Anchor Capital: Essential market review, 27 March

At 06:00 SAST, the euro slipped 0.1% against the US dollar to trade at $1.0878, while it has marginally weakened against the British pound to trade at GBP0.7327.

In France, the final GDP registered a rise of 0.1% in 4Q14, on a quarterly basis, meeting market expectations. The preliminary figures had also indicated a rise of 0.1%. In the prior quarter, GDP had advanced 0.3%.

In April, the consumer confidence index in Germany advanced to 10.00, compared with market expectations of an advance to 9.8. The consumer confidence index had registered a level of 9.7 in the prior month.

The ECB President, Mario Draghi, stated that the recently launched stimulus programme was having desired effects on the eurozone’s economic growth but insisted that recovery in the region is ‘cyclical’ and the euro bloc would still need structural reforms to address its long term problems.

The flash Markit services PMI rose unexpectedly to a level of 58.60 in the US, in March. In the previous month, Markit services PMI had recorded a level of 57.10.

In the week ended 21 March 2015, the seasonally adjusted initial jobless claims in the US dropped to 282.00k, compared with a reading of 291.00k in the prior week. Market expectations were for initial jobless claims to drop to a level of 290.00k.

On an annual basis in Japan, the national consumer price index (CPI) rose 2.2% in February, less than market expectations for a rise of 2.3%. The national CPI had advanced 2.4% in the prior month.

In Japan, retail trade recorded a rise of 0.7% in February on a monthly basis, lower than market expectations for a rise of 0.9%. In the prior month, retail trade had registered a revised drop of 1.9%.

Rebosis Property Fund Limited: The asset management company stated that it has subscribed to 6,46,55,053 shares in New Frontier Properties, representing approximately 62.0% of New Frontier’s issued share capital which will be acquired with effect from 26 March 2015 at a price of R18.2507/share for an aggregate purchase price of R1.18bn.

Merafe Resources Limited: The mining company announced that the European benchmark ferrochrome price has been settled at $1.08/ lb for 2Q15, a rollover from the price in 1Q15.

Capitec looks set to rival big four banks: Capitec’s meteoric share price rise could, over time, change the setup of the banking sector, where the big four – Barclays Africa, FirstRand, Nedbank and Standard Bank – have long been dominant.

Vodacom to raise customer contract prices: Vodacom Group, South Africa’s largest wireless operator by subscribers, will raise the price of most subscription contracts from May as it seeks to revive sales, hit by regulatory cuts and rising power costs.

UK and US

Accenture Plc: The management consulting services company, in its 2Q15 results, indicated that total revenues increased 4.8% from the corresponding period of preceding year to $7.93bn. Its diluted EPS stood at $1.08, compared with $1.03 reported in the same period a year ago. The company declared a semi-annual dividend of $1.02/share payable on 15 May 2015. Furthermore, the company announced that it has completed the acquisition of Agilex Technologies.

ConAgra Foods Inc.: The packaged foods company, in its 3Q15 results, stated that net sales dropped 1.8% from the same period of previous year to $3,876.70mn. It incurred a diluted net loss of $2.23/share from its continuing operations, compared with EPS of $0.52 posted in the corresponding period of last year. For FY15, the company currently expects diluted EPS, adjusted for items impacting comparability, to be in the range of $2.15-$2.19.

Lululemon Athletica Inc.: The yoga-inspired athletic apparel company, in its FY15 results, revealed that net revenue rose 12.9% from the previous year to $1.80bn. However, its diluted EPS was $1.66, compared with $1.93 recorded in the prior year. For 1Q16, the company expects net revenue to be in the range of $413.00mn to $418.00mn based on a total comparable sales increase in the low single digits on a constant dollar basis.

GameStop Corporation: The electronics retailer company, in its FY15 results, indicated that net sales dropped 5.6% from the preceding year to $3,476.10mn. Its diluted EPS stood at $2.23, compared with $1.89 posted in the prior year. For FY16, the company expects EPS growth to range from 3.0% to 10.0%.

