By Anchor Capital
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South African Market Review
South African markets closed marginally higher yesterday. BHP Billiton climbed 4.3%. It reported a drop in its 1H15 total revenue and profit, but results beat market estimates. FirstRand and Capitec Bank advanced 1.3% and 1.2%, respectively. Mondi gained 1.1%, after announcing that its basic EPS for FY14 was up 22.1% from the previous year. However, Imperial Holdings declined 5.9%, after reporting a drop in its 1H15 operating profit. Shoprite Holdings plunged 5.6%, after it anticipated that sluggish economic growth and unemployment would affect its trading in 2H15. Discovery Limited fell 1.1%, despite reporting a rise in its 1H15 earnings. The JSE All Share Index rose 0.1% to close at 53,374.88.
UK Market Review
UK markets finished higher yesterday. BHP Billiton surged 6.2%, after the company posted a lower-than-anticipated drop in its 1H15 earnings. Peers, Anglo American and Glencore advanced 3.3% and 2.9%, respectively. Mondi climbed 2.6%, after the company posted a rise in its FY15 profit and lifted its dividend. HSBC Holdings rose 0.8%, reversing its losses from the previous session. Bucking the trend, Meggitt tumbled 6.0%, after reporting a decline in its FY14 earnings before tax. GKN fell 3.2%, after the company, citing the adverse effects of currency movements, announced downbeat FY14 results. The FTSE 100 Index advanced 0.5% to close at 6,949.63.
US Market Review
US markets ended in the green yesterday, after the US Federal Reserve Chairperson, Janet Yellen, indicated that an interest rate hike is unlikely before mid-year due to low inflation and wage growth. First Solar gained 10.2%, after it announced that they are in advanced discussions with SunPower to form a joint venture, yieldco. Home Depot climbed 4.0% as the company reported better-than-expected 4Q14 results and announced an $18.00bn share buyback programme. However, Macy’s declined 3.2%, after it reported 4Q14 revenue below market estimates and issued a tepid earnings guidance for FY15. The S&P 500 Index rose 0.3% to settle at 2,115.48, while the DJIA Index climbed 0.5% to close at 18,209.19. The NASDAQ Index advanced 0.1% to finish at 4,968.12.
Asia Market Review
Markets in Asia are trading higher this morning. In Japan, auto manufacturers, Honda Motor and Nissan Motor climbed 0.7% and 0.4%, respectively. However, Aeon fell 2.0%, after its stock traded ex-dividend. In Hong Kong, property developers, Henderson Land Development and Wharf Holdings rose 0.8% and 0.3%, respectively. However, casino stocks, Galaxy Entertainment Group and Sands China plunged 6.5% and 6.3%, respectively, as investors speculated that the revenue decline would persist. In South Korea, Korea Steel Shapes and Shin Poong Paper Manufacturing surged 8.1% and 7.0%, respectively. The Nikkei 225 index is trading 0.1% higher at 18,622.40. The Hang Seng index is trading 0.4% up at 24,856.41, while the Kospi index is trading 0.7% higher at 1,990.52.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.2% to trade at $58.44/bl. Meanwhile, the American Petroleum Institute stated that crude stockpiles rose 8.90mn bls last week. Yesterday, Brent crude oil fell 0.4% to settle at $58.31/bl. Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.4% to $3.56/bushel.
At 06:00 SAST today, gold prices advanced 0.8% to trade at $1,209.69/oz, with markets in China reopening today after week-long holiday. Yesterday, gold declined 0.1% to close at $1,200.53/oz. Eurozone officials agreed Greece’s list of reform proposals and paved the way for a four-month extension of the country’s bailout programme.
Meanwhile, the US Federal Chairperson, in her testimony, stated that the Fed would consider raising the interest rate on a meeting by meeting basis if economic conditions in the US continue to improve.
Yesterday, copper rose 2.0% to close at $5,800.00/mt. Aluminium closed 1.1% higher at $1,792.00/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, after data indicated that South Africa’s economy grew at a faster pace than market expectations in the fourth quarter of last year. Meanwhile, the US Federal Reserve Chairperson, Janet Yellen, stated that it would be several months before the Fed expects to raise interest rates. Meanwhile, the consumer confidence data in the US came in below expectations for February. Moving ahead, investors will keep a tab on US new home sales data for January due later today.
