By Anchor Capital
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South African Market Review
South African markets closed higher yesterday, amid strength in financial sector stocks. Capitec Bank Holdings climbed 7.2%, after it posted a 26.8% rise in its FY15 diluted EPS. Peers, Standard Bank, Nedbank and FirstRand advanced 3.2%, 2.9% and 2.4%, respectively. Sanlam added 1.6%. Raubex Group gained 5.4%, after the company, in its trading statement for FY15, stated that it expects its EPS and headline EPS to be between 5.0% and 15.0% higher from the last year. Among property sector stocks, Growthpoint and Redefine Properties rose 2.9% and 1.4%, respectively. However, gold miners, Harmony Gold, Sibanye Gold and AngloGold Ashanti lost 2.5%, 1.5% and 0.8%, respectively. The JSE All Share Index rose 0.6% to close at 52,858.12.
UK Market Review
UK markets finished lower yesterday, with the FTSE 100 index pulling back from an all-time high. Meanwhile, the nation’s annual inflation rate recorded a flat reading in February. Associated British Foods led the fallers, declining 2.9%.Wolseley dropped 2.7%, after the firm swung to a 1H15 net loss. Kingfisher, which plans to acquire French firm Mr. Bricolage, fell 1.5%, after the latter’s board expressed doubts about the deal. Shares of Centrica ended 0.9% lower. Bucking the trend, airline sector stocks, International Consolidated Airlines Group and easyJet rose 3.6% and 0.9%, respectively. The FTSE 100 Index declined 0.3% to close at 7,019.68.
US Market Review
US markets ended lower yesterday. Diamond Offshore Drilling, ONEOK and Transocean dropped 4.7%, 3.4%and 3.2%, respectively, in line with a fall in oil prices. Healthcare companies, Bristol-Myers Squibb and Biogen lost 2.8% and 2.4%, respectively. Freeport-McMoRan shed 0.8%, after the firm cut its quarterly dividend due to volatile market conditions. However, Google advanced 2.2%, after the company announced the appointment of Ruth Porat as its new CFO. Chesapeake Energy gained 1.1%, after investor Carl Icahn raised his stake in the firm to almost 11.0%.The S&P 500 Index dropped 0.6% to settle at 2,091.50, while the DJIA Index declined 0.6% to close at 18,011.14. The NASDAQ Index fell 0.3% to finish at 4,994.73.
Asia Market Review
Markets in Asia are trading mostly lower this morning. In Japan, Toyo Engineering Corporation declined 9.7%, after the company stated that its Brazilian business might report a JPY17.00bn loss on cost overruns. Eisai lost 6.0%, amid profit booking. In Hong Kong, Hutchison Whampoa advanced 2.0%, after it confirmed reports that it would acquire British mobile operator, O2, from Telefonica SA. Agricultural Bank of China fell 1.1%, after the company reported a weaker-than-expected FY14 net profit. In South Korea, profit-taking weighed on the automaker, Hyundai Motor, dragging it 2.6% lower. The Nikkei 225 Index is trading 0.4% in the red at 19,633.52, while the Kospi Index is trading 0.1% lower at 2,039.71. The Hang Seng Index is trading 0.4% firmer at 24,490.77.
Commodities
At 06:00 SAST today, Brent crude oil fell0.4% to trade at $52.99/bl. Meanwhile, the American Petroleum Institute (API) indicated that crude oil inventories rose 4.80mn bls last week, Yesterday, Brent crude oil dropped 1.1% to settle at $53.22/bl, as the US dollar regained its footing against the euro and as concerns over global oversupply persisted. Oil prices also fell, as data indicating factory activity in China slipped in March fuelled concerns about growth in the world’s second largest economy and top oil importer.Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 1.1% to $3.73/bushel.
At 06:00 SAST today, gold prices declined0.4% to trade at $1,189.07/oz. Yesterday, gold gained 0.3% to close at $1,193.28/oz, posting its fifth consecutive daily rise.
Yesterday, copper rose 0.4% to close at $6,174.00/mt. Aluminium closed 0.3% lower at $1,781.75/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, after data showed that non-farm payrolls in South Africa increased in 4Q14, compared with a revised drop posted in the previous quarter. Meanwhile, encouraging US economic data indicated that the US economy remains strong and lifted speculation that the Fed might raise interest rates this year. Later today, data on durable goods orders in the US will attract investor attention for further direction.The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.05% while that for the longer-dated 2026 issue fell to 7.65%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R11.8146, while the euro is trading 0.2% higher at R12.9199.
