By Anchor Capital
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South African Market Review
South African markets closed lower on Friday, amid weakness in resource sector stocks as a strong US dollar pressured commodity prices. Gold miners, AngloGold Ashanti, Gold Fields and Harmony Gold dropped 5.3%, 3.2% and 3.2%, respectively. Massmart Holdings, Mr Price Group and Woolworths Holdings lost 4.9%, 3.5% and 1.5%, respectively. Aspen Pharmacare closed 4.4% lower, after it announced that GlaxoSmithKline had disposed half of its 12.4% shareholding in the company. Mining companies, BHP Billiton, Anglo American and Kumba Iron Ore shed 3.2%, 2.9% and 0.2%, respectively. However, Redefine Properties and Growthpoint Properties gained 0.8% and 0.3%, respectively. The JSE All Share Index fell 0.8% to close at 51,798.74.
UK Market Review
UK markets finished lower on Friday, amid a broad decline in oil stocks after the International Energy Agency (IEA) cautioned that crude prices may again witness a decline. SSE and Centrica lost 2.0% and 1.5%, respectively, ahead of the Labour Party conference wherein leader Ed Miliband is expected to discuss strategies to slash household energy bills if his party wins the General Election. Tullow Oil, BG Group and Royal Dutch Shell lost between 1.8% and 3.2%. However, GlaxoSmithKline added 0.7%, reversing its initial losses triggered by news of it divesting half of its stake in South African associate Aspen Pharmacare for GBP0.57bn. The FTSE 100 Index declined 0.3% to close at 6,740.58.
US Market Review
US markets ended lower on Friday, amid weakness in energy sector stocks and after the Reuters/Michigan consumer sentiment index in the US declined in March to a four-month low. Ensco, Transocean and Noble Corporationlost 6.6%, 4.7% and 4.6%, respectively, tracking the decline in crude oil prices. Harley-Davidson shed 3.4%, after the company announced that it intends to lay off 169 employees at its factory in Kansas City. Financial sector stocks, Charles Schwab and Morgan Stanley fell 2.3% and 2.0%, respectively. However, Intel edged up 0.4%, recouping from its losses on Thursday. The S&P 500 Index fell 0.6% to settle at 2,053.40, while the DJIA Index dropped 0.8% to close at 17,749.31. The NASDAQ Index declined 0.4% to finish at 4,871.76.
Asia Market Review
Markets in Asia are trading in the green this morning, ahead of the US Fed’s monetary policy decision due later this week. In Japan, Ichimasa Kamaboko soared 14.0%, after the company announced a 2-for-1 stock split. Nintendo gained 2.2%, after data showed that revenue in the US from its portable 3Ds device increased more than twofold in February. In Hong Kong, China Life Insurance added 1.6%, after it posted a rise in its premium revenues for the first two months of 2015. In South Korea, index heavyweights, Hyundai Motor and Samsung Electronics climbed 2.9% and 1.3%, respectively. The Nikkei 225 Index is trading 0.3% in positive territory at 19,302.87, while the Kospi Index is trading 0.2% firmer at 1,990.50. The Hang Seng Index is trading 0.5% higher at 23,940.75.
Commodities
At 06:00 SAST today, Brent crude oil fell 0.4% to trade at $53.59/bl. On Friday, Brent crude oil fell 4.5% to settle at $53.83/bl, after the IEA, in its monthly report, indicated that any recovery in oil-price remained fragile as the global oil glut continues to build.
On Friday, the Illinois North Central No.2 Yellow corn spot prices fell 2.2% to $3.54/bushel.
At 06:00 SAST today, gold prices marginally advanced to trade at $1,159.00/oz. On Friday, gold gained 0.4% to close at $1,158.48/oz, after nine consecutive sessions of losses.
On Friday, copper rose 0.3% to close at $5,882.00/mt. Aluminium closed 1.8% higher at $1,769.25/mt.
