By Anchor Capital
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South African Market Review
South African markets closed firmer yesterday, amid strength in banking sector stocks. Standard Bank Group climbed 5.4%, after it reported a 26.6% increase in its diluted EPS for FY14. Aspen Pharmacare gained 2.4%, after it revealed in its 1H15 results that revenue jumped 50.6%. FirstRand, Nedbank Group and Capitec Bank Holdings advanced 2.2%, 1.4% and 0.3%, respectively. Exxaro Resources edged 0.8% higher, despite indicating that its FY15 performance would be impacted by lower coal prices. However, Harmony Gold, Sibanye Gold and AngloGold Ashanti plunged 4.2%, 3.7% and 1.9%, respectively. Sanlam declined 1.7%, after its FY14 results revealed that net income dropped 9.7% from last year. The JSE All Share Index rose 0.7% to close at 53,285.60.
UK Market Review
UK markets finished higher yesterday, after the European Central Bank announced plans for commencement of its quantitative easing program from 9th March 2015. Separately, the Bank of England kept its benchmark rate unchanged at a record low of 0.5%.Friends Life Group rallied 7.1%, after reporting a considerable increase in its FY15 earnings. Aviva surged 7.1%, amid a rise in FY15 profits and after the firm lifted its total dividend. Schroders jumped 4.8%, after announcing that its assets under management advanced 14% in FY15. On the downside, Tullow Oil dropped 1.0%, after news emerged that the firm would exit the FTSE 100 index. The FTSE 100 Index advanced 0.6% to close at 6,961.14.
US Market Review
US markets ended in the green yesterday. Meanwhile, data indicated that the US weekly jobless claims rose unexpectedly last week. Macerich soared 5.1%, amid reports that Simon Property Group had approached the company in the past few weeks for a possible acquisition. Mallinckrodt climbed 4.7%, as the company agreed to takeover Ikaria Incorporation for around $2.30bn. Higher-than-expected 2Q15 earnings led Costco Wholesale to gain 2.7%. However, Joy Global plummeted 5.2%, after it lowered its revenue and earnings guidance for FY15. H&R Block shed 4.2% as the firm swung to a 3Q15 loss. The S&P 500 Index rose 0.1% to settle at 2,101.04, while the DJIA Index gained 0.2% to close at 18,135.72. The NASDAQ Index advanced 0.3% to finish at 4,982.81.
Asia Market Review
Markets in Asia are trading firmer this morning, mirroring overnight gains on Wall Street. In Japan, UNY Group Holdings surged 8.1%, after it stated that it is mulling various tie-up options, including mergers, with other companies. Sekisui House advanced 3.4%, after it stated that it will repurchase shares worth as much as JPY20.0 billion. In Hong Kong, financial sector stocks, China Everbright Bank and First Shanghai Investments added 0.8% and 0.7%, respectively. In South Korea, markets are trading firmer led by gains in technology and auto sector stocks. Kia Motors and Hyundai Motor rose 2.7% and 2.4%, respectively. The Nikkei 225 Index is trading 1.1% firmer at 18,956.17, while the Kospi Index is trading 0.5% higher at 2,007.76. The Hang Seng Index is trading flat at 24,203.39.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.5% to trade at $60.43/bl. Yesterday, Brent crude oil rose marginally to settle at $60.12/bl, despite continued violence in Libya by the Islamic State militants that have forced the closure of nearly a dozen oil fields over the last week.
Meanwhile, US’s pursuit of a nuclear agreement with Tehran, increased concerns of oil supply in the global market.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 0.6% to $3.63/bushel.
At 06:00 SAST today, gold prices advanced 0.2% to trade at $1,200.74/oz.
Yesterday, gold declined 0.2% to close at $1,198.40/oz.