Scholastic Corporation: The publishing, education and media company, in its 3Q15 results, stated that revenue increased 2.3% from the same period a year ago to $382.10mn. However, it reported a diluted loss of $0.68/share from continuing operations, compared with a loss of $0.38/share incurred in the corresponding period of last year. The company has affirmed its FY16 outlook for total revenue of approximately $1.90bn and diluted EPS from continuing operations in the range of $1.80 to $2.00, before the impact of one-time items associated with cost reduction programs and non-cash, non-operating items.

Fred’s Inc.: The discount retail store company, in its FY15 results, revealed that net sales were up 1.6% from the prior year to $1.97bn. However, it recorded a basic and diluted loss of $0.79/share, compared with a basic and diluted EPS of 0.71 posted in the previous year. For 1Q16, the company anticipates total sales to increase in the range of 0-2.0% and diluted EPS is forecasted to be in the range of flat to upto $0.03, compared with $0.17 recorded in the same period a year ago.

China Mobile Games and Entertainment Group: The company, in its FY14 results, indicated that total net revenues increased sharply to RMB1.26bn from RMB0.35bn recorded in the last year. Its diluted earnings per ADS stood at RMB7.22, compared with RMB0.89 posted in the previous year. For 1Q15, the company expects revenue of RMB435.00mn which reflects its current and preliminary view on the estimated performance of its game portfolio and on the market and operational conditions, which may fluctuate and are subject to change.

Google Inc.: The company revealed that it has agreed to pay incoming Chief Financial Officer (CFO), Ruth Porat, $70.00mn by FY16, putting her among the highest-paid CFOs in the industry.

Yahoo! Inc.: The company announced that it has approved an additional share repurchase program of $2.00bn which will expire on 31 March 2018. It stated that the company has used part of its Alibaba IPO windfall to buy back $980.00mn worth of shares in 4Q, and has spent $9.70bn on buybacks since 2Q12.

RBC Bearings Inc.: The bearing supplier company announced that it has entered into a definitive agreement to acquire the Sargent Aerospace & Defense business of Dover Corporation for $500.00mn, to be financed through a combination of cash on hand and senior debt.

easyJet Plc: The airline company, in its trading update and pre-close statement for 1H15, indicated that it expects to deliver ahead of the guidance given in its 27 January 2015 trading statement primarily due to the movement of exchange rates in 2Q. It stated that revenue per seat growth at constant currency is now expected to be around 2.5% and cost per seat is expected to increase by up to 3.0%, due to higher levels of de-icing and disruption costs in 2Q.

Amec Foster Wheeler: The oilfield services company, in its FY14 results, revealed that revenue from continuing operations increased 0.5% from the previous year to GBP3.99bn. However, its diluted EPS was 35.10p, compared with 62.50p reported in the prior year. The company stated that it expects like-for-like trading margins to decline modestly in FY15, as customers push for price reductions and on weakness in the global oil and gas market.

Euromoney Institutional Investor: The business and financial magazine publishing company, in its pre-close trading update ahead of results for the half year ended 31 March 2015, indicated that since issuing its last update on 29 January, trading has continued in line with the board’s expectations. It stated that total revenues are expected to show a headline increase of approximately 1.0% from FY14.

International Public Partnership: The investment company, in its FY14 results, stated that total investment income increased 16.7% from the preceding year to GBP90.10mn. Its basic and diluted EPS from continuing operations stood at 9.49p, compared with 7.82p recorded in the previous year. The company declared 2H14 dividend of 3.15p/share, payable on 9 June 2015. Furthermore, the company announced that the Amber Consortium, of which the company is part, has reached financial close on the third privately financed batch of five batches of schools being delivered through the Priority Schools Building Programme.

Royal Bank of Scotland Group: The banking company announced that it has sold 135.00mn shares of Citizens Financial Group at a public offering price per share of $23.75.

Polymetal International Plc: The mining company announced the successful completion of an audit of ore reserves and mineral resources completed by Snowden Mining Industry Consultants for the Kutyn open pit mining project and an audit of Mineral Resources completed by CSA Global Property for the Kutyn underground mining project.

Unite Group Plc: The developer and manager of student accommodation revealed that it has received planning approval by officers under a delegated decision for a 2.10 acre site in central Coventry. It stated that the new building will provide a ‘Home for Success’ for 286 students and completion is anticipated in time for the 2016/17 academic year.

