By Anchor Capital
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South African Market Review
South African markets closed higher yesterday, reversing its earlier losses. Gold miners, Gold Fields, Harmony Gold and Sibanye Gold gained 4.9%, 2.3% and 0.8%, respectively. Liberty Holdings climbed 3.0%, after reporting a rise in its FY14 revenue. British American Tobacco advanced 2.2%, despite forecasting difficult trading environment in FY15. However, MMI Holdings plummeted 1.9%, after it announced that it expects 1H15 basic and diluted EPS to decrease between 20.0% and 30.0% from the same period a year ago. Impala Platinum Holdings declined 1.9%, after reporting a sharp drop in its interim headline EPS. Spur Corporation fell 1.4%, after posting a 27.5% drop in its 1H15 diluted EPS. The JSE All Share Index rose 0.2% to close at 53,331.16.
UK Market Review
UK markets finished higher yesterday, after data showed that the nation’s economy grew 0.5% in 4Q14, matching estimates. Standard Chartered rallied 5.4%, after disclosing that its CEO would step aside in June and be replaced by the former co-CEO of JPMorgan Chase & Co.’s investment bank. Mining sector stocks, Randgold Resources and Antofagasta advanced 2.5% and 1.9%, respectively. British American Tobacco climbed 1.7%, following a lower-than-expected decline in revenue for FY14. Bucking the trend, Reed Elsevier dropped 4.8%, after posting downbeat FY14 profit and revenue. Royal Bank of Scotland Group fell 4.1%, after the lender reported a loss for FY14. The FTSE 100 Index advanced 0.2% to close at 6,949.73.
US Market Review
US markets ended mostly lower yesterday. Ensco, Noble Corporation and Newfield Exploration plummeted 8.2%, 6.9% and 6.7%, respectively, tracking a drop in crude oil prices. Noble Energy tumbled 5.0%, after announcing the pricing of its common stock offering. Transocean slid 1.6%, as it swung to a 4Q14 net loss. Hewlett-Packard fell 1.9%, amid reports that the firm is in talks to buy Aruba Networks. However, Salesforce.com surged 11.7%. Google advanced 2.2%, after it revealed an investment of around $300.00mn in SolarCity’s fund to finance residential solar projects. The S&P 500 Index fell 0.1% to settle at 2,110.74, while the DJIA Index plunged 0.1% to close at 18,214.42. The NASDAQ Index rose 0.4% to finish at 4,987.89.
Asia Market Review
Markets in Asia are trading mostly higher this morning. In Japan, Nexon Co. surged 9.4%, after the firm announced a JPY10.00bn share repurchase programme. Yamaha Motor climbed 0.9%, after its President stated that the firm plans to manufacture and sell small vehicles in Europe by FY19. In Hong Kong, Hutchison Whampoa rose 1.5%, after its FY15 earnings more than doubled. Property firms, Sun Hung Kai Properties and New World Development added 1.1% and 1.0%, respectively. In South Korea, Pusan Cast Iron Co. and ChungHoComnet Co. fell 1.4% and 2.3%, respectively. The Nikkei 225 index is trading 0.1% higher at 18,806.70. The Hang Seng index is trading 0.5% up at 25,034.09, while the Kospi index is trading 0.2% lower at 1,989.60.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.6% to trade at $60.03/bl. Meanwhile, data showed that Japan’s industrial production rose sharply in January, signalling demand growth from the major oil importer. Yesterday, Brent crude oil fell 2.6% to settle at $59.69/bl, on a stronger US dollar amid concerns over a supply glut in oil market.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 1.1% to $3.58/bushel.
At 06:00 SAST today, gold prices advanced marginally to trade at $1,209.99 /oz. Yesterday, gold gained 0.4% to close at $1,209.49/oz.
