By Anchor Capital
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South African Market Review
South African markets closed higher yesterday. Gold Fields, AngloGold Ashanti and Harmony Gold gained 6.7%, 6.3% and 5.4%, respectively. Naspers advanced 5.3%. Its Chinese investment Tencent’s recently released quarterly results had showed 50.0% earnings growth. Northam Platinum, Lonmin and Impala Platinum rose 3.1%, 1.9% and 1.6%, respectively. Glencore and Anglo American gained 2.3% and 2.0%, respectively. DataTec added 1.1%, after the company indicated that its FY15 underlying EPS is expected to be between $0.41 and $0.43, compared with $0.36 recorded in the previous year. However, Shoprite Holdings and Mr Price Group dropped 3.6% and 1.2%, respectively. The JSE All Share Index rose 1.1% to close at 52,741.02.
UK Market Review
UK markets finished higher yesterday, registering a fresh record high. Fresnillo and Randgold Resources advanced 5.4% and 3.2%, respectively, amid a rise in gold prices, while Tullow Oil and Royal Dutch Shell gained 2.3% and 1.0%, respectively. AstraZeneca added 0.8%, after the firm partnered with Daiichi Sankyo to commercialise a constipation drug in the US early next month. However, Next dropped 4.0%, after it reduced its FY16 sales guidance. Tobacco firms, British American Tobacco and Imperial Tobacco Group fell 3.4% and 1.4% respectively, after news emerged that Bloomberg and Bill Gates would start a new fund to help governments in legal battles against the tobacco industry. The FTSE 100 Index advanced 0.2% to close at 6,962.32.
US Market Review
US markets ended mostly lower yesterday, reversing some of sharp gains recorded in the previous session. Energy sector stocks, Transocean, Southwestern Energy and Denbury Resources declined 7.2%, 5.9% and 5.7%, respectively, in line with a drop in crude oil prices. Freeport-McMoRan lost 5.3%, as the firm suspended production at its Grasberg mine in Indonesia. Amazon.com fell 0.5%, following reports that it would shut down its e-commerce platform service, Webstore. However, Delta Air Lines and Southwest Airlines advanced 3.2% and 1.3%, respectively, buoyed by lower fuel costs. The S&P 500 Index fell 0.5% to settle at 2,089.27, while the DJIA Index retreated 0.6% to close at 17,959.03. However, the NASDAQ Index rose 0.2% to finish at 4,992.38.
Asia Market Review
Markets in Asia are trading mostly weaker this morning, mirroring overnight losses on Wall Street. In Japan, Yahoo Japan climbed 6.3%, after it hiked its full-year dividend by twofold. However, Honda Motor slipped 0.1%, after it recalled additional 100,000 vehicles in the US due to faulty airbags. In Hong Kong, Li & Fung declined 5.7%, after the company reported a fall in its FY14 profit. In South Korea, Hankook Tire and LG Uplus Corporation dropped 5.0% and 3.6%, respectively. The Nikkei 225 Index is trading 0.1% higher at 19,487.96, while the Kospi Index is trading 0.3% lower at 2,031.47. The Hang Seng Index is trading 0.3% weaker at 24,399.80.
Commodities
At 06:00 SAST today, Brent crude oil rose0.5% to trade at $52.70/bl. Yesterday, Brent crude oil fell 3.4% to settle at $52.44/bl, as the US dollar rebounded and after Kuwait’s oil minister, Ali al-Omair, indicated that current market conditions have forced the Organization of the Petroleum Exporting Countries (OPEC) to maintain its production level. He added that the nation cannot afford to lose its market share. Meanwhile, nuclear talks between Iran and six major powers showed major differences remaining toward the deal.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.3% to $3.50/bushel.
At 06:00 SAST today, gold prices advanced marginally to trade at $1,171.56/oz. Yesterday, gold rose 0.3% to close at $1,171.18/oz, adding to gains from the previous session.
Yesterday, copper rose 3.2% to close at $5,879.25/mt. Aluminium closed 1.1% higher at $1,778.50/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, as the greenback rebounded after a dovish US Federal Reserve interest rate statement sent the US dollar tumbling on Wednesday. Data showed that the manufacturing activity index in Philadelphia dropped unexpectedly in March, while initial jobless claims in the US rose in last week, although less than market expectations.
The yield on benchmark government bonds were mixed yesterday. The yield on 2015 bond advanced to 6.13% while that for the longer-dated 2026 issue ell to 7.78%.
