By Anchor Capital
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South African Market Review
South African markets closed marginally lower yesterday. Gold miners, Sibanye Gold declined 2.4%, while Gold Fields and Harmony Gold climbed 2.0% and 0.3%, respectively. Among retailers, Pick n Pay Stores dropped 1.1%, while Mr Price Group advanced 1.1%, after it indicated that its headline EPS is expected to rise between 18.0% and 22.0% in FY15. Holdsport Limited shed 1.0%, despite revealing that its FY15 sales were up 9.0% from the previous year. Rhodes Food Group lost 0.9%, despite indicating that it expects its headline EPS to increase substantially for six months ended 29 March 2015. Among financial sector stocks, Old Mutual eased 0.3%, while Sanlam gained 1.1%. The JSE All Share Index fell 0.1% to close at 54,574.99.
UK Market Review
UK markets finished lower yesterday, as weakness in HSBC Holdings shares weighed on investors’ sentiment. HSBC Holdings fell 3.2%, amid lower-than-anticipated 1Q15 revenue and after the lender announced that its expenses increased at a faster pace. Aberdeen Asset Management declined 2.7%, after the company reported an accelerated outflow of funds in 1H15. Homebuilders, Persimmon and Barratt Developments dropped 2.1% and 1.7%, respectively, after construction activity in the UK grew at the slowest pace in almost two years in April. On the upside, Fresnillo advanced 2.6%, boosted by a rise in gold prices. The FTSE 100 Index declined 0.8% to close at 6,927.58.
US Market Review
US markets ended in the red yesterday, led by losses in technology sector stocks. Apple Inc. dropped 2.3%, after some reports revealed that the iphone maker is under US antitrust scrutiny to examine whether it is using its position to put rival music services at a disadvantage. Comcast Corporation and Walt Disney declined 1.4% and 0.2%, respectively. Microsoft Corporation shed 1.3%. Media reports revealed that the company is considering a takeover bid for Salesforce.com. However, Estee Lauder Companies climbed 4.0%, after the cosmetics company’s 3Q15 earnings surpassed market expectations. The S&P 500 Index declined 1.2% to settle at 2,089.46, while the DJIA Index eased 0.8% to close at 17,928.20. The NASDAQ Index dropped 1.5% to finish at 4,939.33.
Asia Market Review
Markets in Asia are trading mixed this morning. Data showed that HSBC/Markit services PMI in China climbed to a four month high in April. In Hong Kong, Shenyin Wanguo HK Limited, Haitong Securities and Citic Securities climbed 3.1%, 3.0% and 2.0%, respectively. In South Korea, Samsung Electronics and LG Electronics retreated 3.0% and 1.8%, respectively. Hyundai Motor added 0.3%, even after news reports indicated that the company has recalled 2,580 units of its 2015 Accent model. Japanese markets are closed today on account of a public holiday. On Friday, the Nikkei 225 Index gained 0.1% to settle at 19,531.63. Today, the Kospi Index is trading 1.4% lower at 2,102.52, while the Hang Seng Index is trading 0.9% higher at 28,005.55.
Commodities
At 06:00 SAST today, Brent crude oil rose 1.3% to trade at $67.23/bl, after the American Petroleum Institute (API), in its weekly report, stated that crude oil stocks in the US fell 1.50mn bls last week. Yesterday, Brent crude oil rose1.6% to settle at $66.37/bl, amid concerns about a possible supply disruption from Libya.
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 advanced 0.2% to trade at $1,196.20/oz. Yesterday, gold gained 0.4% to close at $1,193.34/oz, amid a broad weakness in the US dollar.
Yesterday, copper rose 1.1% to close at $6,481.75/mt. Aluminium closed 3.0% higher at $1,959.25/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, after data revealed that the US trade deficit widened more than market expectations for March. In South Africa, the SACCI business confidence improved slightly in April from the previous month. Separately, the final print of Markit services PMI showed that activity in the sector eased more than initial estimates, while ISM non-manufacturing PMI climbed above market expectations for April. Going forward today, BER consumer confidence data in South Africa and ADP employment data in the US will attract market attention.
