By Anchor Capital
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South African Market Review
South African markets closed lower yesterday. Kumba Iron Ore and African Rainbow Minerals dropped 4.6% and 2.6%, respectively. Telkom SA SOC declined 3.6%, after it reported that its FY15 basic and headline EPS would be lower than the previous year. Banking sector stocks, Standard Bank and Barclays Africa Group retreated 1.9% and 0.5%, respectively. British American Tobacco fell 0.7%. The company revealed that its revenue at constant rates of exchange grew by 1.7% in 1Q15, while it declined by 5.8% at current rates of exchange. However, Redefine International added 0.5%, after it indicated that its 1H15 revenue was up 12.6% from the same period a year ago. The JSE All Share Index fell 0.9% to close at 54,541.74.
UK Market Review
UK markets finished lower yesterday, after a preliminary reading of US GDP showed that the nation’s economy expanded at a slower-than-expected pace in 1Q15. Antofagasta dropped 2.2%, after the company lowered its FY15 copper production guidance. Peers, Rio Tinto and BHP Billiton fell 2.2% and 1.6%, respectively. British American Tobacco slid 2.2%, amid slowing 1Q15 sales growth. Barclays declined 1.7%, after announcing that it was putting aside a further GBP800.00mn toward settling allegations that it manipulated foreign exchange markets. However, Weir Group advanced 5.6%, after delivering better-than-expected 1Q15 results and after the company announced additional cost cutting measures. The FTSE 100 Index declined 1.2% to close at 6,946.28.
US Market Review
US markets ended lower yesterday, following disappointing US economic growth data for 1Q15. Traders also mulled over the US Federal Reserve’s statement on monetary policy. Wynn Resorts dropped 16.6%, after its 1Q15 results missed market estimates. Humana declined 7.2%, after its 1Q15 earnings fell short of market expectations. American Airlines Group and Delta Air Lines retreated 4.5% and 2.5%, respectively, as oil prices rose. NextEra Energy fell 1.3%, despite posting better-than-expected 1Q15 results. However Genworth Financial climbed 11.6%, buoyed by stronger-than-expected 1Q15 profit. The S&P 500 Index fell 0.4% to settle at 2,106.85, while the DJIA Index declined 0.4% to close at 18,035.53. The NASDAQ Index dropped 0.6% to finish at 5,023.65.
Asia Market Review
Asian markets are trading in negative territory this morning, amid renewed concerns over US economic growth. In Japan, Honda Motor declined 6.1%, after it posted a sharp fall in its 4Q15 profit and offered a downbeat operating profit outlook for FY16. In Hong Kong, Industrial & Commercial Bank of China and China Construction Bank retreated 2.3% and 1.4%, respectively, after they reported an increase in its non-performing loans in 1Q15. In South Korea, Naver Corporation declined 4.6%, after it posted a lower-than-expected 1Q15 operating profit. The Nikkei 225 Index is trading 1.6% lower at 19,738.43, while the Kospi Index is trading 0.8% lower at 2,126.07. The Hang Seng Index is trading 0.9% in the red at 28,138.22.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.2% to trade at $63.76/bl. Yesterday, Brent crude oil rose 1.6% to settle at $63.66/bl, after data from the Energy Information Administration (EIA) indicated that crude inventories increased by 1.90mn bls for the week ended 24 April, less than market expectations of a 3.30mn bls advance.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 0.9% to $3.46/bushel.
At 06:00 SAST today, gold prices declined 0.1% to trade at $1,203.99/oz. Yesterday, gold declined 0.6% to close at $1,204.71/oz, despite weakness in the US dollar caused by worse-than-expected US GDP data for 1Q15.