At 06:00 SAST, the US dollar is trading 0.4% lower against the South African rand at R12.2643, while the euro is trading 0.1% lower at R13.0977.
Yesterday, the euro declined against most of the majors but advanced against the South African rand. Greece’s Prime Minister, in the EU summit that began yesterday, recommitted to providing a list of concrete reform proposals in the coming days. Meanwhile, officials agreed not to lift EU sanctions on Russia until all the points of a peace accord for eastern Ukraine have been fulfilled. Moving ahead, investors will keep a tab on producer prices data from Germany along with trade balance and current account data from the eurozone, scheduled today, for further direction.
At 06:00 SAST, the euro advanced 0.2% against the US dollar to trade at $1.0681, while it has gained 0.1% against the British pound to trade at GBP0.7233.
Economic Updates
The trade surplus in Switzerland dropped to CHF2.47bn in February from a revised trade surplus of CHF3.41bn in the prior month.
On a quarterly basis, labour cost in the eurozone climbed 1.1% in 4Q14. In the prior quarter, labour cost had advanced by a revised 1.4%.
The seasonally adjusted initial jobless claims advanced to 291.00k in the US, in the week ended 14 March 2015, compared with market expectations of an advance to 293.00k. Initial jobless claims had registered a revised level of 290.00k in the previous week.
The Philadelphia fed manufacturing survey recorded an unexpected drop to 5.00 in the US, in March. Philadelphia fed manufacturing survey had registered a level of 5.20 in the previous month.
The nationwide department store sales rose 1.1% in Japan on an annual basis, in February. Nationwide department store sales had recorded a drop of 2.8% in the prior month.
On a monthly basis, the all industry activity index rose 1.9% in Japan, in January, in line with market expectations. In the prior month, the all industry activity index had dropped by a revised 0.1%.
The Minutes of the Bank of Japan’s (BoJ) latest monetary policy meeting indicated that BoJ would continue to ease monetary policy until 2.0% inflation is stable. However, few board members opined that BoJ should not rush to accelerate inflation as further easing would take yen to a very low level. Further, BoJ expects the nation’s economy to continue its moderate recovery. In China, the MNI business sentiment index recorded a drop to 52.20 in March, compared with a level of 52.80 in the prior month.
The Reserve Bank of Australia (RBA) Governor, Glenn Stevens, opined that the nation’s economy is expected to have a period of sub-average growth as it passes through a “major transition”, however the central bank’s support and a weaker currency would mitigate the impact.
The consumer confidence index registered a rise of 0.5%, on monthly basis, to a level of 124.60 in March, in New Zealand. In the previous month, the consumer confidence index had recorded a level of 124.00.
Corporate Updates
South Africa
DataTec Limited
: The company, in its FY15 trading update, indicated that it expects to achieve revenues of approximately $6.40bn, compared with revenue of $5.69bn reported in the previous year. It anticipates its underlying EPS to be between $0.41 and $0.43, compared with $0.36 recorded in the preceding year. The company expects to maintain its final distribution to shareholders at 9.00¢, aggregating to a total distribution of approximately 17.00¢.BHP Billiton:
The mining company stated that it has priced a five-year AUD1.00bn note issued under the company’s Australian medium-term note programme. It indicated that the Australian dollar notes would pay interest at 3.0% and mature in March 2020 and the proceeds would be used for general corporate purposes.
Northam Platinum Limited:
The mining company announced its landmark Black Economic Empowerment transaction worth R6.60bn was approved by its shareholders.
Amplats to give asset sale update in June:
South Africa’s Anglo American Platinum could give an indication of who plans to buy its Rustenburg assets by June, the president of the AMCU union said on Thursday after meeting the firm’s CEO.
UK and US
Nike Inc.:
The athletic footwear and apparel company, in its 3Q15 results, indicated that revenue increased 7.0% from the same period of previous year to $7.46bn. Its net diluted EPS stood at $0.89, compared with $0.75 posted in the corresponding period of last year. The company stated that worldwide futures orders for the company’s brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2.0% higher than orders reported for the same period last year.
Lennar Corporation:
The construction company, in its 1Q15 results, stated that total revenue climbed 20.6% from the corresponding period of last year to $1.64bn. Its diluted EPS was $0.50, compared with $0.35 recorded in the same period of prior year.