The yield on benchmark government bonds rose yesterday. The yield on 2015 bond advanced to 6.06% while that for the longer-dated 2026 issue rose to 8.08%.
At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R11.9626, while the euro is trading 0.3% higher at R13.4350.
Yesterday, the euro weakened against most of the major currencies, but advanced against the US dollar. Meanwhile, the European Commission, in its official report, revised upward its eurozone economic growth forecast for 2015 to 1.5% from 1.3%.
At 06:00 SAST, the euro advanced 0.4% against the US dollar to trade at $1.1231, while it has gained 0.2% against the British pound to trade at GBP0.7385.
Economic Updates
The SAACI business confidence index recorded a rise to 89.90 in South Africa, in April. In the prior month, the business confidence index had recorded a reading of 89.10.
In April, the construction PMI eased to 54.20 in the UK compared with market expectations of a fall to a level of 57.40. The construction PMI had recorded a reading of 57.80 in the previous month.
The number of people unemployed eased by 118.90k in Spain, in April, higher than market expectations of a decline of 64.80k. The number of people unemployed had registered a decline of 60.20k in the prior month.
According to the European Commission’s latest forecast, European growth would be moderately better this year than previously estimated. It revised its growth estimate upwards by 0.2% to 1.5% this year, from its previous forecast in February, on the back of lower oil prices, a weak euro and quantitative easing measures. For 2016, the European Commission kept its growth forecast of 1.9% for the eurozone.
In April, the final Markit services PMI in the US registered a drop to 57.40, compared with market expectations of a fall to a level of 57.80. Markit services PMI had registered a level of 59.20 in the previous month. The preliminary figures had indicated a drop to 57.80.
The US posted a trade deficit of $51.37bn in March, following a revised trade deficit of $35.89bn in the previous month. Markets were expecting the nation to register a trade deficit of $41.70bn.
The Institute for Supply Management (ISM) indicated that the non-manufacturing PMI registered an unexpected rise to a level of 57.80 in the US, in April. In the previous month, the non-manufacturing PMI had recorded a reading of 56.50.
In April, the HSBC/Markit services PMI index registered a rise to 52.90 in China. In the prior month, the HSBC/Markit services PMI index had recorded a level of 52.30.
On a monthly basis, the seasonally adjusted retail sales rose 0.3% in Australia, in March, lower than market expectations for a rise of 0.4%. Retail sales had advanced 0.7% in the prior month.
In 1Q15, the unemployment rate remained unchanged at a level of 5.8% in New Zealand, compared with market expectations of a fall to a level of 5.5%.
Corporate Updates
South Africa
Mr Price Group Limited
: The retail company, in its trading statement for FY15, stated that its diluted basic EPS is expected to be in the range of R8.35 to R8.63, compared with R7.07 reported in the prior year. Its diluted headline EPS is expected to increase between 18.0% and 22.0% from the previous year to be in the range of R8.44 to R8.72.
Brait SE: The company, in its trading statement for FY15, stated that its net asset value is anticipated to have increased in euro terms by 165.0% to 175.0% to between EUR5.83 and EUR6.05 and in rand terms by 135.0% to 145.0% to between R75.08 and R78.28.
Reunert Limited: The company, in its trading statement for six months ended 31 March 2015, indicated that its headline EPS and normalised headline EPS is expected to be between R2.54 and R2.79, compared with R2.39 and R2.37, respectively, recorded in the same period of preceding year. Its basic EPS is anticipated to be between R2.80 and R3.05, reflecting an increase of between 17.8% and 28.3% as compared with R2.38 posted in the corresponding period of prior year.
Transaction Capital Limited: The financial services company, in its results for half year ended 31 March 2015, revealed that its net interest income was up 13.4% to R448.00mn from the same period of prior year. However, its diluted basic EPS decreased to R0.31 from R1.30 recorded in the corresponding period of previous year.
