By Anchor Capital
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South African Market Review
South African markets closed in the green yesterday, rebounding from a three day loss. RMB Holdings, FirstRand and Barclays Africa surged 4.7%, 4.1% and 1.3%, respectively. Famous Brands, Foschini Group and Mr Price Group edged up 2.2%, 2.0% and 0.9%, respectively. BHP Billiton, Kumba Iron Ore and Anglo American gained 1.8%, 1.4% and 1.4%, respectively. Platinum mining stocks, Impala Platinum, Anglo American Platinum and Royal Bafokeng climbed 1.6%, 1.5% and 1.1%, respectively. Massmart Holdings advanced 0.4%. The company announced the appointment of Johannes (Hans) van Liero as the new CEO. On the other hand, Truworths International declined 3.0%. Lonmin continued to slide, falling 2.8%. The JSE All Share Index rose 0.9% to close at 52,240.06.
UK Market Review
UK markets finished higher yesterday, led by gains in pharmaceutical sector stocks. AstraZeneca and Shire advanced 4.1% and 2.7%, respectively. GlaxoSmithKline rose 1.9%, after announcing plans of selling approximately half of its 12.4% stake in South Africa’s Aspen Pharmacare Holdings. ITV climbed 0.7%, after the company agreed to buy Netherlands-based entertainment show producer, Talpa Media for close to EUR781.00mn. Wm Morrison Supermarkets added 0.5%, reversing earlier losses triggered by a significant decline in its FY15 earnings. On the downside, Standard Chartered and BHP Billiton dropped 4.4% and 2.5%, after their stocks traded ex-dividend. The FTSE 100 Index advanced 0.6% to close at 6,761.07.
US Market Review
US markets ended higher yesterday, amid gains in banking sector stocks and as weak US retail sales data eased fears of a sooner than anticipated interest rate rise by the US Federal Reserve. Morgan Stanley, Citigroup and American Express advanced 6.1%, 3.3% and 2.7%, respectively, after they announced dividends and share buybacks following approval from the US Fed. Dollar General climbed 4.0%, after its 4Q14 profit met market expectations. However, Intel declined 4.7%, after the company lowered its 1Q15 revenue guidance. Peer, Microsoft fell 2.3%. The S&P 500 Index rose 1.3% to settle at 2,065.95, while the DJIA Index gained 1.5% to close at 17,895.22. The NASDAQ Index advanced 0.9% to finish at 4,893.29.
Asia Market Review
Markets in Asia are trading higher this morning. In Japan, the Nikkei index traded above the 19,000 level for the first time since 2000. Fanuc Corp soared 13.1%, after its President stated that the firm was planning to increase returns to its investors through dividends and share buybacks. In Hong Kong, banking stocks, Bank of China and Industrial and Commercial Bank of China rose 2.4% and 1.5% respectively. In South Korea, Hankook Cosmetices Manufacturing and LG Life Sciences surged 7.5% and 7.4% respectively. The Nikkei 225 index is trading 1.5% higher at 19,283.33. The Hang Seng index is trading 0.3% up at 23,866.90, while the Kospi index is trading 1.0% higher at 1,990.77.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.4% to trade at $56.54/bl. Yesterday, Brent crude oil fell 1.5% to settle at $56.34/bl. Meanwhile, the US dollar weakened on disappointing retail sales data and dampened optimism over the strength of economic recovery in the nation.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.6% to $3.62/bushel.
At 06:00 SAST today, gold prices advanced 0.5% to trade at $1,159.84/oz. Yesterday, gold declined 0.1% to close at $1,153.73/oz.
Yesterday, copper rose 2.0% to close at $5,867.00/mt. Aluminium closed 0.3% higher at $1,738.00/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, after South Africa’s manufacturing production declined annually for January. Meanwhile, weaker than expected US retail sales data that released yesterday hinted consumer spending had not yet recovered despite the improvement in the US labour market. Going forward, investors will keep a tab on producer prices for February and Reuters/Michigan consumer sentiment for March, scheduled later today, for further cues on direction.
The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.15% while that for the longer-dated 2026 issue fell to 7.84%.
At 06:00 SAST, the US dollar is trading 0.3% lower against the South African rand at R12.2661, while the euro is trading 0.5% lower at R13.0150. At 06:00 SAST, the British pound has declined 0.3% against the South African rand to trade at R18.2385.
Yesterday, the euro advanced against most of the major currencies. Meanwhile, data released yesterday showed that industrial production in the eurozone declined more than market expectations for January. Separately, final consumer prices reading from Germany and Spain were in line with the preliminary prints for February.