John Laing Infrastructure Fund: The infrastructure funds company declared an interim dividend for 2H14 of 3.38p/share, payable on 22 May 2015. It stated that the board intends to offer a scrip dividend alternative for this distribution to those investors who wish to receive additional JLIF securities in lieu of a cash payment.

Financial Times

Gallagher pursues Ross over defection: The New York-listed insurance broker Arthur J Gallagher is pursuing legal action against the former head of its international arm over his defection to rival Towergate.

London City airport attacks Boris Johnson order to block expansion: London’s business airport operator has attacked Boris Johnson over his decision to block its expansion because of concerns about noise, saying it was “perplexed and disappointed” at his intervention.

Black cab makers hail next generation of London icon: The London Taxi Company has set out its vision of the future for the black cab and it involves green technology, exports to cities across the world and dedicated taxi apps.

RBS agrees to sell Coutts International to Swiss bank UBP: Royal Bank of Scotland has agreed to sell Coutts International to Union Bancaire Privée, the family-owned Swiss private bank, in a transaction that could be announced as early as this week.

UK draws on Norwegian green power with EUR2.00bn cable: Operators of electricity networks in the UK and Norway have approved a EUR2.00bn deal to build the world’s longest subsea power link, allowing British consumers to tap Nordic hydroelectric reserves.

Profits tumble at Amec Foster Wheeler after GBP3.00bn merger: Anglo-American engineering group Amec Foster Wheeler said it expected weaker trading margins in FY15, as customers pressed for lower prices amid volatility in the global oil and gas market.

SuperGroup surges on strategy makeover: Shares in SuperGroup soared 7.0% after the fashion brand announced a strategy makeover, pledging to pay its first dividend and take the Superdry brand upmarket through a collaboration with actor Idris Elba.

Website launched to compare current accounts: People will be able to compare current accounts from the big six high street banks for the first time using a government-backed service launched on Thursday by the Gocompare.com website.

Centrica discloses Chief’s pay: Iain Conn, Chief Executive of Centrica since January, could earn up to GBP6.30mn a year in salary and bonuses under the energy group’s latest pay policy unveiled on Thursday.

New Petrobras Chairman is government ally: Petrobras, the oil company mired in Brazil’s biggest corruption scandal, has appointed a staunch government ally as its new Chairman in a move set to further enrage investors.

Bill Gross Pimco departure a possible ‘stress test’ for industry: The shock departure of Pimco founder Bill Gross from the world’s largest bond fund was a real life “stress test”, which the asset management industry passed successfully, leading firms have told regulators.

Rio Tinto Chief rejects call for industry to cap iron ore output: Rio Tinto’s Chief Executive has rejected as “hare brained” a call by a rival miner for the industry to arrest the steep slide in iron ore prices by collectively capping output.

CIMB to advise on 1MDB power unit sale: CIMB, one of Malaysia’s largest banks, has been appointed to advise on the sale of the power business of troubled 1 Malaysia Development Berhad (1MDB), as the Southeast Asian country attempts to pay off the development fund’s huge debts.

Actavis rewrites ‘big pharma’ playbook: After completing its $70.00bn acquisition of Botox maker Allergan last week, Actavis overtook GSK to become the world’s eighth-largest drugmaker by market capitalisation.

Petrobras-linked Brazil builder files for bankruptcy: Brazilian builder, Galvão Engenharia, has filed for bankruptcy protection, becoming the first large construction company to crumple under the strain of the biggest corruption scandal in the country’s history.

Evonik eyes takeover bid for Clariant to create EUR20.00bn group: Germany’s Evonik Industries is considering a takeover bid for its Swiss rival Clariant in a deal that would create a speciality chemicals company with a market value of more than EUR20.00bn, according to people familiar with the matter.

Sky Deutschland Chief Brian Sullivan takes his leave: Brian Sullivan, the man credited with injecting growth into Sky Deutschland, is leaving the pay-TV company four months after it was acquired by its London-based sister company Sky.

Vincent Bolloré increases stake in Vivendi to 10.2%: French billionaire Vincent Bolloré has increased his stake in Vivendi, tightening his grip on the Paris-based media and content group three days after an activist investor challenged his strategy.

