By Anchor Capital
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South African Market Review
South African markets closed higher on Friday, snapping a two-day losing streak. The cement making company, PPC Limited rose 5.7%, following its announcement that it has terminated merger talks with rival firm Afrisam Group. Retailers, Mr Price Group, Woolworths Holdings and Foschini Group climbed 3.1%, 2.3% and 1.7%, respectively. The beverage company, SABMiller gained 2.1%. Among industrials, Remgro and Bidvest Group advanced 1.4% and 0.7%, respectively. On the other hand, gold miners, Harmony Gold, Gold Fields and AngloGold Ashanti declined 6.5%, 3.8% and 3.7%, respectively. Mining sector stocks, Anglo American and BHP Billiton lost 3.0% and 2.0%, respectively. The JSE All Share Index rose 0.4% to close at 51,810.16.
UK Market Review
UK markets finished lower on Friday, with the FTSE 100 index declining for the fourth straight session. Mining sector stocks, Randgold Resources and Glencore dropped 3.0% and 3.1%, respectively. Royal Bank of Scotland Group declined 2.1%, after selling its Coutts International private banking business to Switzerland’s Union BancairePrivee. Energy sector stocks, Royal Dutch Shell and BG Group shed 1.7% and 1.0%, respectively. Antofagasta fell 1.3%, after the company announced that it had temporarily suspended operations at three of its mines in Chile due to heavy rains. On the upside, Carnival climbed 7.2%, amid upbeat 1Q15 results and after the company boosted its FY15 earnings guidance. The FTSE 100 Index declined 0.6% to close at 6,855.02.
US Market Review
US markets ended in the green on Friday. Altera jumped 28.4%, following a report indicating that Intel is in discussions to takeover the company. Intel advanced 6.4%. Carnival Corporation climbed 6.1%, after posting better-than-expected 1Q15 earnings. Dow Chemical gained 1.9%, after the company agreed to sell a major part of its chlorine business to Olin Corporation for around $5.00bn.Amazon.com rose 0.9%, amid reports that it is in talks to acquire the online high-fashion retailer, Net-a-Porter. However, Chevron fell 0.9%, after it announced its intention to sell its stake in Caltex Australia. The S&P 500 Index rose 0.2% to settle at 2,061.02, while the DJIA Index advanced 0.2% to close at 17,712.66. The NASDAQ Index climbed 0.6% to finish at 4,891.22.
Asia Market Review
Asian markets are trading in positive territory this morning, mirroring Friday’s gains on Wall Street. In Japan, Fast Retailing, Fanuc and SoftBank rose 3.2%, 1.4% and 0.8%, respectively. Kyocera Corporation added 1.3%, after a report indicated that an activist hedge fund, Oasis Management Co., is planning to buy a stake in the company. In Hong Kong, Cnooc rose 3.4%, after posting a better-than-expected FY14 profit. PradaSpA added 0.5%, despite reporting a significant decline in its FY14 profit. In South Korea, KB Financial Group and Samsung Electronics advanced 1.4% and 0.8%, respectively. The Nikkei 225 Index is trading 0.7% higher at 19,411.06, while the Kospi Index is trading 0.4% higher at 2,028.07. The Hang Seng Index is trading 1.6% higher at 24,879.63.
Commodities
At 06:00 SAST today, Brent crude oil fell 0.2% to trade at $54.24/bl. On Friday, Brent crude oil fell 4.4% to settle at $54.36/bl, as supply concerns related to the crisis in Yemen eased and the focus shifted to the likelihood of an Iranian nuclear deal by this week that could result in more supply in the market.On Friday, the Illinois North Central No.2 Yellow corn spot prices remained unchanged at$3.71/bushel.At 06:00 SAST today, gold prices declined 0.3% to trade at $1,194.60/oz. On Friday, gold declined 0.5% to close at $1,198.55/oz, reversing some of their gains in the previous sessions Fed Chairperson, Janet Yellen’s comments that an interest rate rise may be warranted later this year, but added that weakening inflation pressures could force the Fed to delay.On Friday, copper declined 1.9% to close at $6,078.50/mt. Aluminium closed 0.4% lower at $1,775.50/mt.
