By Anchor Capital
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South African Market Review
South African markets closed higher yesterday. Harmony Gold climbed 5.9%. The company, its 3Q15 production report, revealed that it continues to restructure its operations for long term profitability. Pick n Pay Stores gained 4.6%, after it reported a 28.0% rise in its headline EPS in FY15. Barclays Africa Group, Capitec Bank Holdings and Nedbank Group rose 3.0%, 1.4% and 1.2%, respectively. Steinhoff International Holdings added 0.8%, after it made an offer valued at R1.19bn to acquire the remaining shares of JD Group. However, Royal Bafokeng Platinum fell 3.2%, after indicating that operations have been suspended at its Styldrift I Project following the death of an Aveng contract employee. The JSE All Share Index rose 0.6% to close at 54,140.93.
UK Market Review
UK markets finished higher yesterday, led by gains in shares of Sky and ARM Holdings. Sky advanced 5.0%and emerged as the top gainer on the FTSE 100index, after announcing an increase in its operating profit for the nine months ended March 2015.ARM Holdings rose 3.9%, after reporting a rise in its 1Q15 revenue. Airline sector stocks, International Consolidated Airlines Group and easyJet gained 2.6% and 2.3%, respectively. Bucking the trend, Associated British Foods fell 5.3%, after the company announced that it expects a modest drop in its FY15 earnings. Rio Tinto declined 2.2%, amid a lower-than-expected expansion in its 1Q15 iron ore production. The FTSE 100 Index advanced 0.2% to close at 7,062.93.
US Market Review
US markets ended mostly lower yesterday, amid a mixed batch of earnings updates. Harley-Davidson, E. I. du Pont de Nemours and Co. and Verizon Communications declined 9.8%, 3.0% and 0.4%, respectively, as their 1Q15 revenue fell short of market expectations. Transocean and Chesapeake Energy dropped 5.5% and 4.8%, respectively, tracking lower crude oil prices. Baker Hughes fell 1.5% as it swung to a 1Q15 loss. However, Mylan climbed 8.9%, after Teva Pharmaceutical Industries launched a $40.00bn bid to acquire the company. Kimberly-Clark and PACCAR rose 5.4% and 4.5%, respectively. The S&P 500 Index fell 0.1% to settle at 2,097.29, while the DJIA Index declined 0.5% to close at 17,949.59. The NASDAQ Index rose 0.4% to finish at 5,014.10.
Asia Market Review
Markets in Asia are trading higher this morning. In Japan, the Nikkei 225 is headed for its highest close in 15 years after the nation posted its first monthly trade surplus in almost three years in March. Yahoo Japan advanced 2.7%, after its parent Yahoo Inc. announced that it was mulling several options regarding its stake in the Japanese unit. In Hong Kong, Alibaba Pictures Group climbed 11.8%, after stating that it had purchased Guangdong Yueke Software Engineering for about $133 million. In South Korea, Dongbu HiTek Co. and Daewoo Securities rose 11.9% and 9.2%, respectively. The Nikkei 225 index is trading 0.9% higher at 20,085.02. The Hang Seng index is trading 0.3% up at 27,928.97, while the Kospi index is trading 0.4% higher at 2,152.49.
Commodities
At 06:00 SAST today, Brent crude oil fell 0.3% to trade at $59.17/bl. The American Petroleum Institute (API), in its weekly report, stated that crude oil inventories rose by 5.50mn bls last week. Yesterday, Brent crude oil fell 3.0% to settle at $59.32/bl. Meanwhile, the Iran President, Hassan Rouhan, asked for an immediate cease fire of Saudi Arabian-led airstrikes on Yemen, as a new round of attacks hit the Yemeni capital of Sana yesterday.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 1.4% to $3.54/bushel
At 06:00 SAST today, gold prices declined 0.2% to trade at $1,199.72/oz. Yesterday, gold gained 0.5% to close at $1,202.41/oz, amid improved demand for safe haven assets as traders remained concerned over Greece’s financial future.