Currencies
On Friday, the South African rand weakened against the US dollar. Meanwhile, the producer price index for February declined for February which signalled weak inflationary pressures across the US economy. Separately, the Reuters/ Michigan consumer sentiment preliminary reading in the US fell for March. Going forward, investors will eye today’s reports on industrial production and manufacturing activity in the New York region, as well as private sector data on the housing market.
The yield on benchmark government bonds rose on Friday. The yield on 2015 bond advanced to 6.20% while that for the longer-dated 2026 issue rose to 7.98%.
At 06:00 SAST, the US dollar is trading 0.3% lower against the South African rand at R12.4421, while the euro is trading marginally higher at R13.0885.
On Friday, the euro declined against most of the major currencies and strengthened against the South African rand. Moving ahead, market participants will keep a tab on the German ZEW survey to gauge investor morale following the commencement of the ECB’s bond buying programme and final print on the eurozone’s consumer price index for February, scheduled on Tuesday, for further direction.
At 06:00 SAST, the euro advanced 0.2% against the US dollar to trade at $1.0519, while it has gained 0.1% against the British pound to trade at GBP0.7128.
Economic Updates
On an annual basis, construction output in the UK unexpectedly eased 3.1% in January, less than market expectations for an advance of 2.1%. In the previous month, construction output had climbed by a revised 5.3%.
In March, on a monthly basis, the Rightmove house price index in the UK climbed 1.0%. In the previous month, the Rightmove house price index had registered a rise of 2.1%.
In February, on a monthly basis, the final EU normalised consumer price index (CPI) in Italy registered a rise of 0.3%, meeting market expectations. The EU normalised consumer price index had registered a revised drop of 2.5% in the previous month. The preliminary figures had also indicated a rise of 0.3%.
In February, on a monthly basis, the wholesale price index in Germany recorded a rise of 0.5%. The wholesale price index had recorded a drop of 0.4% in the previous month.
On a monthly basis, producer prices unexpectedly dropped 0.5% in February, in the US. Producer price had registered a drop of 0.8% in the prior month.
The Reuters/University of Michigan has reported that the flash Reuters/Michigan consumer sentiment index in the US registered an unexpected drop to 91.20 in March, compared with market expectations of an advance to a level of 95.70. The Reuters/Michigan consumer sentiment index had registered a level of 95.40 in the previous month.
The unemployment rate climbed to 6.8% in February, in Canada, compared with a reading of 6.6% in the previous month. Markets were expecting the unemployment rate to advance to 6.7%.
On a monthly basis, the final industrial production registered a rise of 3.7% in Japan, in January. In the prior month, industrial production had advanced 0.8%. The preliminary figures had indicated an advance of 4.0%.
On a monthly basis, the seasonally adjusted new motor vehicle sales recorded a rise of 2.9% in February, in Australia. New motor vehicle sales had registered a revised drop of 1.9% in the previous month.
The performance of services index dropped to 55.60 in New Zealand, in February. In the prior month, the performance of services index had registered a reading of 57.80.
Corporate Updates
South Africa
Pallinghurst Resources Limited
: The company, in its trading statement for FY14, indicated that it expects its headline EPS to be 7.00¢, an increase of 250.0% compared with headline EPS of 2.00¢ for FY13. It revealed that the significant increase in its earnings is primarily attributable to increases in the valuation of its investments in Gemfields and Jupiter Mines, which are held at fair value.
Aspen Pharmacare Holdings: GlaxoSmithKline has completed the disposal of half of its 12.4% shareholding in the company for R10.50bn.
Telkom’s Mabuza buys slice of Sphere: Business tycoon, JabuMabuza, has bought a 10.0% stake in black-controlled investment company Sphere Holdings and the Chairman’s seat for an undisclosed amount.
UK and US
Hibbett Sports Inc.: The sporting goods retailing company, in its FY15 results, indicated that net sales were up 7.2% from the preceding year to $0.91bn. Its net diluted EPS stood at $2.87, compared with $2.70 reported in the previous year. For FY16, the company expects diluted EPS in the range of $2.95 to $3.09.
