By Anchor Capital
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South African Market Review
South African markets closed higher yesterday. Kumba Iron Ore climbed 8.3%, after it stated that its total production was up 7.4% in 1Q15 from the same period a year ago. Peers, Anglo American and BHP Billiton advanced 3.7% and 3.2%, respectively, following a rise in iron ore price. Clicks Group gained 2.8%, after it indicated that revenue was up 14.2% in 1H15 and issued a guidance that its diluted headline EPS for FY15 would increase between 10.0% and 15.0% from the last year. MTN Group added 2.1%, after it announced that its subscriber base increased 1.8% in 1Q15. However, gold miners, AngloGold Ashanti and Gold Fields fell 3.1% and 0.7%, respectively. The JSE All Share Index rose 0.7% to close at 54,686.54.
UK Market Review
UK markets finished higher yesterday, amid strength in mining sector stocks. Anglo American climbed 4.7%, as the company revealed to its shareholders that it might spin off few of its expensive South African platinum mines through an IPO. Meanwhile, in its production update, the company slashed its FY15 diamond output forecast, but reaffirmed volume estimates for all other commodities. Antofagasta added 4.7%, following its decision to sell its water utility business, Aguas de Antofagasta, to Colombia’s EmpresasPublicas de Medellin for $965.00mn. On the contrary, Legal & General Group lost 4.4%, after it traded ex-dividend. WPP fell 1.5%, after reporting a slowdown in 1Q15 sales. The FTSE 100 Index advanced 0.4% to close at 7,053.67.
US Market Review
US markets ended firmer yesterday. Cameron International, O’Reilly Automotive and EBay gained 7.7%, 5.4% and 3.8%, respectively, as their 1Q15 results topped market expectations. Cablevision Systems climbed 5.4%, following a report that Comcast would scrap its proposed $45.00bn takeover of Time Warner Cable due to certain regulatory hurdles. National Oilwell Varco and Helmerich & Payne advanced 3.4% and 2.5%, respectively. Upbeat 1Q15 earnings led AT&T to rise 4.2%. However, Procter & Gamble slid 2.6%, as its 3Q15 revenue fell short of market expectations. The S&P 500 Index rose 0.2% to settle at 2,112.93, while the DJIA Index advanced 0.1% to close at 18,058.69. The NASDAQ Index climbed 0.4% to finish at 5,056.06.
Asia Market Review
Asian markets are trading on a weaker footing this morning, as investors booked profits following the recent rally in the region. In Japan, CyberAgent dropped 4.1%, after it reported lower-than-expected 2Q15 net income and sales. Kao Corporation retreated 2.7%, after the company’s profit declined more than half for 1Q15. In Hong Kong, Haitong Securities, Industrial & Commercial Bank of China and China Merchants Bank declined 4.6%, 2.4% and 2.3%, respectively. In South Korea, Samsung C&T eased 3.6%, after posting a significant decline in its 1Q15 earnings. The Nikkei 225 Index is trading 0.6% weaker at 20,067.09, while the Kospi Index is trading 0.3% lower at 2,166.05. The Hang Seng Index is trading 0.7% in the red at 27,631.01.
Commodities
At 06:00 SAST today, Brent crude oil fell 0.2% to trade at $62.48/bl. Yesterday, Brent crude oil rose 3.4% to settle at $62.62/bl, amid ongoing violence in Yemen that fuelled concerns about the security of Middle East oil supplies.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.6% to $3.52/bushel.
At 06:00 SAST today, gold prices declined 0.2% to trade at $1,191.90/oz. Yesterday, gold gained 0.6% to close at $1,193.97/oz, amid weaker-than-expected US economic data.
Yesterday, copper rose 0.7% to close at $5,943.00/mt. Aluminium closed 1.3% lower at $1,797.75/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, following downbeat US macro data. Data showed that new home sales in the US dropped more than market estimates in March, while the number of unemployed people applying of claims for the first time increased higher than market expectations in last week. Moving ahead, investors will keep a tab on durable goods orders data in the US, scheduled later today, for further direction.
The yield on benchmark government bonds was mixed yesterday. The yield on 2015 bond declined to 6.08% while that for the longer-dated 2026 issue rose to 8.07%.
At 06:00 SAST, the US dollar is trading 0.2% higher against the South African rand at R12.1687, while the euro is trading 0.1% lower at R13.1355.