Yesterday, copper declined 0.7% to close at $5,943.00/mt. Aluminium closed 0.3% higher at $1,834.25/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar. Meanwhile, the leading indicator in South Africa came in lower than the previous month’s revised level in February.
Today, trading among the currency pair will be influenced by consumer price inflation data in South Africa and existing home sales data in the US.
The yield on benchmark government bonds was mixed yesterday. The yield on 2015 bond declined to 6.09% while that for the longer-dated 2026 issue rose to 7.95%.
At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R12.1033, while the euro is trading 0.2% lower at R12.9828.
Yesterday, the euro declined against most of the major currencies, amid intensifying worries over Greece. Additionally, German ZEW survey showed that its economic sentiment index dropped unexpectedly in April, but the current situation index climbed more than market expectations. In the eurozone, the ZEW survey indicated that optimism in the nation’s economy improved in April. Later today, investors will eye the eurozone’s preliminary print of consumer confidence and the minutes of the Bank of England’s latest monetary policy meeting for further direction.
At 06:00 SAST, the euro dropped 0.1% against the US dollar to trade at $1.07272, while it has weakened 0.1% against the British pound to trade at GBP0.7184.
Economic Updates
The leading indicator in South Africa fell to a level of 98.70 in February. In the prior month, the leading indicator had recorded a revised level of 98.90.
The current situation index advanced to 70.20 in April, in Germany, higher than market expectations of a rise to 56.50. The current situation index had recorded a level of 55.10 in the prior month.
The economic sentiment index in Germany dropped unexpectedly to 53.30 in April. The economic sentiment index had registered a level of 54.80 in the previous month.
The ZEW Institute has reported that compared with a level of 62.40 in the prior month the economic sentiment index climbed to 64.80 in April, in the eurozone.
The seasonally adjusted Redbook index rose 0.1% in the US on a monthly basis, in the week ended 17 April 2015. In the previous week, the Redbook index had risen 0.2%.
The wholesale sales in Canada unexpectedly eased 0.4% in February on a monthly basis. Wholesale sales had recorded a revised drop of 2.9% in the previous month.
In February, the final coincident index fell to a level of 110.70 in Japan. The coincident index had recorded a level of 113.30 in the previous month. The preliminary figures had indicated a drop to 110.50.
Japan has reported adjusted merchandise trade surplus of Yen 3.30 billion in March, compared to a adjusted merchandise trade deficit of JPY638.80bn in the prior month. Markets were expecting the nation to record an adjusted merchandise trade deficit of JPY409.30bn.
The final leading economic index registered a drop to 104.80 in February, in Japan. In the previous month, the leading economic index had recorded a level of 105.50. The preliminary figures had recorded a drop to 105.30.
The Reserve Bank of Australia (RBA) has indicated that, in 1Q15, the consumer price index (CPI) registered a rise of 0.2% on a quarterly basis in Australia, higher than market expectations for a rise of 0.1%. In the prior quarter, the CPI had registered a similar rise.
The RBA has reported that, on a quarterly basis in 1Q15, the trimmed mean CPI advanced 0.6% in Australia, at par with market expectations. In the prior quarter, the trimmed mean CPI had registered a revised similar rise.
Corporate Updates
South Africa
Pick n Pay Stores Limited
: The supermarket chain company, in its FY15 results, indicated that revenue increased 6.2% from the preceding year to R67.60bn. Its diluted EPS stood at 176.24c, compared with 120.21c posted in the previous year. The company stated that its diluted headline EPS rose 28.0% from the last year to 174.72c.
Harmony Gold Mining Co.: The gold mining company, in its 3Q15 production guidance, revealed that it continues to restructure its operations for long term profitability. It stated that restructuring at Kusasalethu has been completed and the full cost saving would be realised in the June quarter. The company indicated that overall slow start-ups post the December holidays and safety stoppages have resulted in group production being 10.0% lower on a quarterly basis. Operating and capital costs are likely to have reduced by a similar percentage compared to the preceding quarter.
Consolidated Infrastructure Group: The company, in its 1H15 results, stated that revenue was up 26.5% to R1.66bn, compared with the same period a year ago. Its diluted EPS was 107.60c, compared with 87.80c posted in the corresponding period of prior year. Its diluted headline EPS increased 22.5% from the same period of last year to 107.40c.