Yesterday, copper declined 0.1% to close at $5,857.00/mt, while Aluminium prices remain unchanged at $1,786.25/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, even as the US labour department stated that the number of unemployment claims filed last week rose more than market expectations. Moving ahead, investors will eye the release of nonfarm payrolls report and the unemployment rate for February, scheduled later today. Additionally, South Africa would reveal its gold and forex reserves for February later today.
The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.12% while that for the longer-dated 2026 issue fell to 7.71%.
At 06:00 SAST, the US dollar is trading 0.2% lower against the South African rand at R11.8112, while the euro is trading 0.2% lower at R13.0240.
Yesterday, the euro declined against most of the major currencies, but strengthened against the South African rand, after the European Central Bank (ECB), while announcing the details of its QE programme, stated that bond purchases could go beyond September 2016 if it does not reach its target inflation rate of 2.0%. Meanwhile, market participants would keep a tab on the eurozone’s final reading of gross domestic product (GDP) data for fourth quarter of last year.
At 06:00 SAST, the euro advanced marginally against the US dollar to trade at $1.1029, while it has weakened 0.1% against the British pound to trade at GBP0.7232.
Economic Updates
Electricity production registered a drop of 1.5% on an annual basis, in January, in South Africa. In the prior month, electricity production had recorded a drop of 1.0%.
The Statistics South Africa has indicated that, on an annual basis, the electricity consumption dropped 1.3% in South Africa, in January, compared to a drop of 1.6% in the previous month.
The Bank of England maintained its asset purchase facility at GBP 375.00 billion in the UK, in line with market expectations.
In the UK, the Halifax house price index recorded a rise of 8.3% in February on a monthly basis, compared with a rise of 8.5% in the previous month. Market anticipations were for the Halifax house price index to advance 8.5%.
In January, on a monthly basis, seasonally adjusted factory orders registered a drop of 3.9% in Germany, significantly worse than market expectations for a fall of 1.0%. In the previous month, factory orders had climbed by a revised 4.4%.
The ECB kept its key interest rate unchanged at 0.05%. The central bank upgraded eurozone’s growth forecast for FY15 to 1.5% from 1.0% and indicated that the region’s economy is anticipated to expand by 1.9% and 2.1% in FY16 and FY17, respectively. Additionally, the ECB President, Mario Draghi, stated that the central bank will start with the quantitative easing programme from 9 March 2015, where it will purchase assets worth EUR60.00bn a month until September 2016 or until inflation reaches back close to the 2.0% target.
The US Census Bureau has reported that, in January, on a monthly basis, factory orders in the US registered an unexpected drop of 0.2%. Markets were expecting factory orders to climb 0.2%.
In the week ended 28 February 2015, the seasonally adjusted initial jobless claims climbed unexpectedly to 320.00k in the US. In the previous week, initial jobless claims had registered a level of 313.00k.
In Canada, the seasonally adjusted Ivey PMI advanced to 49.70 in February, compared with a level of 45.40 in the previous month. Market expectations were for Ivey PMI to climb to 48.50.
Japan’s Ministry of Finance has reported that foreign exchange reserves registered a drop to $1251.10bn in February. Foreign exchange reserves had registered a reading of $1261.10bn in the previous month.
Corporate Updates
South Africa
Standard Bank Group
: The banking company, in its FY14 results, revealed that total income increased 3.2% to R163.68bn from the preceding year. Its diluted EPS from continuing operations was 1,357.60c, compared with 1,072.20c posted a year ago. The company has declared a final dividend of 339.00c/share bringing the total dividend to 598.00c/share, a 12.2% increase from last year.
Aspen Pharmacare Holdings: The biotech and pharmaceutical company, in its results for the six months ended 31 December 2014, indicated that revenue was up 50.6% to R18.03bn from the corresponding period of previous year. Its diluted EPS stood at 539.00c, compared with 422.80c reported in the same period of preceding year. Its normalised diluted headline EPS was 569.00c, compared with 467.40c in the same period last year.