At 06:00 SAST, the euro slipped 0.2% against the US dollar to trade at $1.0611, while it has weakened 0.2% against the British pound to trade at GBP0.7136.
Economic Updates
In January, on a monthly basis, the seasonally adjusted manufacturing production index unexpectedly fell 1.5% in South Africa. Market expectations were for the manufacturing production index to advance 0.9%.
The BoE Chief, Mark Carney, hinted that UK’s inflation is expected to remain low in the near term amid low oil prices. However, he warned that prospects of a sustained weakness in the nation’s inflation cannot be ruled out, particularly considering the deflationary headwinds from abroad and the elevated value of the Pound. Additionally, Mark Carney stated that a stronger Pound could make the Bank of England consider a delay in the timing of an interest rate rise.
The UK has registered total trade deficit of GBP 0.62bn in January, following a revised total trade deficit of GBP 2.14bn in the prior month. Market anticipation was for a total trade deficit of GBP 2.30bn.
In February, on a monthly basis, the harmonised consumer price (HICP) index in Spain registered a rise of 0.1%, compared with a drop of 2.2% in the previous month. Markets were expecting HICP index to rise 0.1%.
In France, EU normalised consumer price index (CPI) climbed 0.7% in February on a monthly basis, compared with a drop of 1.1% in the previous month. Markets were expecting EU normalised CPI to climb 0.6%.
On a monthly basis, the final CPI in Germany advanced 0.9% in February, in line with market expectations and compared with a drop of 1.1% in the prior month. The preliminary figures had also indicated a rise of 0.9%.
On a monthly basis in January, the seasonally adjusted industrial production recorded an unexpected drop of 0.1% in the eurozone. Industrial production had advanced by a revised 0.3% in the prior month.
Advance retail sales in the US unexpectedly dropped 0.6% on a monthly basis in February. In the previous month, advance retail sales had recorded a drop of 0.8%.
In Japan, the consumer confidence index registered a rise to 40.70 in February, higher than market expectation of a rise to 39.50. In the prior month, the consumer confidence index had registered a reading of 39.10.
The seasonally adjusted manufacturing PMI advanced to 55.90 in February, in New Zealand. Manufacturing PMI had recorded a revised reading of 50.70 in the previous month.
Corporate Updates
South Africa
MTN Group Limited
: Media reports revealed that the telecommunication company has received interest from American Tower for at least a part of the network of about 9, 000 towers it is selling in South Africa
BHP Billiton: The mining company announced that it has suspended its Blackwater coal operations in Australia after a worker at the mine was killed in a truck accident on Thursday.
Massmart Holdings Limited: The company announced that following the resignation of IlanZwarenstein from his role as Finance Director, Johannes (Hans) van Liero has been appointed as Chief Financial Officer of the company, effective from 12 March 2015.
Sibanye Gold: The gold mining company stated that eleven employees face criminal charges following inter-union conflict at the Beatrix mine in Westonaria, Gauteng.
Hospitality Property Fund Limited: The real estate investment trust announced that it has got the approval to develop Phase 2 of Arabella Country Estate on Portion 1 and the remainder of Portion 3 of Caledon Farm No. 542, Hermanus River, Kleinmond from the Minister of Western Cape Local Government, Environmental Affairs and Development Planning.
Blackstar-TMG deal gets green light: The Competition Commission said on Thursday it had approved, without conditions, Blackstar’s acquisition of Times Media Group.
UK and US
Dollar General Corporation: The variety stores company, in its FY15 results, indicated that net sales increased 8.0% from the preceding year, to $18.91bn. Its diluted EPS stood at $3.49, compared with $3.17 reported in the previous year. For FY16, the company expects total sales to increase 8.0% to 9.0% from the last year and diluted EPS is anticipated to be in the range of $3.85 to $3.95. Furthermore, the company announced the retirement of David Tehle, the Executive Vice President and Chief Financial Officer, effective 1 July 2015.
Ulta Salon Cosmetics and Fragrance: The beauty superstores company, in its FY15 results, stated that net sales were up 21.4% from the previous year, to $3.24bn. Its diluted EPS was $3.98, compared with $3.15 posted in the prior year. For FY16, the company plans to achieve comparable sales growth of approximately 6.0% to 8.0% and deliver EPS growth in the range of 15.0% to 17.0%.