Yesterday, copper rose 0.5% to close at $6,162.50/mt. Aluminium closed 0.7% higher at $1,891.75/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, after data revealed that the US economy barely grew in the first three months of this year. Meanwhile, the US Federal Reserve kept interest rates at its current level, but offered little clear language on the timing of its first rate rise. Separate data showed that US pending home sales topped market expectations in March. Today, traders will eye M3 money supply, private sector credit, producer prices and trade balance data in South Africa along with US weekly jobless claims and personal income and spending figures.
The yield on benchmark government bonds rose yesterday. The yield on 2015 bond advanced to 6.03% while that for the longer-dated 2026 issue rose to 7.93%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R11.7915, while the euro is trading 0.1% lower at R13.1071.
Yesterday, the euro advanced against most of the major currencies. Meanwhile, consumer confidence in the eurozone economy weakened slightly in April, but business morale improved. In Germany, the initial print on consumer prices showed that the annual inflation rate continued to accelerate in April.
At 06:00 SAST, the euro fell 0.1% against the US dollar to trade at $1.11146, while it has weakened 0.1% against the British pound to trade at GBP0.7204.
Economic Updates
In April, the seasonally adjusted house prices rose 1.0% in the UK on a monthly basis, higher than market expectations for an advance of 0.2%. House prices had climbed 0.1% in the previous month.
The consumer confidence index remained unchanged at 4.00 in the UK, in April.
On a monthly basis, the flash consumer price index (CPI) dropped 0.1% in April, in Germany, at par with market expectations. In the prior month, the CPI had climbed 0.5%.
In April, the economic sentiment indicator in the eurozone registered an unexpected drop to 103.70, compared with market expectations of a steady reading. In the previous month, the economic sentiment indicator had registered a reading of 103.90.
In the eurozone, the final consumer confidence index fell to a level of -4.60 in April, compared with a level of -3.70 in the prior month. Market anticipation was for the consumer confidence index to drop to -4.60. The preliminary figures had also indicated a fall to -4.60.
The business climate indicator in the eurozone climbed unexpectedly to 0.32 in April. The business climate indicator had registered a reading of 0.23 in the prior month.
At its latest monetary policy meeting, the US Federal Reserve held its interest rate at a record low. The Federal Reserve stated that it would be appropriate to hike interest rates when it sees further improvement in the labour market and is reasonably confident that the inflation would move towards its target of 2.0% over the medium term.
The flash annualised gross domestic product (GDP) in the US recorded a rise of 0.2% on a quarterly basis in 1Q15, less than market expectations for a rise of 1.0%. The annualized GDP had registered a rise of 2.2% in the prior quarter.
In 1Q15, the flash personal consumption climbed 1.9% on a quarterly basis in the US, more than market expectations for an advance of 1.7%. Personal consumption had recorded a rise of 4.4% in the previous quarter.
In the US, the pending home sales rose 1.1% in March on a monthly basis, lower than market expectations for a rise of 1.2%. In the prior month, the pending home sales had registered a revised rise of 3.6%.
At its latest monetary policy meeting, the Bank of Japan (BoJ) policy makers voted unanimously to hold its key interest rate unchanged and maintain its asset purchases programme, citing a continued moderate recovery trend in the nation’s economy.
Corporate Updates
South Africa
British American Tobacco
: The tobacco company, in its interim management statement for three 3 months ended March 2015, revealed that its revenue at constant rates of exchange grew by 1.7% driven by strong pricing, in part due to price increases in high inflation markets, while revenue declined by 5.8% at current rates of exchange. It indicated that its Global Drive Brands’ cigarette volume was up by 5.7%, with their combined market share in the group’s key markets continuing to grow strongly.
Telkom SA SOC Limited: The telecommunications company, in its trading and operational update for FY15, stated that it expects reported basic EPS to be 10.0% to 30.0% lower compared with the previous year’s reported basic EPS of 758.10c. Its reported headline EPS is expected to drop by between 20.0% and 40.0%, compared with 861.00c reported in the preceding year. The company indicated that it has continued to focus on the restructuring of its cost base and imposed efficiency interventions to achieve profit growth in its core business.