The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.18% while that for the longer-dated 2026 issue fell to 7.62%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R11.4860, while the euro is trading 0.2% higher at R13.0354.
Yesterday, the euro advanced against most of the major currencies, but declined against South African rand. Meanwhile, eurozone officials have approved reform proposals submitted by Greece in order to obtain a four-month extension of its bailout programme. Additionally, the final estimate of the German Gross Domestic Product (GDP) for the fourth quarter remained unchanged from the preliminary data and the eurozone consumer price inflation reading was in line with market expectations. Going forward, investors will eye the ECB President Mario Draghi’s speech today for further direction.
Economic Updates
On a sequential basis, the GDP in South Africa advanced at an annualised rate of 4.1% in 4Q14, more-than-market expectations for a rise of 3.8%. In the prior quarter, GDP had advanced by a revised 2.1%.
The Leading indicator in South Africa eased to 99.90 in December. In the prior month, leading indicator had recorded a level of 100.80.
The Bank of England Governor, Mark Carney, stated that low inflation in the UK is temporary and is likely to return to its 2.0% target within two years. Additionally, he shrugged off concerns of “deferred consumption” in the UK by hinting that he saw no evidence of consumers delaying their purchases in anticipations of a further fall in domestic prices.
In Germany, the seasonally adjusted final GDP recorded a rise of 0.7% on a quarterly basis in 4Q14, meeting market expectations. In the previous quarter, GDP had registered a rise of 0.1%. The preliminary figures had also recorded an advance of 0.7%.
On a monthly basis, the consumer price index in the eurozone fell 1.6% in January, at par with market expectations. In the previous month, the consumer price index had fallen 0.1%.
Eurozone approves Greece’s loan extension, but seeks clearer reforms.
Greece secured a four-month loan extension on Tuesday when the country’s eurozone partners approved a reform plan, after Greece promised to ensure that the government spending plan would not disrupt its budget.
The Federal Reserve Bank of Richmond has indicated that, in February, the composite index of manufacturing in the US registered an unexpected drop to 0.00. The composite index of manufacturing had registered a reading of 6.00 in the prior month.
The Markit Economics has indicated that the flash services PMI in the US recorded a rise to 57.00 in February, compared with market expectations of a rise to 54.50. Services PMI had registered a reading of 54.20 in the previous month.
The US Federal Reserve Chair, Janet Yellen, indicated that the central bank is anticipated to remain “patient” in deciding over the timing of an interest rate rise in the US, although a changed in the central bank’s policy stance is likely “on a meeting-by-meeting basis”.
Corporate Updates
South Africa
Shoprite Holdings Limited: The company, in its results for the six months ended December 2014, stated that sale of merchandise rose 12.5% to R57.47bn from the same period of the previous year. Its diluted EPS stood at 369.70c, compared with 340.60c posted in the same period a year ago. The company expects that the present economic climate would continue in 2H15, while consumers’ lack of disposable income, coupled with sluggish economic growth and climbing unemployment, would continue to inhibit trading.
BHP Billiton: The mining company, in its 1H15 results, indicated that total revenue decreased 11.9% to $29.90bn from the preceding period of last year due to sliding iron ore and oil prices. Its diluted EPS was down to 80.00¢, compared with 151.90¢ reported in the same period a year ago.
Discovery Limited: The company, in its 1H15 results, revealed that net income increased 17.0% to R19.18bn from the corresponding period of the previous year. Its diluted EPS attributable to ordinary shareholders was 600.40c, compared with 301.10c posted in the same period a year ago. The company also announced that it plans to raise up to R5.00bn through a rights issue at R90.00/share.
Eoh Holdings Limited: The company, in its trading statement for the six months ended 31 January 2015, indicated that EPS is expected to be between 275.80c and 298.70c, representing an increase of between 20.0% and 30.0% compared with the same period of the previous year. Its headline EPS is expected to be between 275.50c and 298.50c, compared with 229.60c reported in the corresponding period of prior year.
Mondi Plc: The packaging and paper company, in its FY14 results, stated that group revenue decreased marginally to EUR6.40bn from EUR6.48bn reported a year ago. However, its basic EPS was up 22.1% to EUR0.97 from the previous year.
