By Anchor Capital
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South African Market Review
South African markets advanced yesterday, with the JSE All Share Index closing at a record high for the second time this week. Sasol climbed 3.9%, tracking a sharp rise in oil prices. Sibanye Gold, Harmony Gold and Gold Fields gained 3.8%, 3.5% and 1.1%, respectively. Old Mutual rose 1.8%. The company announced that the Chief Executive, Julian Roberts, would be replaced by the Standard Bank executive, Bruce Hemphill, later in the year. PSG Group added 1.1%, after reporting that its recurring headline EPS was up 32.3% from the prior year in FY15. However, Illovo Sugar fell 1.6%, after it stated that it expects its EPS and headline EPS would reflect a drop of between 7.0% and 12.0% in FY15. The JSE All Share Index rose 0.8% to close at 53,720.57.
UK Market Review
UK markets finished higher yesterday, led by gains in apparel retailers. Burberry Group rose 2.5%, after it reported a rise in its 2H15 same-store sales. Peer firm, Next climbed 2.5%.Fresnillo advanced 2.2%, following a18.9% increase in its1Q15 silver production and after the company reiterated its FY15 outlook. Dixons Carphone added 2.0%, after stating that it would sell its German electronic retailer, The Phone House, to Drillisch AG. On the downside, Bunzl dropped 2.6%. The company announced that it has agreed to acquire a business in Turkey and completed acquisitions in Canada & Netherlands. The FTSE 100 Index advanced 0.3% to close at 7,096.78.
US Market Review
US markets ended in the green yesterday, buoyed by energy sector stocks. Transocean, CONSOL Energy and Noble Corporation advanced 10.1%, 8.4% and 7.2%, respectively. Intel gained 4.3%. The company’s 1Q15 earnings came in line with market estimates. Delta Air Lines rose 2.6%, as its 1Q15 earnings surpassed market expectations. Morgan Stanley added 1.5%, amid reports that it has been offered $1.00bn by Castleton Commodities for its merchant oil trading business. However, PNC Financial Services Group and US Bancorp declined 1.5% and 0.2%, respectively. The S&P 500 Index rose 0.5% to settle at 2,106.63, while the DJIA Index gained 0.4% to close at 18,112.61. The NASDAQ Index climbed 0.7% to finish at 5,011.02.
Asia Market Review
Markets in Asia are trading mostly higher this morning, mirroring overnight gains on Wall Street. In Japan, exporters, Sony, Canon and Nissan Motor retreated 2.3%, 1.1% and 0.9%, respectively. However, Nomura Real Estate Holdings advanced 2.4%, after it hiked its earnings outlook for FY15. In Hong Kong, Galaxy Entertainment Group jumped 4.8%, even after it announced a significant decline in its 1Q15 earnings. In South Korea, Samsung SDS Company rose 2.4%, following news that it is planning to increase its annual sales by threefold to KRW20.0tn by 2020. The Nikkei 225 Index is trading 0.4% lower at 19,797.03, while the Kospi Index is trading 0.6% higher at 2,133.29. The Hang Seng Index is trading 0.2% in the green at 27,674.04.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.9% to trade at $60.74/bl. Yesterday, Brent crude oil rose 4.5% to settle at $60.20/bl, amid tensions in the Middle East and after the Energy Information Administration (EIA), in its weekly report, stated that crude supply increased by 1.30mn bls for the week ended April 10, below market expectations for a build of 4.10mn. However, gains were capped, after a report from the International Energy Agency (IEA) indicated that world oil markets might take longer to tighten than previously expected due to supply rising faster than demand.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 0.6% to $3.55/bushel.
At 06:00 SAST today, gold prices advanced 0.2% to trade at $1,204.54/oz. Yesterday, gold gained 0.8% to close at $1,202.58/oz, amid growing concerns of a Greek default on its sovereign debt.
Yesterday, copper rose 0.1% to close at $5,960.75/mt. Aluminium closed 1.9% higher at $1,827.00/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, amid concerns over ongoing power crisis. Meanwhile, data showed that retail sales in South Africa climbed more than expected in February, while industrial output in US decreased more than expected in March. Meanwhile, the NAHB housing market index eased concerns over the health of the US housing market, as it rose more than expected in April. Today, traders will eye more data from the US housing market.
The yield on benchmark government bonds were mixed yesterday. The yield on 2015 bond declined to 6.05% while that for the longer-dated 2026 issue rose to 7.79%.
At 06:00 SAST, the US dollar is trading 0.2% lower against the South African rand at R12.0411, while the euro is trading marginally lower at R12.8865.