Yesterday, the euro advanced against most of the major currencies, despite the preliminary print of the Markit manufacturing PMI for eurozone reporting an unexpected drop for April. Moving ahead, today’s eurogroup meet would attract investors’ attention, as Greece crisis talks is expected to take centre stage in the meeting.
At 06:00 SAST, the euro slipped 0.3% against the US dollar to trade at $1.0793, while it has weakened 0.2% against the British pound to trade at GBP0.7177.
Economic Updates
In March, retail sales ex-fuel registered a rise of 0.2% on a monthly basis in the UK, less than market expectations for an advance of 0.4%. In the previous month, retail sales ex-fuel had registered a revised rise of 0.6%.
Retail sales unexpectedly dropped 0.5% in the UK on a monthly basis in March. Retail sales had climbed by a revised 0.6% in the previous month.
The public sector net borrowing has reported a surplus GBP6.70bn in March, in the UK, following a revised surplus of GBP4.80bn in the prior month. Markets were anticipating public sector net borrowing to announce a surplus of GBP6.50bn.
In April, the preliminary manufacturing PMI recorded an unexpected drop to a level of 48.40 in France, compared with market expectations of an advance to a level of 49.20. In the prior month, manufacturing PMI had registered a reading of 48.80.
The Gfk Group has reported that the consumer confidence index in Germany rose to a level of 10.10 in May, lower than market expectations of an advance to 10.20. The consumer confidence index had recorded a reading of 10.00 in the prior month.
The preliminary manufacturing PMI dropped unexpectedly to a level of 51.90 in Germany, in April. In the previous month, manufacturing PMI had recorded a reading of 52.80.
The flash manufacturing PMI in the eurozone recorded an unexpected drop to a level of 51.90 in April. The manufacturing PMI had recorded a reading of 52.20 in the prior month.
The new home sales in the US registered a drop of 11.4%, on monthly basis, to a level of 481.00k in March, compared with a revised reading of 543.00k in the prior month. Markets were anticipating new home sales to fall to 515.00k.
In April, the preliminary Markit manufacturing PMI eased unexpectedly to 54.20 in the US. The Markit manufacturing PMI had recorded a reading of 55.70 in the previous month.
In the week ended 18 April 2015, the seasonally adjusted initial jobless claims registered an unexpected rise to a level of 295.00k in the US. In the prior week, initial jobless claims had registered a reading of 294.00k.
The Bank of Japan has indicated that the corporate service price index climbed 3.2% in Japan, on an annual basis in March, less than market expectations for an advance of 3.3%. In the prior month, the corporate service price index had recorded a rise of 3.3%.
Corporate Updates
South Africa
MTN Group Limited
: The company, in its 1Q15, indicated that its subscribers increased 1.8% from the previous quarter to 227.50mn. However, subscriber growth in South Africa was flat, due to delays in engaging a replacement distributor and reduced handset sales. The company stated that its data revenue increased 16.7%, compared with the corresponding period a year ago.
Anglo American: The mining company, in its 1Q15 production report, revealed that its production performance was in line with its expectations. It stated that iron ore production from Kumba increased 8.0% from the same period of last year to 12.20mnt and Minas-Rio produced 1.20mnt of iron ore which is an increase of 71.0% compared with 4Q14.
Anglo American Platinum: The platinum mining company, in its 1Q15 production report, revealed that group equivalent refined platinum production increased 50.1% from the corresponding period of last year to 536.00koz. Its refined platinum production was up 24.6% from the same period of previous year to 542.00koz.
Kumba Iron Ore Limited: The mining company, in its production and sales report for 1Q15, stated that total production climbed 7.4% from the same period of preceding year to 12.17mnt. Its total export and domestic sales volumes increased to 12.91mnt from 10.84mnt reported in the corresponding period of last year.
Clicks Group Limited: The retailing company, in its 1H15 results, stated that its revenue was up 14.2% from the same period of previous year to R11.20bn. Its diluted EPS stood at 176.40c, compared with 156.50c recorded in the corresponding period of prior year. The company stated that it expects diluted headline EPS for FY15 to increase between 10.0% and 15.0% from the preceding year.
Hulamin Limited: The company, in its trading update for 1Q15, stated that its manufacturing output was severely impacted by electricity supply curtailments and quality issues on two product lines. It stated that it is already clear that both EPS and headline EPS for 1H15 would be more than 20.0% lower than those of the previous corresponding reporting period.