Warren Buffett wins two ways on Heinz: Warren Buffett won two ways on the leveraged buyout of Heinz in FY13, doubling his money on his equity investment and pocketing cash payments that dwarf most returns available at current interest rates.

Adidas promises higher profits as it steps up race with Nike: Adidas says it will pay out higher dividends and double net profits over the next five years, as the world’s second-largest sportswear group attempts to win over investors and close the gap on arch-rival Nike.

London Stock Exchange: Lost 5.6% to GBP23.95, after Borse Dubai took GBP22.50 apiece for its entire 17.4% stake.

Serco: Slipped 4.3% to 174.00p on the record date for its GBP555.00mn rights issue.

Heinz-Kraft: Warren’s buffet: Well, the sceptics can open their family-sized can of Heinz humble pie and dig in. Kraft’s shares traded for $83.00 on Thursday, implying that the Buffett/3G stake in Heinz-Kraft is worth $41.00bn. They invested $8.00bn in Heinz originally, and then contributed a further $10.00bn to the Kraft deal. (This does not count the preferred shares Mr Buffett bought from Heinz two years ago, which pay him a tidy $700.00mn a year). So how did the partners turn $18.00bn into $41.00bn? A huge amount of cost was taken out of Heinz – a fifth of the staff was sacked. So profit (before interest, taxes, depreciation, and amortisation) increased by over $700.00mn, to $2.80bn, in two years. Assuming the company held on to the profit multiple at which it was bought, that increased the value of Heinz by nine billion dollars, to $38.00bn. Then Mr Buffett and 3G rolled their equity into Kraft, adding that next $10.00bn. Because Kraft shares will become shares in the merged company, the Kraft price today reflects the market value of the new company. At $83.00, that implied value is $80.00bn. Buffett and 3G own half of that. The sceptics have been whipped, so let us assume the partners can sustain their performance. The question then becomes which packaged food company is next to get the Buffett/3G treatment. Suddenly Kellogg and Hormel, for example, look like bite-sized companies with room to improve margins.

Nigerian banks: wrong concentrations: More is the pity. After two decades of reforms, Nigeria’s bank sector has shrunk from 120 banks in 1992 to a few, well capitalised and dominant lenders now. Guaranty Trust (GT) is top, by market value, of a pack of 14 listed banks. But old habits die hard. Upstream and downstream oil and gas accounted for 27.0% of GT’s lending last year and, with mining, 8.0% of bad loans. At Zenith, the next biggest bank, the figures are 22.0% and 0.5%. A new concentration could turn out to be power: since FY13 banks have funded big investment in electricity generation as Abuja tries to keep the lights on. Yet S&P has a point. Nigeria’s growth was still 6.3% last year – 200 basis points better than emerging markets in general – on HSBC data. It might fall to 4.0% this year. But this time is different: asset quality and capital buffers are better than in FY08. The banks trade at between 1.9 times tangible book value (GT) and 0.3 times (Fidelity Bank). Governance supports GT’s premium rating, as does a near-28.0% return on equity. If political and economic stability returns, banks still need to learn to fund broader economic activity to secure a rerating from here.

London Stock Exchange: goodbye, Dubai: Just look at Borse Dubai’s investment in the London Stock Exchange. It bought the shares in 2007 at about GBP14.00. It has just sold the lot for GBP22.50 each. Sure, it has been a rocky ride (they fell below GBP4.00 in the crisis) but compare that 61.0% return to the 15.0% that it would have made in the FTSE All-share over the same period. That valuation makes sense only if LSE can continue its trajectory. When Dubai bought, LSE had just fought off a bid from Nasdaq. Since then it has bulked up with a string of acquisitions: Borsa Italiana, clearing house LCH. Clearnet and the GBP1.60bn purchase of Frank Russell, an index provider and investment manager, last year. The deals have diversified LSE beyond the UK equities market, taking in growth trends such as the rise of passive investment and the increasing use of centralised clearing along the way. The other danger is that the share price is affected by any slowdown in the core capital markets business. It had a strong year in FY14, with admissions revenue up a fifth and secondary markets up 12.0%. If growth slows the shares may fall victim to any lingering feeling that LSE is just a geared play on stock market activity. But RBC expects capital markets to account for just 14.0% of revenues this year. These days, LSE is about more than just the shovels.