Yesterday, the euro advanced against the US dollar and South African rand. The European Central Bank (ECB) recommitted itself to keep stimulus measures in place until September 2016 and kept its official interest rates unchanged at 0.05%. On the macro front, Germany’s consumer price inflation was in line with the preliminary estimates for March and the eurozone’s trade surplus widened in February.
At 06:00 SAST, the euro advanced 0.2% against the US dollar to trade at $1.07021, while it has gained 0.2% against the British pound to trade at GBP0.7210.
Economic Updates
In South Africa, retail sales rose 1.9% in February on a monthly basis, compared with a drop of 0.1% in the previous month. Markets were expecting retail sales to rise 1.2%.
In March, on a monthly basis, the EU normalised consumer price index (CPI) climbed 0.7% in France, at par with market expectations. EU normalised CPI had registered a similar rise in the prior month.
On a monthly basis in March, the final CPI climbed 0.5% in Germany, compared with a rise of 0.9% in the prior month. Market anticipations were for the consumer price index to rise 0.5%. The preliminary figures had also recorded a rise of 0.5%.
The eurozone has registered non-seasonally adjusted trade surplus of EUR20.30bn in February, following a trade surplus of EUR7.90bn in the previous month. Markets were anticipating the region to record a trade surplus of EUR21.00bn.
The ECB, in its policy meeting, decided to hold interest rates steady, in line with market estimates. The ECB Chief, Mario Draghi, expressed confidence in the ECB’s recently launched stimulus programme and stated that risks surrounding the eurozone’s economy have become more balanced and the region’s inflation is likely to tick higher in the latter half of FY15.
The housing market index climbed to 56.00 in April, in the US, compared with a revised level of 52.00 in the previous month. Markets were anticipating the housing market index to climb to a level of 55.00.
In March, industrial production recorded a drop of 0.6% in the US on a monthly basis, compared with a rise of 0.1% in the prior month. Market expectations were for industrial production to fall 0.3%.
The Federal Reserve’s (Fed) latest Beige Book report indicated that during mid-February and the end of March, the US economy improved “modestly” or “moderately” across most of the districts, whereas growth in few districts held steady. However, consumer spending growth was mixed across the districts.
On a monthly basis, the final industrial production eased 3.1% in Japan, in February. Industrial production had risen 3.7% in the prior month. The preliminary figures had indicated a fall of 3.4%.
In March, the seasonally adjusted unemployment rate in Australia registered an unexpected drop to a level of 6.1%. In the prior month, the unemployment rate had registered a revised reading of 6.2%.
The seasonally adjusted manufacturing PMI in New Zealand eased to 54.50 in March, compared with a revised reading of 56.10 in the prior month.
Corporate Updates
South Africa
PSG Group Limited
: The asset management company, in its reviewed FY15 results, indicated that its revenue from sale of goods increased 45.7% from the preceding year to R10.98bn. Its diluted headline EPS stood at R8.07, compared with R5.49 recorded in the previous year. Furthermore, its recurring headline EPS was up 32.3% to R5.94, compared with the prior year.
Illovo Sugar Limited: The sugar producer, in its trading statement for FY15, indicated that a reasonable degree of certainty exists that its EPS and headline EPS would reflect a drop of between 7.0% and 12.0% compared with the previous year, mainly due to challenging trading conditions in the EU, world and regional markets as well as the impact of the drought and frost on sugar production in South Africa.
Cashbuild Limited: In its 3Q15 operational update, the retailer company indicated that revenue was up 18.0%, compared with the corresponding period previous year. Stores opened since 1 July 2013 (new stores – 21 stores) contributed 4.0% of the increase, and revenues at existing stores (198 stores) increased by 14.0%. This, together with the growth reported in 1H15 equates to an increase in year to date revenue of 14.0%. The company stated that trading conditions remained challenging throughout the quarter.
Old Mutual: The company announced that it has appointed Bruce Hemphill as Group Chief Executive, succeeding Julian Roberts as part of an orderly succession plan. Julian Roberts will remain as Group Chief Executive until Bruce Hemphill’s start date, which is anticipated to be during 4Q15.
Liberty Holdings Limited: The company stated that that Bruce Hemphill has resigned with immediate effect from the boards of Liberty Holdings and Liberty Group Limited.
Clover Industries Limited: The branded foods and beverages company announced that the Namibian Stock Exchange (NSX) has approved the secondary listing of the company on the NSX with effect from 22 April 2015 under share code “CLN”. The company’s primary listing remains on the main board of the Johannesburg Stock Exchange.
Grindrod to offer Top 50 ETF: Grindrod Bank announced on Wednesday that it is in the process of bringing a new exchange-traded fund (ETF) to the South African market. Its Top 50 ETF will track the S&P South Africa 50 Index, which is S&P’s local large cap index.