Ctrip.Com International Limited:
The travel agency company, in its FY14 results, revealed that total revenue was up 36.0% from the preceding year to RMB7.77bn. However, its diluted EPS dropped to RMB6.35 from RMB26.63 recorded in the previous year. For 1Q15, the company expects net revenue to grow annually at a rate of approximately 40.0% to 50.0%.
Michaels Companies:
The retail chain company, in its FY15 results, indicated that net sales increased 3.7% from the last year to $4.74bn. However, its diluted EPS stood at $1.05, compared with $1.36 posted in the preceding year. For 1Q16, the company expects diluted EPS in the range of $0.31 to $0.33.
Mattress Firm Holding Corporation:
The company, in its FY15 results, stated that net sales advanced 48.4% from the previous year to $1.81bn. However, its diluted net EPS dropped to $1.27 from $1.55 recorded in the prior year. For FY16, the company expects net sales to be between $2.47bn and $2.52bn and adjusted EPS to be in the range of $2.50 to $2.70.
Tech Data Corporation:
The technology products distributor company, in its FY15 results, revealed that net sales were up 3.2%to $27.67bn, compared with the previous year. However, its net diluted EPS dropped to $4.57 from $4.71 recorded in the previous year. For 1Q16, the company expects low-single-digit annual sales declines in both regions in local currency. Furthermore, it announced the appointment of Pete Peterson as senior Vice President of Business Development and promoted Marty Bauerlein to senior Vice President, US Sales, effective 1 April 2015.
Flamel Technologies SA:
The specialty pharmaceutical company, in its FY14 results, indicated that total revenue increased sharply to $14.78mn from $4.18mn recorded in the previous year. It reported a diluted loss from continuing operations of $2.46/share, compared with a loss of $1.83/share incurred in the prior year. The company reaffirmed its product revenue guidance for FY15 of $170.00mn to $185.00mn for combined sales of Bloxiverz and Vazculep.
Amazon.com Inc.:
The Federal Aviation Administration issued an experimental airworthiness certificate to Amazon Logistics, unmanned aircraft (UAS) design that the company would use for research and development and crew training.
Prothena Corporation:
The pharmaceutical company stated that its Parkinson’s disease treatment showed the ability to safely reduce a key protein potentially linked to the disease, in an early stage study. It indicated that the treatment, known as PRX002, is one of a new class of drugs known as immunotherapies, which use the body’s immune system to fight diseases.
Next Plc:
The retail company, in its FY15 results, indicated that revenue increased 6.9% from the previous year to GBP 3,999.80mn. Its total diluted EPS stood at GBP4.18, compared with GBP3.56 posted in the prior year. For FY16, the company budgeted sales growth to be up between 1.5% and 5.5%, with 1H15 expected to be up 0.0% to 3.0%, and 2H15 up 3.5% to 7.5%.
Ted Baker:
The retail company, in its FY15 results, stated that group’s revenue rose 20.4% from the preceding year to GBP387.60mn. Its adjusted EPS was 83.20p, compared with 69.00p recorded in the last year. The company proposed a final dividend of 29.00p, bringing total dividend to 40.30p which is an increase of 19.6% from the prior year.
Savills Plc:
The real estate advisory company, in its FY14 results, indicated that revenue advanced 19.2% from the prior year to GBP1, 078.20mn. Its diluted EPS was 45.30p, compared with 38.10p recorded in the preceding year. Furthermore, the company announced the proposed acquisition of SEB Asset Management AG for up to EUR21.50mn (GBP15.60mn) in cash.
Ophir Energy:
The energy company, in its FY14 results, revealed that it reported an operating profit of $294.35mn, compared with an operating loss of $307.55mn incurred in the previous year. Its diluted EPS attributable to equity holders of the company was 6.00p. The company stated that in FY15, it would continue to progress its two LNG projects in Tanzania and Equatorial Guinea.
AstraZeneca Plc:
The pharmaceutical company announced a co-commercialisation agreement with Daiichi Sankyo for MOVANTIK™ (naloxegol) in the US, in line with its strategy of delivering value through its own development and commercial capabilities as well as through external collaboration.
Rentokil Initial:
The services company announced further expansion of its pest control category with the acquisitions of Eradico Services in Michigan, USA, and Sagrip S.A. which would lead to market entry into the main cities of Guatemala and El Salvador. Furthermore, it announced that it has completed the issue of EUR50.00mn floating rate notes due 13 March 2018.
