By Anchor Capital
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South African Market Review
South African markets closed higher yesterday, with the JSE All Share Index climbing to a fresh high for the second consecutive day and third time this week. Rebosis Property Fund advanced 4.3%, after posting a rise in its total revenue for the six months ended 28 February 2015. Brait SE climbed 4.3%, after it announced that it would acquire an around 80.0% interest in Virgin Active. Sasol rose 3.8%, on the back of higher oil prices. Anglo American Platinum, Impala Platinum and Northam Platinum added 3.5%, 1.0% and 0.2%, respectively. SABMiller gained 1.4%, after it indicated that its net producer revenue grew by 4.0% in FY15. Among gold miners, AngloGold Ashanti rose 2.6%, while Gold Fields fell 3.9%. The JSE All Share Index rose 1.0% to close at 54,262.27.
UK Market Review
UK markets finished lower yesterday, with the FTSE 100 Index pulling back from an all-time high. Pearson dropped 4.0%, amid reports that the Los Angeles Unified School District was abandoning a programme under which it supplied students with iPads featuring content from Pearson. Diageo fell 3.6%, as weak demand across Europe, Asia and Latin America resulted in an unexpected decline in its 3Q15 revenue. Persimmon lost 1.5%. The company stated that the upcoming UK general election was making it more difficult to secure planning permission for new sites, which was holding back housebuilding. Bucking the trend, Unilever advanced 2.6%, following better-than-expected 1Q15 sales. The FTSE 100 Index declined 0.5% to close at 7,060.45.
US Market Review
US markets ended in the red yesterday. Ensco and Noble Corporation dropped 5.2% and 3.7%, respectively. SanDisk declined 4.5%, after the company reported weaker-than-expected 1Q15 results and provided tepid revenue guidance for 2Q15 and FY15. BlackRock fell 1.2%, hurt by weaker-than-expected 1Q15 revenue. Goldman Sachs Group fell 0.4%, even though its 1Q15 earnings topped market expectations. However, Netflix climbed 18.2%, as its 1Q15 subscription growth surpassed market estimates. Philip Morris International and UnitedHealth Group advanced 8.7% and 3.7%, respectively. The S&P 500 Index dropped 0.1% to settle at 2,104.99, while the DJIA Index was down marginally to close at 18,105.77. The NASDAQ Index decreased 0.1% to finish at 5,007.79.
Asia Market Review
Markets in Asia are trading mostly higher this morning. In Japan, Sony Corporation declined 3.6%, after WikiLeaks made publicly available more than 30,000 hacked documents of Sony Pictures Entertainment. McDonald’s Holdings retreated 1.5%, after the company issued a loss warning for FY16. In Hong Kong, Shanghai Fosun Pharmaceutical Group rallied 20.1%, after it announced plans to issues shares worth CNY5.80bn in a private placement. In South Korea, Kia Motors and Hyundai Motor gained 1.8% and 0.6%, respectively, after they reported robust monthly sales in Europe in March. The Nikkei 225 Index is trading 0.9% lower at 19,701.08, while the Kospi Index is trading 0.2% higher at 2,143.47. The Hang Seng Index is trading 0.5% in positive territory at 27,880.96.
Commodities
At 06:00 SAST today, Brent crude oil fell 0.8% to trade at $61.67/bl. Yesterday, Brent crude oil rose 3.3% to settle at $62.16/bl, amid expectations that US production might ease and on demand growth prospects. The Organisation of the Petroleum Exporting Countries (OPEC) indicated that demand for OPEC crude is expected to improve to about 29.30Mb/d in 2015.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices remained unchanged at $3.55/bushel.
At 06:00 SAST today, gold prices declined marginally to trade at $1,198.35/oz. Yesterday, gold declined 0.3% to close at $1,198.55/oz, despite a weaker US dollar.
Yesterday, copper rose 1.8% to close at $6,067.50/mt. Aluminium closed 0.5% higher at $1,836.50/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, after data showed that US housing starts rose less than expected in March and the number of people seeking first-time unemployment aid increased unexpectedly last week. Separately, data from the Philadelphia Federal Reserve Bank indicated factory activity improved in April. Moving ahead, market participants will eye consumer price inflation figures and Reuters/Michigan consumer sentiment Index in the US, for further direction.
The yield on benchmark government bonds were mixed yesterday. The yield on 2015 bond advanced to 6.06% while that for the longer-dated 2026 issue fell to 7.78%.
At 06:00 SAST, the US dollar is trading marginally higher against the South African rand at R11.9709, while the euro is trading 0.1% higher at R12.8904.