SAA in talks with Air China, Hainan on strategic pact: South African Airways is in talks with Air China about a partnership that could see the pair set up new African hubs and even pave the way for the Asian carrier to take a stake in SAA, people familiar with the negotiations said.
Vodacom International operations Chief resigns: Vodacom Group said Romeo Kumalo, Chief Operating Officer of the South African company’s international operations, has resigned to join his family business.
UK and US
Bank of America Corporation: The banking company, in its 1Q15 results, indicated that its net interest income dropped 6.3% from the same period a year ago to $9.45bn. It reported a net diluted EPS of $0.27, compared with $0.25 recorded in the corresponding period of last year. The company stated that continuing the trend from 4Q14, it saw core loan and deposit growth, higher mortgage originations, and increased wealth management client balances during the period.
Kinder Morgan: The energy infrastructure company, in its 1Q15 results, stated that its revenue was down 11.1% from the corresponding period of previous year to $3.60bn. Its basic and diluted EPS dropped to $0.22 from $0.28 recorded in the same period of prior year. The company revealed that it expects to declare dividends of $2.00/share for FY15, an increase of 14.9% from the preceding year.
US Bancorp: The financial services company, in its 1Q15 results, revealed that its total interest income was up 1.3% from the same period of previous year to $3.06bn. Its net diluted EPS stood at $0.76, compared with $0.73 posted in the corresponding period of last year. The company stated that the nonperforming assets (NPA) were $1.70bn, compared with $1.81bn in 4Q14 and it expects total NPA to remain relatively stable in 2Q15.
PNC Financial Services: The company, in its 1Q15 results, indicated that its total revenue decreased 1.2% from the corresponding period of preceding year to $3.73bn. Its diluted EPS was $1.75, compared with $1.82 recorded in the same period of previous year. The company stated that it grew average loans and deposits, controlled expenses and benefited from modestly improved credit quality during the period.
Charles Schwab Corporation: The brokerage and banking company, in its 1Q15 results, stated that its total net revenue increased 3.2% from the same period a year ago to $1.53bn, but missed market expectations. Its diluted EPS dropped to $0.22 from $0.24 posted in the corresponding period of prior year.
Delta Air Lines: The airline company, in its 1Q15 results, revealed that its total operating revenue increased 5.3% from the corresponding period of last year to $9.39bn. Its diluted EPS stood at $0.90, compared with $0.25 recorded in the same period of previous year. The company stated that it expects its operating margin to increase in the range of 16.0% to 18.0% in 2Q15.
Netflix Inc.: The streaming media company, in its 1Q15 results, indicated that its revenue from total streaming stood at $1.40bn, compared with $1.07bn recorded in the same period of previous year. Its EPS dropped to $0.38 from $0.86 recorded in the corresponding period of last year. The company stated that its video-streaming service topped 62.00mn subscribers worldwide, as original shows such as “House of Cards” drew new viewers globally.
Amgen Inc.: The biopharmaceutical company announced that the US Food and Drug Administration (FDA) has approved its drug, Corlanor (ivabradine), to treat chronic heart failure that may help keep patients out of the hospital.
Medicines Co.: The pharmaceutical company announced that the US FDA Cardiovascular and Renal Drugs Advisory Committee (CRDAC) has voted 9 – 2 to support the approval of the once-rejected injection, cangrelor, for use in some patients undergoing angioplasty, a procedure to widen narrowed or clogged coronary arteries that often includes the use of stents.
Burberry Group: The company, in its 2H15trading update, stated that its revenue rose 9.6% from the corresponding period previous year to GBP1.42bn, reflecting strong performance across all regions and continued digital growth. The company indicated that it anticipates external challenges would continue in the current year, but remain confident in its long-term strategy to build the Burberry brand and business globally.
Bunzl Plc: The distribution and outsourcing company, in its 1Q15 trading statement, indicated that overall trading has been consistent with expectations at the time of the annual results announcement in February. Its revenue has increased 6.0% compared with the same period last year, principally due to underlying growth of approximately 2.0% and the positive impact from acquisitions. The company also announced it has entered into an agreement to acquire a business in Turkey and has completed three further acquisitions in Canada and the Netherlands.
Fresnillo Plc: The precious metals miner, in its 1Q15 production report, stated that its silver production increased 18.9% from 1Q14 to 12.42mn oz (including Silverstream), due to increased ore volume processed and higher ore grade at Saucito, more than offsetting lower production at Fresnillo. It reported gold production of 182.04k oz, up 62.4% compared with 1Q14, mainly due to Herradura being fully operational post the temporary explosives permit suspension which affected the comparator quarter, and the dynamic leaching plant at the mine now in operation, together with an increased contribution from Saucito. The company indicated that it remains on track to achieve its FY15 production guidance of 45.00-47.00mn oz of silver and 670.00-685.00kozof gold.