Yesterday, the euro weakened against most of the major currencies, but strengthened against the British pound. Meanwhile, flash Markit purchasing managers’ index (PMI) readings indicated that activity in both manufacturing and services sector in the Eurozone and Germany improved more than expected in March. Moving ahead, traders will eye Ifo business expectations and climate data in Germany for March due later today.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.0937, while it has dropped marginally against the British pound to trade at GBP0.7357.
Economic Updates
On a quarterly basis, non-farm payrolls in South Africa increased 0.5% in 4Q14, compared with a revised drop of 1.7% posted in the previous quarter.The SARB has reported that, in January, the leading indicator in South Africa recorded a rise to 99.10, compared with a revised reading of 98.80 in the prior month.
On a monthly basis in February, the consumer price index (CPI) advanced 0.3% in the UK, meeting market expectations. The CPI had recorded a drop of 0.9% in the prior month.
On a monthly basis in February, the non-seasonally adjusted producer price index (PPI) core output rose 0.1% in the UK, at par with market expectations. In the previous month, PPI core output had advanced 0.2%.
Compared with a reading of 255.40 in the prior month, the retail price index climbed 0.5%, on monthly basis, to a level of 256.70 in February, in the UK. Markets were expecting the retail price index to advance to a level of 256.60.
The preliminary manufacturing PMI advanced to 51.90 in March, in the eurozone, higher than market expectations of a rise to a level of 51.50. The manufacturing PMI had registered a reading of 51.00 in the previous month.
A key US Fed policymaker, James Bullard, stated that the central bank should start raising interest rates as soon as possible, as an accommodative policy stance is no longer appropriate, amid falling unemployment and a robust pace of growth in the nation’s economy.
The flash Markit manufacturing PMI rose unexpectedly to 55.30 in the US, in March, compared with market expectations of a fall to a level of 54.60. The Markit manufacturing PMI had registered a level of 55.10 in the prior month.
In the US, the CPI advanced 0.2% on a monthly basis in February, in line with market expectations. The CPI had registered a drop of 0.7% in the previous month. On a monthly basis, the CPI (ex-food & energy) in the US climbed 0.2% in February, higher than market expectations for an advance of 0.1%. In the prior month, the CPI (ex-food & energy) had registered a similar rise.
In February, the trade surplus in New Zealand expanded to NZD0.05bn, following a revised trade surplus of NZD0.03bn in the prior month.
Corporate Updates
South AfricaCapitec Bank Holdings Limited:
The banking company, in its financial statements for FY15, indicated that its interest income increased 14.3% from the preceding year to R10.78bn. Its diluted EPS stood at R22.06, compared with R17.40 recorded in the previous year. The company declared a final gross dividend of R5.90/share, bringing the total dividend for the year to R8.36/share.Raubex Group Limited: The investment holding company, in its trading statement for FY15, stated that it expects its EPS and headline EPS to be between 5.0% and 15.0% higher from the previous year, which translates in EPS ranging between R2.01 and R2.20 and headline EPS ranging between R1.97 and R2.15.
Intu Properties: The real estate company revealed that the proposed final dividend for FY14 of 9.10p/share would be paid on 28 May 2015, subject to approval of the shareholders at the company’s AGM to be held on 6 May 2015.
British American Tobacco: The company announced that it has completed a competitive tender process for the appointment of KPMG as external auditors on 23 March 2015.
Net 1 Ueps Technologies: The payment solutions and transaction processing services company, in its update on the SASSA tender process, stated that the South African Constitutional Court has ordered that parties may only approach the Court for further relief, and stated that the interest of beneficiaries will be central to the exercise of the Court’s jurisdictional discretion when it decides whether it is in the interest of justice to entertain such an application.
Anchor Group Limited: The company clarified that aside from providing asset management services to Clarus Asset Management, it has never been in business with Mr. Cobus Kellerman and is not currently involved in any business activity with him. Recent media reports have alleged that Mr. Kellerman has been involved in irregularities regarding offshore funds.
Pallinghurst is looking on the upside: Pallinghurst Resources has been clear from the start that it is not a long-term owner of its mining investments, but not only is the market a tough place to sell mines now, there is still tremendous upside still to be realised, says CEO Arne Frandsen.