Sanlam Limited: The insurance company, in its FY14 results, indicated that net income dropped 9.7% to R92.06bn from the last year. Its diluted EPS, however, increased to431.50c from 401.20c recorded in the previous year. The company stated that it is working on acquisitions worth over R2.00bn in the rest of Africa and other emerging markets.
Rand Merchant Insurance: The insurance company, in its results for the six months ended 31 December 2014, stated that total income was R6.16bn, compared with R5.50bn reported in the same period a year ago. Its diluted headline EPS rose 25.6% to 121.20c from the corresponding period of last year. The company expects trading conditions in the 2H15 to be largely consistent with 1H15.
Exxaro Resources Limited: The mining company, in its FY14 results, revealed that revenue was up 20.9% to R16.40bn from the preceding year. However, its headline diluted EPS was down to 1,368.00c, compared with 1,466.00c reported in the prior year. The company expects FY15 performance to be impacted by lower coal prices and further anticipates reducing its capital expenditure in the short to medium term.
Attacq Limited: The asset management company, in its trading statement for FY14, stated that it expects its net asset value, as at 31 December 2014, to be between 219.00c/share and 284.00c/share higher than 1,289.00c/share at the end of previous year.
Jse Limited: The financial company, in its FY14 results, indicated that revenue advanced 12.7% to R1.78bn from the previous year. Its diluted headline EPS stood at 726.80c, compared with 640.80c posted a year ago. The company declared ordinary and a special dividend of 400.00c/share and 80.00c/share, respectively.
Battle for set-top box control heats up: Publisher Caxton and public broadcasting advocacy groups have opened a new front against MultiChoice in the battle over set-top box control, by reporting the company to the Competition Tribunal over a deal struck in July 2013 with the SABC.
More Poco stores for Western Cape: Steinhoff plans to open Poco stores across the Western Cape before a country-wide roll-out of the German mass discount household goods chain.
Anglogold Ashanti may sell assets to cut debt: Anglogold Ashanti says it has “three or four sources” of cash to reduce its $3.00bn debt burden. According to Barclays, the South African gold miner has only one realistic option — selling assets.
UK and US
Costco Wholesale Corporation: The company, in its 2Q15 results, indicated that total revenue was up 4.4% to $27.45bn from the corresponding period of preceding year. Its diluted EPS was $1.35, compared with $1.05 reported in the same period a year ago.
Kroger Co.: The retailing company, in its FY14 results, indicated that sales increased 10.3% to $108.47bn from the previous year. Its diluted EPS stood at $3.44, compared with $2.90 posted a year ago. For FY15, the company expects diluted EPS to be in the range of$3.80 to $3.90.
Joy Global Inc.: The manufacturing and services company, in its 1Q15 results, indicated that net sales dropped 16.1% to $703.87mn from the same period of prior year. Its diluted EPS was down to $0.24, compared with $0.48 reported in the corresponding period of last year. The company for FY15 now expects revenues to be between $3.30bn and $3.60bn, and diluted EPS, excluding restructuring and unusual items, to be in the range of $2.50 to $3.00.
Finisar Corporation: The optical communication components and subsystems manufacturing company, in its 3Q15 results, indicated that revenue was up 4.2% to $306.28mn from the same period a year ago. However, its GAAP diluted EPS was $0.02, compared with $0.26 posted in the corresponding period of the previous year. For 4Q15, the company anticipates revenues in the range of $310.00mn to $330.00mn.
51job Inc.: The integrated human resource services company, in its FY14 results, indicated that total revenue increased 13.2% to RMB1.90bn from the preceding year. However, its diluted EPS was down to RMB7.35, compared with RMB8.33 posted a year ago. For 1Q15, based on current market conditions and seasonality effect and factoring in the VAT policy change, the company expects total revenues to be in the range of RMB0.46bn to RMB0.48bn.