Redefine International: The property investment company, in its 1H15 results, indicated that its total revenue increased 12.6% to GBP40.41mn, compared with the same period a year ago. Its diluted EPS was 2.69p, compared with a loss of 0.08/share incurred in the corresponding period of last year. The company stated that its diluted headline EPS stood at 1.81p, compared with a loss of 0.22/share reported in the same period of previous year.
Growthpoint Properties Limited: The company indicated that in consideration of acquisition of the Acucap shares, 317,370,060 new shares have been allotted and listed with effect from Tuesday, 28 April 2015.
Sibanye Gold Limited: The gold mining company revealed that it has been released as guarantor by the noteholders of Gold Fields Limited’s $1.00bn bond issued on 30 September 2010by a subsidiary of Gold Fields, Gold Fields Orogen Holding Limited.
Clover Industries Limited: The consumer goods and beverages group announced the Competition Commission approval of its acquisition of the business and assets of Nkunz Milkyway Proprietary Limited. The acquisition will pave the way for the company to enter the Ayrshire and Organic milk markets, where it will manufacture and pack fresh milk and cream in addition to other dairy products for Woolworths Holdings Limited at the acquired Nkunzi facility as well as its Clayville plant in Midrand, Gauteng.
Weaning SAA off state assistance ‘might take some time’: Treasury Director-General, Lungisa Fuzile, says there can be no certainty that South African Airways will not have to resort to more state guarantees, as it moves towards financial sustainability.
Pepkor to double Nigeria stores to attract middle class shoppers: Pepkor, the South African clothing retailer bought by Steinhoff International Holdings for $5.70bn in FY14, plans to double its presence in Nigeria with 10 store openings per year through 2018.
UK and US
MasterCard Inc.: The financial services company, in its 1Q15 results, indicated that its net revenue increased 2.7% from the same period a year ago to $2.23bn. Its diluted EPS stood at $0.89, compared with $0.73 posted in the corresponding period of previous year.
Baidu Inc.: The internet services company, in its 1Q15 results, stated that its total revenue climbed 34.0% to RMB12.72bn, compared with the corresponding period of prior year. However, its diluted EPS attributable to the company per ADS was down to RMB6.76 from RMB7.21 recorded in the same period of preceding year. For 2Q15, the company expects to generate total revenue in an amount ranging from RMB16.37bn to RMB16.75bn.
Time Warner: The media company, in its 1Q15 results, revealed that its revenue increased 4.8% from the same period of last year to $7.13bn. However, its diluted EPS from continuing operations decreased to $1.10 from $1.50 posted in the corresponding period of prior year. For FY15, the company stated that it continues to expect full-year adjusted diluted EPS from continuing operations to be in the range of $4.60 to $4.70.
Mondelez International: The confectionery, food and beverage conglomerate, in its 1Q15 results, indicated that its net revenue dropped to $7.76bn from $8.64bn recorded in the corresponding period of previous year. However, its diluted EPS increased to $0.19 from $0.09 posted in the same period of last year. For FY15, the company continues to expect organic net revenue growth of at least 2.0%, adjusted operating income margin of approximately 14.0%, adjusted EPS growth at a double-digit rate on a constant-currency basis and free cash flow of $1.20bn.
General Dynamics Corporation: The aerospace and defence company, in its 1Q15 results, revealed that its revenue was up 7.1% to $7.78bn, compared with the same period of preceding year. Its diluted EPS from continuing operations rose to $2.14 from $1.71 posted in the corresponding period of last year.
Southern Co.: The electric utility holding company, in its 1Q15 results, indicated that its total revenue dropped 9.9% to $4.18bn from the corresponding period of previous year. However, its basic EPS increased to $0.56 from $0.39 recorded in the same period of prior year.
Apple Inc.: Media reports indicated that the technology company’s limited availability of the Apple Watch was because a key component supplied by a Chinese company was found to be defective.