Yesterday, copper rose 2.0% to close at $5,917.50/mt. Aluminium closed 0.7% higher at $1,791.25/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, after data showed that producer prices in South Africa declined in January. Meanwhile, US consumer prices posted their biggest drop in January since 2008 due to falling gasoline prices. Going forward, investors will eye South African private sector credit and trade balance data along with US GDP figures, scheduled later today, for further direction. Yesterday, the South African rand weakened against the US dollar, after data showed that producer prices in South Africa declined in January. Meanwhile, US consumer prices posted their biggest drop in January since 2008 due to falling gasoline prices. Going forward, investors will eye South African private sector credit and trade balance data along with US GDP figures, scheduled later today, for further direction.
The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.16% while that for the longer-dated 2026 issue fell to 7.55%.The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.16% while that for the longer-dated 2026 issue fell to 7.55%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R11.5453, while the euro is trading 0.2% higher at R12.9434. At 06:00 SAST, the British pound has gained 0.3% against the South African rand to trade at R17.8202.
Yesterday, the euro declined against most of the major currencies, despite positive labour data from Germany and an upbeat German Gfk consumer confidence report. Later today, market participants will keep a tab on consumer prices data from Germany.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.1211, while it has weakened 0.1% against the British pound to trade at GBP0.7263.
Economic Updates
The Statistics South Africa has reported that, on a monthly basis, the producer price index in South Africa unexpectedly eased 1.1% in January. In the prior month, the producer price index had fallen 0.2%.
On a quarterly basis in the UK, the second estimate of gross domestic product (GDP) recorded a rise of 0.5% in 4Q14, meeting market expectations. In the previous quarter, GDP had climbed 0.7%. The preliminary figures had also recorded a rise of 0.5%.The Statistics South Africa has reported that, on a monthly basis, the producer price index in South Africa unexpectedly eased 1.1% in January. In the prior month, the producer price index had fallen 0.2%.On a quarterly basis in the UK, the second estimate of gross domestic product (GDP) recorded a rise of 0.5% in 4Q14, meeting market expectations. In the previous quarter, GDP had climbed 0.7%. The preliminary figures had also recorded a rise of 0.5%.
The GfK Group has indicated that, in February, the consumer confidence remained steady at a level of 1.00 in the UK. Markets were expecting the consumer confidence to rise to a level of 2.00.The GfK Group has indicated that, in February, the consumer confidence remained steady at a level of 1.00 in the UK. Markets were expecting the consumer confidence to rise to a level of 2.00.The Bank of England (BoE) Deputy Governor Minouche Shafik indicated that the next probable move by the central bank with regards to monetary policy will be a hike in its benchmark interest rates as the issues that caused slowdown in inflation are seen fading.
The number of people unemployed registered a drop of 20.00k in Germany, in February, compared with a revised drop of 10.00k in the previous month. Markets were anticipating the number of people unemployed to drop 10.00k.
The Gfk Group has reported that the consumer confidence index climbed to 9.70 in March, in Germany, compared with market expectations of an advance to a level of 9.50. In the previous month, the consumer confidence index had recorded a level of 9.30.
In February, the final consumer confidence index (CPI) in the eurozone climbed to -6.70, at par with market expectations. The preliminary figures had also recorded a rise to -6.70. In the prior month, the consumer confidence index had recorded a level of -8.50.
On a monthly basis, the CPI registered a drop of 0.7% in the US, in January, more than market expectations for a fall of 0.6%. In the prior month, the CPI had dropped by a revised 0.3%.
The US Department of Labor has reported that, in the week ended 21 February 2015, the seasonally adjusted initial jobless claims in the US climbed to 313.00k, compared with a revised reading of 282.00k in the previous week. Market expectations were for initial jobless claims to rise to a level of 290.00k.
On a monthly basis, in January, the preliminary industrial production climbed 4.0% in Japan, higher than market expectations for an advance of 2.7%. Industrial production had advanced 0.8% in the prior month.