Fresh Market Inc.: The grocery retailing company, in its FY14 results, indicated that sales increased to $1.75bn, compared with $1.51bn reported in the previous year. Its basic and diluted EPS was up 23.80% to $1.30 from the last year. For FY15, the company expects adjusted diluted EPS of $1.77 to $1.85 and GAAP diluted EPS to be between $1.52 and $1.67.
Canadian Solar Inc.: The solar panel making company, in its FY14 results, indicated that net revenue jumped 79.0% $2.96bn from the previous year. Its diluted net EPS was $4.11, compared with $0.63 posted a year ago. For 1Q15, the company expects total revenue to be in the range of $0.73bn to $0.78bn, with gross margin expected to be between 16.0% and 18.0%.
Achillion Pharmaceuticals Inc.: The company, in its FY14 results, indicated that it incurred a operating loss of $69.43mn, compared with operating loss of $59.48mn reported a year ago. Its basic and diluted net loss was $0.70/share, compared with net loss of $0.63/share posted in the previous year. The company expects net loss for FY15 to be approximately to be $0.95/share.
Calithera Biosciences Inc.: The pharmaceutical company announced an exclusive global license agreement with TransTech Pharma, a clinical stage pharmaceutical company, granting exclusive world-wide rights to research, develop and commercialize TransTech’s portfolio of hexokinase II inhibitors.
Aviva Plc: The insurance company, in its FY14 results, indicated that total income from continuing operations increased 25.5% compared with the previous year, to GBP43.50bn. However, its diluted EPS dropped to49.60p, compared with 64.50p recorded in the prior year. The company has decided on a final dividend of 12.25p/share to its shareholders, to be paid on 15 May 2015. Furthermore, previously announced retirement of John McFarlane and Gay Huey Evans from the board would be effective from 29 April 2015.
London Stock Exchange Group: The company, in its FY14 results, stated that total income increased 26.3% to GBP1.38bn from the preceding year. Its adjusted basic EPS stood at103.30p, compared with 96.50p reported in the previous year. The company indicated that its focus for year ahead would be to develop opportunities across the group, from its increased product range and extended geographic reach.
Schroders Plc: The asset management company, in its FY14 results, revealed that revenue was up 5.8% to GBP1.53bn from last year. Its diluted EPS stood at 147.80p, compared with 126.00p reported in the previous year. The company announced that Luc Bertrand would be stepping down from the board, following the conclusion of AGM on 30 April 2015. It further stated that Lord Howard of Penrith will succeed Mr Bertrand as Senior Independent Director.
easyJet Plc: The company, in its passenger statistics for February 2015, revealed that it carried 4.49mn passengers, a 6.1% increase compared with February last year. Its load factor, a measure of the number of passengers as a proportion of the number of seats available, also advanced, climbing 0.02 percentage points to 90.9% from the same period a year ago.
Aggreko Plc: The temporary power generation company, in its FY14 results, indicated that revenue increased marginally to GBP1.58bn from GBP1.57bn recorded in the previous year. However, its diluted EPS declined to82.49p, compared with 92.03p posted a year ago. For FY15, the company expects underlying trading profit to be broadly in line with last year while it also anticipates incremental mobilisation costs to impact 1H15 results.
Admiral Group Plc: The company, in its FY14 results, revealed that its net revenue dropped 4.3% to GBP884.60mn from the last year. Its diluted EPS stood at 102.80p, compared with 104.40p reported in the previous year. The company has proposed a final dividend of 49.00p/share, to be paid on 29 May 2015.
CSR Plc: The fabless semiconductor company, in its FY14 results, indicated that revenue was down 19.4% to $0.77bn from the preceding year. However, it reported a diluted EPS of $0.55, compared with a loss of $0.28/share posted a year ago.
Rolls-Royce Holdings: The aerospace and defence company announced that it has strengthened its long-term partnership with SenerGrupo de Ingenieria SAin the Industria de Turbo Propulsores SA joint venture.