Capitec focused on lower risk customers to boost profits: Capitec is granting higher value loans to lower risk customers, as it maintains its conservative approach to unsecured lending and focuses on growing the number of transacting bank clients.
Clover prowling Africa for ‘gems’: After bedding down several acquisitions in the local market, Clover Industries is now looking for opportunities on the rest of the African continent for its growth ambitions and to diversify its product offering.
MMI’s Met Collective fires Clarus: MMI Holdings’ mutual funds unit said it fired Clarus Asset Managers as the investment manager of eight of its funds.
UK and US
McCormick & Company: The company, in its 1Q15 results, indicated that net sales increased 1.7% from the same period of preceding year to $1.01bn. However, its net diluted EPS dropped to $0.55 from $0.62 reported in the corresponding period of previous year. For FY15, the company expects its EPS to be in the range of $3.28 to $3.35.
HD Supply Holdings: The industrial products distribution company, in its FY15 results, stated that net sales were up 7.9% to $8.88bn, compared with the previous year. Its non-GAAP adjusted net diluted EPS was $1.26, compared with $0.45 posted in the prior year. For 1Q16, the company anticipates net sales to be in the range of $2.18bn to $2.23bn and adjusted net diluted EPS in the range of $0.25 to $0.31.
G-III Apparel Group Limited: The company, in its FY15 results, revealed that net sales rose 23.2% from the last year to $2.12bn. Its net diluted EPS stood at $4.97, compared with $3.71 recorded in the previous year. For FY16, the company anticipates net sales of approximately $2.37bn and net income between $116.00mn and $122.00mn, or diluted EPS between $5.05 and $5.25.
Sonic Corporation: The restaurant company, in its 2Q15 results, indicated that total revenue increased 15.0% from the same period a year ago to $126.22mn. Its diluted net EPS was $0.14, compared with $0.07 recorded in the corresponding period of last year. The company expects its initiatives to drive 25.0% to 27.0% EPS growth, on an adjusted basis, in FY15, compared with the adjusted non-GAAP EPS for FY14.
Amphastar Pharmaceuticals: The specialty pharmaceutical company, in its FY14 results, stated that net revenue dropped 8.4% from the previous year to $210.46mn. It incurred a net diluted loss of $0.25/share, compared with net diluted EPS of $0.31 posted in the prior year.
EXFO Inc.: The company, in its 2Q15 results, revealed that sales dropped to $50.99mn from $51.18mn recorded in the same period a year ago. However, it reported a basic and diluted net EPS of $0.02, compared with a loss of $0.02/share posted in the corresponding period of previous year. The company forecasts sales between $56.00mn and $61.00mn for 3Q15.
Dipexium Pharmaceuticals: The pharmaceutical company, in its FY14 results, indicated that its research and development expenses increased sharply to $8.90mn from $1.73mn recorded in the preceding year. The increase was primarily due to the Phase 1 and Phase 3 clinical trial costs, as well as increased manufacturing costs related to producing product used in the clinical trials. It reported a basic and diluted net loss of $1.73/share, compared with a loss of $0.87/share incurred in the previous year.
Google Inc.: The company announced that Ruth Porat, currently Chief Financial Officer at Morgan Stanley, would join its management team as CFO on 26 May 2015.
Merck & Co.: The pharmaceutical company announced that it has authorised additional purchases of up to $10.00bn of its common stock for its treasury. Furthermore, the company revealed that it would stop a large study of its Keytruda melanoma treatment early because an independent monitoring committee determined the drug succeeded in its goal of prolonging survival in previously untreated patients at advanced stage of the disease.
Kofax Limited: Lexmark International announced that it would acquire all of the outstanding shares of the software company for $11.00/share in cash for a total enterprise value of approximately $1.00bn, net of cash acquired.
Wolseley Plc: The multinational building materials distribution company, in its 1H15 results, indicated that revenue from its continuing operations increased 6.2% from the same period a year ago to GBP6.44bn. However, its diluted EPS from continuing activities was 4.60p, compared with 83.40p posted in the corresponding period of last year. The company declared an interim dividend of 30.25p/share, 10.0% higher from the same period of prior year.
Spire Healthcare Group: The healthcare services company, in its FY14 results, stated that revenue rose 12.0% from the preceding year to GBP856.00mn. However, its basic and diluted EPS dropped to 1.90p from 40.90p recorded in the previous year. For FY15, the company expects mid to high single digit revenue growth, an EBITDA margin consistent with previous year and high single digit growth in EPS.