Currencies
On Friday, the South African rand weakened against the US dollar. Meanwhile, the US Fed chairperson, Janet Yellen, indicated that the Fed was giving “serious consideration” to raise interest rates later this year, but added that rate rises would happen only gradually. On the macro front, US economy at an annualised rate expanded in line with preliminary estimate and below market expectations for 4Q14. Later today, investors will eye M3 money supply data and private sector credit for February in South Africa, while in the US, traders will keep a tab on personal spending and personal income data along with pending home sales for further direction.The yield on benchmark government bonds rose on Friday. The yield on 2015 bond advanced to 6.10% while that for the longer-dated 2026 issue rose to 7.83%.At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R12.0455, while the euro is trading 0.2% lower at R13.0881.On Friday, the euro remained almost unchanged against the US dollar. Moving ahead, market participants will eye the preliminary print on the consumer price index in Germany and consumer confidence data in the eurozone, scheduled later today.At 06:00 SAST, the euro fell 0.1% against the US dollar to trade at $1.0869, while it has dropped marginally against the British pound to trade at GBP0.7314.
Economic Updates
In March, the seasonally adjusted house prices advanced 0.1% on a monthly basis in the UK, compared with a drop of 0.1% in the prior month. Market expectations were for house prices to climb 0.2%.The Bank of England (BoE) Governor, Mark Carney, stated that BoE expects its next move to be an interest rate hike, despite a low inflation.The BoE deputy Governor for monetary policy, Ben Broadbent, opined that the recent slowdown in annual inflation in the UK has been driven largely due to drop in oil prices. He further said that the risk of deflation is very low in the UK and expects consumer price inflation to rise “quite steeply” in early 2016.On a monthly basis, the seasonally adjusted retail sales registered a rise of 0.1% in Italy, in January. Retail sales had registered a revised drop of 0.1% in the prior month.The consumer confidence in France advanced to 93.00 in March, meeting market expectations. In the prior month, consumer confidence had recorded a level of 92.00.
In Germany, the import price index rose 1.4% on a monthly basis in February, more than market expectations for a rise of 0.5%. The import price index had dropped 0.8% in the prior month.
In 4Q14, the final annualised gross domestic product (GDP) recorded a rise of 2.2% on a quarterly basis in the US, compared with a rise of 5.0% in the prior quarter. Market anticipations were for the annualized GDP to advance 2.4%. The preliminary figures had also indicated an advance of 2.2%.
In 4Q14, the final core personal consumption expenditure advanced 1.1% in the US on a quarterly basis, at par with market expectations. The preliminary figures had also recorded an advance of 1.1%. Core personal consumption expenditure had risen 1.4% in the prior quarter.
In the US, the final Reuters/Michigan consumer sentiment index eased to 93.00 in March. The preliminary figures had recorded a fall to 91.20. In the prior month, the Reuters/Michigan consumer sentiment index had registered a reading of 95.40.
In Japan, the preliminary industrial production dropped 3.4% in February on a monthly basis. In the previous month, industrial production had climbed 3.7%.
Corporate Updates
South AfricaAfrimat Limited: The supplier of industrial minerals and construction materials, in its trading update for FY15, indicated that it expects its basic EPS to be between R1.25 and R1.35, reflecting an increase of between 15.0% and 25.0% from the previous year. Its headline EPS is anticipated to be between R1.25 and R1.36, an increase of 15.0% and 25.0% from the prior year. Fountainhead Property Trust: The company indicated that its largest institutional unitholder has agreed to vote in favour of the acquisition by Redefine of all Fountainhead’s assets in exchange for 85 new Redefine shares for every 100 Fountainhead units in issue and the assumption of all of Fountainhead’s liabilities.PPC Limited: The cement making company announced that it has ended merger talks with unlisted rival Afrisam Group.Hudaco Industries Limited: The industrial and electronic products company stated that trading in the 1Q15 continued to be tough, reflecting the general conditions in the economy. In addition, the Global Communication contract was secured and would be delivered in 2Q15. The company revealed that Partquip, which was acquired with effect from 1December 2014, is trading in line with expectations and the benefits from its Bearings International turnaround is coming through and the group’s February sales were encouraging.