Brimstone Investment: The company, in its preliminary FY14 results, indicated that revenue increased 6.5% to R2.22bn from the preceding year. However, its diluted EPS dropped to 90.40c from 162.20c reported a year ago.
Imperial Holdings: In its 1H15 results, the company stated that revenue was up 9.5% to R56.23bn from the previous year. However, its diluted EPS decreased to 736.00c, compared with 878.00c reported a year ago. Additionally, the company announced the appointment of Messrs Peter Cooper and Graham Wayne to the board, effective from 24 February 2015.
Ascension Properties: The company announced that it has entered into an agreement with Rebosis Property Fund, where the latter would acquire 100.0% of the issued linked unit capital of the former that it does not already own by way of scheme of arrangement.
Lonmin Plc: The platinum mining company announced the resignation of Johan Viljoen, the Chief Operating Officer, for personal reasons. It stated that Ben Moolman, the head of their business support office, would become acting Chief Operating Officer for the time being, alongside his current role, with immediate effect.
Telkom chosen to lead countrywide broadband roll out: JSE-listed telecommunications utility Telkom has been designated by Cabinet as the lead agency for a countrywide broadband roll out, says Telecommunications and Postal Services Minister SiyabongaCwele.
WBHO prunes Australia unit: Construction company Wilson Bayly Holmes-Ovcon is downsizing its business in Australia, its largest region by revenues, as mining sector work continues to decline.
Sun International may look to the East: Gaming and leisure group Sun International could turn its attention to Asia after proposals to consolidate its Latin American units into a bigger entity.
UK and US
Comcast Corporation: The mass media company, in its FY14 results, indicated that revenue was up 6.4% to $68.78bn from the preceding year. Its diluted EPS was $3.20, compared with $2.56 reported in the previous year.
Home Depot: The home improvement and construction products and services company, in its FY15 results, stated that net sales grew 5.5% to $83.18bn from the previous year. Its diluted EPS increased to $4.71, compared with $3.76 posted a year ago. Furthermore, it authorised the repurchase of $18.00bn of its own shares.
Hewlett-Packard: The information technology company, in its 1Q15 results, revealed that net revenue decreased 4.7% to $26.84bn from the corresponding period of prior year. Its diluted EPS decreased marginally to $0.73 from $0.74 recorded in the same period a year ago. For FY15, the company estimates non-GAAP diluted net EPS to be in the range of $3.53 to $3.73.
Ecolab Inc.: The company, in its FY14 results, stated that net sales increased to $14.28bn from $13.25bn reported in the previous year. Its diluted EPS grew 24.4% to $3.93 from the prior year. The company expects FY15 adjusted EPS to rise to in the range of $4.50 to $4.70, representing an 8.0% to 12.0% increase over the prior year.
Macy’s Inc.: The holding company, in its FY14 results, revealed that net sales rose to $28.11bn, compared with $27.93bn reported in the preceding year. Its diluted EPS was up 9.3% to $4.22 from the previous year. The company expects comparable sales growth on an owned plus licensed basis, as well as on an owned basis, of approximately 2.0% in FY15.
Edison International: The public utility holding company, in its FY14 results, indicated that total operating revenue was up 6.6% to $13.41bn from the prior year. Its net diluted EPS grew to $4.89 from $2.78 posted a year ago. The company stated that its electric grid investments and cost management were “key factors” in a strong full-year performance.
Celldex Therapeutics: The company announced that it is offering 7.25mn shares of its common stock in a proposed underwritten public offering.
AMAG Pharmaceuticals: The pharmaceutical company announced that it has commenced an underwritten public offering of approximately $125.00mn of shares of its common stock. The company intends to grant the underwriters a 30-day option to purchase up to an additional 15.0% of the shares of the common stock offered in the public offering.
Benefitfocus Inc.: The company, in its FY14 results, stated that its revenue increased to $137.42mn from $104.75mn posted in the previous year. Its basic and diluted loss per share narrowed to $2.51 from $2.99 posted in the preceding year. Meanwhile, the company indicated that Mercer, a global consulting leader in advancing health, wealth and careers, and a wholly-owned subsidiary of Marsh & McLennan Companies, Is taking 9.9% stake in the company, with the option to increase its ownership over time.