John Laing Infrastructure Fund: The company, in its FY14 results, stated that its operating income increased sharply to GBP77.68mn from GBP40.52mn recorded in the previous year. Its basic and diluted EPS from continuing operations was 8.61p, compared with 5.35p reported in the preceding year. The company stated that in FY15, it would continue to focus on delivering growth from its existing portfolio and would selectively invest in new assets which meet its investment criteria and at a price that represents value to shareholders.
GAME Digital: The retail company, in its results for 26 weeks ended 24 January 2015, revealed that revenue dropped to GBP582.10mn from GBP586.40mn. Its adjusted EPS was 17.80p, compared with 19.40p posted in the same period a year ago. The company announced that Benedict Smith has informed the board of his intention to step down from his role as group Chief Financial Officer later this year.
Land Securities Group: The real estate company stated that it has exchanged contracts to sell its 95.0% stake in Times Square, London, EC4, to real estate funds managed by Blackstone for GBP268.40mn.
British Land Co.: The real estate company stated that alongwith its joint venture partner, GIC, it has established Broadgate REIT Limited, a real estate investment trust as the new holding company for their joint venture.
Financial Times
Wolseley warns revenue growth to slow as it takes GBP245.00mn writedown: The diverging fates of the construction industry on different sides of the Atlantic were laid bare in the half-year results of plumbing supplies group Wolseley, with weakness in Europe dragging down a strong performance in North America.
Lords committee says economic case for GBP50.00bn HS2 not been made: Supporters of the GBP50.00bn HS2 railway line have failed to make the economic case for the project, according to a House of Lords committee. Peers argue that cheaper options for easing congestion on the railways should be explored.
Hutchison Whampoa agrees to buy O2 for GBP10.30bn from Telefónica: Hutchison Whampoa will create Britain’s largest mobile network after agreeing a GBP10.30bn deal to acquire O2 in the UK from Spain’s Telefónica.
HSBC to move head office for UK division to Birmingham: HSBC is going further than simply putting a ringfence around its UK operations. It is also putting about 100 miles between them and the rest of the bank.
Propercorn: founders’ hunch about a healthy munch: Cassandra Stavrou’s first meeting with Selfridges to discuss popcorn snacks looked destined to end in farce, or even tragedy. Andreessen Horowitz backs UK start-up Improbable: Andreessen Horowitz, the Silicon Valley group that was an early backer in Facebook, is investing $20.00mn in Improbable, a London-based company that creates “virtual worlds”, as US venture capital continues to flood into UK digital start-ups.
Panmure Gordon resumes dividend after years: City stockbroker Panmure Gordon said on Tuesday it would pay its first dividend in eight years after pre-tax profits increased 84.0% during FY14, marking a highlight of the company’s recovery from a US acquisition that was never profitable under its ownership.
Freeport-McMoRan cuts dividend as commodity slump bites: Freeport-McMoRan has cut its dividend for the first time in seven years, slashing the payout by 84.0% as the US producer of copper, oil and gas takes action to counter a commodity price slump.
Fortescue call for iron ore output cap sparks regulator review: Australia’s competition commissioner is investigating a call by Andrew “Twiggy” Forrest, founder and chairman of Fortescue Metals Group, for the world’s biggest iron ore miners to work together to cap production and reverse a slump in iron ore prices.
Citic Ltd confirms $2.50bn hit from Australian iron ore venture: China’s Citic Ltd has confirmed a $2.50bn writedown at its disastrous iron ore joint venture with Clive Palmer as commodity prices plunge – forcing the Australian politician and businessman to deny he is going broke.
Monsanto rejects claim weedkiller contains ‘probable carcinogen’: Monsanto has called for the World Health Organisation’s cancer agency to retract a report that found that glyphosate, the world’s most widely-used herbicide, a “probable carcinogen”.
Renault defies Paris opposition with plan to double Ghosn’s pay: Renault has proposed to double the pay of Chief Executive Carlos Ghosn despite opposition by the French state, which voted against the decision.
AG Barr profits up 10.0% but warns over price pressures: AG Barr, the maker of Irn-Bru and Rubicon fizzy drinks, reported profits ahead of market expectations on Tuesday, but warned that price pressures could threaten growth in the soft drinks market.