Ebix Inc.: The software, in its FY14 results, indicated that operating revenue increased 4.7% from the last year to $0.21bn. Its diluted EPS was $1.67, compared with $1.53 recorded in the preceding year.
Repligen Corporation: The bioprocess company, in its FY14 results, indicated that total revenue dropped 6.8% from the previous year to $63.55mn. Its diluted EPS was down to $0.25, compared with $0.50 posted in the prior year. For FY15, the company projects total revenue to be between $72.00mn and $75.00mn, comprised exclusively of product sales, and reflecting a sales growth of 19.0% to 24.0%.
Aratana Therapeutics Inc.: The therapeutics company, in its FY14 results, indicated that total revenue was $0.77mn, compared with $0.12mn recorded in the previous year. However, it has incurred a net diluted loss of $1.30/share, compared with loss of $0.63/share reported in the last year. For FY15, the company would remain focused on advancing its diverse portfolio and it also anticipates spending approximately $30.00mn to $40.00mn on product candidate development and post-approval studies.
SFX Entertainment Inc.: The music industry company, in its FY14 results, indicated that its revenue increased sharply to $0.35bn from $0.17bn posted in the previous year. It reported a net loss of $0.13bn, compared with $0.11bn recorded in the prior year. The company expects its FY15 revenue to be in excess of $0.50bn with adjusted EBITDA of $0.06bn to $0.07bn inclusive of the anticipated impact of foreign exchange as a significant portion of the its operations occur internationally.
Spectrum Pharmaceuticals Inc.: The biotechnology company, in its FY14 results, indicated that total revenue from product sales, license fees and service revenue totalled to $0.19bn, compared with $0.16bn reported in the previous year. It recorded a net diluted loss of $0.71/share, compared with loss of $1.02/share posted in the last year. The company further indicated that its leading drug, SPI-2012 which is being investigated for the treatment of neutropenia has shown impressive Phase 2 data.
Citi Trends Inc.: The clothing retail company, in its FY15 results, indicated that net sales were up 7.8% from the previous year to $0.67bn. Its net diluted EPS was $0.60, compared with $0.03 reported in the last year. Furthermore, it announced the retirement of Ed Anderson as CEO, effective 21 March 2015 and the appointment of Jason Mazzola as the President and CEO, effective 22 March 2015. Additionally, Bruce Smith, the company’s Executive Vice President and CFO, would also become its COO.
Merck & Co Inc.: The pharmaceutical company announced that it expects its surgery drug sugammadex to be denied regulatory approval after the US Food and Drug Administration (FDA) cancelled an advisory committee’s meeting to review the drug’s efficacy. The company has been asked by the FDA to gather further data to establish the effectiveness of the drug.
Tesla Motors Inc.: The electric vehicle company announced that after missing sales goals for FY14, it has reassigned its VP of Global Sales and Service, Jerome Guillen, to take on a customer-satisfaction role within the company. Going forward, the company would hire Executives to run sales in Asia, North America, and Europe.
J D Wetherspoon Plc: The pub chain company, in its 1H15 results, stated that revenue increased 8.9% from the same period of preceding year to GBP744.37mn. Its diluted basic EPS stood at 22.60p, compared with 20.70p posted in the same period a year ago. The company stated that it aims to triple its coffee and breakfast sales over the next 18 months by cutting prices in a bid to capture a greater share of the daytime dining market.
Afren Plc: The oil and gas company indicated that it has agreed to a $300.00mn deal with bondholders that would provide it with vital funding by June at the expense of diluting its current investors’ stake to only 11.0% of the company. In its trading update for FY14, the company stated that revenues were approximately $0.90bn, compared with $1.64bn reported in the previous year. It expects post tax impairment charges of approximately $2.00bn. For FY15, the company has provided net production guidance of between 29.00kbopd and 36.00kbopd.