Yesterday, the euro advanced against the US dollar and British Pound, but declined against the South African rand. Meanwhile, media reports revealed that IMF Chief, Christine Lagarde, refused to allow Greece to delay a scheduled bailout payment, thus renewing fears of a Greek exit from the eurozone. Going forward, investors will keep a tab on consumer prices data from the eurozone and the US.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.07681, while it has gained0.1% against the British pound to trade at GBP0.7215.
Economic Updates
The producer and import price index in Switzerland rose unexpectedly 0.2% in March on a monthly basis. The producer and import price index had fallen 1.4% in the prior month.
The (EU countries) trade surplus in Italy rose to EUR0.69bn in February, following a trade surplus of EUR0.45bn in the previous month.
The global trade surplus in Italy expanded to EUR3.54bn in February, following a global trade surplus of EUR0.22bn in the previous month.
The seasonally adjusted initial jobless claims recorded an unexpected rise to 294.00k in the US, in the week ended 11 April 2015. Initial jobless claims had recorded a revised level of 282.00k in the prior week.
The seasonally adjusted continuing jobless claims registered an unexpected drop to 2268.00k in the US, in the week ended 4 April 2015. In the previous week, continuing jobless claims had recorded a revised level of 2308.00k.
Compared with a revised reading of 1,102.00k in the previous month, building permits in the US fell 5.7%, on monthly basis, to an annual rate of 1039.00k in March. Markets were expecting building permits to drop to 1,085.00k.
In March, housing starts in the US advanced 2.0%, on monthly basis, to an annual rate of 926.00k, compared with a revised reading of 908.00k in the previous month. Markets were anticipating housing starts to climb to 1,040.00k.
The Federal Reserve Bank of Philadelphia has indicated that, in April, the Philadelphia Fed manufacturing index rose to a level of 7.50 in the US, compared with market expectations of a rise to a level of 6.00. Philadelphia Fed manufacturing index had recorded a level of 5.00 in the previous month.
The Atlanta Federal Reserve Bank President, Dennis Lockhart, opined that the recent gloomy run of economic data in the US makes him sceptical about a June interest rate hike. However, he feels confident that the nation’s economy will remain on track.
The Boston Federal Reserve President, Eric Rosengren, opined that the labor market in the US needs to strengthen further and inflation should show indications of heading towards the target of 2.0% before the Federal Reserve starts to raise interest rates.
The Tokyo condominium sales fell 4.0% in Japan on an annual basis, in March. In the previous month, Tokyo condominium sales had dropped 2.0%.
Corporate Updates
South Africa
SABMiller Plc
: The brewing and beverage company, in its trading update for FY15, indicated that group net producer revenue (NPR) grew by 4.0%, with total beverage volume growth of 1.0%. It stated that lager volume was in line with prior year, with growth in Africa and Latin America offset by volume weakness in China and North America. The company further stated that continuing growth in soft drinks across the group, with volumes up 8.0% were driven by growth in Africa and Latin America markets.
Rebosis Property Fund: The investment company, in its unaudited results for the six months ended 28 February 2015, stated that total revenue increased 17.4% from the corresponding period of last year to R476.99mn. However, its basic and diluted earnings per linked unit stood at 46.03c, compared with 93.49c posted in the same period of previous year. Its distributable earnings per linked unit were 52.46c, compared with 48.50c recorded in the same period of preceding year.
Business Connexion Group: The information and communications technology company, in its reviewed 1H15 results, indicated that revenue rose 16.0% from the same period a year ago to R3.56bn. However, its diluted EPS dropped to 17.60c from 52.00c recorded in the corresponding period of last year. Its diluted headline EPS was 17.70c, compared with 15.60c posted in the same period of prior year.
Brait SE: The company announced that its wholly owned subsidiary, Brait Mauritius Limited, has inked a conditional agreement, primarily with Darwin Holdings Sarl, a wholly owned subsidiary of certain funds managed and advised by subsidiaries of CVC Capital Partners SICAV-FIS SA and Virgin Group Holdings Limited, to acquire an around 80.0% interest in Active Topco (Virgin Active) for around GBP682.00mn.
SAA has made ‘significant achievements’ in last three months, says Nene: South African Airways (SAA) has made “significant achievements” in the last three months, Finance Minister Nhlanhla Nene said in a statement on Thursday.
Sale of SAA stake, Mango listing remains on the table: SAA has received offers that may result in the sale of a stake in the company or one of its subsidiaries, acting CEO Nico Bezuidenhout told reporters on Thursday.
