diluted net EPS from continuing operations stood at $1.67, compared with $0.52 reported in the previous year. The company expects FY15EPS in the range of $1.15 to $1.30, with revenue in the range of $3.03bn to $3.15bn.
Pinnacle West Capital: The company, in its FY14 results, indicated that operating revenues increased to $3.49bn, compared with $3.45bn reported in the preceding year. However, its net diluted EPS from continuing operations dropped 2.2% to $3.58 from the previous year. For FY15, the company expects its on-going consolidated EPS to be within a range of $3.75 to $3.95.
Salix Pharmaceuticals: The pharmaceutical company stated that it has entered into a definitive agreement with Valeant Pharma, under which the latter would acquire all of the outstanding common stock of the former for $158.00/share in cash, or a total enterprise value of approximately $14.50bn.
BGC Partners: The financial services company announced that it has entered into a tender offer support agreement with GFI Group, in which GFI’s board of directors unanimously agreed to support its tender offer for all of the outstanding shares of GFI common stock at $6.10/share in cash.
Ivanhoe Energy: The energy company announced that it is working to renegotiate its debt obligations and sell assets under the Bankruptcy and Insolvency Act. Soon after the announcement, TSX stated that the company’s stock listing is under review and trading has been suspended.
Standard Life: The investment company, in its FY14 results, indicated that fee-based revenue was up 14.1% to GBP1.43bn from the preceding year. Its diluted EPS from continuing operations was 15.70p, compared with 14.10p posted a year ago. The company indicated that it remains focused on delivering excellent investment performance, expanding its investment capabilities, strengthening its distribution and increasing geographic reach in FY15.
Essentra Plc: The company, in its FY14 results, revealed that revenue rose to GBP865.70mn from GBP798.10mn recorded in the prior year. Its diluted EPS stood at 29.40p, compared with 25.70p posted a year ago. Furthermore, the company announced that it has completed the acquisition of Specialty Plastics for an undisclosed cash consideration, funded from its existing facilities.
Bank of Georgia Holdings: The company, in its FY14 results, stated that interest income increased 2.5% to GBP0.21bn from the previous year. Its basic and diluted EPS was up to GBP2.32 from GBP2.07 reported in the preceding year. The company intends to recommend an annual dividend of GEL2.10/share, an increase of 5.0% from a year ago.
3i Infrastructure Plc: The infrastructure company announced that it has signed an agreement with Oiltanking GmbH to acquire a 45.0% interest in Oiltanking Terneuzen B.V. in the Netherlands and Oiltanking Ghent N.V. in Belgium for EUR111.00mn.
Nostrum Oil & Gas: The oil and gas company, in its independent reserves audit of its licenses in north-western Kazakhstan, revealed that it had proven reserves of 192.20mnboe in FY14 in the area. Further, the production of approximately 21.00mnboehas been recorded since the last report with a proven reserve replacement ratio of over 65.0%. It also stated that proved+ probable reserves (2P) remained above 550.00mnboe at 571.10mnboe.
Financial Times
MPs criticise Ofgem for failure over energy network pricing: The UK’s energy market regulator has been criticised by MPs for failing to keep energy network costs down, thus contributing to higher gas and electricity bills for consumers.
Azerbaijan devalues currency by one-third amid oil price tumble: Azerbaijan devalued its currency by a third over the weekend in a surprise move that laid bare the damage the oil price tumble has wrought on major energy-exporting economies.
Chinese demand fuels renewables sector turnround: Production of wind turbines and solar panels soared in 2014, as increased demand from China fuelled a turnround for renewable energy manufacturers that had struggled with overcapacity and a sharp slowdown in demand from developed countries in recent years.
European market for online alternative finance surges: The European market for online alternative finance grew by 144 per cent last year to almost €3bn and could hit €7bn this year as companies look to tap new sources of capital, according to a new report.
Earnings figures provide shaky foundations for long-term growth: UK companies’ earnings growth is being based on factors such as lower tax charges rather than on lasting improvements in operational performance, according to new research.
New stringent City code will affect non-execs: UK regulators will include banks’ and insurers’ senior non-executives alongside chairmen in a tough new personal liability regime to be unveiled on Monday that the City fears could deter able people from taking top roles in the industry.
HSBC chief Gulliver pulled into bank’s tax scandal: HSBC’s chief executive Stuart Gulliver has been dragged into the tax-evasion scandal surrounding Europe’s biggest bank after it was claimed that he sheltered millions of dollars from the taxman in a Panamanian company via its Swiss private bank.
Abraaj takes $400m slice of Turkish online group Hepsiburada: Abraaj Capital, the Dubai-based private equity group, has taken a stake in Turkey’s largest online retailer amid growing investor interest in the country’s increasingly internet-savvy population.
Rothschild eyes early bonus round to avoid possible windfall tax: Rothschild, the boutique investment bank, is considering paying its 2014 bonuses early to avoid the extra taxes Labour has vowed to introduce if it returns to power, two sources familiar with the bank’s thinking said.
Investigations by Financial Conduct Authority rise 20% in a year: Investigations by the UK markets watchdog increased by 20 per cent last year, with a renewed focus on companies rather than individuals.
Zurich set to insure long-term care of sick and elderly: One of the UK’s largest insurers is to begin selling policies to help cover care costs for the sick and the elderly, although it stops short of the comprehensive cover ministers have called on the industry to develop.
