By Anchor Capital
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South African Market Review
South African markets closed lower yesterday led by losses in gold and resources stocks. Harmony Gold, Sibanye Gold and AngloGold Ashanti plunged 5.6%, 4.4% and 3.0%, respectively. Iron and steel company, Anglo American eased 2.9%. Growthpoint Properties dropped 1.4%, despite declaring an interim dividend growth of 7.5% in its 1H15 results. Standard Bank Group declined 0.6%, ahead of its full year results which is scheduled today. However, MTN Group gained 0.9%, after it reported a 20.0% increase in its diluted EPS for FY14. Insurance company, MMI Holdings climbed 0.6%, after it declared an 11.0% increase in its 1H15 dividend despite challenging circumstances. The JSE All Share Index fell 0.4% to close at 52,891.30.
Click here to watch a short video on Steinhoff’s results.
UK Market Review
UK markets finished higher yesterday, gaining ground in the latter part of the session. ITV surged 5.7%, following a rise in its FY15 earnings and after the company stated that it would return GBP250.00mn to its investors through a special dividend. Standard Chartered rallied 5.1%, after announcing that it would lower risk-weighted assets from its balance sheet and maintain its dividend. International Consolidated Airlines Group advanced 2.4%, amid a rise in passenger traffic on a year-on-year basis in February. However, Fresnillo tumbled 8.5%, following dismal FY15 earnings. Glencore fell 2.7%, after a US private equity firm announced that it would sell around 54.00mn shares of the company. The FTSE 100 Index advanced 0.4% to close at 6,919.24.
US Market Review
US markets ended weaker yesterday, following softer-than-expected private payroll employment figures. Fastenal shed 3.1%, following a weaker-than-expected February sales report. Brown-Forman slid 0.9%, after its 3Q15 revenue missed markets estimates. Exxon Mobil dropped 0.5%, after it announced a cut to its capital expenditure for FY15. However, Bristol-Myers Squibb climbed 6.1%, after the US Food and Drug Administration (FDA) approved its advanced lung cancer drug, Opdivo. SanDisk surged 4.5%, following its recent announcement of a new all-flash storage platform, InfiniFlash. The S&P 500 Index fell 0.4% to settle at 2,098.53, while the DJIA Index plummeted 0.6% to close at 18,096.90. The NASDAQ Index declined 0.3% to finish at 4,967.14.
Asia Market Review
Markets in Asia are trading mixed this morning. Meanwhile, China has set its economic growth target lower at about 7%. In Japan, Ono Pharmaceutical surged 5.7%, after the US FDA widened the approval of its lung-cancer drug, Opdivo. Olympus declined 3.1%, amid reports that the company sold endoscopes, which have been linked to two deaths, without receiving approval from the FDA. In Hong Kong, China Petroleum & Chemical Corporation and PetroChina retreated 1.4% and 1.3%, respectively. In South Korea, builders, Daelim Industrial and GS Engineering & Construction gained 0.5% and 0.3%, respectively. The Nikkei 225 Index is trading 0.2% higher at 18,736.41, while the Kospi Index is trading 0.81 points higher at 1,999.10. The Hang Seng Index is trading 0.6% lower at 24,326.83.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.6% to trade at $60.45/bl. Yesterday, Brent crude oil fell 1.5% to settle at $60.11/bl, after the US Energy Information Administration stated that crude oil inventories rose by 10.30mn bls, more than market expectations for the week ended 26 February 2015, and the largest weekly increase since 2002.
Meanwhile, Saudi Arabian Oil Minister, Ali al-Naimi stated that he expects to see supply and demand for oil balancing and also indicated that oil prices would stabilise.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.3% to $3.61/bushel.
At 06:00 SAST today, gold prices advanced 0.3% to trade at $1,204.28/oz. Yesterday, gold declined 0.3% to close at $1,200.34/oz, amid a broad upsurge in the US dollar. Meanwhile, India’s central bank unexpectedly cut its benchmark interest rate yesterday.