Salesforce.com Inc.: Media reports revealed that the software company has hired banking consultants to assist the firm in assessing takeover offers after being approached by a potential acquirer.
Glu Mobile Inc.: The mobile games developing company announced that Tencent Holdings has agreed to purchase 21.00mn shares of its common stock at a price of $6.00/share for total consideration of $126.00mn.
British American Tobacco: The tobacco company, in its interim management statement for three months ended March 2015, revealed that its revenue at constant rates of exchange grew by 1.7% driven by strong pricing, in part due to price increases in high inflation markets, while revenue declined by 5.8% at current rates of exchange. It indicated that its Global Drive Brands’ cigarette volume was up by 5.7%, with their combined market share in the group’s key markets continuing to grow strongly.
Barclays Plc: The banking company, in its 1Q15 results, indicated that its net operating income dropped 2.3% to GBP6.08bn from the corresponding period of prior year. Its basic EPS from continuing operations stood at 2.90p, compared with 6.00p recorded in the same period of previous year.
Next Plc: The company, in its trading statement for the first thirteen weeks of FY15, stated that its total sales were up more than full price sales and 4.1% ahead of same period of last year. For FY15, the company stated that its guidance for total full price sales growth of 1.5% to 5.5% remains unchanged.
Standard Life: The investment company, in its assets and flows update for 1Q15, revealed that its assets under administration were up 5.0% to GBP311.90bn, driven by strong net inflows and positive market movements.
London Stock Exchange Group: The stock exchange and financial information company, in its 1Q15 results, stated that its total revenue was up 86.3% to GBP581.00mn, compared with the corresponding period of prior year. The Chief Executive indicated that the group has delivered a good performance, reflecting both organic growth and the contribution from the newly acquired Russell businesses.
Antofagasta Plc: The copper mining company, in its 1Q15 production report, indicated that copper production decreased 13.6% to 146.40kt from the same period of preceding year. It added that its cash costs before by-product credits were $1.83/lb, the same as in 1Q14 and 4.6% higher than in 4Q14. The company stated that production for FY15 would be some 15.00kt of copper lower than originally forecast and net cash costs is expected to be around $1.40/lb.
Weir Group: The engineering company, in its interim management for 1Q15, stated that its input was 9.0% lower than the same period a year ago and 10.0% lower than 4Q14. It indicated that its revenue on a constant currency basis were down, compared with corresponding period of last year. For FY15, the company stated that it is planning for a significant reduction in constant currency revenues and lower operating margins.
Vodafone Group: The telecommunications company announced that Vodafone Foundation Instant Network Mini, a portable ‘mobile network in a backpack’, has been taken to the Kathmandu Valley in Nepal to help restore communications to some of the areas worse affected by last weekend’s earthquake. It indicated that the Instant Network team would offer support to local operators to help restablish mobile communications, helping aid workers communicate during the relief effort and enabling people to contact their loved ones following the devastating earthquake.
J Sainsbury: The supermarket company, in a clarification on Egyptian legal case against its Chief Executive, Mike Coupe, stated that he was not employed by the company at the time of the original business deal in 2001 and has never met the complainant. It indicated that all necessary steps to appeal against the claims have been taken.
Smiths Group: The engineering company announced that it has closed the EUR600.00mn senior bond offering, following its launch and pricing on 23 April 2015.
Financial Times
ISS backs action over National Express’s US labour relations: A group of National Express shareholders is to challenge the company to carry out a review of poor labour relations at its US school bus business.
Investors attack Alliance Trust’s last-minute truce with Elliott: Booing investors in Alliance Trust attacked its board for spending GBP3.00mn fighting proposals from activist hedge fund Elliott before reaching a last-minute truce on the eve of a pivotal annual meeting.
UK medicinal cannabis company aims to raise $180.00mn: A British company that makes medicines from cannabis is aiming to raise almost $180.00mn on Nasdaq to push forward a new treatment for childhood epilepsy.