Anacor Pharmaceuticals Inc.: The biopharmaceutical company, in its FY14 results, revealed that total revenue climbed 20.1% to $20.69mn from the last year. However, it reported a net diluted loss of $2.06/share, compared with EPS of $2.10 recorded in the previous year.
Children’s Place Inc.: The children’s specialty apparel retailing company, in its FY15 results, indicated that net sales dropped marginally to $1.76bn from $1.77bn reported in the preceding year. However, its diluted EPS advanced to $2.59, compared with $2.32 posted in the previous year. For FY16, the company expects adjusted net diluted EPS to be in the range of $3.15 to $3.30, inclusive of a $0.15 negative impact from foreign exchange. The company announced that it has increased its quarterly dividend to $0.15/share from $0.13/share.
Qiwi Plc: The company, in its FY14 results, stated that revenue was up 26.2% to RUB14.72bn from the prior year. Its diluted EPS attributable to ordinary equity holders of the parent company was RUB92.73, compared with RUB35.70 recorded in the previous year. For FY15, the company expects total adjusted net revenue to increase by 12.0% to 16.0% over last year.
El Pollo Loco Holdings Inc.: The restaurant company, in its FY14 results, indicated that its total revenue increased 9.6% from the previous year, to $0.34bn. It reported a net diluted EPS of $1.24, compared with diluted loss of $0.59/share posted in the preceding year. The company expects FY15 pro forma diluted EPS in the range of $0.67 to $0.71.
OncoMed Pharmaceuticals Inc.: The development-stage biotechnology company, in its FY14 results, stated that its total revenue advanced to $39.56mn from $37.78mn recorded in the previous year. It incurred a net basic and diluted loss of $1.69/share, compared with loss of $1.93/share reported in the last year. For FY15, the company indicated that it expects cash expenses to total around $100.00mn to $110.00mn, excluding non-cash stock-based compensation, depreciation, and amortization expenses.
Intel Corporation: The technology company announced that it now expects its 1Q15 revenue to be $12.80bn, plus or minus $300.mn, compared with the previous expectation of $13.70bn, plus or minus $500.00mn, a result of weaker than expected demand for business desktop PCs and lower than expected inventory levels across the PC supply chain.
Charter Communications Inc.: Media reports reveal that the company is in discussions to acquire Bright House Networks.
Galena Biopharma Inc.: The biopharmaceutical company announced that it intends to offer shares of its common stock and warrants in an underwritten public offering, proceeds from which would be used to fund its operations.
WM Morrison Supermarkets Plc: The supermarket chain company, in its FY15 results, indicated that revenue dropped 4.9% to GBP16.82bn from the preceding year. It reported a diluted loss of 32.63p/share, compared with loss of 10.23p/share posted in the previous year. The company stated that for FY16, the dividend would not be less than 5.00p/share.
Cineworld Group Plc: The company, in its FY15 results, stated that revenue increased 52.5% from the preceding year, to GBP619.40mn. Its diluted EPS rose to 21.90p, compared with 13.80p reported in the last year. The company revealed that dividend increased 33.7% to 13.5p/share on a rights adjusted basis.
Serco Group Plc: The outsourcing company, in its FY14 results, revealed that its revenue dropped to GBP3.96bn from GBP4.28bn recorded in the previous year. It reported a loss of GBP2.58/share, compared with EPS of GBP0.20 posted in the preceding year. For FY15, the company expects revenue of approximately GBP3.50bn, trading profit of around GBP90.00mn and EBITDA of approximately GBP160.00mn. The company further announced the launch of underwritten equity rights issue to raise approximately GBP555.00mn, net proceeds of which will be used primarily to reduce the group’s indebtedness.
Computacenter Plc: The IT infrastructure and services company, in its FY14 results, indicated that revenue was up 1.2% from the previous year, to GBP3.11bn. Its diluted EPS was 40.00p, compared with 23.00p posted in the prior year. The company has proposed a final dividend of 13.10p/share, compared with 12.30p/share paid in the last year.
Soco International Plc: The oil and gas exploration and production company, in its preliminary FY14 results, stated that revenue was down 26.2% from the last year, to $448.20mn. Its diluted EPS was 4.20¢, compared with 31.60¢ reported in the prior year. For FY15, the company has maintained its production guidance at 10.50 to 12.00 kboepd, reflecting reduced scope of TGT drilling.
ITV Plc: The media company announced the acquisition of Talpa Media B.V. for an initial cash consideration of approximately GBP355.00mn. It stated that the acquisition would help in building an international content business that creates and owns entertainment formats and dramas that sell internationally, and significantly strengthens the company’s position as a leading producer in Europe.