Yesterday, copper rose 0.3% to close at $5,861.50/mt. Aluminium closed 0.3% higher at $1,786.25/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, amid a broad strength in the US dollar, despite a less than anticipated rise in number of employed people in the private sector in US for February. Moving ahead, market participants will eye the nonfarm payrolls report in the US, scheduled on Friday for further direction. The yield on benchmark government bonds were mixed yesterday. The yield on 2015 bond declined to 6.14% while that for the longer-dated 2026 issue rose to 7.77%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R11.7980, while the euro is trading marginally higher at R13.0561. At 06:00 SAST, the British pound has marginally gained against the South African rand to trade at R17.9969.
Yesterday, the euro declined against most of the major currencies, ahead of the ECB meeting today where policymakers are expected to offer details on their bond purchase stimulus plan. Meanwhile, PMI readings showed that the services sector in the eurozone expanded less than initial estimates.
At 6:00 SAST, the euro slipped 0.1% against the US dollar to trade at $1.1066, while it has marginally gained against the British pound to trade at GBP0.7257.
Economic Updates
The services PMI in the UK registered an unexpected drop to a level of 56.70 in February. In the previous month, the services PMI had registered a reading of 57.20.
Compared with a reading of 54.00 in the prior month, the final services PMI climbed to 54.70 in Germany, in February. The preliminary figures had recorded an advance to 55.50. Markets were expecting services PMI to advance to 55.50.
The Eurostat has indicated that the seasonally adjusted retail sales recorded a rise of 1.1% on a monthly basis in the eurozone, in January, compared with a revised advance of 0.4% in the prior month. Markets were anticipating retail sales to rise 0.2%.
The final services PMI recorded a rise to 53.70 in the eurozone, in February, lower than market expectations of an advance to a level of 53.90. Services PMI had recorded a reading of 52.70 in the prior month. The preliminary figures had indicated an advance to 53.90.
The ADP Inc. has reported that, in the US, the private sector employment registered a rise of 212.00k in February, following a revised increase of 250.00k in the previous month. Market anticipations were for the private sector employment to advance 218.00k.
In the US, the final Markit services PMI registered a rise to 57.10 in February, compared with a level of 54.20 in the prior month. The preliminary figures had indicated an advance to 57.00. Markets were expecting Markit services PMI to advance to 57.00.
The Institute for Supply Management (ISM) has reported that the non-manufacturing PMI climbed unexpectedly to a level of 56.90 in February, in the US. The non-manufacturing PMI had registered a reading of 56.70 in the previous month.
The Bank of Canada (BoC) kept its key interest rate unchanged at 0.75%, in line with market estimates. In the post meeting policy statement, the central bank stated that it was satisfied with the response of markets and the Canadian economy to the surprise rate cut in January and stated that risks around the nation’s inflation seem more balanced now.
In January, the seasonally adjusted retail sales recorded a rise of 0.4% in Australia on a monthly basis, in line with market expectations. Retail sales had recorded a rise of 0.2% in the previous month.
According to Australian Bureau of Statistics, the seasonally adjusted trade deficit in Australia expanded to AUD 980.00mn in January, following a revised trade deficit of AUD503.00mn in the prior month. Market expectations were for the nation to register a trade deficit of AUD925.00mn.
Corporate Updates
South Africa
MTN Group Limited
: The company, in its FY14 results, indicated that revenue increased to R146.93bn from R137.27bn reported in the previous year. Its diluted EPS was up 20.0% to 1,742.00c from the last year. For FY15, the company expects to benefit from a number of interventions put in place in South Africa and Nigeria in the previous year. Growthpoint Properties: The real estate company, in its 1H15 results, indicated that revenue was up 24.0% from the same period of preceding year, to R3.78bn. However, its diluted headline EPS stood at 70.75c, compared with 75.27c reported in the corresponding period of previous year. The company has declared an interim dividend of 84.40c/ share, an increase of 7.5% from the prior year.
