Anchor Capital: Essential market review, 19 March

At 06:00 SAST today, gold prices advanced 0.4% to trade at $1,172.41/oz. Yesterday, gold gained 1.6% to close at $1,167.61/oz, as the US Federal Reserve signalled that the interest rate rise might not come in the first half of this year.

Yesterday, copper declined 1.9% to close at $5,695.50/mt. Aluminium closed 1.6% lower at $1,759.00/mt.

At 06:00 SAST, the US dollar is trading 0.4% higher against the South African rand at R12.1031, while the euro is trading 0.5% lower at R13.0413.0310.

Yesterday, the euro advanced against major currencies. Meanwhile, eurozone’s non-seasonally adjusted trade data showed that surplus narrowed in January. Moving ahead, market participants will keep a tab on the economic bulletin from the European Central Bank and targeted longer-term refinancing operation (LTRO) data for further direction.

At 06:00 SAST, the euro fell 0.8% against the US dollar to trade at $1.0774, while it has weakened 0.3% against the British pound to trade at GBP0.7232.

The minutes of the Bank of England’s (BoE) latest monetary policy meeting showed that all the nine members of monetary policy committee voted unanimously to keep the benchmark interest rate at a record low of 0.5% and the size of its asset-purchase program at GBP375.00bn.

British Chancellor, George Osborne, stated that the UK’s public finances are in a slightly better shape than previously estimated, mainly due to the rising tax receipts and the cuts in government spending and promised tax cuts for workers, homebuyers and savers in the UK. Additionally, he upgraded the nation’s growth forecasts to 2.5% from 2.4% in FY15 and to 2.3% from 2.2% in FY16 and projected inflation to fall to 0.2% going forward. He further hinted that Greece’s exit from the euro bloc might pose a serious challenge to Britain’s economy.

The non-seasonally adjusted trade surplus in the eurozone narrowed to EUR7.90bn in January, less than market expectations of a trade surplus of EUR15.00bn. The eurozone had posted a trade surplus of EUR24.30bn in the previous month.

At its latest monetary policy meeting, the US Federal Reserve (Fed) held its interest rate steady at 0.25%, at par with market expectations. Further, the US Federal Open Market Committee (FOMC) downgraded its outlook on the nation’s economic growth citing a moderated economic activity in the US compared with its earlier projections. The Fed trimmed its gross domestic product (GDP) estimates for the current year to between 2.3% to 2.7%, 30 basis points below its earlier projection. Fed also expects Inflation to likely fall below its earlier forecasts, with core PCE inflation expected to hover between 1.3% to 1.4% this year before rising to between 1.5% and 1.9% in the next year.

The Bank of Japan (BoJ),in its latest monthly report, has indicated that the nation’s economy has continued to recover moderately on the back of gradually rising business fixed investment as corporate profits improved. Further, the nation’s economy is anticipated to continue its moderate recovery with moderate rise in exports mainly against the background of the recovery in overseas economies.

On a QoQ basis, the GDP in New Zealand climbed 0.8% in 4Q14, compared with a revised advance of 0.9% in the prior quarter. Markets were expecting GDP to climb 0.8%.

Wilson Bayly Holmes-ovcon Limited:

The company indicated that it has received formal notification that clients of Allan Gray, have, inaggregate, acquired an interest in the ordinary shares of the company, such that the total interest in the ordinary shares of the company held by Allan Gray’s clients now amounts to 10.4119% of the total issued ordinary shares of the company.Anchor Group Limited:

The company, in its consolidated provisional results for FY14, stated that revenue increased to R82.37k from R31.57k posted in the previous year. Its assets under management was R8.60bn at 31 December 2014, representing 207.0% growth on the assets under management of R2.80bn at the end of FY13. Its diluted headline EPS rose to 27.40c from 7.50c posted in the preceding year. The company also indicated that Mr Todd Kaplan changes his role from Financial Director to Chief Operating Officer and Mr David Rosevear is appointed as the new Financial Director.

Naspers climbs to fresh intraday high:

Shares in Naspers on Wednesday reached a new intraday high following the release of the quarterly results of its associate company, Tencent Holdings. Pioneer Foods plans more African acquisitions after Nigeria deal: Pioneer Foods Ltd., a South African food and beverage producer, plans acquisitions in at least five more African countries after taking a majority holding in Nigerian competitor Food Concepts Plc.