Financial Times
StanChart investors press bank to consider leaving London:
Two big investors in Standard Chartered want the group to consider switching its domicile away from London because of the chancellor’s decision to increase the UK bank levy by a third.
Big banks braced for rate rise boon:
Lloyd Blankfein, Chief Executive, has warned for years that rates could rise faster than investors expect and recently sounded more optimistic about the benefits of an impending Federal Reserve increase.
Europe presses UK to increase female director numbers:
UK companies will face increased pressure to raise the number of women on their boards under European plans to remedy gender imbalances in the boardroom that could be agreed by the end of the year.
EnQuest promises to boost investment despite full-year loss:
EnQuest, the North Sea oil operator, promised to boost investment and cut production costs, as its Chief Executive hailed newly announced cuts in UK taxes on oil producers.
UK’s biggest banks spent GBP28.00bn on fines and restructuring:
George Osborne justified his one-third rise in the UK bank levy by saying that banks could support making a higher contribution to public finances because they were becoming more profitable.
UK rate cut may be needed, says BoE Chief economist:
The Bank of England’s Chief economist has opened the door to a further cut in UK interest rates if low inflation persists, expressing a dovish view in contrast with the majority of the Monetary Policy Committee.
Next shares fall on warning over slower sales growth:
Shares in Next initially fell more than 5.0% after the fashion retailer warned of slower sales growth this year, despite the improving economic environment for British shoppers.
Auto Trader prices its IPO at 235.00p a share:
Auto Trader Group, the owner of the UK’s biggest car classifieds website, has priced its initial public offering at 235.00p per share, which will give it a market capitalisation of GBP2.35bn at the start of conditional dealings this morning.
Oil trader Vitol’s profits rebound to $1.35bn:
Vitol, the world’s biggest independent oil trader, saw a sharp recovery in profits in FY14, aided by more favourable market conditions towards the end of the year.
Focus on Barclay brothers’ debt shake-up with HSBC:
The retail business owned by Sir David and Sir Frederick Barclay restructured a GBP1.25bn debt securitisation programme involving HSBC in the period when their Telegraph newspaper is alleged to have discouraged negative stories about the bank, the Financial Times can reveal from a review of financial filings.
Buyout groups hunt for energy targets:
Private equity groups including Carlyle and Blackstone are to deploy billions of dollars in a hunt for acquisitions across the oil and gas industry, with a collapse in oil prices expected to lead to a wave of asset sales.
BNY Mellon to pay $700.00mn over fraud claims:
Bank of New York Mellon on Thursday agreed to pay $714.00mn to settle allegations that it committed fraud by giving customers the worst rates on foreign exchange transactions while promising “best execution”.
US poised to charge high-profile figure after Julian Rifat deal: A convicted insider trader, described by prosecutors as “the face of Moore Capital” in London, has co-operated with a US criminal investigation that will involve a “particularly important individual” appearing before US courts within a matter of days, a London court has heard.
CRH deal approved as Holcim-Lafarge talks stall:
Shareholders in CRH have given their overwhelming backing to a EUR6.50bn deal to buy assets from Lafarge and Holcim – even as Executives at the two European cement groups continue to argue over the terms of their proposed merger, on which CRH’s acquisition depends.
Holcim and Lafarge cement deal to salvage EUR41.00bn merger:
Europe’s two largest cement companies Holcim and Lafarge have rescued a stumbling EUR41.00bn merger by reconciling differences over financial terms and management that nearly caused the collapse of one of the biggest deals in recent years.
Salvatore Ferragamo in $7.00mn fight against fake products:
Salvatore Ferragamo, the Italian fashion house, said it had blocked, seized or destroyed more than 100,000 fake products in a “fierce global battle against counterfeiting” focused on China and the internet.
Rakuten buys ebook lending platform for $410.00mn:
Japanese internet group Rakuten has made a further move to challenge Amazon’s ebook dominance, paying $410m to acquire lending platform Overdrive.
Weak Europe demand squeezes Li & Fung:
Weak demand from the US and Europe has weighed on FY14 profits at Li & Fung, the supplier of made-in-Asia goods to western retailers such as Target, Marks and Spencer and Walmart.
Chinese sportswear brand Li Ning suffers third annual loss:
Li Ning, the troubled Chinese sportswear company that is one of the mainland’s best known brands, announced its third consecutive annual loss as it continues to bear the costs of a restructuring.