Jupiter Fund Management: The company, in its 1Q15 trading update, indicated that assets under management increased to GBP34.76bn at 31 March 2015. The fund recorded net mutual fund inflows of GBP883.00mn and overall net inflows for the quarter were GBP872.00mn.
JD Sports Fashion: The sports-fashion retail company, in its preliminary results for the 52 weeks ended 31 January 2015, stated that its revenue increased to GBP1.52bn from GBP1.22bn posted in the same period last year. Its diluted EPS from continuing operations stood at 35.17p, compared with 29.08p recorded in the corresponding period last year. The company indicated that its board continues to believe that the company is well positioned to exploit successfully the opportunities that exist for continued profitable growth.
Hunting Plc: The energy services company, in its 1Q15 trading update, indicated that market conditions across the oil and gas sector continued to be volatile, with global rig counts continuing to decrease, particularly in North America where data indicates a 46.0% decline since the start of the year. WTI oil prices averaged $49.00/bl during 1Q15, and capital expenditures across the industry have continued to reduce or be placed on review. This market environment has resulted in operating profits across the company’s business being approximately 60.0% lower during 1Q15, compared with 1Q14.
AstraZeneca: The company stated that the US FDA Endocrinologic and Metabolic Drugs Advisory Committee (EMDAC) voted 13to 1 (1 abstained; 15 total votes) that the results of the Saxagliptin Assessment of Vascular Outcomes Recorded in Patients with Diabetes Mellitus (SAVOR) study demonstrated that the use of saxagliptin in patients with type 2 diabetes has an acceptable cardiovascular risk profile. The company also indicated that the US FDA has granted Orphan Drug Designation for the anti-CTLA-4 monoclonal antibody, tremelimumab, for the treatment of malignant mesothelioma.
Dixons Carphone: The specialist electrical and telecoms retailer and services company announced that it has entered into an agreement to dispose of The Phone House Deutschland GmbH to Drillisch AG, a leading mobile virtual network operator in Germany. Following completion, which is expected to take place by the end of May at the latest, the company will receive around 3.0% in shares of the Drillisch AG Group, with potential further deferred payments from future excess cash flows.
Pets at Home Group: The specialist retailer of pet food, accessories, pet-related products and services announced the closing of a new financing agreement for a five year, GBP260.00mn revolving credit facility. At current leverage, the facility carries a rate of LIBOR +1.5%. The facility replaces the group’s existing GBP325.00mn of drawn facilities, which at current leverage, carried a rate of LIBOR +1.9%. The new facility is expected to reduce group net financing expense on the income statement by approximately GBP2.70mn/annum at current leverage.
Financial Times
Gatwick oil explorer plays down recoverable reserves: The tiny explorer that claimed last week to have found a vast oilfield near Gatwick airport has clarified its expectations, saying the hydrocarbons cannot yet be considered prospective.
Shawbrook Bank set to appoint Iain Cornish as Chairman: Shawbrook Bank is to appoint Iain Cornish, one of the key independent figures probing the collapse of HBOS, as Chairman following the departure of Sir George Mathewson.
Burberry looks to US to offset fall in Hong Kong sales: Burberry’s trademark trench coats and cashmere scarves helped push second-half sales up 10.0% as strong trading in the US more than offset the continued deterioration of sales in Hong Kong.
Tesco jettisons corporate jet fleet: Tesco is poised to draw a line under its ownership of the fleet of corporate jets that sparked a storm of shareholder protest.
Asia Resource stock rises on possible bid from Argyle Street: Stock in the Indonesia-focused coal miner once known as Bumi rose more than 70.0% on Wednesday after one shareholder – Argyle Street Management, an Asian investor – announced it and a partner were considering a possible 41.00p/share offer for the UK-listed company.
US IPOs point to boost in deals demand: Three US initial public offerings priced on Wednesday at the top of their ranges in what will be a test of the health of the listings market this year.
Ernst & Young to pay $10.00mn over Lehman accounting: Ernst & Young will pay a $10.00mn penalty for allegedly helping Lehman Brothers hide its precarious financial situation, marking the only legal enforcement action by US authorities so far since the FY08 collapse of the investment bank.
SpaceX shoots down rival United Launch Alliance’s prospects: SpaceX, Elon Musk’s fast-growing US space launch provider, has dismissed plans by its main rival to revamp to handle growing competition, saying United Launch Alliance remains far from being a “real commercial provider”.