Capitec Bank Holdings: The banking company, in its trading statement for FY15, stated that it expects its headline EPS and EPS to be between 2,155.00c and 2,225.00c, compared with 1,752.00c reported in the prior year. MMI Holdings Limited: The financial services company, in its 1H15 results, revealed that its net income dropped 34.3% from the corresponding period of preceding year, to R31.54bn. Its diluted EPS was down to 85.50c, compared with 113.70c recorded in the same period of previous year. The company declared an interim dividend of 63.00c/ share, representing an 11.0% increase when compared with 1H14. The company looks forward to maintaining its track record and delivering good results for all stakeholders into the future.
Capevin Holdings Limited: The company, in its 1H15 results, indicated that its total comprehensive income dropped 41.4% from the same period a year ago, to R0.27bn. Its diluted headline EPS was 29.90c, compared with 33.40c reported in the corresponding period of last year. Furthermore, it announced the resignation of Mr L C Verwey as the Financial Director, following his appointment as the Financial Director of Distell Group Limited. Additionally, it announced the appointment of Mr P R Louw as the Financial Director, effective from 5 March 2015.
Mpact Limited: The paper and plastics packaging company, in its FY14 results, stated that revenue increased 11.9% to R8.62bn from the last year. Its diluted EPS was 256.90c, compared with 230.50c posted a year ago. The company stated that its R350.00mn recycled PET project is scheduled to be commissioned during the 2H15. It indicated that its total gross cash dividend was up 15.0% to 92.00c/ share from previous year. Meanwhile, it announced that it has resolved to pursue a Broad-Based Black Economic Empowerment ownership transaction through its wholly-owned subsidiary Mpact Operations Proprietary Limited.
Competition Commission approves Steinhoff takeover of Pepkor: The Competition Commission on Wednesday said it had recommended that the Competition Tribunal approve Steinhoff’s R62.80bn takeover of clothing retailer Pepkor, without conditions.
Naspers aims to grow TV offering in Nigeria: Naspers, Africa’s largest company by market value, plans to use new products and services to attract more customers to its $58.00-a-month television offering in Nigeria as a weaker naira increases costs.
Royal Bafokeng to raise R3.00bn debt for first phase at Styldrift: Royal Bafokeng Platinum will secure up to R3.00bn of fresh debt before year-end to fund the delayed first phase of its Styldrift mine.
UK and US
Brown-Forman Corporation: The company, in its 3Q15 results, indicated that net sales dropped 1.4% to $1.08bn from the same period a year ago. Its diluted EPS stood at $0.82, compared with $0.87 reported in the corresponding period of the same year. For FY15, the company has reaffirmed its underlying growth outlook which includes 6.0% to 8.0% growth in underlying net sales and 9.0% to 11.0% growth in underlying operating income. Meanwhile, the company stated that it has eliminated 25 jobs, most of them at its headquarters in Louisville, as part of workforce realignment.
H & R Block Inc.: The company, in its 3Q15 results, indicated that its total revenue increased sharply to $0.51bn from $0.20bn recorded in the same period a year ago. It incurred a basic and diluted loss of $0.13, compared with $0.78 in the corresponding period of previous year from its continuing operations. The company announced a quarterly cash dividend of $0.20/share, payable on 1 April 2015.
PetSmart Inc.: The specialty pet retailing company, in its FY14 results, indicated that its net sales were up 2.8% to $7.11bn from the previous year. Its diluted EPS was $4.26, compared with $4.02 posted in the preceding year. Semtech Corporation: The company, in its FY15 results, indicated that its net sales was down 6.2% to $0.56bn from the prior year. However, its diluted EPS was $0.41, compared with a diluted loss of $2.44 reported in the previous year. For 1Q16, the company expects net sales to be in the range of $0.13bn to $0.14bn. Furthermore, it announced the acquisition of Triune Systems, for $45.00mn in cash and performance earn-outs.