Corporate Updates
South Africa
British American Tobacco: The tobacco company, in its FY14 results, revealed that revenue decreased 8.4% to GBP13.97bn from the preceding year. Its adjusted diluted EPS was 208.10p, compared with 216.60p posted a year ago. The company expects trading environment to remain difficult in FY15 and that foreign exchange headwinds would continue to have a significant impact on both a transactional and translational level.
Aspen Pharmacare Holdings: The company, in its trading statement for the six months ended 31 December 2014, indicated that its normalised headline EPS from continuing operations is expected to grow in the range of 19.0% to 24.0% from the same period a year ago. Its headline EPS is expected to be between 530.20c and 551.50c, compare with 424.20c posted in the corresponding period last year; and EPS is anticipated to be between 525.00c and 546.20c, compared with 423.4c posted in the same period a year ago.
Rand Merchant Insurance: The company, in its trading statement for the six months ended 31 December 2014, projected that its normalised EPS would increase between 14.0% and 20.0% to the range of 102.60c to 108.20c, compared with the same period previous year. Its headline EPS is expected to be between119.50cand 125.30c, compared with 94.80c recorded in the same period a year ago.
Capital & Counties Properties: The property company, in its preliminary FY14 results, indicated that revenue from continuing operations decreased to GBP110.60mn from GBP115.50mn reported in the previous year. However, its diluted EPS from continuing operations increased 27.0% to 55.00p, compared with the preceding year. The company proposed a final FY14 dividend of 1.00p/share giving a full year dividend of 1.50p/share. Meanwhile, the company announced the appointment of Gary Yardley as Managing Director and Chief investment Officer, and Soumen Das as Managing Director and Chief Financial Officer, effective 1 March 2015.
MMI Holdings Limited: The financial services company, in its 1H15 trading statement, stated that its basic and diluted core headline EPS is expected to be between 110.00c and 125.00c, an increase of between 5.0% and 15.0% compared with the previously reported interim results. Furthermore, it anticipates its basic and diluted EPS and headline EPS are expected to be between 80.00c and 95.00c, a decrease of between 20.0% and 30.0% from the same period a year ago, due to the impact of investment markets.
Impala Platinum Holdings: The platinum mining company, in its 1H15 results, revealed that revenue decreased 3.6% to R15.90bn from the same period of prior year. It diluted EPS was down to 41.00c, compared with 145.00c posted in the corresponding period preceding year. The company has put its Marula mine up for sale and scaled back on capital expenditure as it delays a number of growth projects to conserve cash in a difficult platinum market.
Liberty Holdings: The company, in its FY14 results, stated that revenue increased 17.8% to R42.14bn from the preceding year. However, its fully diluted basic EPS edged down to R13.92 from R13.93 recorded in the previous year.
Massmart Holdings: The retailing company, in its FY14 results, indicated that revenue was up 8.0% to R78.32bn from the audited revenue of previous year. Its diluted basic EPS stood at 492.90c, compared with 585.10c in the preceding year.
Caxton and CTP Publishers and Printers: The company, in its 1H15 results, stated that revenue was up 12.4% to R3.27bn from the same period of the previous year. Its headline EPS stood at 65.00c, compared with 59.00c reported in the corresponding period of last year.
African Oxygen Limited: The company, in its FY14 results, indicated that revenue increased marginally to R5.83bn from the previous year. However, its basic and diluted EPS dropped to 26.80c from 100.10c reported a year ago. The company stated that its main focus in FY15 would be n the effective restructuring of the company and benefits should start to be progressively realised from 4Q15. Furthermore, it announced the resignation of Nicholas Thomson as Finance Director, with effect from 31 May 2015.
Spur Corporation: The company, in its 1H15 results, indicated that revenue was up 8.7% to R0.41bn from the previous year as total restaurant sales increased. However, its diluted EPS decreased to 61.60c from 84.99c reported in the same period preceding year.