Steinhoff International Holdings: The retail company announced that it has made an offer of about R1.19bn to acquire the remaining shares at furniture chain JD Group.
Royal Bafokeng Platinum: The platinum mining company announced the death of an Aveng contract employee at its Styldrift I Project. It revealed that all normal underground operations have been suspended pending a full investigation into the incident.
Alexander Forbes eyes Ghana and Tanzania: SA’s largest retirement fund administrator, Alexander Forbes, has announced it is working on making an acquisition in Ghana within a year. ‘Labour unrest deters foreign investment': The current financial year is going to be hampered by power outages and labour unrest, Combined Motor Holdings (CMH) CEO Jebb McIntosh said at the announcement of the group’s results for the year ended 28 February 2015 on Tuesday.
Absa using taxis to gain mass market share: Unlimited free Internet connectivity is now available in 50 taxis across Johannesburg, enabling commuters to download digital content and earn points via a mobile app, which can be translated into data.
UK and US
Verizon Communications: The broadband and telecommunications company, in its 1Q15 results, indicated that total operating revenue increased 3.8% from the same period a year ago to $31.98bn. However, its net diluted EPS dropped to $1.02 from $1.15 recorded in the corresponding period of previous year. The company stated that it expects FY15 capital expenditures to be between $17.50bn and $18.00bn.
Amgen Inc.: The biopharmaceutical company, in its 1Q15 results, stated that its total revenue climbed 11.3% from the corresponding period of prior year to $5.03bn. Its diluted EPS stood at $2.11, compared with $1.40 posted in the same period of last year. For FY15, the company expects total revenue to be in the range of $20.90bn to $21.30bn and adjusted EPS in the range of $9.35 to $9.65.
United Technologies: In its 1Q15 results, the company revealed that its net sales dropped 1.4% from the same period of preceding year to $14.54bn. However, its diluted EPS rose to $1.58 from $1.32 posted in the corresponding period of last year. The company stated that it is confident to achieve 3.0% to 5.0% organic top line growth and sales of $65.00bn to $66.00bn and this would continue to support its EPS guidance of $6.85 to $7.05 in FY15.
E I du Pont de Nemours and Co.: The chemical company, in its 1Q15 results, indicated that its net sales fell 9.4% from the corresponding period of last year to $9.17bn. Its diluted EPS was $1.13, compared with $1.54 posted in the same period of prior year. For FY15, the company anticipates non-GAAP operating EPS in the range of $4.00 to $4.20, compared with $4.01 recorded in FY14.
Lockheed Martin Corporation: The aerospace, defence, security and advanced technology company, in its 1Q15 results, stated that revenue declined to $10.11bn from $10.65bn recorded in the same period of prior year. Its diluted EPS stood at $2.74, compared with $2.87 posted in the corresponding period of previous year. The company stated that it has raised its FY15 EPS forecast to the range of $10.85 to $11.15 from the previous range of $10.80 to $11.10, and reiterated its revenue forecast of $43.50bn to $45.00bn.
Yahoo! Inc.: The internet company, in its 1Q15 results, reported revenue of $1.13bn, below market expectations and also down from $1.23bn recorded in the corresponding period of prior year. However, its diluted net EPS increased to $0.29 from $0.02 posted in the same period of last year.
Kimberly-Clark Corporation: The personal care corporation, in its 1Q15 results, indicated that its net sales dropped 4.0% from the same period of preceding year. However, its diluted EPS from continuing operations increased to $1.27 from $1.26 reported in the corresponding period of last year. The company stated that it estimates FY15 adjusted EPS to be in the range of $5.60 to $5.80.
Perrigo Co.: The over-the-counter medicines making company announced that its board of directors has unanimously rejected the unsolicited proposal from Mylan NV, disclosed 8 April 2015, to acquire all of the outstanding shares of Perrigo for $205.00/share.
Echo Global Logistics: The transportation and supply chain management services company announced that it has entered into a definitive agreement to acquire Command Transportation LLC for approximately $420.00mn, subject to post-closing adjustments for working capital and cash.