China Biologic Products Inc.: The company, in its FY14 results, indicated that sales increased 19.6% to $243.25mn from the last year. Its diluted EPS stood at $2.71, compared with $1.96 in the previous year. For FY15, the company expects total sales to be in the range of $287.00mn to $292.00mn.
Amedisys Inc.: The company, in its FY14 results, indicated that its net service revenue dropped 3.6% to $1.20bnfrom the previous year. Its diluted EPS from continuing operations was $0.40, on a GAAP basis, compared with a diluted loss of $2.98 posted a year ago.
Sucampo Pharmaceuticals Inc.: The pharmaceutical company, in its FY14 results, indicated that its total revenue was up 28.9% to $0.12bn from the preceding year. Its diluted EPS stood at $0.29, compared with $0.16 reported in the previous year. For FY15, the company expects GAAP net income to be in the range of $25.00mn to $30.00mn.
Pharmacyclics Inc.: Media reports revealed that the company is said to have reached an agreement to be acquired by Johnson & Johnson and the deal could come soon.
Vanda Pharmaceuticals Inc.: The pharmaceutical company stated that its clinical study investigating the safety and efficacy of tradipitant as a monotherapy in the treatment of chronic pruritus in patients with atopic dermatitis showed no statistical difference between patients on the drug, tradipitant, and those on a placebo, due to a very high placebo effect.
Standard Chartered: The banking company, in its FY14 results, indicated that interest income dropped 3.5% to $16.98bn from the preceding year. Its diluted EPS was 101.60c, compared with 163.00c reported in the previous year. Legal & General Group: The insurance and pension fund management company, in its FY14 results, revealed that total revenue was up 31.2% compared with the last year, to GBP51.52bn. Its diluted EPS was 16.54p, compared with 15.00p reported in the previous year. The company projects FY15 sales of individual annuities to be around 50.0% of FY14 new business volumes.
ITV Plc: The commercial broadcasting company, in its FY14 results, stated that revenue increased 8.4% to GBP2.59bn, compared with the previous year. Its diluted EPS rose to 11.50p from 8.10p in the preceding year. The company expects to deliver another strong performance in FY15 with continued revenue growth across all parts of the business. It proposed a GBP250.00mn return to shareholders by way of a special dividend of 6.25p.
Fresnillo Plc: The company, in its FY14 results, stated that revenue from continuing operations was down 12.5% to $1.41bn, compared with the previous year. Its basic and diluted EPS from continuing operations stood at $0.15, compared with $0.33 posted a year ago. The company indicated that it is confident of delivering improved production in 2H15 due to measures implemented in mines to control dilution and improve contractor efficiency.
Melrose Industries: The company, in its FY14 results, stated that revenue from continuing operations dropped to GBP1.38bn from GBP1.47bn posted the previous year. Its headline profit from continuing operations grew 10.0% compared with the last year, to GBP0.16bn. Its diluted EPS from continuing operations stood at 7.80p, same as compared with the preceding year. The company stated that it is trading in line with management expectations for FY15 despite the expected downturn in the performance at Brush.
Carillion Plc: The company, in its FY14 results, revealed that revenue stood at GBP4.10bn, in line with the previous year. However, its profit before taxation was up 28.9% from the preceding year, to GBP142.60mn. Its basic EPS stood at 28.00p, compared with 23.30p reported in the last year. It proposed a full year dividend of 17.75p, an increase of 1.4% from the prior year. Furthermore, the company has been appointed by Scape Group as the sole provider for a new facilities management framework with a value of up to GBP1.50bn over a six-year period.
CLS Holdings: The property investment company, in its FY14 results, indicated that group revenue from continuing operations increased to GBP99.60mn, compared with GBP91.20mn reported in the prior year. Its diluted EPS from continuing operations rose sharply to 449.00p from 146.70p posted in the previous year.