Caxton seeks interdict against Novus listing:

The Competition Tribunal will on Friday hear arguments from printing and publishing company Caxton in support of its application to interdict the JSE-listing of Novus Holdings, a subsidiary of competitor Media24.

UK and US

FedEx Corporation:

The courier delivery services company, in its 3Q15 results, indicated that total revenue rose 3.7% from the same period a year ago to $11.72bn. Its diluted EPS stood at $2.01, compared with $1.23 recorded in the corresponding period of previous year. For FY15, the company projects diluted EPS to be between $8.80 and $8.95.

General Mills:

The company, in its 3Q15 results, stated that net sales dropped 0.6% from the same period of preceding year to $4.35bn. Its diluted EPS was $0.56, compared with $0.64 reported in the corresponding period of last year. For FY15, the company expects adjusted diluted EPS to grow at a low-single-digit rate in constant currency from the base of $2.82 earned in FY14.

Cintas Corporation:

The company, in its 3Q15 results, revealed that total revenue dropped marginally to $1,108.85mn from $1,110.97mn reported in the same period of prior year. However, its diluted EPS from continuing operations was $0.79, compared with $0.69 posted in the corresponding period of preceding year. For FY15, the company anticipates revenue to be in the range of $4.46bn to $4.49bn and EPS in the range of $3.55 to $3.58.

Jabil Circuit:

The manufacturing services company, in its 2Q15 results, indicated that net revenue increased 20.5% from the corresponding period of last year to $4.31bn. It reported a diluted net EPS of $0.29, compared with a diluted net loss of $0.16/share incurred in the same period a year ago. For 3Q15, the company expects net revenue between $4.35bn and $4.55bn.

Herman Miller:

The office furniture, equipment and home furnishings manufacturing company, in its 3Q15 results, stated that net sales increased 13.3% from the same period of previous year to $516.40mn. Its diluted net EPS stood at $0.35, compared with $0.33 posted in the same period of prior year. The company expects net sales for 4Q15 to be in the range of $530.00mn to $560.00mn and diluted EPS to be between $0.39 and $0.43.

K2M Group Holdings:

The global medical device company, in its FY14 results, revealed that revenue increased 18.5% from the preceding year to $186.67mn. It reported a basic and diluted net loss of $1.65/share, compared with a loss of $2.58/share recorded in the previous year. For FY15, the company expects total revenue in a range of $214.00mn and $218.00mn, representing growth of 15.0% to 17.0% annually on a constant currency basis.

Microsemi Corporation:

The semiconductor company alongwith Vitesse Semiconductor announced that the former has entered into a definitive agreement to acquire Vitesse for $5.28/share through a cash tender offer, representing a premium of 32.0% based on the average closing price of Vitesse’s shares of common stock during the 30 trading days ended 17 March 2015.

Tekmira Pharmaceuticals Corporation:

The therapeutic solutions company announced that it is offering to sell 6.00mn common shares in an underwritten public offering and also expects to grant the underwriters a 30?day option to purchase up to an additional 0.90mn common shares. Furthermore, it announced the appointment of Adam Cutler as Senior Vice President, Corporate Affairs; Dr. Bruce Dorsey as Vice President, Chemistry; and Dr. Rene CornelisRijnbr as Vice President, Biology.

Smiths Group:

The engineering company, in its 1H15 results, announced that revenue dropped to GBP1.42bn from GBP1.44bnposted in the same period last year. Its diluted EPS stood at 21.60p, compared with 23.60p recorded in the corresponding period a year ago. Additionally, the company announced the appointment of Rob White as Interim Chief Financial Officer with effect from 25 April 2015, assuming that no permanent successor has been appointed in the meantime. He would replace Peter Turner until a permanent replacement is in post.

Phoenix Group Holdings:

The company, in its FY14 results, indicated that its revenue rose to GBP5.32bn from GBP4.22bn posted in the previous year. Its diluted EPS was 96.50p, compared with 85.20p recorded in the previous year.