GKN Plc: The automotive and aerospace components company, in its FY14 results, revealed that sales dropped 2.2% to GBP6.98bn from the previous year. Its diluted EPS from continuing operations was 10.20p, compared with 23.80p posted a year ago. The company anticipates FY15 to be a year of further growth, despite some markets being challenging.
Persimmon Plc: The housebuilding company, in its FY14 results, indicated that revenue increased 23.4% to GBP2.57bn from the preceding year. Its diluted EPS stood at 121.70p, compared with 84.20p reported in the previous year. The company stated that it has experienced a solid opening period to the FY15 spring season with average visitors to site being in line with the levels of the prior year.
Meggitt Plc: The aerospace, defence and energy specialising company, in its FY14 results, stated that revenue was down 5.1% to GBP1.55bn from the prior year. Its diluted EPS dropped to 21.70p from 28.90p in the preceding year and its underlying diluted EPS was down to 31.90p. Furthermore, the company announced that it has been selected by AVIC Aircraft Xi’an Branch to embark on a multi-million dollar programme involving three packages of work for the MA700 70-seat regional aircraft.
Croda International: The chemicals company, in its FY14 results, stated that revenue decreased 2.8% to GBP1.05bn from the previous year. Its diluted EPS was 121.20p, compared with 130.10p reported in the prior year. The company stated that it would continue to target profitable sales growth for itself, although demand in Europe is expected to remain subdued.
Drax Group: The electrical power generation company, in its FY14results, revealed that revenue rose 36.0% to GBP2.81bn from the same period a year ago. Its basic and diluted EPS was 32.00p, compared with 13.00p reported in the corresponding period of last year. The company stated that the market outlook for FY15 remains challenging.
Elementis Plc: The specialty chemicals company, in its 1H15 results, indicated that revenue increased to $0.79bn, compared with $0.78bn reported in the same period of preceding year. Its diluted EPS stood at 37.70¢, compared with 23.00¢ posted in 1H14.
NMC Health: The healthcare company, in its FY14 results, revealed that revenue increased 16.9% to $0.64bn from the previous year. Its basic and diluted EPS stood at $0.41, compared with $0.37 posted a year ago. Furthermore, the company announced the acquisition of 86.4% of issued share capital of ClinicaEugin, a leading global fertility treatment provider based in Barcelona, Spain, for an enterprise value of EUR143.00mn.
Financial Times
EU courts Azerbaijan and Turkmenistan gas as Russian links sour: The EU is stepping up a charm offensive in Azerbaijan and Turkmenistan as relations with Russia worsen, in a drive to put the gas-rich but politically sensitive countries at the heart of the bloc’s energy strategy.
Obama vetoes Keystone pipeline bill: Barack Obama has used his power to thwart the Republican-controlled Congress by vetoing a bill to approve the Keystone XL pipeline, a controversial project that pits energy development against action on climate change.
Batista’s Porsche puts trial into a spin: The insider trading trial of Eike Batista was thrown into turmoil on Tuesday amid allegations that a judge hearing his case made personal use of a Porsche seized from the former Brazilian billionaire.
Low oil price forces South Korean shipbuilders to cut costs: The plunging price of oil is forcing South Korean shipbuilders to take tough restructuring measures as a drop in offshore rig jobs eats into profits and pushes them into uncharted waters.
South Africa records worst growth in 5 years: South Africa recorded its worst economic growth in five years in FY14 as Africa’s most developed economy counted the cost of a wave of strikes, infrastructure bottlenecks and fragile business confidence.
JPMorgan to charge fees for big deposits: JPMorgan is urging some of its biggest customers to take their cash elsewhere or be hit with fees, saying that holding very large deposits has become too costly under new liquidity rules.
Lending Club shares dip 11.0% on full-year loss: Lending Club shares fell 11.0% in after-hours trading after the world’s biggest peer-to-peer lender reported its first set of results as a public company and unveiled a loss of $32.90mn for last year.
Labour to include allowances in bank bonus tax: Labour will announce plans on Wednesday to extend the reach of its bank bonus tax, amid anxiety in Downing Street that pay awards this week by state-controlled Royal Bank of Scotland and Lloyds Banking Group will stoke further public anger.