Rio Tinto: The company, in its 1Q15 production update, stated that its global iron ore shipments increased 9.0% to 72.50mnt from the corresponding period of previous year. Also, it reported global iron ore production of 74.70mnt, marking a 12.0% increase annually. The company stated that by making best use of its high quality assets, low cost base and operating and commercial capability, its aim is to protect their margins in the face of declining prices and maximise returns for shareholders throughout the cycle.
Associated British Foods: The food processing and retailing company, in its interim results for 24 weeks ended 28 February 2015, indicated that revenue from continuing operations was up 0.7% to GBP6.25bn, compared with the same period of prior year. Its basic and diluted EPS dropped to 18.10p from 43.20p recorded in the corresponding period of previous year. The company announced that it would pay a net interim dividend of 10.00p/share on 3 July 2015 to shareholders.
Sky Plc: The media company, in its unaudited results, indicated that 242,000new customer additions were recorded in 3Q15, which is an increase of almost 70.0% compared with the prior year. It stated that the company would grow revenues by 5.0% and operating profit by 20.0% over the nine months ended 31 March 2015. The company was slated to release its 3Q15 results on 21 April 2015.
ARM Holdings: The semiconductor and software company, in its 1Q15 results, revealed that its revenue increased 21.9% from the same period a year ago to GBP227.50mn. Its diluted EPS stood at 6.00p, compared with 4.40p posted in the corresponding period of previous year. The company stated that assuming the macroeconomic backdrop remains supportive of consumer spending, it expects revenues for FY15 to be at least in line with current market expectations.
Informa Plc: The publishing and events company, in its 1Q15 trading update, revealed that it is focussed on customer and subscription management through 2014-2017 growth acceleration plan to help improve stability and build momentum. It stated that the underlying trading is on track, with robust UK and US performance balancing ongoing softness in Russia. The company stated that both academic publishing and, in particular, global exhibitions are well placed to continue to grow attractively.
Pets At Home Group: The pet supplies retailing company, in its trading statement for FY15, indicated that total group revenue increased 9.6% from the preceding year to GBP729.10mn. It stated that the like-for-like revenue growth was 4.2%, compared with a growth of 2.4% recorded in the previous year.
Vodafone Group: The telecommunications company indicated that following its agreement with MTN Group to interconnect their mobile money services, customers of M-Pesa and MTN Mobile Money in East Africa would be able to transfer money to each other.
Amec Foster Wheeler: The consultancy, engineering and project management company announced that it has been awarded a contract by Hyundai Engineering Co. for the design and supply of two 150-megawatt CFB steam generators for Therma Visayas, a subsidiary of Aboitiz Power, for a new power plant, which will be located in the central province of Cebu in the Philippines.
Financial Times
Pemex prepares to expand oil production after decade of decline: Oil production at Pemex has touched bottom after a decade of decline, according to the head of exploration and production at Mexico’s state-controlled energy group, and a new era of deals with private companies should fuel its recovery.
BP declares no taste for megamerger: BP’s Bob Dudley has signalled he has no appetite for a megamerger, moving to cool speculation that Royal Dutch Shell’s GBP55.00bn takeover of UK-based BG Group could trigger a wave of multibillion-dollar deals like those that reshaped the energy industry in the 1990s.
EU approves Hungary’s revised reactor plans: Hungary’s plan for a EUR12.00bn nuclear power plant financed by Russia was revived on Tuesday after EU regulators approved a revised plan.
Mick Davis says commodities prices close to bottoming out: Mick Davis, one of the mining sector’s most prolific dealmakers, on Tuesday declared that commodities prices were close to bottoming out, and signalled that this may be the year his X2 private equity vehicle starts buying assets.
Asia Resource Minerals postpones vote on emergency refinancing: Asia Resource Minerals, the Indonesian coal mining group cofounded by Nat Rothschild, has called off a crucial shareholder vote planned for Wednesday to approve the original terms of an emergency refinancing.