UK and US
Carnival Corporation: The cruise company, in its 1Q15 results, indicated that total revenue dropped 1.5% from the same period of preceding year to $3.53bn. Its non-GAAP diluted EPS stood at $0.20, compared with $0.00 recorded in the corresponding period of previous year. For 2Q15, the company expects non-GAAP diluted EPS to be in the range of $0.11 to $0.15.
BlackBerry Limited: The mobile communications company, in its FY15 results, stated that revenue decreased sharply to $3.34bn from $6.81bn recorded in the previous year. It reported a basic and diluted net loss of $0.58/share, compared with a loss of $11.18/share recorded in the prior year. Meanwhile, the company announced that China Mobile Hong Kong Co. would offer Enhanced SIM-Based Licensing by BlackBerry to its enterprise customers.
Finish Line: The shoe stores company, in its FY15 results, revealed that net sales increased 9.0% from the last year to $1.82bn. Its diluted EPS was $1.70, compared with $1.56 posted in the previous year. For FY16, the company expects comparable store sales to be up in the low single to mid single digit range and EPS to increase in the low single to mid single digit range over FY15 non-GAAP diluted EPS of $1.67.
Netlist Inc.: The technology solutions company, in its FY14 results, revealed that net sales dropped 16.7% from the preceding year to $19.20mn. It incurred a basic and diluted net loss of $0.38/share, compared with a loss of $0.35/share recorded in the previous year.
Medical Transcription Billing: The healthcare information technology company, in its FY14 results, indicated that net revenue increased sharply to $18.30mn. However, it reported a basic and diluted loss of $0.64/share, compared with a loss of $0.03/share incurred in the previous year. The company anticipates FY15 revenue of approximately $30.00mn which represents growth of 64.0% over FY14, excluding any major acquisitions that may occur during the year.
Forbes Energy Services Limited: The oilfield services contracting company, in its 4Q14 results, stated that total revenue rose 7.0% from the previous year to $449.28mn. It reported a basic and diluted loss from continuing operations of $0.42/share, compared with a loss of $0.64/share recorded in the preceding year.
Intel Corporation: Media reports revealed that the chip making company is in talks to acquire Altera to enable entry into new markets as poor PC sales continue to weigh down the chipmaker’s financials.
Madison Square Garden Co.: The company announced that it would break itself up, dividing the New York Knicks and Rangers professional sports teams from the company’s regional sports networks.
Homeserve Plc: The home emergency business company, in its trading update, stated that trading across the group in the 4Q15 has been good, with retention and marketing activities performing well. It expects their UK business to end the year with 2.10mn customers and continues to see pleasing levels of customer growth across its International businesses.
BP Plc: The energy company confirmed the allotment and issue of 15,707,322 ordinary shares of $0.25 each to shareholders who are elected to receive ordinary shares under the Scrip Dividend programme as an alternative for interim dividend for 4Q14, payable on 27 March 2015.
Vodafone Group: The telecommunication company alongwith Botswana Telecommunications Corporation announced a new partnership agreement for Botswana to offer business and consumer customers a range of products and services.
Royal Bank of Scotland Group: The banking company announced that it has reached an agreement to sell its internationally managed Private Banking and Wealth Management business to Union BancairePrivée UBP SA.
Antofagasta Plc: The mining company revealed that operations in its Centinela, Antucoya and Michilla mines have been suspended due to heavy rains in the Atacama Desert in the north of Chile where the mines are located. It stated that operations have been suspended, primarily for the safety of employees and others who work at the mines, although some processing of stockpiled material has been possible.