TAG Heuer partners Google to develop smartwatch:
TAG Heuer has announced a partnership with Google and Intel to develop a smartwatch, signalling it wants to take the fight to Apple just as the California-based company prepares to roll out its Apple Watch.
Telecom Italia delivers its first profit in 3 years:
Telecom Italia has returned to profit for the first time in three years as Italy’s largest telecoms group begins its largest investment to date to modernise its mobile and fixed broadband networks.
China Mobile profits dip on 4G rollout costs:
Profits at China Mobile, the world’s largest mobile network, fell 10 % to RMB109.30bn in FY14, partly the result of an ambitious capital expenditure programme surrounding the launch last year of its 4G service.
High-speed train arriving at Crewe due six years early:
High Speed 2 could reach the north ahead of its FY33 schedule under plans for the GBP50.00bn railway line being put forward by the government on Friday.
Supergroup:
Gained 5.2% to 918.50p ahead of its new Chief Executive Euan Sutherland next week delivering the findings of a strategic review.
Lex
Heidelberg: cement to be like this?:
The German producer managed a 4.0% increase in revenue to EUR12.60bn last year – versus declines from Holcim and Lafarge – while its operating income rose 5.0%. True, net profit fell by more than a quarter to EUR687.00mn on one-offs, but then its FY13 figure was swollen by one-offs. Even so, Heidelberg says it is in its best shape in 15 years. But Heidelberg has almost tamed its debt problem. Include last year’s 5.0% fall in net debt to EUR6.90bn – on a near fourfold increase in free cash flow – and Heidelberg has shed nearly EUR9.00bn of debt since FY07. Throw in EUR1.20bn from the sale of its building products arm and net debt falls to a mellow 2.5 times EBITDA. Heidelberg is achieving steady volume growth in most markets, even Europe. (Sadly it is not in China, which has used more cement in the past three years than the US used in the entire 20th century, according to US Geological Survey data). It has the potential to keep healing itself. The German group expects double-digit increases in revenue and operating income, and to earn its pre-tax cost of capital, which it pegs at an only slightly hard to believe 6.9%.
Comcast/TWC: School in session:
Companies about to be acquired can make the same mistake. A year ago, Time Warner Cable agreed to be bought by Comcast. The regulatory review was supposed to be tough, but conventional wisdom held that the deal would squeak through. But now the betting leans the other way and so TWC may have to go it alone. Both companies say the right things about seeing the process through. But the chance of a dead deal (Comcast can terminate the deal at no penalty) can be quantified with stock prices. The “deal spread,” the gap between where TWC shares trade and what deal value is (based on the share exchange ratio), has soared as high as 13.0%. A trickier calculation – based on theoretical TWC standalone price and the deal price – has put the chance of the deal closing below 50.0% for months. Perversely, those gains may come not from confidence in the deal, but comfort with the idea of TWC going it alone. TWC’s fourth-quarter results showed some promise that it can survive on its own. Residential video subscriber losses narrowed to 38,000 after seeing losses of about 200,000 the previous year. Those steep declines had driven it to pursue a transaction in late FY13 and early FY14 where another management team could better run its assets. Perhaps the present team is fine. It can pay to stick to the books.
Next: special sauce:
And now let us praise the special dividend, that rare and under-appreciated animal. Its theoretical underpinning goes like this: if a company has money and does not have a great use for it, then it should send that cash to investors. A little simple-minded, admittedly, but solid. The counter argument is that investors, especially income investors, like predictability. So paying a regular dividend maximises the value of the stock by making it less risky. Next, the UK clothes retailer, proves this point wrong. It paid GBP223.00mn in special dividends in the year reported on Thursday. That is a 2.0% (one time) yield at the current share price, on top of 2.6% ordinary dividend yield. Despite so much of the income coming in an irregular form, Next’s shares trade at a plump and content valuation of 18 times expected earnings, near 10-year highs. The opposition is not finished yet. They will argue that there is another avenue for the periodic return of cash that is piling up idly – buying back shares. And buybacks defer investors’ tax liabilities. The special dividend has other advantages, though. Only some shareholders (sellers) receive cash in a buyback. And buybacks tend to be terribly pro-cyclical. Companies buy in more of their shares as they become more expensive. Next, which has nothing in particular against buying its own shares, guards against this. Disciplined capital allocation is not a panacea. It does not, for example, sell clothes or anything else. But it protects investors while management tries to get the product right. And special dividends have a role to play.
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