UK trader arrested over FY10 flash crash: A UK futures trader operating out of a suburban house under the approach path to Heathrow airport has been charged by US authorities for allegedly contributing to the FY10 “flash crash” which saw the Dow Jones Industrial Average plunge more than 600 points in a matter of minutes.
Mercuria resumes search for big investor: Mercuria is to resume its search for a major investor to help in the next stage of its expansion, the CEO of the Swiss commodity company said on Tuesday, raising the possibility of partnering with a private equity company with industrial experience.
Robust Credit Suisse results leave Thiam with bigger challenge: Tidjane Thiam’s task in restructuring Credit Suisse – already billed as one of the toughest in global finance – just became a bit harder, after strong trading revenues drove a double-digit surge in first quarter revenue at its investment bank.
Deluge of mortgage assets brings opportunities for buyers: The UK is facing a deluge of mortgage assets as companies look to sell off loan books in improved market conditions, but intensifying competition among buyers threatens to price out smaller “challenger” banks.
Female Goldman Sachs banker agrees settlement: A senior banker at Goldman Sachs who claimed she was cheated out of millions of pounds in bonuses and subjected to sexist comments has reached a confidential settlement with the investment bank – just before her employment case was due to start.
John Hourican quits as Chief of Bank of Cyprus: John Hourican has quit as Bank of Cyprus Chief Executive less than two years after the former Royal Bank of Scotland Executive was parachuted in to turn round the Mediterranean lender that collapsed during a national debt crisis.
Israel’s Teva offers $40.10bn for US drugmaker Mylan: Teva, the largest generic drugmaker in the world, set the stage for the biggest pharma deal of FY15 by launching an unsolicited $40.00bn offer to buy its nearest rival Mylan.
Aston Martin looks at US factory sites for electric 4×4: Aston Martin has held talks with several US states about building its first overseas factory as part of plans to bring an ambitious electric 4×4 to market.
Raytheon and Airbus close in on $9.00bn Polish defence deals: Raytheon and Airbus took big steps on Tuesday towards securing Polish defence contracts worth an estimated $9.00bn as the US and French companies were given the nod for two of Europe’s largest and most closely fought military deals.
Peugeot revs up production in sharp change of fortune: PSA Peugeot Citroën has unveiled plans to ramp up European production in a sign of the gathering strength of the region’s car market and increasing confidence at the French manufacturer.
Emmanuel Macron chooses realism over romance: France’s economy minister has admitted that the country is uncompetitive as a base for global companies and can no longer take a “romantic” approach to rebuffing foreign takeovers, following the EUR16.00bn sale of Alcatel-Lucent to Nokia.
Cuts in military spending hit Lockheed Martin: Waning US military spending hit Lockheed Martin, the world’s biggest military contractor by sales, in the first quarter as declining maintenance work and lower aircraft deliveries helped drive net income down 5.9% and net sales down 5.0%.
Omnicom warns strong US dollar will hit harder than expected: Omnicom said the strong US dollar would be a bigger drag on revenue this year than it had previously expected as the US advertising holding company reported its first drop in quarterly revenue in four years.
Publicis first-quarter sales beat expectations: Publicis shares saw their biggest rally in more than a year after the French advertising group led by Maurice Lévy reported first-quarter sales that came in above market expectations.
Booking.com in European settlement over hotel prices: Booking.com, the online travel agent, has avoided the prospect of open competition over hotel prices in Europe after agreeing a settlement with the French, Italian and Swedish authorities.
China food group looks to be global player: The head of Cofco, the Chinese state-owned grains trader, has laid out plans to turn the company into a publicly listed global powerhouse, highlighting Beijing’s decision to relax its policy of food self-sufficiency.
Supermarkets hit back over Which? report on pricing: Top UK supermarkets have rejected the findings of a report that accuses them of misleading and inconsistent pricing that could cost customers over GBP1.00bn a year.
Yahoo looks to boost value of Japan unit: Yahoo has appointed advisers to explore ways of maximising the value of its stake in Yahoo Japan, sending its shares higher in after-hours trading on Tuesday despite disappointing first-quarter earnings.