JD Sports to lift dividend after full-year profits exceed GBP100.00mn: Sportswear retailer JD Sports Fashion says it will increase its dividend after reporting full-year profits of more than GBP100.00mn for the first time last year, lifting the group’s share price almost 5.5%.
JD.com takes on Alibaba with launch of cross-border platform: JD.com has challenged China ecommerce rival Alibaba with the launch of a cross-border platform designed to bring foreign brands to the Chinese middle class.
Nestlé in talks to sell frozen food unit to Bain-owned company: Nestlé is in exclusive talks with a food services company owned by Bain Capital to sell its frozen food unit Davigel, the world’s largest food group said on Tuesday.
Adultery website Ashley Madison plans London IPO: Ashley Madison, the online matchmaker for married people wanting to have extramarital affairs, has announced plans for an initial public offering in London this year.
Chinese group Ninebot acquires Segway: Chinese company Ninebot has bought Segway, the US maker of the eponymous two-wheeled vehicle that has regularly grabbed headlines but failed to match its early hype.
Huawei looks to go upmarket with latest handset launch: Huawei has launched its most technically advanced smartphone as it ramps up its challenge to Apple and Samsung in the premium smartphone market.
Al Noor Hospitals: Edged 0.7% higher at 911.00p, having dropped on Tuesday after Ithmar Capital sold its 20.0% stake.
Zoopla: Dropped 4.0% to 195.80p, after key rival Rightmove said it had been taking market share.
Lex
Sika: and so to court: They want to sell their 16.0% stake in Sika, the Swiss coatings and adhesives maker to France’s Saint-Gobain for SFr2.75bn – a great fat premium. Fair enough. But their stake, held through a holding company, carries 52.0% of Sika’s voting rights. Conveniently for Saint-Gobain, Sika’s articles of association state that a buyer of more than a third of its voting rights is not obliged to buy out the other shareholders. Sika’s board says this provision was granted to the family. Sika treats their holding company SWH’s signature of a deal with Saint-Gobain as a change of ownership and wants to limit its voting rights. Sika’s board and investors fret that control is being snatched from under their noses without so much as an offer, let alone a premium. Mr Hälg and investors can talk up Sika’s stand-alone case, bemoan value destruction, sow fear about the cuts Saint-Gobain will need to make to defray the price paid (Saint-Gobain says there will be no job cuts) and question the industrial logic all they like. But the court will note that the board and investors have gone along with the feudal voting structure for years.
Nokia/Alcatel: party line: The deal merges two mergers, the nightmarish Alcatel-Lucent tie up and the merely awkward Nokia Siemens marriage. Will the heads of the resulting Finnish-German-French-American hydra bite each other, rather than competitors Huawei or Ericsson? The fact that the deal was done all in shares and at a low premium was likely disappointing to Alcatel shareholders (those shares fell a little on Wednesday). But as a result the new company will have over €7bn in net cash to invest or to mollify investors, and scope for achieving an investment grade credit rating (a cynic might wonder if Nokia was worried that Alcatel, in the final year of its restructuring program, is still burning cash; according to UBS, Alcatel is still cutting costs, but that process is getting harder). The Nokia Siemens and Alcatel-Lucent mergers were congealing when the deflationary pressure applied by the emergent Huawei was at its worst. The pressure is lighter now, and the move from four to three players should lighten it further. Where convergence is missing, timing will have to serve.
Google: searching for answers: Call it the law of large companies: Google has been accused of breaching antitrust rules. The case will take years to resolve; Google has $55.00bn in net cash to pay fines with; and if changes in Google’s business model are to be made, they will take years to play out. There are three more pressing issues. First, whether search revenues growth is slowing down. Morgan Stanley recently slashed its FY15 total revenue forecast for Google, from 13.0% to 8.0% growth, because of a slowdown in paid search and the strong dollar. Growth in paid clicks has diminished, and so has ad-buyers’ spending. Meanwhile, in search ads, Google has lost share to rivals Baidu and Microsoft, according to eMarketer. Second, and relaxedly, Google has yet to prove that it can make as much money from mobile search as it does from desktop search. Smartphone users search less, and when they do, tend to within specific apps. Third, leaps in capital expenditure are also a source of concern. Capex has risen from $3.30bn in FY12 to $11.00bn last year. Add to that one of the world’s biggest research budgets, at $10.00bn last year. Capex has risen so fast that depreciation has not caught up; when it does, operating income will suffer. Google’s share price has been flat for a year. When Google reports earnings next week, these questions, not Europe, should be at the fore.
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