Argos catalogue resists the digital revolution: Digital shopping marches inexorably on, turning the traditional retail model on its head. But amid the changes, one emblem of old remains – the Argos catalogue.
BAT raises prices in effort to offset drop in tobacco sales: British American Tobacco, the world’s second largest tobacco company by market share, raised cigarette prices to offset an accelerating decline in smoking in the first quarter.
Barclays sets aside further GBP800.00mn to cover forex probes: Barclays has put aside a further GBP800.00mn to cover the cost of investigations into manipulation of foreign exchange markets, offsetting a rebound in its investment bank and cutting its quarterly net profits by more than half.
Gazprom predicts export gas prices will fall due to cheaper oil: Gazprom expects its export gas prices to fall by more than 30.0% this year as the impact of lower oil prices reverberates through the energy sector.
Trading helps BP weather oil price fall: BP’s oil trading arm, one of the biggest and most active of any energy major, has proved its worth again, helping the company weather a sharp drop in crude prices.
Cheng family strikes $2.40bn HK hotel deal with Abu Dhabi: Hong Kong’s Cheng family has teamed up with Abu Dhabi in a joint venture that values three of the territory’s prime hotels at $2.40bn.
Nasdaq apologises for 45-second Twitter earnings release error: An “operational” error that lasted only 45 seconds was behind the premature release of Twitter’s disappointing quarterly results on Tuesday, Nasdaq admitted as the social media site’s shares fell sharply for the second day running.
Bernanke adds role as Pimco senior adviser to his jobs portfolio: Ben Bernanke is taking a role as senior adviser to Pimco, adding a second asset management firm to his portfolio of post-Federal Reserve paymasters.
French tax ruling dents Carlyle quarterly profits: Carlyle’s profits dropped in the 1Q15 despite an increase in the value of investments and a buoyant market for selling off assets.
BBVA net profits surge on China bank stake disposal: 1Q15 profits surged 146.0% at BBVA, reflecting a one-off boost from disposals but also the strengthening economic recovery in the bank’s Spanish home market and higher earnings from its crucial Mexican operations.
TSB reports 153.0% increase in quarterly profit: TSB has reported a 153.0% quarterly increase in profits after a drive to boost lending as the challenger bank seeks to win market share from its larger rivals.
Perrigo rebuffs sweetened $35.60bn offer from Mylan: Mylan, one of the world’s biggest generic drug groups, increased its offer to buy Perrigo to $35.60bn, its latest effort to tempt its smaller rival into a combination as it tries to fend off a hostile approach from Israel’s Teva.
Eurocement backing strengthens Holcim/Lafarge deal: The second-largest shareholder in Holcim has given its support to the Swiss cement company’s takeover of France’s Lafarge, removing one of the last obstacles to a EUR41.00bn deal to create the world’s largest cement company by revenues.
Marchionne pitches for automobile mergers: Sergio Marchionne has set out his most detailed and passionate pitch for megamergers among carmakers – even inviting new entrants such as Apple and Google to help cure the auto industry’s “value-destroying addiction to capital”.
Volkswagen reports 17% rise in earnings after leadership crisis: Volkswagen on Wednesday reported a sharp rise in first-quarter earnings in the aftermath of a tumultuous weekend that culminated in the resignation of group Chairman Ferdinand Piëch.
Amazon and Google join music rights group: Amazon, Google and Pandora have joined forces with radio stations, restaurants and other music distributors to push back against an effort by musicians, publishers and record labels to charge more for the use of their songs.
Time Warner looks to expand HBO Now digital video service: Time Warner’s HBO Now digital video service could expand to include television shows from Turner Broadcasting and films from the Warner Bros studio, Executives said on Wednesday, as the company announced it had beat 1Q15 earnings expectations.