Rhodes Food Group Property: The food producing company, in its trading statement for six months ended 29 March 2015, revealed that its headline EPS is expected to increase by 55.0% and 59.8% to be in the range of R0.26 to R0.27 from the same period of previous year. Its normalised headline EPS is expected to be between R0.36 and R0.37, compared with R0.17 posted in the corresponding period of last year.
Holdsport Limited: The retailing company, in its FY15 results, indicated that sales were up 9.0% to R1.54bn from a year ago. Its headline EPS stood at R4.23, compared with R4.02 posted in the previous year. Its core headline EPS increased 6.9% to R4.52 from the preceding year.
Cashbuild Limited: The quality building materials retailing company stated that the Public Investment Corporation has acquired a beneficial interest in ordinary shares of the company such that it now holds about 11.0% of Cashbuild’s total issued ordinary shares.
Adcorp Holdings Limited: The investment holding company announced that it has acquired an option in and has entered into a strategic partnership with Singapore-based APBA Pte Limited.
Curator appoints CE for African Bank’s ‘good bank’: Brian Riley has been appointed CE designate of African Bank’s envisaged “good bank” and its new holding company – New HoldCo.
Transaction Capital sees opportunity in Uber: JSE-listed Transaction Capital says it will consider financing Ubers – vehicles that use the mobile app-based transportation network – as part of potential future growth into the sedan taxi market.
Kauai to get a makeover: Nü Health Food Café parent company Real Foods has acquired total control of Kauai, for an undisclosed fee, and intends to transform South Africa’s leading healthy fast food franchise into a global health and wellness brand.
Africa’s biggest fund manager said to explore Vodacom stake deal: The Public Investment Corp., Africa’s biggest money manager, is considering increasing its stake in Vodacom Group by buying government-owned shares in the wireless operator, people familiar with the plans said.
Ellies drops to two-month low on share-sale plan: Ellies Holdings, a South African maker of television equipment, fell to the lowest level in two months after the company said it will sell shares to investors, report a full-year loss and restructure debt.
ArcelorMittal to cut 2Q15 output by 6.0%: ArcelorMittal’s South African unit will cut 2Q15 production by 6.0% at its Newcastle plant due to slack demand from its domestic market, it said on Tuesday.
UK and US
Walt Disney Co.: The mass media and entertainment company, in its 2Q15 results, indicated that its total revenue increased 7.0% to $12.46bn from the same period a year ago. Its diluted EPS stood at $1.23, compared with $1.08 recorded in the corresponding period of previous year.
DIRECTV: The satellite television company, in its 1Q15 results, stated that its revenue was up 3.7% to $8.14bn from the corresponding period of prior year. Its diluted EPS was $1.44, compared with $1.09 posted in the same period of preceding year.
Emerson Electric Co.: The manufacturing company, in its 2Q15 results, revealed that its net sales dropped 7.1% to $5.40bn from the same period of last year. However, its diluted EPS increased to $1.42 from $0.77 recorded in the corresponding period of previous year. The company stated that it expects FY15 net sales to decline in the range of 5.0% to 7.0% and reported EPS is expected to be in the range of $4.17 to $4.32.
Archer Daniels Midland Co.: The food-processing and commodities-trading corporation, in its 1Q15 results, indicated that its revenues decreased 15.4% to $17.51bn from the corresponding period of prior year. However, its diluted EPS increased to $0.77 from $0.40 posted in the same period of previous year. The company announced that it has reached an agreement to acquire complete ownership of North Star Shipping and Minmetal, enhancing its European origination and transportation network through the addition of export facilities at the Romanian Port of Constanta on the Black Sea.
Estee Lauder Companies Inc.: The cosmetics company, in its 3Q15 results, stated that its net sales increased to $2.58bn from $2.55bn recorded in the same period a year ago. Its diluted net EPS was up 29.1% to $0.71 posted in the corresponding period of previous year. For FY15, the company expects net sales to grow between 3.0% and 4.0% in constant currency.