Financial Times
HMRC nets GBP1.10bn as it doubles take from probes at multinationals: HM Revenue & Customs raked in GBP1.10bn from challenging the pricing of multinational companies’ internal deals in 2013-14 – more than twice as much as in the previous year.
Poorest areas hit hardest by UK cuts, research finds: The UK’s poorest areas have been hit hardest by local government spending cuts and are likely to lose most again in the next round of savings, according to a leading think-tank.
Admiral cuts dividend for first time since float: Admiral’s annual profits have fallen for the first time since the UK-focused motor insurer launched on the stock exchange a decade ago in another sign of pricing pressure in the industry.
Australian mining slowdown hits Aggreko: The slowdown in the Australian mining sector dragged down the profits of global power rental group Aggreko in FY14, offsetting a boost from the World Cup in Brazil and the Glasgow Commonwealth Games.
Jefferson Hack magazine looks to future melding digital and print: The first magazine with a moving, high-definition video cover will be launched by Jefferson Hack on Thursday in an attempt to meld the worlds of print and digital publishing.
Betfair beats high street rivals as it raises profit guidance: Betfair shrugged off new gambling tax rules in the UK as it raised expectations for full-year profits by 15.0% on the back of a doubling in mobile gaming revenues.
Mick Davis builds X2 war chest up to $5.60bn: Mick Davis has raised up to $5.60bn for the private equity vehicle that is intended to bring the former Xstrata Chief Executive and his team back to the upper echelons of the mining industry.
Virgin Money doubles profit on mortgage growth: Virgin Money, the challenger bank, has more than doubled annual profits on the back of strong mortgage sales and is set to enter the FTSE 250 index at the end of the month.
Afren turns to China for salvation: Ethelbert Cooper, the Liberian entrepreneur who founded Afren, believes the future of the struggling African energy group lies in a new strategic partnership bringing in Chinese capital to develop the company’s resources on the continent.
Noble vows greater transparency in defence of accounting methods: Noble Group, Asia’s biggest commodities trader by sales, has promised greater transparency as it mounted a robust defence of its accounting methods, which have been attacked by a little-known research group.
Genel hopes to secure regular payments for oil exports: Genel Energy expressed optimism on Thursday that the resolution of a longstanding Iraqi government dispute could soon enable the Kurdistan oil explorer to secure regular payment for its crude exports.
Fed tests point to $500.00bn risk for banks: The biggest US banks would suffer combined losses of almost $500.00bn in the event of a financial crisis, according to stress tests carried out by the Federal Reserve, which rules next week on how much capital banks can return to shareholders.
AbbVie wins three-way fight over Pharmacyclics: AbbVie won the three-way fight over Pharmacyclics, a biotech company that makes a single cancer drug, with a $21.00bn offer that hinged on the opening of three envelopes, according to a person involved in the final discussions.
Vertex climbs on drug approval hopes: Vertex Pharmaceuticals led an advance by US biotechnology companies, buoyed by analyst commentary that one of its lead drug candidates could be approved by US regulators sooner than anticipated as well as by an unexpected bidding war for one of its peers.
Ticket vendor CTS Eventim plans to launch in Brazil: Ticketing group CTS Eventim is planning its first expansion outside Europe by launching operations in Brazil next year, on the back of its contract to manage ticket sales for the Rio Olympics.
Cobham eyes improving outlook in FY15: Cobham became the latest defence and aerospace company to point to an improving outlook for military spending, as it confirmed it was on track to return to revenue growth in FY15.
Moncler shares power ahead as sales beat expectations: Shares in luxury ski jacket maker Moncler rose more than 10.0% on Thursday after the Milan-based company reported better than expected fourth quarter sales.
Etsy takes indie brand corporate with IPO plans: The Brooklyn-based online marketplace for handmade and vintage goods filed plans to list on the stock market on Wednesday, aiming to bring its indie, artisanal ethos to the home of tech stocks, Nasdaq.
Indian smartphone maker Micromax has global ambitions: Micromax Informatics, India’s biggest domestic smartphone maker, plans to launch products in up to 10 more countries to create a larger emerging markets consumer devices brand.