Valeant agrees to buy Salix for $14.5bn: Valeant, the serial pharmaceuticals dealmaker, has agreed to buy Salix in an all-cash transaction that values the gastrointestinal specialist at $14.5bn including debt.
Broadcasters fear falling revenues as viewers switch to on-demand TV: With YouTube to watch, Instagram pictures to take and Facebook, Snapchat and other social media platforms to explore, a generation of young Americans that used to turn to television for entertainment is finding its fix elsewhere.
Ales and craft beers spur brewing boom: Brewing is booming in the UK, spurred by growing sales of craft beer and ales, with applications to start breweries tripling in the past five years.
Ladbrokes set to close more betting shops: Ladbrokes will announce a further cut to its shops portfolio, taking the total number of net closures in the past year to 150 as regulation and tax pressures continue to hurt high street bookmakers.
Tough Asia conditions take toll on Prada: Sales at Italian luxury group Prada fell in 2014 as market conditions in Asia gradually deteriorated in the second half of the year, the company said on Sunday.
Whitehall gets the digital message: At the Government Digital Service in central London, dressed-down staff do their best to foster an atmosphere that is more Silicon Valley than SW1.
US telecoms executives turn on Dish’s Charlie Ergen: The US telecoms industry has rounded on Charlie Ergen after he emerged as one of the biggest bidders in a record-breaking auction of government-owned spectrum that raised $44.9bn for the US taxpayer.
Prolonged US port disruptions loom despite deal: US manufacturers, exporters and retailers face months of continuing supply chain disruption from the after-effects of a simmering labour dispute despite a return to work at west coast ports that had been in “gridlock”.
Standard Life: Rose 2.7 per cent to 419.6p on forecast-beating results.
Bank of Georgia: Faded 11.2 per cent to £19.00 after its year-end earnings missed consensus expectations and came with cautions on slowing economic growth and rising costs.
Lex
Gemalto: dim sim: For a company whose business rests on “enabling trust in the digital world”, getting hacked is bad news. Yet for Gemalto, the French company that sells Sim cards, payment cards and identity products (think passports), the reports that it might have been hacked by US and UK spy agencies did not have a huge affect on its stock. The share price closed 4 per cent down on Friday. That is because, hacked or not, shareholders already had a lot to worry about. The share have fallen 14 per cent in the past year. Gemalto’s primary business used to be selling Sim cards, but that market has stagnated, and Gemalto’s 4G technology is no longer as strongly differentiated as it once was. Gemalto still has about a third of the global Sim card market, and mobile revenues account for just over half of Gemalto’s €2.5bn in sales last year. But the company risks sitting on the sidelines of the mobile payment revolution — its technology was not included in ApplePay, for example. Gemalto is looking for growth in other areas to meet its financial target of €600m in operating profit by 2017 (double the level of 2013). In the near term, the adoption of chip-and-pin payment cards will provide a boost. Already widespread in Europe, these are now being rolled out in the US and Asia — and Gemalto is a big supplier. Moreover the company’s identity business (as in ID cards and passports) is growing fast, and will be further helped by its recent acquisition of Trub, a Swiss identity product company. Barclays expects revenues from identity and payment could be more than half of sales for the first time this year.
M&A and antitrust: no good deed: Regulators block industry consolidation to prevent companies from having too much power over customers. That seems reasonable enough. However, should it matter if the underlying industries in which those regulators intervene are inherently dreadful? The current kerfuffle in which Sysco Corp finds itself is one example of this dilemma. With an enterprise value of $26bn, Sysco is the leading US foodservice distributor, the business of delivering supplies to restaurants, hospitals and other institutions. In December 2013, it announced plans to acquire the second leading distributor, US Foods, for $8bn. The biggest buying the next one down might appear problematic. On Thursday, the US Federal Trade Commission said it would sue to stop the merger on the grounds that the tie-up would curtail competition in 32 individual markets. But Sysco, even as the industry leader, has underperformed the broader stock market, with operating margins below 5 per cent. It must wonder what it can do to create value.Sysco had already offered to divest operations with $4.6bn of revenue. Maybe in this instance it pursued an overly ambitious deal. However, its shareholders were clearly impatient with the low organic growth available in its mature $250bn industry.
Snapchat: Vanishing act: The original appeal of Snapchat, a social messaging app, was disappearing photos that vanish after 10 seconds or less. There are plenty of ephemeral apps, but Snapchat is the biggest. Less than four-years-old, it has 170m users (Cowen estimates) — two-thirds as many as Twitter. And it is fending off investors who would buy in at a valuation of $16bn or more. Snapchat is valuable not only because of its fade away photos. Snapchat has messaging features (for text, photos and video); socially shared posts; and even a professional news platform. Time spent by US teenagers aged 14-17 on the app rivals that of Facebook (30 minutes per session on Snapchat, versus 34 for Facebook, according to Magid Associates). Its young, engaged audience — mostly under 30 — makes it popular with advertisers. Whether Snapchat itself might be as ephemeral as its photos remains to be seen. It has grown fast. Snapchat has five times as many users as Facebook did at the same age (3.5 years-old). It has also been faster to commercialise: Cowen estimates the app had $200m in revenues this year, mostly from ads. But it is early days; it could disappear just as quickly (remember MySpace?) Already users bemoan a clunky design as new features clutter the interface.
*Published with special permission by Anchor Capital (ACG)
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