Perfect storm hits Altron: Reduced demand for set-top boxes, poor sales of Altech’s much-hyped Node product, the loss of a television assembly business, tough trading conditions at Autopage Cellular and poor performance at Powertech are some of the problems that are being blamed for what looks set to be an annushorribilus for JSE-listed technology group Altron.
Wonga appoints former Lewis director as CEO: Online payday lender, Wonga.com South Africa has appointed furniture retailer Lewis Group’s former credit risk Director, Brett van Aswegen as its new CEO.
UK and US
Citigroup Inc.: The banking and financial services company, in its 1Q15 results, indicated that its GAAP revenue dropped 2.3% from the same period a year ago to $19.74bn. However, its GAAP EPS rose to $1.51 from $1.23 recorded in the corresponding period of previous year.
Philip Morris International: The tobacco company, in its 1Q15 results, stated that its net revenue was down 2.4% from the corresponding period of prior year to $17.35bn. Its adjusted diluted EPS fell to $1.16 from $1.19posted in the same period of last year, but beat market estimates. The company stated that it has raised its guidance for FY15 and currently is forecasting, at prevailing exchange rates, constant-currency adjusted diluted EPS growth of 9.0% to 11.0%.
UnitedHealth Group: The health care company, in its 1Q15 results, revealed that its total revenue increased 12.8% from the same period of preceding year to $35.76bn. Its diluted EPS stood at $1.46, compared with $1.10 reported in the corresponding period of prior year. The company stated that it expects FY15 revenues of approximately $143.00bn and EPS is anticipated to be in the range of $6.15 to $6.30.
Schlumberger NV: The oilfield services company, in its 1Q15 results, indicated that its revenue dropped 8.8% from the corresponding period of last year to $10.25bn. Its diluted EPS dropped to $0.76 from $1.21 recorded in the same period of previous year. The company stated that it would cut an additional 11,000 workers from its ranks, bringing the firm’s layoffs to 20,000 employees.
Goldman Sachs Group: The global investment banking, securities and investment management company, in its 1Q15 results, stated that its net revenues, including net interest income, stood at $10.62bn, compared with $9.33bn recorded in the same period of prior year. Its diluted EPS increased 47.8% from the corresponding period of previous year to $5.94. Both revenue and earnings topped market expectations.
American Express Co.: The travel agency company, in its 1Q15 results, revealed that its total revenue, net of interest expense, fell 2.7% from the same period of previous year to $7.95bn. Its diluted net EPS increased to $1.48 from $1.33 recorded in the corresponding period of prior year. The company stated that as previously announced, its FY15 EPS is expected to be flat to modestly down year-over-year as the company would try to ramp up investments to help offset the impact from ending its relationship with Costco in the US next year.
BlackRock Inc.: The investment management company, in its 1Q15 results, indicated that its total revenue was up 2.0% to $2.72bn, compared with the corresponding period of preceding year. Its diluted EPS rose to $4.84 from $4.40 posted in the same period a year ago.
Microsoft Corporation: The company announced that it has amended a 2009 search partnership with Yahoo!, to improve the search experience, create value for advertisers and establish ongoing stability for partners.
Discovery Laboratories: The drug developing company announced that it has completed enrolment in its AEROSURF® phase 2a clinical trial assessing the administration of a single dose of AEROSURF in premature infants 29-34 week gestational age (GA) with respiratory distress syndrome (RDS). It stated that it is also implementing a restructuring plan to voluntarily cease the commercialization of SURFAXIN® (lucinactant) Intratracheal Suspension and focus its resources on the development of its aerosolized KL4 surfactant for respiratory diseases, beginning with AEROSURF.
Unilever Plc: The consumer goods company, in its trading update for 1Q15, revealed that turnover increased 12.3% from the same period a year ago to EUR12.80bn. It stated that the underlying sales growth was at 2.8% with emerging markets up 5.4%. The company declared a quarterly dividend of EUR0.30/share, representing an increase of 6.0% from the previous comparable period.
Diageo Plc: The alcoholic beverages company, in its interim management statement for the nine months ended 31 March 2015, stated that net sales declined 0.3% on an organic basis, with volume down 1.7% during the same period. The company announced that Andy Fennell, currently President of Diageo Africa and a member of the Executive Committee since 2008, is resigning at the end of the current fiscal year. It stated that John O’Keeffe, currently Managing Director of Guinness Nigeria, is to be appointed in place of Andy Fennell, effective 1 July 2015. In addition, the company announced that Soren Lauridsen would be appointed Managing Director, Guinness Nigeria following a transition with Andy and John during May and June 2015.