Aberdeen Asset Management: The financial company announced that it has agreed to purchase SVG Capital’s minority stake in their joint venture vehicle, Aberdeen SVG Private Equity Managers Limited, for a consideration of GBP29.00mn.
Barratt Developments: The company announced the appointment of David Thomas, currently group Finance Director, as group Chief Executive effective from 1 July 2015. CSR Plc: The fabless semiconductor company announced that Qualcomm Global Trading Pte., an indirect wholly owned subsidiary of Qualcomm Incorporated, has been granted clearance for acquisition of CSR by the Japan Fair Trade Commission.
Redrow Plc: The company stated that Redrow Homes Limited has contracted with Adriatic Land 3 Limited for the sale of its ground rent portfolios for its developments at Kingston Riverside, Kingston Riverwalk, Amberley Waterfront and 205 Holland Park in London for a total cash consideration of GBP10.20mn.
Financial Times
Quindell unit acquired by Australia’s Slater & Gordon: Slater & Gordon, the Australia-listed law firm, is buying the professional services arm of controversial British insurance claims processor Quindell for about GBP700.0mn.
City jobs lost in spite of upbeat outlook: The number of jobs in the UK’s financial services industry has continued to fall in spite of rising levels of optimism.
UK start-ups soar despite tech bubble fears: One in 11 people of working age in Britain are running or starting a business, suggesting the country is becoming the developed world’s capital of entrepreneurship.
Insecure jobs and unpredictable hours on rise among CAB clients: The Citizens Advice Bureau says an increasing number of its clients have insecure jobs with unpredictable hours, causing them problems with debt, housing, benefits and childcare.
De Beers toughens rules for diamond customers: De Beers is making the biggest reforms in more than a decade to the way it sells most of its diamonds, amid concerns over the financial stability and transparency of some of its best customers.
End in sight for post-crisis banking reform, says Basel head: The avalanche of post-crisis banking regulation is coming to an end and most of the uncertainties weighing on the financial industry will be dealt with in the next year, Basel Committee Secretary-General, William Coen has said.
Brics banker Jim O’Neill goes to war on superbugs: The man who invented the Bric moniker for Brazil, Russia, India and China is spearheading a mission to tackle antimicrobial resistance, or AMR.
Bid for Rexam sparks fears over loss of UK expertise: From glow-in-the-dark versions to market alcopops in Russian nightclubs to a one-litre beer container popular in Germany, the humble can has been transformed.
US oil independents share sales boom despite crude price fall: US independent oil and gas companies have raised a record amount from share sales in the first three months of the year, as they seek to shore up their balance sheets following the plunge in oil prices since last summer.
European payouts rise by more than 10.0%: Europe’s largest companies have increased shareholder payouts by the highest annual amount since the financial crisis, largely driven by greater contributions from the banks.
Bridgepoint raises EUR4.00bn fund as private equity finance soars: Bridgepoint, the European buyout firm and owner of Pret A Manger in the UK, has raised EUR4.00bn for its latest fund in another sign of the wave of cash rushing into private equity.
Medics welcome GSK deal to provide meningitis B vaccine: Patient groups and medics have welcomed an agreement between the government and GlaxoSmithKline to make Britain the first country in the world to provide routine vaccination against meningitis B.
Geely Chairman Li Shufu attacks Beijing strategy on car industry: Li Shufu, billionaire Chairman of carmaker Geely, said the government had handed Chinese manufacturers a “sugar-coated bomb” by insisting foreign peers establish joint ventures in the country and control no more than 50.0%.
ChemChina Chairman hopes for a happy marriage to Pirelli: Bells ringing from a church next to ChemChina’s headquarters on Sunday morning provided a fitting soundtrack for the group’s Chairman to explain its proposed EUR7.30bn takeover of Italian tyre group Pirelli.
Swiss group Dufry snaps up Italian rival World Duty Free: Italy’s Benetton family has made EUR1.30bn selling its stake in World Duty Free to Switzerland’s Dufry in a deal that creates the world’s biggest travel retailer.
Publishers and adblockers are in a battle for online advertising: Electronic warfare has broken out between internet users and the $120.00bn online advertising industry.