Trencor Limited: The investment holding company announced that it has restated its FY14 headline EPS and adjusted EPS to 546.60c and 519.40c, respectively, to include the write-down to net realisable value of the carrying value of containers transferred to inventory for sale.
Investec Australia Property Fund: The property funds company announced that it has entered into a contract for sale with SAS Trustee Corporation to acquire the property located at 66 Glendenning Road, Glendenning NSW 2761, for a purchase consideration of AUD 19,170,000. It stated that the effective date of the acquisition of the property is scheduled for 30 April 2015.
Aquarius Platinum Limited: The platinum mining company announced that its subsidiary, Aquarius Platinum (South Africa), has entered into an agreement to sell its entire interest in the Everest Mine and ancillary mining and processing infrastructure and immovable properties to Northam Platinum Limited for an aggregate cash consideration of R450.00mn.
DRDGold lifts gold production: DRDGold, a tailings retreatment operation, swung into profit in the first nine months of its financial year as gold production grew by 11.0% and costs shrank.
UK and US
Google Inc.: The technology company, in its 1Q15 results, indicated that its revenue increased 11.9% from the same period a year ago to $17.26bn. Its non-GAAP diluted EPS stood at $6.57, compared with $6.27 recorded in the corresponding period of previous year. On Wednesday, the company unveiled Project Fi, its long-awaited wireless service, in partnership with Sprint and T-mobile as part of efforts to enhance the efficiency and affordability of mobile service.
Microsoft Corporation: The computer software company, in its 3Q15 results, stated that its revenue was up 6.5% from the corresponding period of prior year to $21.73bn and slightly ahead of market expectations. However, its diluted EPS dropped to $0.61 from $0.68 posted in the same period of last year.
Procter & Gamble Co.: The consumer goods company, in its 3Q15 results, revealed that its net sales dropped 7.6% from the same period of preceding year to $18.14bn. Its diluted net EPS from continuing operations was $0.85, compared with $0.87 reported in the corresponding period of previous year. The company stated that it expects organic sales growth of low single digits for FY15 and net sales growth is expected to be down 5.0% to 6.0%, compared with the previous year.
Amazon.com: The electronic commerce company, in its 1Q15 results, indicated that its total net sales climbed 15.1% from the corresponding period of prior year to $22.72bn. However, it incurred diluted net loss of $0.12/share, compared with diluted EPS of $0.23 posted in the same period of last year. For 2Q15, the company expects net sales to be between $20.60bn and $22.80bn, or to grow between 7.0% and 18.0% compared with 2Q14.
PepsiCo Inc.: The food and beverage company, in its 1Q15 results, stated that its net revenue fell 3.2% from the same period of preceding year to $12.22bn. However, its net EPS increased to $0.81 from $0.79 recorded in the corresponding period of last year. The company stated that it expects mid-single-digit organic revenue growth and 7.0% core constant currency EPS growth, compared with FY14 core EPS of $4.63, in each case in-line with its long-term targets.
3M Co.: The company, in its 1Q15 results, revealed that its net sales dropped to $7.58bn from $7.83bn recorded in the same period a year ago. However, its diluted EPS was up 3.4% from the corresponding period of previous year to $1.85. The company stated that considering a stronger US dollar, it currently expects EPS to be in the range of $7.80 to $8.10 in FY15, compared with EPS of $8.00 to $8.30 recorded in the prior year.
Altria Group: The tobacco company, in its 1Q15 results, indicated that its net revenue increased 5.2% from the corresponding period of previous year to $5.80bn. However, its basic and diluted EPS was down to $0.52 from $0.59 recorded in the same period of preceding year. For FY15, the company reaffirmed adjusted diluted EPS guidance to be in the range of $2.75 to $2.80, representing a growth rate of 7.0% to 8.9% from an adjusted diluted EPS base of $2.57 posted in FY14.
Comcast Corporation: Media reports revealed that the mass media company is close to pulling the plug on its $45.20bn purchase of Time Warner Cable, recognising that it has little chance of overcoming stiff resistance from regulators, lawmakers and consumers who have mobilised to block the deal.
Ubiquiti Networks: The technology company announced the resignation of Craig L. Foster, its Chief Financial Officer and member of the board of directors, to accept a position with another company.