Persimmon Plc: The housebuilding company, in its trading update, stated that its strong sales performance over the first fifteen weeks of the new year has resulted in total forward sales revenue, including legal completions taken so far this year, being 7.0% higher than last year at GBP2.00bn. It indicated that its weekly private sales rate per site for the period from 1 January 2015 to date was 6.0% ahead, compared with the prior year. The company stated that it has opened 85 of the 120 new sites planned for 1H15 and are currently developing 385 active outlets across the UK.
WH Smith: The retail company, in its 1H15 results, stated that revenue from continuing operations dropped 0.3% from the corresponding period of previous year to GBP611.00mn. Its diluted EPS stood at 50.80p, compared with 46.30p posted in the same period of prior year. The company stated that it has declared an interim dividend of 12.10p/share, a 12.0% increase from the same period of last year.
Debenhams Plc: The retail company, in its 1H15 results, indicated that revenue increased 1.6% from the same period of preceding year to GBP1.33bn. Its diluted EPS attributable to the owners of the parent company stood at 5.90p/share, compared with 5.60p/share posted in the corresponding period of last year. The company stated that it would continue to invest to ensure that its business is well-positioned to drive sustainable growth in the longer term.
Petra Diamonds Limited: The diamond mining company, in its trading update for 3Q15, revealed that production was up 6.5% from the same period a year ago to 0.79mncarats. It indicated that revenue decreased 30.5% from the corresponding period of prior year to $96.10mn. The company stated that group production of 3.20mn carats is expected for FY15, lower than its current guidance of 3.30mn carats.
Telecom Plus: The multi-utility supplier company, in its trading update for FY15, stated that customer numbers were ahead by almost 11.0% to 587,223 and service numbers were up to over 2.10mn. It stated that strong profit growth is expected for FY15, but significantly below market expectations.
Pennon Group: The water utility and waste management company announced the acquisition of 100.0% of the issued share capital of Sembcorp Bournemouth Water Investments, including its non-regulated and regulated subsidiaries from Sembcorp Holdings, for a cash consideration of GBP100.30mn.
Financial Times
Takeover Panel picks Rothschild banker as next director-general: Britain’s Takeover Panel, which governs mergers and acquisitions, has tapped veteran NM Rothschild rainmaker Crispin Wright to become its next director-general.
IAG pulls out of trade body over Gulf carriers spat: International Airlines Group has walked away from the European airlines trade body because of a spat over the threat posed by the fast-expanding Gulf carriers.
Persimmon warns on election holding up housebuilding: The Chief Executive of Persimmon has warned that the election is making it more difficult for UK housebuilders to secure planning permission for sites, stalling development.
ISS backs Elliott in battle with Alliance Trust: Elliott Advisors has received a boost in its campaign to shake up the board of Alliance Trust after an influential shareholder adviser recommended that investors vote in favour of the US hedge fund’s confrontational proposal.
Mothercare crawls back to health in UK: Buggy-to-babywear retailer, Mothercare has seen further signs of improvement in its UK operations with its fourth consecutive quarter of like-for-like sales growth.
Gunvor sells stake in Siberian miner to reduce Russian exposure: Gunvor, one of the world’s biggest commodity traders, has sold its 30.0% stake in Kolmar, the Siberian coal producer, as it seeks to rebalance its business away from its Russian roots.
Peter Thiel changes course with funding of two Berlin start-ups: PayPal co-founder, Peter Thiel has made a rare foray into continental Europe, leading funding rounds in two Berlin start-ups, as Silicon Valley investors continue to be attracted by the region’s technology scene.
Ex-BES Chief ‘probably’ involved in manipulating accounts, report says: The former Chief Executive of Banco Espírito Santo, the Portuguese lender that collapsed last year in one of Europe biggest financial failures, was probably involved in manipulating accounts, a parliamentary commission said on Thursday.
Ford investment highlights Mexico’s booming carmaking sector: Ford is poised to give Mexico’s carmaking sector a fresh boost on Friday with the announcement of $2.50bn in manufacturing investments, further burnishing the reputation of the central American nation as a rising automotive powerhouse.
Rolls-Royce set to secure A380 engine order with Emirates Airline: Rolls-Royce is poised to clinch one of the biggest deals in its history, with an order for some 200 engines to power Airbus A380 superjumbos for the fast-growing Gulf carrier Emirates Airline.