GlaxoSmithKline Plc: The pharmaceutical company announced that it has sold half its stake in Aspen Pharmacare Holdings of South Africa for R10.50bn ($851.00mn) to invest in new priorities. Evraz Plc: The mining company announced the appointment of Irina Bakhturina as Director of Investor Relations, effective 5 March 2015.
John Wood Group Plc: The oil and gas company stated that it has been awarded a contract by Norwegian oil company, Statoil to handle engineering modifications and upgrades to the Kollsnes process plant in Norway. It indicated that the estimated value of the contract, including options and procurement, is more than NOK500.00mn.
Cable & Wireless Communications Plc: The communications company announced that it has agreed with the shareholders of Columbus International to extend the longstop date for the receipt of required consents and approvals for the proposed acquisition of Columbus, announced on 6 November 2014. It stated that the longstop date would be extended to 31 March 2015.
Diploma Plc: The specialised technical products and services supplier company announced the acquisition of 100.0% of Rutin AG, the Swiss non-trading holding company of the Kubo Group of companies based in Switzerland and Austria.
Financial Times
Dyson makes $15.00mn battery bet: Dyson, the company famous for its bagless vacuum cleaners and bladeless fans, is investing $15.00mn in a US-based start-up as it looks to capitalise on the next generation of battery technology to improve its products.
High street takes further knock as more stores disappear: Shop closures on the high street worsened in FY14, with rising consumer confidence failing to lift town centres.
Activist investor Elliott to push for Alliance Trust board seats: An activist hedge fund is preparing to push for boardroom appointments at Alliance Trust, setting the stage for another fight over the future of the Dundee-based investment group.
China broadcaster CCTV reprimands foreign carmakers: China’s state broadcaster accused foreign carmakers of overcharging customers in its Consumer Day television programme that multinationals watch each year with increasing trepidation.
Zegona raises GBP30.00mn ahead of Aim listing: An investment company aiming to buy telecoms, media and technology companies in a consolidating European market has received backing from a range of institutional funds managed by Neil Woodford, Fidelity and Standard Life.
UK competition watchdog asks for industry views on BT-EE merger: The British competition watchdog has begun to look at the GBP12.50bn takeover of mobile group EE by BT with requests for “early views” on the impact on areas ranging from mobile and broadband to the triple-play and quad-play markets.
WPP Chief Sir Martin Sorrell to pocket GBP36.00mn shares award: Sir Martin Sorrell will receive GBP36.00mn from a controversial share plan this year, even though the scheme was dismantled in FY12 in response to investor anger.
X2’s Davis ready to re-enter the fray with $5.60bn war chest: Mick Davis, the South African who built Xstrata into one of the most successful companies of the last mining boom, is ready to step back into the fray.
Total puts North Sea gas stake on block: French oil major Total is auctioning a stake in one of the UK’s most promising natural gasfields, sounding out possible buyers in what could be the first of a wave of deals in the North Sea.
Barrick Gold eyes sale of key Chilean copper mine: Barrick Gold is eyeing the sale of one of its “crown jewels”, a Chilean copper mine, as the Canadian miner tries to meet an ambitious debt reduction target to help restore its lustre for investors.
Nomura faces $1.00bn mortgage securities trial: A US government agency will seek more than $1.00bn from Nomura on Monday in the first case to come to trial from the FY11 barrage of lawsuits alleging banks were at fault for packaging bad mortgages into securities.
Top US law firm in Singapore tie-up: Morgan Lewis & Bockius, the largest law firm in the US by partner numbers, is combining with a Singapore law firm in an attempt to capitalise on ambitious plans by the Asian city-state to become a global commercial arbitration centre.
British Car Auctions close to GBP1.00bn sale: Europe’s largest second-hand vehicle auctioneer is expected to be sold for over GBP1.00bn to a City of London consortium following a scrapped plan to float the business earlier this year.
Malin aims to raise EUR300.00mn with IPO: A life science company backed by the new Irish state investment vehicle and a respected UK fund manager is closing in on one of Europe’s biggest biotech flotations.