WPP Plc: The advertising and public relations company, in its 1Q15 trading update, indicated that constant currency revenue was up 7.4% and like-for-like revenue increased 5.2% from the same period a year ago. It stated that its profits and margin were well above target. The company stated that in FY15, its prime focus would be on growing revenue and net sales faster than the industry average and it would also concentrate on meeting its operating margin objectives.
Taylor Wimpey: The housebuilding company, in its trading statement covering the period from 1 January 2015 to 23 April 2015, stated that its total order book remains strong at 8,200 homes, excluding legal completions to date, and has increased by 24.0% from the year end. It indicated that its total order book value was up 11.8% to approximately GBP1.90bn from the equivalent point last year. The company announced that it would pay a final maintenance dividend of 1.32p/share on 20 May 2015, giving a total maintenance dividend for FY14 of 1.56p/share.
Meggitt Plc: The aerospace company, in its trading update for 1Q15, indicated that trading was in line with expectations. It stated that the group continues to expect low to mid single digit organic revenue growth for FY15, in line with guidance issued with the FY14 results in February. The company stated that following the commencement of the share buyback programme announced in November 2014, it has now purchased a total of 17.70mn shares at a cost of GBP93.00mn, and is on target to achieve a net debt:EBITDA ratio at or slightly above 1.50x by the end of the year.
Acacia Mining: The gold mining company, in its 1Q15 results, stated that its revenue dropped 0.6% to $214.89mn from the corresponding period of previous year. Its basic EPS stood at 2.20¢, compared with 5.50¢ posted in the same period of prior year.
HICL Infrastructure Company: The investment company announced that it has sold its entire 50.0% equity and subordinated debt interest and 100.0% junior loan interest in Fife Schools PFI project to a subsidiary of the PPP Equity PIP Limited partnership, managed by Dalmore Capital Limited.
Hammerson Plc: The property development and investment company announced that it has completed the sale of Drakehouse Retail Park in Sheffield to 90 North Real Estate Partners LLP for GBP61.70mn which is ahead of the 31 December 2014 book value.
Financial Times
William Hill first-quarter profits hit by tax on betting terminals: William Hill weathered a storm of unfavourable sports results in the first quarter of the year but Britain’s largest bookmaker said on Thursday that it had been hit by GBP20.00mN of new taxes.
BP offloads North Sea pipeline stake: BP on Thursday unveiled the sale of another North Sea asset as it continues to wind down its exposure to mature assets in the oil and gas basin that is grappling with the collapse in crude prices.
Qatar adds Claridge’s to hotel stable in deal with Barclay brothers: Qatar has added to its collection of luxury London hotels after buying Claridge’s, The Berkeley and the Connaught from Sir David and Sir Frederick Barclay, whose exit from the businesses comes after four years of legal wrangles.
Hedge funds place big bets on sterling rising after election: Hedge funds are placing big bets on the pound rising after the British general election – going against the prevailing view, expressed by Goldman Sachs and other banks, that UK assets would suffer in the event of a hung parliament.
Sainsbury to cut 800 jobs as part of GBP500.00mn savings drive: J Sainsbury is set to cut 800 jobs from its 161,000 workforce as part of its drive to save GBP500.00mn over the next three years, as fierce price competition in the supermarket sector shows no sign of abating.
Shareholders vote in favour of Barclays’ pay policies: Nearly all of Barclays’ shareholders have voted in support of its pay package despite disgruntled investors airing concerns that the lender’s misconduct issues were weighing on returns.
Tullow braced for tribunal’s ruling over key Ghana oil block: Tullow Oil, the UK exploration and production company, is braced for a crucial decision on Saturday over an oil block at the centre of a dispute between Ghana and the Ivory Coast.
Matomy Media shares tumble on profit warning: Matomy Media, the Israeli digital advertising group that is part-owned by Publicis, suffered a sharp share price tumble on Thursday after it issued a profit warning.
Taylor Wimpey bullish on UK housing market: Taylor Wimpey says the UK housing market continues to flourish this year, brushing aside fears it has stalled ahead of the general election.
Antofagasta sells Chile water business for $1.00bn: Miner Antofagasta has sold its water business in Chile for almost $1.00bn, strengthening its balance sheet as it tries to develop various projects amid volatile copper prices.
Google’s Schmidt buys NY hedge fund stake: Eric Schmidt, Google’s billionaire chairman, has snapped up a minority stake in a New York hedge fund.