Ofcom considers deregulation of TV and telecoms sectors: Ofcom is eyeing deregulation of the television and telecoms industry to reflect radical shifts in how people watch, read and talk over the past decade.
Jawbone to take a bite of tap-to-pay market: Jawbone is moving to catch up with the Apple Watch by enabling its latest wristband to make payments in stores, through a new partnership with American Express.
Hutch launches platform to aid mobile services roll-out: Hutchison Whampoa has created a platform that will allow companies to offer mobile services across its networks in Europe and Asia.
Slack valued at $2.80bn in fundraising: Slack has confirmed its status as red-hot start-up of the moment in the market for online worker collaboration tools, raising a new round of capital that it said put a $2.80bn valuation on the company.
Telecom Plus: Fell 19.7% to 785.00p after warning that its new finance director had written off GBP11.30mn of unbilled debt over the previous seven years.
Petra Diamonds: Slipped 10.5% to 165.00p after its quarterly sales disappointed.
Lex
Fortescue Metals: a thousand cuts: Atlas last week said it would suspend mining. Fortescue cut costs and mined less in its latest quarter to use up stock, cut working capital and release cash. Founder Andrew Forrest even called for iron ore miners to cut output to arrest the price fall. He is a fine one to talk: in Fortescue’s update for its third quarter to end-March it increased ore shipments by 28.0% from a year ago to 40.00mn tonnes. At first blush, Fortescue’s self-help looks to be paying off. Production costs have fallen 26.0% from a year ago to $25.90 per “wet” tonne; it guided to $18.00 for its 2016 fiscal year. Still not in the same league as BHP or Rio. Its cost of landing wet ore in China fell 17.0% in the quarter to $34.00. But steelmakers do not pay for moisture. When it comes to dry ore, Rio and BHP can land their product more cheaply. Then there is Fortescue’s net debt of $7.40bn, or almost 100.0% gearing. Two-fifths of profit before interest and tax goes in finance charges. A cash call or selling a stake would be a quick fix. But an investor would have to believe that ore demand will grow and that China needs those Fortescue tonnes as peers bring on extra capacity. Yours for 3.5 times earnings for a reason.
TSMC: Moore or less?: Recently chipmakers, and makers of equipment for chip foundries, have hit delays as they pushed toward the next step of miniaturisation. And the manufacturing costs have not been falling as fast as Moore’s law would predict: Morgan Stanley estimates that in the past few cycles, costs have fallen closer to 30.0% than 50.0%. Technology surprises people. The law may yet hold. But higher manufacturing costs could cast some doubt on a stock that might offer the best combination of growth and value out there: chipmaker TSMC. In its latest quarter, it reported 50.0% sales growth. Its price to earnings ratio is a below-market 12. Its return on capital is north of 20.0%. It carries no debt. Growth will be much slower for the rest of this year, but its business model – it mostly makes chips for other chipmakers without foundries of their own – has proved very resilient over the long run. But if costs quit their decline, margins at TSMC (and the rest of the industry, from Intel down) will fall. There is another long-term worry. More than half of TSMC chips go into smartphones. That market is growing, but most of the growth is at the lower end. High-end phones have $40.00 to $50.00 of advanced silicon chips in them, Bernstein estimates; in a low-end smartphone, the figure is $10.00 to $20.00. So the price trend is not, in this case, TSMC’s friend.
Goldman Sachs: principles and agent: Goldman’s strong earnings were driven by good performances from straightforward client activities – M&A advice, and stock and bond underwriting. In the first quarter, Goldman earned $961m advising on deals and another $944.00mn from debt and equity offerings. In the same period in FY07 (Goldman’s best first quarter before the crisis) those figures were lower, at $861.00mn and $855.00mn respectively. That is noteworthy, particularly in M&A. While bulge bracket rivals have shrunk or seen star bankers leave for boutiques, Goldman continues to thrive. Perhaps surprisingly, the share of Goldman’s trading and principal investing units has fallen from 74.0% only to 63.0%. But crucially, Goldman is a smaller business. First-quarter revenue of nearly $10.60bn (a strong number) is down almost a fifth from FY07. So Goldman – smaller, funded by more equity and shifting from investment to client servicing – is finding a post-crisis business model that works. But contrast its progress with that of Blackstone, Wall Street’s latest darling. First-quarter profits, also reported on Thursday, rose 130.0%, driven both strong debt and equity markets and Blackstone’s own investment prowess. In good times, investing is an alluring business. But Goldman’s client roster must be pleased to have the company’s attention back.
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