Walsh’s pay rises after Iberia turnround: Willie Walsh, the Chief Executive of International Airlines Group, secured a 28.0% pay rise last year after successfully restructuring its Spanish subsidiary.
US airlines seek action against Gulf carriers: American Airlines, Delta Air Lines and United Airlines stepped up demands on Thursday for the US to take action against fast-growing Gulf airlines after publishing details of $42.00bn in alleged hidden aid to the state-controlled carriers over the past decade.
Lonmin: Fell 3.9% to GBP1.37 on growing concerns that the platinum miner will cut production to defend against a potential debt covenant default.
Rio Tinto: Edged down 2.9% to GBP29.85, after iron ore prices hit new six-year lows.
Lex
BT Openreach: new line-up: Twelve years ago, UK telecoms regulator Ofcom considered a break-up of BT Group, splitting the retail business from the network business. Instead, Ofcom chose a functional separation of the two divisions but kept them within the same company. Born in FY06, BT’s Openreach is the UK’s main voice and data network. It sells access to a variety of telecoms operators, including BT’s own retail division. But its competitors, such as TalkTalk, are not happy. For a start, they want better service. Openreach has a target to address to 95.0% of service interruptions within four hours, but according to Ofcom it has yet to meet this (and other) targets. More network investment might help. BT’s capital spending on Openreach has been flat for several years at around GBP1.00bn. Yet BT has been generous in other parts of its business, offering nearly GBP3.00bn for European football broadcast rights and GBP12.50bn for UK mobile company EE. Telling an incumbent operator to get rid of its network would be novel in European telecoms but it has worked well in other sectors in energy, the UK’s National Grid has done well for both customers and investors. But there could be drawbacks. A new management team could also be more ambitious, planning upgrades that stretch the company balance sheet and forcing higher prices on customers.
Private equity: of secondary concern: Investors in PE and VC funds (limited partners, in the industry jargon) are aiming for outsized returns but must agree to have their capital tied up for a decade or so. Now secondary funds have emerged to buy the stakes that jumpy LPs want to unload. Calpers said earlier this year that it would narrow the number of private equity managers it uses. And in the US, the Volcker rule forces banks to cut their exposure to riskier investments. Last summer, JPMorgan sold over half its portfolio in its house PE firm, One Equity Partners, for $1.10bn. Typically, secondary deals will price at a discount to the fund’s net asset value. But terms can vary based on the reputation of the private equity fund and the quality of the investments in the portfolio. Secondary funds target annualised returns in the teens. That is lower than the 20.0% a traditional private equity investor expects, because the secondary investor has more clarity on the investments in the fund, and hence less risk. Last year global secondary transaction value exceeded $40.00bn, according to data from investment bank Cogent Partners. That is a big jump from the average volume of $25.00bn from the previous three years. Note that $2.00tn of alternative capital has been raised since FY09.
Etsy: the long tail: Like many start-ups, from Uber to Airbnb, Etsy is an online marketplace connecting buyers and sellers. It charges sellers a 3.5% commission and a listing fee, and sells services such as website promotion. Revenues rose to 10.0% of gross merchandise sold last year, on a par with eBay’s marketplace business. Etsy is not profitable – losses widened to $15.00mn last year (8.0% of revenues) – but revenues grew 56.0%. There is no price range yet for Etsy, but given the market’s love for profitless young things, it is unlikely to be cheap. Other recent marketplace listings such as GrubHub are commanding valuations of 13 times trailing revenues. At that multiple, Etsy would be worth about $2.50bn. Whatever its public valuation, Etsy might be even more valuable as part of a bigger entity where it could extend its network. It is still small enough to be an attractive takeover target for the likes of eBay, Pinterest or even Facebook. Craft items are cute. At scale, they can also be profitable.
*Published with special permission by Anchor Capital (ACG)
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