RBS to appoint Cullinan as head of investment bank: Royal Bank of Scotland is set to appoint a new head of its struggling investment bank as the UK government-controlled lender steps up efforts to shrink the lossmaking unit back to its domestic roots.
Deutsche strikes deal with HP on IT system: Deutsche Bank has struck a “multibillion dollar” deal with Hewlett-Packard to modernise some of its IT systems and outsource part of its data storage as the German lender attempts to reduce its high cost base.
Pressure rises on HSBC’s Gulliver and Flint on eve of MP grilling: Amid a bruising scandal over alleged tax-dodging by clients of HSBC’s Swiss private banking arm, group chairman Douglas Flint and Chief Executive Stuart Gulliver have been hastily summoned before a parliamentary committee.
Wrexham jail to be run by public sector: The UK’s first “super prison” holding more than 2,000 inmates is to be run by the public sector, dashing the hopes of private security companies that were preparing to bid for the contract.
Europe’s big banks will need to raise capital warns ECB: Some of the eurozone’s biggest banks will need to raise more equity because of a clampdown on national exceptions to capital rules, the eurozone’s Chief banking Supervisor has forecast.
Hospira and Celltrion launch biosimilars: Pharmaceuticals groups Hospira and Celltrion are to launch cut-price versions of a blockbuster anti-inflammatory drug across Europe on Wednesday — marking a significant step forward for a new category of medicines called biosimilars.
UK passes legislation to allow three-parent babies: Britain has become the first country to pass legislation permitting the creation of babies with DNA from three people.
GKN looks to car market for growth: GKN on Tuesday predicted strong demand for car parts will underpin growth in group revenue this year, but the British engineering group warned that its other core markets will be more challenging.
Sony picks Rothman to replace Pascal: Sony Pictures has reshuffled its Executive ranks following the departure of Amy Pascal, who left her job at the Hollywood studio earlier this month in the aftermath of the devastating cyber attack against the company.
Comcast Chief warns on new internet rules: The US communication watchdog’s proposed new regulatory regime for the internet has “unnecessary risks” for internet providers, according to Brian Roberts, Chief Executive of Comcast, America’s largest internet provider.
McDonald’s franchisee sued by Brazilian unions: Brazilian unions have sued the world’s largest McDonald’s franchisee over allegations that it violated labour laws through time-clock fraud and unsanitary working conditions.
Clinton warns Silicon Valley going backwards: Hillary Clinton has warned there is a “real human cost” to technology, using a speech at the heart of Silicon Valley to stress its potential to automate jobs away and put pressure on the wages of ordinary people.
Magic Leap prepares leap of faith headset: The head of a secretive start-up backed by Google has outlined his ambitious vision for a “techno-biology” headset that could one day succeed smartphones and PCs as many people’s “everyday computing” device.
Pebble watch sets Kickstarter record: One of the most successful Kickstarter projects to date, the Pebble smart watch, has set a record on the crowdfunding site as the start-up rallies support ahead of tough competition from the Apple Watch.
Altice on hunt for bigger acquisitions: Altice, the European cable and mobile group, is on the hunt for bigger takeover targets even though it has already splashed more than EUR28.00bn on acquisitions in the past 12 months.
Irish government rebuffs IAG bid for Aer Lingus: The Irish government on Tuesday rebuffed an attempt by International Airlines Group to buy Aer Lingus, saying it needed more assurances on jobs and growth prospects before it would consider selling the state’s 25.0% stake in the Irish flag carrier.
Hitachi snaps up Finmeccanica’s rail business in EUR809.00mn deal: Hitachi has swooped on Finmeccanica’s rail assets in a EUR809.00mn cash deal that will strengthen its position in the transport industry, and enable the Italian aerospace and defence company to reduce its large debt load.
BHP Billiton: Up 6.2% to GBP16.44, after its interim results beat forecasts on cost cuts.
Vedanta Resources: Gained 1.8% to 584.50p after the group said late on Monday that it will be repaid tax withheld by Zambia, which has held back about $600m from its mining sector after changing export regulations.