Pan African Resources: The gold and platinum mining company, in its unaudited 1H15 results, stated that revenue was down 9.8% to R1.22bn from the preceding period previous year. Its EPS decreased 64.1% to 5.42c and headline EPS plunged 62.9% to 5.61c from the same period a year ago. The company expects increased production from the gold and PGE operations to support higher profitability in 2H15.
Grand Parade Investments: The company confirmed the permanent appointment of Mr. Dylan Pienaar as the Financial Director with effect from 1 March 2015.
UK and US
Sempra Energy: The natural gas utilities holding company, in its FY14 results, indicated that total revenue increased 4.5% to $11.04bn from the preceding year. Its diluted EPS stood at $4.63, compared with $4.01 recorded in the previous year. The company set its adjusted EPS guidance range for FY15 at $4.60 to $5.00 which excludes the estimated earnings impact of the expected sale of the remainder of the Mesquite Power natural gas-fired generating facility and the earnings impact of potential LNG-related development activities.
Monster Beverage: In its FY14 results, the company stated that net sales rose 9.7% to $2.46bn from the previous year. It net diluted EPS was $2.77, compared with $1.95 posted a year ago.
Ross Stores: The chain of off-price department stores company, in its FY15 results, revealed that sales increased to $11.04bn from $10.23bn recorded in the prior year. Its diluted EPS was up 13.9% to $4.42, compared with the preceding year. For FY16, the company expects same store sales to grow 1.0% to 2.0% and EPS of $4.60 to $4.80.
Gap Inc.: The apparel company, in its FY15results, indicated that net sales grew 1.8% to $16.44bn, compared with the previous year. Its diluted EPS increased to $2.87 from $2.74 reported a year ago. The company expects diluted EPS to be in the range of $2.75 to $2.80 forFY16.
SBA Communications: In its FY14 results, the company stated that total revenue climbed 17.0% to $1.53bn from the prior year. However, it incurred a basic and diluted loss of $0.19/ share, compared with a loss of $0.44/share recorded in the previous year. The company expects approximately $13.80mn of non-cash straight-line leasing revenue for 1Q15and approximately $51.80mn of non-cash straight-line leasing revenue forFY15.
Kohl’s Corporation: The department store retail chain company, in its FY15 results, revealed that net sales decreased marginally to $19.02bn from $19.03bn reported in the preceding year. However, its diluted EPS was up to $4.24, compared with $4.05 posted a year ago. It ended the year with 1,162 stores in 49 states. The company anticipated diluted EPS of $4.40 to $4.60 for FY16.
Autodesk Inc.: The software corporation, in its FY15 results, indicated that total net revenue advanced 10.5% to $2.51bn from the last year. However, its net diluted EPS dropped to $0.35, compared with $1.00 recorded in the previous year. The company expects 1Q16 revenue to be in the range of $0.63bn to 0.65bn and FY16 revenue to grow 3.0% to 5.0% from the preceding year.
Apple Inc.: The company announced that it would host an event on 9 March in San Francisco, where it would unveil details for the release of the Apple Watch, its next big thing.
GameStop Corporation: The video game, consumer electronics, and wireless services retailing company indicated that it is in a bid for the right to take 163 leases over from the electronics retailer, RadioShack Corporation.
Cyberonics Inc.: The medical device company announced that it has inked a merger deal with Sorin worth $3.30bn.
Royal Bank of Scotland Group: The lender, in its FY14 results, indicated that its total income was down 6.4% to GBP18.20bn, compared with the previous year. Its adjusted EPS from continuing operations was 0.80p, compared with a loss of 77.70p/share reported a year ago. Additionally, the banking company announced that it has entered into a definitive agreement with Mizuho Bank, a wholly-owned subsidiary of the Mizuho Financial group, for the sale of a portfolio of US and Canadian loan commitments. Furthermore, it announced the appointment of Howard Davies as Chairman.