Antofagasta Plc: The mining company announced that on 11 March, it reached an agreement to resolve the protest actions announced on 8 March at its Los Pelambres operations and normal operations would resume in the coming days.
Interserve Plc: The services company announced that its joint venture, Interserve JV, has been awarded a GBP150.00mn contract by the Brite Partnership North East to build a biomass-fired power plant in Rotherham.
Financial Times
Miliband holds out promise to cut energy bills by 10.0%: Ed Miliband will on Friday promise a cut in household energy bills of up to 10.0% by the end of the year if Labour wins the general election.
Cineworld expects a blockbuster year ahead: Cineworld, the UK’s largest cinema operator, expects a blockbuster year ahead, given the release of big-budget additions to film franchises such as James Bond and the Hunger Games.
Piers of the realm up for sale: Blackpool’s south and central piers – along with Llandudno Pier – are being sold by leisure operator Cuerden Leisure for GBP12.60mn, through property agents Bilfinger GVA.
GSK to sell Aspen stake for almost $900.00mn: GlaxoSmithKline said it would halve its stake in South Africa’s Aspen Pharmacare in a disposal expected to raise almost $900.00mn for the UK drugmaker.
TSB shares jump on Spanish bid talks: UK challenger bank TSB has entered into takeover talks with Spanish lender Banco Sabadell, paving the way for one of the largest cross-border banking mergers in Europe in a decade.
Sir Philip Green sells BHS for GBP1.00: Sir Philip Green has offloaded BHS, the department store chain he bought for GBP200.00mn at the turn of the century, for just GBP1.00 – drawing a line under the billionaire retailer’s ambition to dominate the high street.
Ofcom urged to break BT’s grip as telecoms sector faces shake-up: The UK telecommunications regulator faces renewed calls to break BT’s hold on the national broadband network after the watchdog announced the biggest review of the sector for a decade.
IAG and Dublin close to agreement on Aer Lingus takeover: International Airlines Group and the Irish government are trying to hammer out a compromise over the fate of Aer Lingus’s valuable take-off and landing slots at Heathrow airport – the biggest barrier to IAG’s planned takeover of the Irish carrier.
Waitrose warns of more grocery sector turmoil: Mark Price, managing director of Waitrose, forecast further turmoil in the grocery sector as profits at the upmarket supermarket chain fell almost a quarter last year.
Shell risks pay protest over Chief’s EUR24.00mn package: Royal Dutch Shell’s Chief Executive Ben van Beurden earned almost GBP20.00mn last year, after the oil company poured millions of pounds into his final-salary pension pot and footed a UK tax bill on his relocation to the Netherlands.
Mulberry bags new Chief Executive: Beleaguered British luxury brand Mulberry has appointed Thierry Andretta, one of the company’s independent non-Executive directors, as its Chief Executive after a year without a permanent leader.
Property writedown pushes Morrison to GBP792.00mn loss: Wm Morrison plunged to a loss of almost GBP800.00mn after the struggling supermarket chain took a GBP1.27bn property writedown. Shell awards CEO van Beurden EUR24.00mn pay package: Royal Dutch Shell’s Chief Executive Ben van Beurden was awarded a total of EUR24.20mn for his work last year.
Struggling South African power utility suspends its CEO: The board of Eskom, South Africa’s creaking state power utility, suspended its Chief Executive and three other senior officials on Thursday as it launched an independent inquiry into the organisation’s poor performance.
Global carbon emissions stall in FY14: Global emissions of climate-warming carbon dioxide did not rise last year for the first time in 40 years without the presence of an economic crisis.
Citi blocked on Argentine bond payment: The legal feud between Argentina and a group of New York-based hedge funds that has prevented the government from servicing its debt took a new turn on Thursday when the judge overseeing the case refused Citibank’s request to process a bond payment.
Generali’s capital position weakens: Italian insurer Generali has revealed that rock-bottom interest rates are weakening its capital position, in a sign of headwinds facing Chief Executive Mario Greco as he enters the next phase of the group’s recovery.
Fanuc considers boosting shareholder returns: Shares in Fanuc jumped on Friday after the world’s biggest maker of factory robots said it would deepen its engagement with shareholders and consider boosting returns.
UTC Chief wants lift in group’s returns: The Chief Executive of United Technologies on Thursday showed his determination to drive up the conglomerate’s returns when he said capital expenditure at Pratt & Whitney, the aero engine maker, would “have to come down”.