US warns China over IP risks: China’s weak intellectual property protections and selective application of the law are hampering foreign investment in the country, the US secretary of commerce warned, in spite of a push by Beijing to reassure investors that their technology is safe.
Rio Tinto: Fell 2.2% to GBP28.12 after its quarterly production report showed weaker than forecast iron ore shipments.
WPP: Rose 2.7% to GBP15.86 after US peer Omnicom reported a solid start to FY15 with 5.1% organic revenue growth, beating expectations.
Lex
Yahoo: waiting game: It’s been three months since Yahoo announced it would split off its $32.00bn stake in Alibaba, handing it to shareholders in a tax-free spin-off. It is one of the grandest shareholder returns schemes of this decade. But now that the market has digested this, how does one value the remaining Yahoo business? What is left is an ageing advertising platform that has not seen revenue growth since FY08. Macquarie estimates the Yahoo Japan stake is worth $8.60bn (before tax). In other words, the market is still assigning a negative value to Yahoo’s base business. A key plank in CEO Marissa Mayer’s plan for growth is to revive the fortunes of Yahoo’s search business, which accounted for nearly half of the company’s net revenues in the latest quarter. Toward this end, Yahoo has redone its search agreement with Microsoft to get more control over selling ads against its search. The terms of the new agreement are slightly more favourable to Yahoo, which will now receive 93.0% of search revenues, up from 90.0% previously. Yahoo has also seen traffic increase thanks to its recent partnership with the Mozilla browser: the number of paid search clicks rose by a fifth in the latest quarter. If reviving Yahoo’s search and advertising business proves too difficult, Ms Mayer still has a powerful arrow in her quiver: divesting Yahoo Japan. On Tuesday, she revealed that Yahoo had retained advisers to evaluate options for the unit. Yahoo may struggle to make a positive return on capital in the advertising business, but when it comes to returning value to shareholders, intriguing possibilities remain.
Teva/Mylan: brand management: On Tuesday, Israeli Teva Pharmaceutical, the largest generic drug company by revenue finally announced an unsolicited bid for rival Mylan NV, the fourth-largest global generics producer. The offer price of $82.00/share values Mylan at about $50.00bn in aggregate, a figure that could rise, given initial hostile bids are usually rejected. While this deal would create the dominant global generics company, Teva’s motivation may stem from its branded, speciality treatment for multiple sclerosis called Copaxone. Copaxone accounts for $3.50bn in revenue, about a fifth of Teva’s total sales, but half of Teva’s profits (Copaxone’s gross margins are near 90.0% vs. just under 50.0% for Teva’s generic drugs). But unfortunately for Teva, another generic manufacturer, Momenta Pharmaceuticals, just received regulatory approval for its version of Copaxone. At the same time, Teva’s core generic segment, about half the company’s sales, is also slowing as not so many blockbuster drugs – such as Lipitor did – will come off patent. Teva has forecast its 2015 total sales falling slightly, to just under $20bn.
Sky: content, for now: Sky, the television company, has come back to earth. For years it broadcast over a satellite infrastructure that it controlled, offering sports content that its rivals could not. Market forces have prompted it to rethink its strategy. This may mean giving up some of its previous advantages. Still, it is hardly suffering. Third-quarter results on Tuesday revealed a robust 20.0% growth rate in operating profits thanks to record subscriber additions in the UK and Ireland. Results were a bit better than analysts expected but well ahead of what the market had sought. Sky’s share price leapt 5.0% on healthy share volume. Good news came from lower customer turnover, or churn. Citi thinks the figure fell to under 10.0% in the quarter, Sky’s best performance in more than a decade. Stronger economies in the UK and Ireland have helped to add and keep customers. Together the countries accounted for almost all of Sky’s profits last quarter. Critically, there is no evidence so far that subscribers have given up their satellite TV contracts and switched to Sky’s cheaper pay-as-you-go broadband product, Now TV. Even though Sky charges Now TV customers a fraction of satellite contracts, the cost of acquiring each Now customer is perhaps a seventh of the GBP350.00 of that for satellite. Sky does not regard Now TV as a discounted substitute.
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