Reed Elsevier: The information company, in its FY14 results, indicated that revenue decreased 4.3% to GBP5.77bn from the previous year. However, its adjusted EPS increased to 56.30p from 54.00p reported in the preceding year. The company expects to deliver another year of underlying revenue, profit, and earnings growth in FY15 by continuing to execute its existing strategy.
CRH Plc: In its FY14 results, the company revealed that its revenue increased 4.9% to EUR18.91bn from the preceding year. Its diluted EPS was EUR0.79, compared with a loss of EUR0.41/share recorded in the previous year. Meanwhile, the company announced that John Kennedy and Dan O’Connor would step down from the board at the conclusion of the Annual General Meeting on 7 May 2015.
RSA Insurance Group: The company, in its FY14 results, stated that total net written premiums decreased 13.8% to GBP7.47bn from the total net written premiums reported in the preceding year. Its basic EPS stood at 6.20p, compared with a loss of 43.70p/share recorded in the prior year. Additionally, the insurance company indicated that Richard Houghton, the group Chief Financial Officer, would stand down from the board of directors with effect from 7 May 2015. It further stated that Richard would not offer himself for re-election to the board at the May AGM on 8 May 2015.
Howden Joinery Group: The modular kitchen making company, in its preliminary FY14 results, indicated that its revenue increased to GBP1.09bn from GBP0.96bn reported in the previous year. Its diluted EPS from continuing operations was 23.00p, compared with 15.20p in the prior year. The company stated that it would return GBP70.00mn ($109.00mn) to shareholders over the next two years through a share repurchase programme.
KAZ Minerals: The copper mining company, in its FY14 results, stated that revenue from continuing operations was down 9.1% to $0.85bn from the preceding year as it was hit by lower copper prices. It incurred a basic and diluted loss in its continuing operations of $0.52/share, compared with EPS of $0.18 reported in the previous year.
Ladbrokes Plc: The company, in its preliminary FY14 results, stated that its revenue increased 5.1% to GBP1.17bn, compared with the last year. However, its diluted EPS dropped to 4.40p from 7.20p posted in the preceding year. The company expects to close 60 UK shops in the coming year.
National Grid: The company announced the appointment of Paul Golby as Chairman of the Safety, Environment and Health committee as well as a member of the Audit committee, with effect from 25 February 2015.
Standard Chartered: The company announced the appointment of Bill Winters as group Chief Executive. It further announced that Peter Sands, the current group Chief Executive; Sir John Peace, the Chairman and Jaspal Bindra, the group Executive Director would be stepping down from the board.
Financial Times
Consortiums named for London super sewer: The body created by Thames Water to deliver the GBP4.20bn so-called “super sewer” through central London has provisionally confirmed the winning consortiums expected to handle construction of three tranches of the project.
Rig idling near 20-year high, say drillers: Offshore oil drillers have warned that the number of deepwater rigs “stacked” or scrapped is set to hit a two-decade high — and predicted that the industry slump caused by plunging crude prices could last another two years.
Green energy auction sets stage for cheaper solar and wind power: Close to 30 UK green energy schemes have been awarded a subsidy pot worth nearly GBP4.00bn in a government auction that has set the stage for a big fall in solar electricity prices and much cheaper wind power.
Investors approve Petropavlovsk’s restructuring plan: Petropavlovsk investors have supported its restructuring plan and rejected an alternative from the stricken gold miner’s largest shareholder.
Ghana reaches $1.00bn deal with IMF: Ghana has reached a long-awaited $1.00bn agreement with the International Monetary Fund to shore up an economy hit by falling gold and cocoa prices, rising debt and growing trade and fiscal imbalances.
US probe delays Barclays forex settlement: A New York banking regulator’s probe of Barclays’ foreign exchange trading business is holding up a settlement of currency rate-rigging allegations that other US and UK authorities are close to resolving, people familiar with the case said.