Devon Energy Corporation: The natural gas and oil producing company, in its 1Q15 results, indicated that its total operating revenues decreased 12.3% to $3.27bn from the corresponding period of prior year. It reported a diluted net loss of $8.88/share, compared with EPS of $0.79 posted in the same period of previous year. For FY15, the company expects its total oil production growth in a range of 25.0% to 35.0%, a substantial increase from its previous year’s growth guidance of 20.0% to 25.0%.
Mylan NV: The pharmaceuticals company, in its 1Q15 results, stated that its net sales were up 8.9% to $1.85bn from the same period of preceding year. However, its diluted EPS decreased to $0.13 from $0.29 recorded in the corresponding period of previous year. Furthermore, the company announced the US launch of Levonorgestrel and Ethinyl Estradiol Tablets USP, 0.15 mg/0.03 mg, which is the generic version of Teva’s Seasonale® Tablets.
Microsoft Corporation: Media reports revealed that the technology company is considering a bid for Salesforce.com Inc., after the cloud software provider was approached by another would-be buyer.
Comcast Corporation: The mass media company stated that it would hire 5,500 customer call service workers in the United States and hundreds of new technicians, as part of a plan to transform its low-rated service operations that have been bashed nationwide by cable and internet subscribers as unresponsive and rude.
Occidental Petroleum Corporation: The oil and gas exploration and production company announced that Vicki Hollub has been promoted to senior Executive Vice President and President of Oxy Oil and Gas, responsible for operations in the US, Middle East region and Latin America. It also indicated that Hollub is expected to succeed Stephen Chazen as CEO after a thorough transition period.
HSBC Holdings Plc: The banking and financial services company, in its earnings release for 1Q15, indicated that its total operating income increased 4.6% to $20.12bn from the same period a year ago. Its diluted earnings per ordinary share were down to $0.26, compared with $0.27 posted in the corresponding period of previous year. The company declared a first interim dividend of $0.10/ordinary share in respect of the year ending 31 December 2015, payable on 8 July 2015.
Glencore Plc: The commodity trading and mining company, in its 1Q15 production report, stated that its overall copper equivalent production was up 7.0% compared with 1Q14 and sequentially in line with 4Q14. However, its own sourced copper production was down 9.0% to 350.70kt, reflecting grade reductions at Alumbrera and Antamina due to mine sequencing and a planned maintenance shutdown at Collahuasi.
Aberdeen Asset Management: The investment management company, in its 1H15 results, revealed that its total net revenue climbed 20.2% to GBP605.20mn from the corresponding period of previous year. Its diluted EPS stood at 10.72p, compared with 10.67p posted in the same period of prior year.
Greene King Plc: The brewery company, in its trading update for FY15, indicated that its total retail sales growth was 6.3%, with LFL sales growth of 0.4%. It also announced that its non-Executive Director, Rob Rowley, has taken over the role of senior independent Director from Ian Durant, who would be retiring from the board in March 2016.
ITV Plc: The media company announced that it has completed the acquisition of Talpa Media BV to build an international content business that creates and owns entertainment formats and dramas that sell internationally, and significantly strengthens its position as a leading producer in Europe.
Aggreko Plc: The power generation company confirmed the further purchase offer to purchase each of the 1,778,422 B shares in respect of which valid elections for the further purchase offer have been received, and stated that it accepts the offer to sell shares constituted by those elections, for 75.50p/B share, free of all dealing expenses and commissions and in off market transactions.
Ophir Energy Plc: The oil and gas exploration company announced that it has signed a binding heads of terms for a midstream chartering and operating services agreement with Golar LNG with the agreement of GEPetrol, its partner in Block R in Equatorial Guinea.
Grainger Plc: The residential property company indicated that it has agreed to sell its interest in New Sovereign Reversions Limited to Lone Star Real Estate Fund III for a total cash consideration of around GBP18.50mn.