Just Retirement: Squeezed up 15.8% at 166.30p after its better than expected interim results eased worries about the impact of annuities market reform.
Drax: Rallied 6.7% to 429.90p, after MEPs voted in favour of reforming the EU’s policy for cutting carbon emissions.
Tungsten: Slumped 20.4% to 160.80p on a critical blog post from Matthew Earl, a self-promoting short seller and former Charles Stanley analyst.
Lex
Stifel Financial/Sterne Agee: gone fishing: One banking minnow, Stifel Financial, is aggressively chasing both those businesses. Stifel, with a market capitalisation of $3.00bn and total assets just below $10.00bn, announced late on Monday that it would acquire the bond and retail brokerage businesses of smaller rival Sterne Agee for a total of $190.00mn. Stifel has become an aggressive acquirer in recent years, snapping up well-known businesses such as Keefe, Bruyette & Woods, Thomas Weisel, Miller Buckfire and the fixed-income business of Knight Trading. On Tuesday, Stifel’s shares rallied 5.0%. Before the Sterne deal, just over half of Stifel’s revenue came from its wealth management business, which has an operating margin of 30.0%, nearly twice that of its investment banking and trading division. Of the $300.00mn in annual revenue that Sterne will bring, half will come from its wealth business. Together, Stifel and Sterne will have nearly 3,000 financial advisers, the sixth-biggest presence in the US. Morgan Stanley, Bank of America and Wells Fargo each have more than 15,000 advisers. Yet even with the broadening scope of the firm after the acquisition, the more pressing question may be less about Stifel’s business mix and more about its capitalisation. It is leveraged just four times, which is low for a bank. Before the pop from the Sterne deal, Stifel shares were up only 7.0% since the beginning of FY14, half that of the S&P 500. That performance unfortunately resembles its large bank rivals.
ASML: a serious market leader: ASML has an 85.0% market share of lithography machines, which print circuits on silicon chips. So the company has an essential role in semiconductor manufacturing and its extreme-ultraviolet lithography is, without question, the industry’s next technological step. Tuesday’s announcement that key customer TSMC achieved the FY15 target of producing more than 1000 chips with EUV in a day confirmed that the technology is developing nicely. ASML shares rose 4.0% (less than the 14.0% jump in summer FY14 when IBM proved the technology by making 637 chips in one day). The next big step is for key customers Intel and Samsung to order an EUV machine for production. TSMC has ordered two machines to be delivered in FY15 to use in its volume chip making process. So ASML’s dominance looks set to continue. What could go wrong? EUV technology is proven but moving it reliably into a production process is complex. Hiccups are to be expected. The debate is over when, not if, EUV is used in volume production. If customers delay buying the new machines, ASML’s cash flow will suffer as the company makes most of its revenues from the equipment sale. Each machine will cost about EUR100.00mn and sales number in the tens per year. So a delay of a few months by a customer could hurt.
Telefónica Deutschland: call waiting: Observers of Europe’s telecoms sector might feel the same, waiting hopefully for progress that may not appear. The consolidation that many hoped would be a catalyst has not yet produced results. Consider Germany, which has an extremely competitive telecoms market. Quarterly mobile revenues have declined year on year since FY12, according to Citigroup. Last year’s purchase of E-Plus (fourth in market share) by Telefonica’s O2 (third) should help. Following approval by the European Commission the new company Telefónica Deutschland promised better penetration of its 4G service as well as EUR800.00mn of cost cuts by FY19. Tuesday’s fourth-quarter results revealed the task ahead. Profits have yet to appear in abundance. The company just beat consensus expectations for the quarter with EUR354.00mn of earnings before interest, tax, depreciation and amortisation. Full-year ebitda margins were low by European standards, at less than 20.0%, even after adjusting for restructuring charges. Even with some growth and this year’s portion of savings (EUR250.00mn), margins should reach no higher than the low 20s. As for its data offering, a quarter of customers have taken up large plans (over one gigabyte per month). That compares well with the first quarter when only a tenth had done so, suggesting network improvement or price cuts. The company also added more than 300,000 mobile subscribers over the past quarter, better than second place Vodafone and similar to incumbent Deutsche Telekom. But poor margins hint at price pressure
*Published with special permission by Anchor Capital (ACG)
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