Bolstering capital tops new StanChart boss’s in-tray: Standard Chartered has hired the veteran investment banker Bill Winters as its new Chief Executive, drawing praise from investors even though he is widely expected to launch a multibillion-pound rights issue.
P2P lender Bondora targets Europe: Peer-to-peer lender Bondora is preparing to launch a pan-European lending platform after securing $5.00mn of financing from one of the early backers of Lending Club, the world’s biggest “P2P” company.
Bank of England banishes ‘fireside chats’: The Bank of England has officially called time on the days when a raise of the governor’s eyebrows sufficed to influence banks’ behaviour.
RBS’s restructuring expert Rory Cullinan has mammoth task ahead: Royal Bank of Scotland’s restructuring expert Rory Cullinan, newly appointed to head its investment bank, has a mammoth task in front of him.
Revisionists take heat off US bank results: US banks’ habit of revising earnings weeks after announcing them is driving some analysts to distraction.
GSK Chief’s pay halved after China scandal: Sir Andrew Witty, Chief Executive of GlaxoSmithKline, had his total pay cut by almost half last year, as he paid the price for falling drug sales and a corruption scandal in China.
Sanofi sets out aggressive pricing strategy for new diabetes drug: Sanofi has set out an aggressive US pricing strategy for a crucial new diabetes medicine, in a sign of the changing landscape facing drugmakers in the world’s biggest pharmaceuticals market.
US and Asian groups grab European patents: Patent filings in Europe have leapt to a record high with the majority coming from outside the continent as US and Asian tech companies seek protection for telecoms and biotechnology innovations.
US group criticises race to built new rocket engine: The head of the company that handles the US’s most sensitive satellite launches has warned of the risks surrounding senators’ “aggressive schedule” to develop a new, US-built rocket engine, amid concerns the US may lose reliable access to space.
China becomes Volvo’s biggest market: Volvo has offered further evidence of its renaissance under Chinese ownership, posting a healthy rise in earnings that it said “cleared the way” for further investment in its global expansion.
Zuckerman seeks buyer for NY Daily News: Mort Zuckerman, the billionaire real estate mogul, has hired Lazard to find a buyer for the New York Daily News, the tabloid newspaper he has owned since 1993.
US watchdog heeds Obama on net neutrality: The US has entered a new era of online regulation after rulemakers approved the biggest government intervention in the way the internet is run in almost two decades in order to stop broadband companies from blocking or favouring different websites.
Crippling US ports dispute hits Gap: Gap warned on Thursday that the slowdown at some of the country’s most important ports, including those in California, Oregon and Washington, will cut current year earnings by roughly four percentage points, as T-shirts and sweaters fail to make their way to stores.
British cider makers face rise in costs after EU ruling: Four out of five British cider makers face a rise in costs after the European Commission demanded that the UK stop its duty exemption for small-time producers of scrumpy and perry.
Nets suitors seek clarity before jumping: A possible auction of the Brooklyn Nets is facing uncertainty because it is unclear what billionaire Russian owner Mikhail Prokhorov is willing to include in any sale, according to people familiar with the process.
BAT draws up battle lines over UK cigarette packaging changes: British American Tobacco is poised to sue the UK government if it forces companies to remove branding from cigarette packaging.
Amadeus set to soar on airline bookings: Amadeus, the Spanish company that provides the technology behind airline flight bookings, is set to report results in stark contrast to the airlines it serves, as it benefits from a 40.0% share of a growing air travel market.
Former White House spokesman Jay Carney joins Amazon: Amazon has hired former White House press secretary Jay Carney to leads its lobbying and media relations team, giving a strong boost to the ecommerce company’s lobbying efforts in Washington.
India’s technology sector receives record funding: A spate of deals by global venture capital groups has pushed investment in Indian technology companies to its highest level, in a further sign of growing excitement over the country’s booming internet economy.