US sues Quicken Loans over mortgages: The US Department of Justice has sued Quicken Loans, one of the nation’s fastest-growing mortgage lenders, claiming that it knowingly flouted rules when making loans insured by the Federal Housing Administration.
Google’s average advertising prices drop 7.0%: Wall Street shrugged off a slight miss in Google’s revenues and declining ad pricing for its first quarter, which the search company attributed to rapid growth at YouTube and a near-$1.00bn hit from currency fluctuations.
Ericsson shares fall following drop in first-quarter profits: Shares in Ericsson fell sharply after the Swedish telecoms equipment maker revealed a drop in profits owing to a slowdown in US sales and lower margins in high-growth Asian markets.
Anglo American: Rallied 4.7% to GBP10.62 after its first-quarter production report caused no surprises.
Al Noor Hospitals: Was down 2.5% to 870.00p after two directors of its founding shareholder, Ithmar Capital, resigned from the board.
Lex
Ericsson: staying grounded: Network equipment is the circulatory system of the digital economy. Yet its makers are struggling to grow: most global markets have already upgraded to the latest wireless technology, 4G. IP equipment lets network operators carry lots of data on both mobile and fixed-line networks. Ericsson has mostly grown its IP business organically. Nokia meanwhile has made a big bet on the area by offering to buy Alcatel-Lucent, not only a wireless equipment supplier but also one the three largest players in IP, with a fifth of the global router market. If the deal closes Nokia will leapfrog Ericsson in IP equipment. Ericsson could respond to its lack of growth, and Nokia’s move, in one of two ways. It could take advantage of Nokia’s distractions and try to grab market share. Nokia will spend the rest of this year completing the Alcatel purchase and then, if it succeeds, integrating it. Or Ericsson could play tit-for-tat by doing a deal of its own. One obvious candidate is Juniper Networks, the US IP equipment specialist. Valued at $9.00bn, it trades on a price to forward earnings multiple of 15 times. That is cheaper than Ericsson and might ease the decision, as would Ericsson’s $5.00bn of net cash.
Management fees: going down: Exchange traded funds have muscled in on this poorly-defended turf. As well as offering lower fees, as little as one-third of those charged by active managers, ETFs are continuously priced, allowing more flexible trading intraday. According to the latest data from ETFGI, a consultancy, the number of ETFs and related products has reached 5,669, holding assets of $2.90tn. At the end of FY14, mutual funds managed $31.00tn, according to the Investment Company Institute. Lots more share to take, then, and ETFs are only becoming more popular. In the first quarter of this year, they received net inflows of $96.00bn, 2.5 times more than the same time last year. Last year mutual funds experienced the highest level of net outflows since FY07. Offering more flexibility for even less is Motif, a four-year-old company backed by, among others, Goldman Sachs and JPMorgan. Motif offers readymade baskets of up to 30 stocks – “motifs” – to fit investment themes for a flat fee roughly equivalent to what many brokerages charge for a single trade. Motifs can be reweighted as desired or investors can build their own. Motif holders own the underlying stocks avoiding worries about poor liquidity that go with ETFs.
Barclays: new chairman, old tricks: Harking back to a letter he wrote to Aviva investors in FY12 upon becoming chairman there, Mr McFarlane has written to Barclays investors setting out his priorities. Aviva was in a crisis three years ago following a shareholder spring which cost its Chief Executive his job. At Barclays, happily, investors are less restive. But there are similarities in his proposed treatment regime. Under Mr McFarlane, Aviva set out to focus on fewer businesses (turning round or selling weaklings), cut leverage, build up capital, boost revenue and reduce the cost-to-income ratio. He simplified Aviva, allocated capital more carefully, and held managers to account for the returns on that capital. Expect him to see business units in terms of red, amber or green cells, as he did at Aviva. While first-quarter results from US banks and Credit Suisse bode well for Barclays’ investment bank, with its grim 2.7% FY14 return on equity, it sits uneasily on the borderline between amber (fix) and red (flee). Its drag on ROE is why Barclays trades like a dowdy retail bank on just 0.8 times tangible book value. The group’s cost-to-income ratio of 70.0% (excluding fines) is a reminder that only a bank-wide focus on revenue growth (tricky) and cost reduction (easier) will prevent Mr McFarlane seeing more red more widely.
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