Financial Times
Park Resorts expects pensions boost to caravan sales: Park Resorts, Britain’s biggest caravan park operator, is expecting a boost from the liberalisation of pensions as retirees use their nest eggs to buy mobile homes.
BG investors protest over Helge Lund’s pay: Investors in BG Group, the UK-based oil and gas producer, have rebelled against a multimillion pound pay deal for Helge Lund, its new Chief Executive, after an annual meeting where the Chairman admitted misjudging public reaction.
HP says it overpaid by $5.00bn for Autonomy: Hewlett-Packard overpaid for Autonomy by at least $5.00bn after its founder Mike Lynch led a “systematic” effort to “artificially inflate” his company’s revenues, according to a legal filing in which the US technology conglomerate set out its full case against the British entrepreneur for the first time.
UK’s largest companies under pressure over pension contributions: Some of the UK’s largest companies will come under pressure to ramp up contributions to their company pension schemes, advisers warn, as deficits continue to soar.
Just Eat takeaway orders rise 51.0%: Just Eat has reported a 51.0% rise in orders for its 1Q15, maintaining the growth rate of the online takeaway service as rivalry in the sector intensifies.
Shale groups rise to oil price challenge: EOG Resources, the largest shale oil producer in the US, on Tuesday raised the prospect of its crude production returning to growth before the end of the year.
Global spending on cancer drugs surges to $100.00bn: Global annual spending on cancer drugs has hit $100.00bn for the first time as the pharmaceuticals industry prepares to launch a fresh generation of treatments that promise to push costs even higher.
Noble sees $1.00bn rise in net debt amid profits recovery: Noble Group, the commodities trader facing allegations of aggressive book keeping, brushed aside concerns about a 22.0% increase in borrowings as it provided limited new disclosure on accounting policies with quarterly results.
Brazilian regulator probes former Petrobras board members: Guido Mantega, Brazil’s former finance Minister, is being investigated by the country’s market regulators for misleading investors over Petrobras’s fuel pricing policy while he was Chairman of the state-controlled oil company.
Loans company Lending Club narrows losses to $6.40mn: Net losses at Lending Club, the biggest of the online lenders, narrowed more than analysts expected in the first quarter, easing concerns about the costs of maintaining the company’s triple-digit growth rate in revenues.
BNP division faces Swiss franc loan probe: BNP Paribas’s personal finance subsidiary has been placed under formal investigation for allegedly deceiving thousands of customers about the risks of taking Swiss franc loans just before the eurozone sovereign debt crisis.
Biotechs’ fees soar for drug development partnerships: The fees that biotech groups charge big pharma companies to go into drug development partnerships have hit a nine-year high, in a fresh sign of booming valuations for the hottest new medicines.
Nevada approves autonomous Daimler trucks: Germany’s Daimler unveiled the first self-driving truck to be licensed for commercial use on Tuesday, citing a deal with Nevada’s governor as the first step towards its goal of transforming the safety and efficiency of freight transport.
Netflix challenges AT&T’s $48.00bn DirecTV deal: Netflix has warned US regulators that AT&T’s planned $48.00bn takeover of one of the country’s largest satellite television groups would create a company with the power to stop customers from ditching their pay-TV subscriptions in favour of online video services.
Adidas sales rise marks start of campaign to close gap with Nike: Adidas sales rose 17.0% in the first three months of the year, as it reported its first results since unveiling a five-year strategy designed to close the gap on arch-rival Nike.
Electronics arm helps Metro to limit its loss: Metro posted a smaller-than-expected loss in the first three months of the year, helped by a strong performance from its Media-Saturn electronics unit.
Sprint loses lucrative mobile phone customers: Sprint continued to lose the most lucrative mobile phone customers and burnt through cash in its latest quarter, as the third-largest US wireless network attempts a tricky turnround that is being hampered by competition from T-Mobile US.
Lufthansa pension deficit balloons amid low interest rates: Lufthansa on Tuesday warned of an “urgent” need to overhaul the way the German airline group provides retirement benefits to employees as the low interest rate environment caused its pension deficit to soar.