Samsung Electronics confident of reversing smartphone slump: A day after Apple announced record profits underpinned by booming iPhone sales in China, rival Samsung Electronics furnished new evidence of its struggles in that market – while voicing confidence that the worst of its smartphone slump is behind it.
N Brown hit by overhaul and warm weather: Annual profits at N Brown fell 21.0% last year as an overhaul and unusually warm weather took their toll on the retailer.
Walmart accelerates China expansion: Walmart plans to add 115 new stores in China over the next three years, increasing its presence in the country by more than a quarter even as many of its international rivals scale back or withdraw from the difficult market.
Microsoft makes it easier to adapt Android and Apple apps on Windows: Microsoft has embedded some of Google’s Android software in the next version of its Windows operating system, a symbolically significant concession by the world’s biggest software company as it makes its latest attempt to catch up with Google and Apple in mobile computing.
Major Alcatel-Lucent shareholder calls deal ‘unacceptable’: Alcatel-Lucent’s second-largest shareholder has criticised the EUR15.60bn sale of the French telecoms equipment group to Nokia as “unacceptable”.
T-Mobile in the pink as it hurts rivals: It is two years since T-Mobile US, the smallest of the US’s four big wireless groups, declared it would become an “uncarrier”, ripping up monthly contracts and sparking a bruising industry price war. Since then it has added 14.00mn new customers, cementing its status as the fastest-growing mobile network in the US and inflicting significant pain on its rivals.
Weir: Squeezed 5.6% higher to GBP18.36 after its first-quarter trading update raised hopes that orders at its oil and gas business may begin to improve by the second half.
Next: Was up 1.7% to GBP72.85 after good weather in April and an early launch of its summer catalogue meant its quarterly sales beat forecasts.
Lex
Nordic banks: hit return: Nordic banks practise what they preach. Chastened by their own crisis in the nineties, they were better placed when the global downturn struck – and remain pacesetters at cost-cutting and prioritising returns. First-quarter results from Handelsbanken, Nordea, Swedbank and SEB confirm this. On Wednesday, Barclays’ investors pondered its results announcement and wondered how the UK lender – with its shrinking revenue, hefty cost base and legacy litigation – could possibly hope to haul its 3.4% return on equity above its cost of capital. Across the North Sea, two Nordic lenders provided some tips.
Valeant Pharmaceuticals: Scoreboard watching: If sunlight is the best disinfectant, Valeant Pharmaceuticals must be hygenic by now. In 2014 it grabbed attention with a bold $46.00bn hostile bid for bigger rival Allergan. Its unorthodox management team – the Chief Executive was a management consultant and the finance head an ex-investment banker – and its controversial business model were scrutinised. Questions still swirl, but a year later Valeant’s shares have risen by a clean two-thirds. Valeant’s first-quarter earnings, released late on Tuesday, had the usual split personality. Earnings per share were 21.00c under GAAP rules. The company’s adjustments rendered $2.36 (it calls these “cash” earnings). Valeant’s serial acquisitions result in big non-cash amortisation expenses stemming from asset revaluations. This accounts for much of the difference between the two earnings figures. In a more unusual move, the company presents a GAAP and adjusted figure for cash flow, too. Excluding restructuring and a “working capital charge related to business development activities” pushes first-quarter cash flow from $500.00mn to $700.00mn.
Weir: mine, oil mine: On Wednesday the market heard Weir, the UK-listed mining equipment and oil services company, report that business is not good and will not improve soon. The interpretation differed: Weir’s shares bounced 6.0%. Hearing is believing, however – or should be. The worst has not passed for mining equipment, which represents about half of Weir’s operating profits. Weir’s orders (adjusting for its purchase of Trio last year) have fallen again, by 13.0%. So far, the high-margin replacement parts and service business has not suffered. Revenues there were up 3.0%. That growth will probably not continue. As less equipment is ordered and put into use, the amount of maintenance needed will slip over time. So far, this lagged effect has yet to hit Weir. But it has enough other problems.
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