Activist hedge fund turns focus on Japan’s Kyocera and Canon: The hedge fund that encouraged Japanese games console maker Nintendo into allowing its heroes on to smartphones is building a position in Kyocera and is also eying Canon.
Record India spectrum auction set to spur telecoms consolidation: India’s mobile market is full of large numbers, from 850.00mn active users to annual handset sales of 200.00mn and revenues of roughly $30.00bn. Now there is one more: the record $18.00bn raised by India’s government in its latest round of spectrum auctions, which concluded last week.
Shire: Gained 2.2% to GBP54.25 even after it was linked with a potential offer for BioMarin, the US developer of rare disease treatments that has been at the centre of takeover speculation all year.
Carnival: Rose 7.2% to GBP32.41 on better than expected quarterly earnings.
Lex
Luxury goods: differentiation rules: Hermès enjoins the world to see FY15 with the eye of the flâneur, a kind of carefree social observer. That could also sum up how the French handbag, tie, and silk scarf maker sees the rest of the luxury goods market: barely one step removed from the mundane. And while Hermès’ operating margin is 31.0%, almost a percentage point lower than FY13’s high, it dwarfs the 24.0% at Richemont and LVMH’s 19.0%. Put that down to getting things right in Asia, its biggest sales region. While Hermès’ sales in Japan last year rose 5.0% (and more than twice that in yen terms), they were up 13.0% in Asia-Pacific excluding Japan. Sales in the region at Richemont were flat for the first time since FY09. Growth expectations for Hermès run high but it is a steady performer. The company guides to an 8.0% sales increase this year but analysts are predicting that revenues will grow twice that fast. Add robust free cash flow – and a EUR5.00-a-share special dividend – and it becomes easier to see why Hermès trades on 28 times next year’s earnings.Insulin: moving the needle: Insulin is a complex protein molecule – a biologic, in the jargon – so there has not been a clear path for generic competition to enter when patents on insulin products expire. This is changing. The primary patent on Lantus, a long-acting insulin from Sanofi, expired in the US in February and will do the same in Europe in May. Lantus is the biggest insulin product, with sales of EUR6.30bn last year. Eli Lilly has partnered with Boehringer Ingelheim to develop a “biosimilar” version of Lantus. There are a few legal entanglements with Sanofi still to be resolved, but sometime in the next year or so the biosimilar will hit the market. The launch will not follow the pattern of generics of simple molecules – which can sell for a tenth of the branded price and take over the market overnight. The Lilly biosimilar was expensive to develop and will be expensive to make, so the discount will be lower. Doctors will have to prescribe it specifically, rather than having patients switch automatically. And insulin users are, wisely, creatures of habit. So change will take time. But the stakes are huge. Lantus will be one of the first true blockbuster biologics to face generics. The pharma industry, and its investors, will be watching closely.
Slack: taut valuation: Today’s hottest messaging service for office workers is Slack. The chat service was launched one year ago and is now reportedly fundraising at a $2.80bn valuation. Even by Silicon Valley standards, that is fast. Slack is a small player in the rapidly growing market for enterprise communication and collaboration. The real guts of this market are in file sharing and collaborative editing; Slack has only rudimentary file sharing and comment options. A host of companies are elbowing for market share. Box, a newly-listed company with an enterprise value of $1.70bn, offers file sharing that meets regulatory requirements in industries such as healthcare and finance. Dropbox, a private company with a $10.00bn valuation, has a large base of individual users and is increasingly targeting businesses. Partnerships have come in waves. Dropbox partnered with OneDrive late last year; Box became an official Microsoft cloud storage partner this month. Slack can integrate with Dropbox and OneDrive. Microsoft has been signing deals to put OneDrive on the homescreen of more phones. The list goes on. The deals (and AOL Messenger’s experience) point to an ugly truth for standalone programs like Slack, Box and Dropbox: collaboration tools are only as powerful and enduring as the software platforms they are built on. Here, Google and Microsoft have a big advantage.
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