Therium raises GBP200.00mn in litigation funding: Therium Capital Management, which funds legal claims, has raised GBP200.00mn to invest in big ticket litigation in a sign that the sector is becoming increasingly attractive to investors looking for returns that are not tied in to other asset classes.
Man Group: Slipped 5.5% to 183.50p on a weak recent performance for its AHL funds.
Whitbread: Fell 3.3% to GBP50.50 in the wake of the unexpected retirement last week of Chief Executive Andy Harrison.
Lex
Lufthansa: senior discounts: The big news in Lufthansa’s first-quarter results on Tuesday were not planes, but pensions: the German airline group’s pension obligation doubled in the past year, to EUR10.00bn. Mismanagement is not the cause, nor is the German airline group alone: pension liabilities are rising across Europe. Obligations at BASF and Ericsson doubled too. Accountants and actuaries routinely calculate the present value of future pension payments. Changes in the interest rate, mortality expectations and inflation can drastically change the number. The German AA corporate bond rate fell from 2.7% to 1.3% in the past year. Take a GBP100.00 payment due in 20 years as a simple example: that rate move would increase the current liability by a third. A 1.0% fall in rates would, on average, cause a 16.0% increase in the obligations of the 50 largest European companies, according to Standard & Poor’s. The portion of pension liabilities in the US, UK and Germany that are fully funded has decreased since FY13. If rates fall further, the problem will worsen. Pension liabilities are also included in leverage calculations. While corporate credit ratings have not been downgraded to reflect that rising leverage, this could change.
PartnerRe/ Exor: cash now, shares later: The conundrum for PartnerRe’s investors is whether to accept a $6.40bn cash offer from Exor, the investment vehicle of Italy’s Agnelli family, or stick with their reinsurer’s preferred tie-up with rival Axis Capital. Though Bermuda-based PartnerRe and Axis tout their amalgamation as a merger of equals, the former is paying up for the privilege. To pick just one metric, it is contributing more than 56.0% of net income (based on the last full-year results) yet will have less than 52.0% of the combined group. It is easy enough to explain the sector urge to consolidate: the absence of big insured natural catastrophes makes it hard for reinsurers to raise premiums, and investment returns are faltering. PartnerRe is bearing up, for now. Too bad that PartnerRe has spurned Exor’s bid, instead reminding investors of the touted $200.00mn savings from its Axis tie-up, of which just over half of the $1.40bn of taxed and capitalised value – say $3.40/share – would accrue to its investors. There is no such scope for in-sector savings with Exor. But its offer has prompted an $11.50/share special dividend from PartnerRe – if the deal closes. That is taking money out of one pocket and putting it in the other, but investors would probably get it anyway. It is roughly the reinsurer’s $550.00mn surplus capital at end-2014, on Morgan Stanley figures.
Social media: brutal month: No soothsayer warned would-be Caesars of social media about the Ides of April. But a tip-off cannot prevent the inevitable. Over the past month, the share prices of Twitter, LinkedIn and Yelp have all tanked. Skip the hand-wringing about the end of the tech bubble. Prices may well be frothy, but there is a business problem here. Online advertising is changing quickly. Profitless companies with valuations that depend on wild growth in ad sales are struggling meet expectations – and will keep struggling. Online advertising turns out to be a winner-take-most game: ad-buyers like big audiences, giving Google and Facebook a huge advantage. Social network advertising sales are expected to grow a third to reach $24.00bn next year, eMarketer says; Facebook will account for more than two-thirds of the growth. Meanwhile, Twitter’s ad sales disappointed in the first quarter because of a weak trend in clicks on ads. LinkedIn’s display ad sales fell 10.0% year on year in the first quarter, and now comprise less than a tenth of company revenue. At Yelp, advertising from big companies fell 11.0% from the year prior, partly because of declining direct sales as advertisers shift to automated buying. All three companies are still increasing revenues, but not fast enough to justify their previous, stratospheric valuations.
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