ITV sets EUR1.10bn price ceiling on ‘The Voice’ producer deal: ITV has made its largest investment in television programming, agreeing to pay up to EUR1.10bn for the maker of singing contest The Voice.
Rakuten-backed Lyft valued at $2.50bn: Lyft has raised $530.00mn in new funding in a round led by the Japanese ecommerce group Rakuten, as the San Francisco-based company continues its battle against Uber in the ride-sharing market.
Lufthansa warns pilots over costs: Lufthansa warned its strike-prone employees yesterday that the German airline group’s cost structure must become more competitive after profits fell sharply last year.
SABMiller: Took on 1.7% to GBP36.33 on another M&A reheat.
Soco International: Slumped 34.4% to 158.60p after cutting reserve estimates for its flagship Vietnam oilfield by 70.0%.
Lex
Serco: becalmed: Rupert Soames, the new Serco Chief Executive, aims to shore up an unwieldy global outsourcing business. He promises to focus on the most profitable bits while righting the balance sheet. On Thursday, the company announced a GBP555.00mn cash call, well telegraphed beforehand, alongside full-year numbers. The shares fell 12.0% all the same, on top of the 55.0% they have lost in the past year. Post rights, the share count will double, lifting Serco’s forward price/earnings multiple to more than 30 times. The market, in other words, anticipates an earnings surge. A return to the 10-year average multiple of 17 times would require earnings to double. Mr Soames says that with pre-tax margins depressed to 2.0%, returning to an industry standard of 5.0% would achieve just that. This helps, but the company is still set to burn about GBP200.00mn in cash this year. While GBP80.00mn of the equity raised could offset part of that, the rest must come from cutting overheads – corporate costs exceed GBP50.00mn – and putting in fully centralised buying systems. Too much of Serco generates a low margin from steady-as-you-go business. That can be improved.
Banco de Sabadell / TSB: homage from Catalonia: Nobody expects the Spanish acquisition. Banco Sabadell’s tilt at the TSB came as such a shock that the UK lender’s shares jumped 23.0% on Thursday. Talks are at an early stage, but Sabadell is prepared to offer 340.00p per share, a small premium to TSB’s book value. A sale at that price would be a tidy return for anyone who bought at last June’s 260.00p IPO price. Compare that 31.0% jump to the 3.0% rise in the value of Lloyds (from which TSB was spun out) in the same period, and TSB shareholders should welcome the Spaniards with open arms. Lloyds, which still owns half of TSB, was quick to indicate its approval. The benefits for Sabadell investors are less obvious. They could have bought TSB shares for 264.00p on Wednesday. Their bank is offering a 29.0% premium. Cost savings usually justify a premium, but here they are not obvious. Sabadell is a diverse lender based in Spain. TSB is a retail-focused lender in the UK. The Spanish bank may find savings by moving TSB on to its IT system (TSB pays Lloyds for its IT at the moment). It would also receive a payment from Lloyds to help with IT integration. And Sabadell is an experienced acquirer – it has made four in the past couple of years. But it is not clear that in this case IT alone can justify the premium. Still, it will be costly for Sabadell shareholders. Macquarie estimates that adding TSB would depress Sabadell’s capital ratio by150 basis points, and that closing the gap would require a EUR1.10bn-EUR1.20bn equity issue.
United Technologies: helicopter parent: Gregory Hayes, the new Chief Executive and former finance Chief, confirmed plans to explore a sale or spin-off of its helicopter unit, Sikorsky Aircraft. Observers had anticipated such a move, shedding a business tied to declining US military spending. While UTC reviews its portfolio, it should ask tough questions about how the rest of its segments fit together. Sikorsky, known for its Black Hawk helicopters, accounts for just a tenth of UTC’s nearly $70.00bn in revenue with an operating margin (11.0%) below the rest of the company. US military spending (about two-thirds of Sikorsky’s revenue) fell a quarter between FY11 and FY14 as intervention in the Middle East wound down. UTC’s Pratt & Whitney jet engine division has required $10.00bn in capital investment in recent years. That has gone toward its next generation “geared turbofan” that will power new aircraft models. UTC contends that big investments like this are best borne by a huge conglomerate. Perhaps, but UTC’s total share return of about 30.0% has trailed the S&P 500 over the past two years. In January, it lowered its previous FY15 earnings outlook from December due to the soaring dollar. UTC let one child gain its independence. The rest of the family deserves similar treatment.
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