3G in talks over $40.00bn Kraft deal: 3G Capital, the Brazilian private equity group that controls Burger King and Heinz, is in advanced talks to acquire Kraft Foods Group in a deal that could be worth as much as $40.00bn, according to a person close to the matter.
Clash of Clans maker Supercell triples sales: Supercell confirmed its position as the leading mobile gaming company as the Finnish group revealed that sales tripled and profits doubled last year.
US tech giants face fresh fight with Europe over privacy: An Austrian student could force companies such as Facebook to overhaul their European businesses after challenging the way US technology groups handle private data in the EU’s highest court.
Centrica: Fell 0.9% to 256.60p after Deutsche Bank warned against holding the stock ahead of next month’s UK general election.
AB Foods: Lost 2.9% to GBP29.25 after the euro’s continued weakness led Credit Suisse to cut earnings forecasts.
Lex
Universal music: stream of consciousness: Five years ago the future of music was firmly in Apple’s hands. The company had stepped into the void left by music industry fumbling and taken control of the download market. Recorded-music companies were left gasping as the unit of sale went from a $15.00 album to a 99 cent song. If a pointy-headed fund manager predicted then that download sales would be falling in just a few years, he would have been dismissed as a crank. So a new status quo is forming. Fund manager P Shoenfeld Asset Management thinks the stream regime will prove more stable than downloads. They also think that Vivendi is undervalued, and should spin off its Universal Music division. Universal’s potential is under-appreciated, PSAM says, and it could be worth as much as EUR12.30bn on its own. One prediction holds this valuation together: that Universal’s streaming revenue will go from about EUR600.00mn last year to more than four times that level in FY18. This will turn a business with shrinking sales into a double-digit grower in a few years. And while this is happening, margins on music revenues will widen significantly. The big players – Spotify, Pandora, SoundCloud, and Google’s YouTube – have a variety of business models and pay music companies and publishers at different rates. Apple is hanging around the market ominously. The future is not written, Universal’s place in it is undecided, and whether Vivendi is significantly misvalued is anybody’s guess.Greek banks: political pawns: Lenders including Alpha, National Bank of Greece, Piraeus and eurobank have so far used European Central Bank funding and emergency liquidity assistance via the Greek central bank to plug the gap as outflows accelerated in the first two months of FY15. They hit EUR5.60bn at Alpha by end-February – equivalent to 13.0% of end-FY14 deposits – EUR5.00bn at eurobank, nearly EUR7.00bn at Piraeus and EUR4.20bn at NBG. The banks’ overall use of eurosystem liquidity rose to more than EUR87.00bn at end-January, from EUR56.00bn at end-FY14, according to Greek central bank data. For now, there is liquidity – and banks have collateral (even if its value is uncertain). Greek bankers believe money stashed under mattresses will eventually flow back, as before. But history may not repeat itself. Banks’ capital strength is not what it seems, either. Fully loaded common equity tier one ratios range from NBG’s 9.4% to eurobank’s 15.2%. If a less forgiving ECB disallowed deferred tax assets as capital, Greek (and Spanish) bank buffers would be thinner. For Piraeus, the ratio would be 7.0%, versus a reported 11.2%. Appetite for cash calls is limited. Even if Athens and Brussels settle their differences, funding costs fall and deposits return, Greek banks will be a play on politics for a good while longer.
Wolseley: American dream: A snip at 18 times earnings, and it makes three-quarters of its profits in the US. Tuesday’s first-half numbers showed that those bullish economic indicators are finding their way into revenues and profits. The former rose 15.0% in the US, while the latter rose 23.0%. Wolseley’s US operating margin sits at a record 7.9%. The problem is that you would also have exposure to the other quarter of profits, which mostly come from Europe. Like-for-like sales are inching ahead in the region, but profits are falling. In the UK – which accounts for 15.0% of revenues and is, in theory, in a stronger economic condition than the continent – profits fell by a tenth due partly to a weak market for heating. Elsewhere, problems in the Nordic market pushed Wolseley into making a GBP245.00mn goodwill writedown on a FY06 acquisition. That forced the group as a whole into a net loss for the period. Wolseley’s European operation is proving to be a small, but heavy, item – like a brick. So to buy into Wolseley is to assume that Home Depot and Lowe’s cannot go much further, and that the European business will eventually perk up and allow the rating to rise towards 20. Both are possible. But the economic data that would justify that decision look far from certain.
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