AstraZeneca Plc:

The pharmaceutical company announced positive top-line results from the Phase III PINNACLE programme, which included two pivotal 24-week studies (PINNACLE 1 and PINNACLE 2) to investigate the potential of PT003 to improve lung function in patients with Chronic Obstructive Pulmonary Disease (COPD).

Royal Bank of Scotland Group:

The lender requested Euronext Amsterdam NV to de-list the company’s ordinary shares of 100.00p each from Euronext Amsterdam.

BG Group:

The oil and gas company indicated that the PetrojarlKnarr floating production, storage and offloading vessel had started production from the Knarr oil field in the North Sea, offshore Norway.

SSE Plc:

The company indicated that its Chairman, Lord Robert Smith of Kelvin, has brought forward his departure to become chairman of IMI, the diversified industrial group.

British Land Company:

The property development and investment company announced that Meadowhall, Yorkshire’s premier shopping destination, celebrates its 25th birthday this year and would be marking the occasion with a substantial GBP50.00mn internal refurbishment. The refurbishment is set to commence in autumn 2015 and would be completed by the end of 2017.

Shaftesbury Plc:

The company announced that it has arranged a new GBP130.00mn fifteen year term loan with Aviva Commercial Finance Limited. The loan is secured on certain properties held in a subsidiary company and has a fixed interest rate of 3.2% throughout the term. The loan is repayable in full at maturity in March 2030.

Galliford Try:

The housebuilding and construction company revealed that it has won a place as one of several companies on a GBP3.90bn public sector framework contract for the south of England. The company has also been chosen as one of 11 contractors on a further public sector construction framework covering the north-west of England.

Financial Times

Sky raises prices after Premier League auction:

Sky has made an unseasonal increase to the price of its television packages – just five weeks after agreeing to pay GBP4.20bn for Premier League football rights.

Huddle co-founder quits to join venture capital firm:

Huddle, one of the UK’s most high-profile technology start-ups, is set for more upheaval after one its founders announced he was joining a Silicon Valley venture capital firm, just weeks after the business software group replaced its Chief Executive.

Budget 2015:

Chancellor launches GBP5.30bn tax raid on banks: The chancellor has launched a GBP5.30bn tax raid on banks, in a move that is likely to hit HSBC the hardest after it was heavily criticised in recent weeks over the tax evasion scandal at its Swiss private bank.

Zombie life insurer Phoenix hit by capital changes:

Phoenix, the zombie life insurer, admitted new capital requirements would hit its cash generation this year, in the latest sign that uncertainty over the regulatory changes was putting strain on the sector.

Eurotunnel buoyed by euro weakness and UK’s economic recovery:

Eurotunnel benefited from a turnround in the UK economy to report a close to doubling of its pre-tax profits last year, as more people took the undersea channel tunnel rail link between Britain and France.

Fortescue pulls $2.50bn bond as iron ore distress deepens:

Fortescue Metals Group pulled a proposed $2.50bn bond and refinancing of the company’s debt on Wednesday underscoring deepening distress in the iron ore market as the price fell to a six-year low.

T. Boone Pickens says US shale industry must cut output:

T. Boone Pickens, the influential Texas oil billionaire, said the US shale industry has “overproduced” and must cut back to lift the crude price rather than waiting for Saudi Arabia to lower its output.

Commerzbank considers legal action over Austrian ‘bad bank’:

Commerzbank is considering its “commercial and legal options” in the face of potential writedowns on securities from Heta Asset Resolution, the so-called bad bank set up to deal with the stricken Austrian lender, Hypo Alpe Adria.

New rules for OTC derivatives delayed for 9 months:

Tougher rules for trading over-the-counter derivatives have been delayed by nine months after regulators acknowledged that an initial timetable was too tight for the industry to comply.

General Motors to halt Opel drive into Russia:

General Motors is to pull the European Opel brand from Russia and indefinitely close its St Petersburg plant as it seeks to cut its losses in the crisis-hit country.

LG Chem and rivals tip bright future for OLED lighting:

LG Chem is leading a charge by South Korean and Japanese companies to grab a bigger share of the nascent and potentially lucrative OLED lighting market, drawn by the bright prospects of the next-generation technology.

Holcim board to meet to decide whether to salvage Lafarge deal:

The board of Holcim, the Swiss cement group, will meet later on Wednesday to decide whether a EUR40.00bn merger with French rival Lafarge can be salvaged.