Great Portland Estates: The company announced that it has pre-let a new flagship retail store in its development at 73/89 Oxford Street, W1 to fast-fashion brand New Look Retailers Limited.
Afren Plc: The oil and gas company has decided not to pay $15.00mn of interest due on a portion of its bonds, effectively defaulting with the tacit support of a number of bond holders who have agreed not to take immediate action.
Financial Times
Rangers shares suspended after nominated adviser quits: Shares in Aim-quoted Rangers were suspended on Wednesday after WH Ireland quit as the football club’s nominated stock market adviser, marking the latest twist in the battle for control of the Glasgow side.
Scottish Power handed temporary sales ban: Scottish Power, one of the six leading gas and electricity suppliers, has been temporarily banned from actively selling to new customers while it seeks to solve failures in its customer complaints procedures.
Former Virgin Media executives set to ‘buy, fix and sell’ ailing telcos: Former executives of Virgin Media are planning to raise money on Aim, the junior market of the London Stock Exchange, to buy struggling telecoms, media and technology groups in a rapidly consolidating European market.
Bank of England holding HSBC executives’ ‘feet to the fire’: The Bank of England’s chief banking supervisor says he is holding HSBC’s top executives’ “feet to the fire” to ensure they simplify the group and improve its risk controls after a tax evasion scandal at its Swiss private bank.
Legal & General eyes push in to South America: Legal & General is considering expanding its GBP500.00bn asset management arm into South America as part of a wider move by the UK-focused financial services group into new markets.
Standard Chartered chief Peter Sands waives bonus as profits slide: Peter Sands has sought to put a positive gloss on a difficult end to his eight years as Chief Executive Officer of Standard Chartered by announcing beefed up cost-cutting plans and ruling out the need for a rights issue for the London-listed bank.
Luxury online fashion retailer Farfetch valued at $1.00bn: The London-based group, which sells clothing for high-end, independent fashion boutiques, has raised new investment valuing it at $1.00bn, in another sign that foreign investors are giving UK tech start-ups the big money and large valuations usually lavished on Silicon Valley groups. EU proposes to extend pay rules to smaller banks: The EU has made another attempt to curb the remuneration of asset managers and executives working for small banks and building societies, triggering “major concerns” in London financial circles and potentially setting the UK on a collision course with Brussels.
Carillion profit rises amid cautious demand: Carillion’s pre-tax profit rose, but revenues were flat, underscoring the tough conditions for the global construction sector last year. Clients of the building and services group in core markets like the Middle East and Canada were cautious as they grappled with the impact of falling oil prices. Bright outlook for ITV advertising revenues despite viewer decline: ITV has signalled bumper advertising revenues but blamed “strong competition from the BBC” for its continued decline in viewing figures.
Greggs profits puff up nicely: High street baker Greggs has seen its full-year profits rise by 41.0% as its move into the food-on-the-go market was boosted by the economic recovery.
Exxon CEO says oil prices will stay low: The world should “settle in” for a period of relatively weak oil prices, the chief executive of ExxonMobil has said, with US shale production more resilient than many people had expected. Bill for Sellafield nuclear clean-up jumps 10.0% says audit office: The bill to clean up the Sellafield nuclear site in Cumbria has jumped by more than 10.0% to GBP53.00bn, according to the National Audit Office, after the latest in a string of cost overruns to have dogged the project.
J&J nears deal for cancer drugmaker: Johnson & Johnson is nearing a deal to acquire US cancer drugmaker Pharmacyclics in what would be the biggest bet on a biopharmaceutical company by the world’s largest maker of healthcare products.
Uber makes first acquisition with mapping start-up deCarta: Uber, one of the best-funded private technology groups in Silicon Valley, has made one of its first acquisitions as it tries to improve its taxi-hailing smartphone app service.