Seiko Epson turns page on losses: For Minoru Usui, Chief Executive of the world’s third-biggest printer maker Seiko Epson, executing a turnaround plan is similar to managing a football team.
Guardian set to name new editor to succeed Alan Rusbridger: The Guardian will name its new editor on Friday, having decided to overlook the bookmakers’ favourite for the role, according to people familiar with the process.
Emirates Airline considers action against US rivals: Emirates Airline is considering legal action against US carriers who have accused their rapidly growing Gulf-based rivals of unfair competition.
Hikma Pharmaceuticals: Was down 5.3% to GBP22.31 after Citi analysts speculated about a possible bid for Roxane Laboratories, the $2.40bn-valued US generic drugmaker owned by Boehringer Ingelheim.
Lex
Stock Connect: growing up: Stock Connect, offspring of a union between the Hong Kong and Shanghai stock exchanges, has been monitored with fretful concern. Stock Connect allows investors based in China to buy Hong Kong-listed ‘H’ shares (the southbound trade), and international investors to buy Shanghai-listed ‘A’ shares (northbound). Each direction has a quota – Rmb300.00 ($48.00bn) going north and Rmb250.00bn ($40.00bn) heading south – and limits the value of daily trade. Besides the first few days heading north, as foreigners snapped up A shares, none of these ceilings have been hit. In more than a decade since it began, Stock Connect’s forerunner, the qualified institutional investor scheme (QFII), has approved only $68.00bn of foreign funds to buy A shares. An alternative yuan denominated scheme, RQFII, has ratified a further $48.00bn since FY11. Approved funds may not all have been invested, but even if they have, Stock Connect has already lifted foreign investment in China’s markets by more than a tenth. This can only increase as regulators work to remove impediments to institutional involvement in Stock Connect – for instance mismatching settlement timings on cash and stock delivery.
American malls: shopping spree: Simon Property, the biggest owner of retail real estate in North America, has offered $91.00 a share to buy the second-largest, Macerich. The deal would create a company with an enterprise value of nearly $100.00bn. That’s America big. The conventional answer is cost savings. If Simon can eliminate three-quarters of Macerich’s overhead costs, this would save $50.00mn a year, Green Street says (which works out to perhaps $850.00mn in capitalised value). Simon can also refinance Macerich’s $6.00bn debt at a lower cost – a further $400.00mn of capitalised value. But there is another potential benefit – a higher valuation. Simon’s rate of return over its enterprise value (or cap rate, in the jargon) is 5.5%. Macerich’s is 4.2%, according to Credit Suisse: the market values its profits more highly. If Simon can capture some of that sparkle, that could create additional value. The board of Macerich has not yet responded to the offer. Its shareholders are likely to see much in it to like. Analysts believe it could be sweetened to as much as $95.00. This would be hard to resist for Macerich; Simon’s shareholders may be worried about paying a premium at the top of the market. Bigger is not always better.
UK annuities: the price of freedom: Chancellor George Osborne changed pension rules in FY14 to allow new retirees to spend their pension pots as they please. Previously, most new retirees could only use their pensions to buy an annuity (a regular income for life). Annuity sales halved in FY14 to GBP7.00bn and are expected to halve again this year. The change was popular with new retirees, but perhaps not with those already locked into an annuity – a GBP200.00bn pool, according to Bernstein. More likely is a secondary market in which pensioners could sell their annuities. The buyers would be institutions looking for reliable income streams – life insurance companies, say, or sovereign wealth funds. Buyers would have to assess pensioners’ life expectancy or bulk buy to pool risk. However, as ever there is a catch, and in this case it is a dangerous one. Sellers of annuity policies are unlikely to get a great deal – after all, buyers (advised by their actuaries) will ensure a decent return for themselves. The newly cash-rich sellers will be left to scour the market for an investment that will provide a higher income than the one they just sold. Not easy when interest rates are wafer thin. They could be lured into buying a complex and poor-value alternative to an annuity.
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