US streaming revenues overtake CD sales:

Streaming music services such as Spotify have eclipsed CD sales and are closing in on digital downloads as the largest source of revenue in the music industry’s biggest market, according to new data from the Recording Industry Association of America.

Starbucks defends ‘race together’ policy:

Howard Schultz, Chief Executive of Starbucks, announced the company’s first stock split since FY05 as he defended a new company initiative aimed at spurring conversations around race in America that has come under heavy criticism.

Sony joins fight to woo ‘cord cutters’ with online TV service:

Sony has joined the scramble to capture “cord-cutting” customers who are disillusioned with cable or satellite subscriptions by unveiling an online TV service for PlayStation users in the US.

Chinese sportswear brand Li Ning suffers third annual loss:

Li Ning, the troubled Chinese sportswear company that is one of the mainland’s best known brands, announced its third consecutive annual loss as it continues to bear the costs of a restructuring.

Uber hit by ride-sharing injunction in Germany:

Uber’s ride-sharing service has been banned in Germany, the second time in less than a year that the smartphone app has faced a nationwide restriction in one of its most important markets.

Microsoft offers free Windows upgrade in assault on China piracy:

Microsoft is to offer hundreds of millions of Chinese consumers who use pirated software a free upgrade to legitimate copies of the Windows operating system, as it seeks to consolidate its unofficial position as a leading technology supplier to the world’s most populous country.

T-Mobile muscles in on corporate arena:

T-Mobile US is making a big push to attract business customers as it seeks to replicate a consumer strategy that has seen it win millions of subscribers by ditching annual contracts and offering lower prices.

Thomas Cook:

Lost 4.3% to 144.10p after Morgan Stanley cut earnings forecasts by a fifth on sterling.

BP:

Added 2.4% to 436.10p, which some US traders pinned to a retread of talk that Chevron might bid.

ITV: no dramas:

Those that pass the test may end up with a hit. UK broadcaster ITV, which has just bought the company that makes the show (called The Voice) already has one. One can only hope that its due diligence is more thorough than the celebrity judges as there may be more deals to come. ITV is in the fortunate position of having a lot of cash and not much to do with it. The company makes most of its profits from TV advertising. It has two things in its favour. First, it has the largest share of the UK free-to-air TV market, with over 50.0%. Next, advertising spend has improved in recent years. Last year ITV’s ad revenues climbed about 6.0% to GBP1.60bn and the company expects further gains this quarter. ITV is aiming to make and sell more programmes. It may want to improve its audience share, which has drifted down since FY13, according to Citi. Selling content also diversifies it away from its dependence on broadcast ad revenues. Although it has some in-house production, contributing about an eighth of its sales, it has spent nearly GBP700.00mn externally since FY12. The latest deal was Talpa, bought this month for GBP355.00mn. But it is risky. Talpa, for example, depends heavily – ITV will not say how heavily – on The Voice. On 15 times forward earnings, ITV’s shares have priced in the success of its strategy. Best to watch and wait.

Qualcomm: cashing in its chips:

Qualcomm has found religion. The company, which designs and makes smartphone chips, has committed to spending the equivalent of a fifth of its market cap on dividends and buybacks in the next two years. Buybacks alone are targeted at $15.00bn and the company vows to return 75.0% of free cash flow to shareholders in the long term. Before shouting Amen, recall that Qualcomm has an unhappy history with buybacks. It has spent $15.00bn on gross share repurchases in the past five years. This has not been enough to lower the share count. Stock options and grants of restricted stock units have mopped up much of the buyback. There is more to come. The company had 28.00mn RSUs outstanding and 41.00mn stock options exercisable at the end of the past fiscal year (September 2014). Lumped together, that is 4.0% of shares outstanding. Qualcomm has targeted sales growth in the high single-digits in the medium term, boosted by the adoption of 4G technology (in which the company specialises) in China, among other things. But this year’s sales will grow in the low single-digits. Sending cash out the door will not help the company hit its goals. Only investment can do that. The best reason to own Qualcomm is that it is one of the purest ways to bet on high-end smartphones. If it cannot grow with that market, buybacks are not going to answer investors’ prayers.