Etsy aims to raise $100.00mn in IPO: Etsy, the online craft goods marketplace, has filed to go public on Nasdaq, planning to raise at least $100.00mn.
Instagram unveils new advertising format: Instagram has created a new advertising format that allows marketers to include links to their products and websites, a move which could unleash a new wave of spending on the image-focused social network.
Smith & Nephew: Edged 1.0% higher at GBP11.42, having slumped on Tuesday after potential bidder Stryker set up authorisation for a $2.00bn share buyback.
Lex
Currencies: money talks: The dollar is up, the yen and the euro are down and currencies are back on the agenda. Take Procter & Gamble. Last quarter it reported earnings per share down 8.0%. With stable currencies, earnings would have risen almost as much. P&G, naturally, put the ex-currency number front and centre. This seems fair. But imagine if it did the same with, say, demand: “Without the impact of customers hating our soap, earnings would have risen nicely.” Revenues and costs can and should be aligned to create natural hedges, but big currency moves still have big impacts, and there is little management can do. Poor products, by contrast, reflect bad strategy. This argument is weak. Another argument: what is lost to currency in one period is gained back in another, because currencies, over time, revert towards purchasing power equilibrium, or just because they bounce around. This won’t do, either. Currencies follow long-term trends and are notoriously hard to predict. A zero-sum game, with fees taken out by middlemen. A Credit Suisse study has shown that hedging adds nothing to average long-term returns, and that diversification takes out much more risk. Never predict currencies, don’t buy hedges, expect some pain, diversify, and hold on.
Portuguese banks: are you asking?: Spain’s Caixabank has already made its move, proposing to buy the 56.0% of the shares it does not already own for EUR1.30 each. But BPI’s second largest shareholder, Santoro, says that offer is too low and is pushing BPI towards Millennium BCP (number two in the market) instead. To add more intrigue, 15 institutions, including BPI, have expressed an interest in Novo Banco, the attractive part of Banco Espirito Santo. Plenty to keep the gossips going. But Caixabank should be careful about how much capital it commits to Portugal. The current situation – it owns 44.0% of BPI but its voting stake is limited to 20.0% – is ugly. Getting rid of the disparity by making a tender offer for BPI makes sense. The EUR130.00mn per year of proposed cost savings are also welcome, although the deal would cut the Spanish bank’s capital ratio by 110 basis points. The risk is that more capital will follow. Santoro’s attempt to push BPI towards Millennium BCP may be an attempt to get Caixabank to increase its offer. And even if Caixabank does take control of BPI, there is a chance that BPI would then try to buy Novo Banco. Caixabank would be getting the cheque book out again for that one. Caixabank already has its hands full, consolidating recent acquisitions and trying to push its return on tangible equity up from 2014’s 3.4% towards the target of 12.0% – 14.0%. Even without Portugal, it has plenty of dancing ahead.
Norsk Hydro: ally oops: After years of ups and (mostly) downs, Norsk Hydro, the Norwegian aluminium producer, has had a good ride over the past year, up nearly 40.0%. Aluminium prices have held steady while last year the company’s home currency, the Norwegian krone, fell 23.0% against the dollar. Together these factors reversed a loss to a Nkr5bn operating profit in 2014. A key demand indicator for aluminium is how much buyers will pay above cash prices to obtain it from warehouses when that material has already been sold forward. A customer requiring immediately delivery pays a premium. European premiums, up five times since 2010, have lost a quarter this year. Two factors have caused concern. First, rising exports from China, the world’s largest producer (nearly half of output). After several years of relatively steady monthly exports, these surged by half in the latter half of 2014, encouraged by an export tax credit for certain products. Traders also worry about the possibility of a rule change at LME warehouses enabling faster withdrawal, regardless of any forward contracts. Both factors hint at a peak in prices. Norsk’s shares lost 7.0% on Wednesday on these concerns.
*Published with special permission by Anchor Capital (ACG)
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