Deutsche Telekom pledges higher dividends: Deutsche Telekom said it would raise dividends over the next four years, returning more cash to shareholders as it expected earnings to be boosted by growth at it US subsidiary amid growing signs the sector is turning a corner in Europe.
Reed Elsevier: Lost 4.7.0% to GBP11.30 after setting out a simplification of its shareholder structure with annual results that held no surprises.
Royal Bank of Scotland: Faded 4.1% to 386.60p on results.
Lex
Iberdrola/UIL: rebound relationship: For most of FY14, Connecticut power utility UIL tried to convince Philadelphia’s politicians to let it complete its $1.86bn purchase of the city’s once-troubled gas utility business. After more than $20.00mn of costs borne by UIL, the city still would not walk down the aisle. As it turns out, UIL could do better for itself than a decrepit municipal gas business. Late on Wednesday, UIL was bought by Spanish utility Iberdrola, which entered the US in 2008 by acquiring Energy East for $4.50bn. UIL and Iberdrola USA will together operate seven regulated utilities in four northeast US states. The utilities, along with Iberdrola’s gas storage and large wind business, will be combined and listed in the US. UIL shareholders will receive an 18.5% stake in the newly-listed company, Iberdrola USA, and $10.50 in cash. The implied value per share of $52.75 is 50.0% higher than the UIL price a year ago when it announced its planned purchase of Philadelphia Gas Works. The creation of a listed US unit positions Iberdrola as a consolidator in the American market. Over the years, European adventures in the US power market have not gone well. But with little growth in its core markets, expanding in the US is as reasonable a strategy as any. Iberdrola’s market capitalisation is $42.00bn; its stake in the new company is worth $11.00bn.
US stocks: discount warehouse: The canonical way of valuing stocks is with discounted cash flows. Estimate the cash the business will throw off in each coming year (usually by assuming an average growth rate) and then determine what that cash is worth today by applying a discount rate to it. That rate is usually taken to be a sovereign rate, with a little something on top to make up for stocks’ riskiness. So as sovereign rates fall, the discount follows, and the value of stocks rises. We do not have a negative discount rate for stocks, because of the premium on top of the sovereign, and because the right sovereign rate is a long-term one rather than the shorter-term ones flirting with zero. Stocks are perpetual instruments, after all. The worry is that as the discount rate, pulled down by its sovereign component, gets very low, stock prices get very high, and very sensitive to small rate increases. But values should not get very high if the other key component in the model, the assumed growth rate of cash flow, falls at the same time. And it should do: the reason investors will accept low rates on sovereign bonds is because they think growth will be poor. So the real worry is that the global cabal of central bankers have artificially compressed the gap between sovereign rates and expected long-term growth rates. At some point the gap will return to normal, at which point there will be sacrifices, not of humans but of their stock portfolios.
WPP and ComScore: measure for measure: Bean counting is a great skill to have when people are trading beans. But when people start trading, say, liquids instead, the skill becomes less relevant. And so companies such as Nielsen, which specialise in measuring TV audiences, face a problem as viewers and advertisers move to digital. TV networks believe that Nielsen’s measurement metrics do not capture viewers who are now watching programmes on smartphones and tablets, and outside the traditional time windows. While the shift towards digital ads has been a boon for Facebook and Google, it has also created an opportunity for ComScore, a digital measurement company. ComScore’s $1.50bn market cap is a blip compared to Nielsen’s $20.00bn. But advertising group WPP recently bought a fifth of ComScore in a bet that the counting of digital media will be worth a lot. Founded in 1999 and listed in 2007, ComScore’s core business of measuring website traffic accounts for around half of its sales. However, its fastest growing unit, expanding at a 30.0% clip, measures digital ad effectiveness. ComScore recently entered a partnership with Google — its ad measurement product will be embedded into Google’s DoubleClick ad server. Nielsen has a similar alliance with Facebook and Adobe — an intriguing duopoly in digital measurement is emerging.
*Published with special permission by Anchor Capital (ACG)
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