Consumer counters rule in November
The big story this past month was the tumbling oil price, which has dropped c. 40% since hitting a $116.12/bbl high in August last year, closing end November at $70.15/bbl – a four-year low. This amid a global oil supply glut and as US shale oil producers ramp-up production. Added to that, an Organisation of Petroleum Exporting Countries (OPEC) meeting in Vienna last week ruled out attempts to stop the price decline by reducing production. The gold price was also softer ending November a further 0.5% down MoM (it has now dropped 3.1% YTD). With the US dollar rallying to new record highs the rand stumbled a further 0.2% MoM (down 5.1% YTD), while the strong dollar also impacted the gold price.
In the US, markets registered significant gains in November on the back of generally good earnings reports and positive economic data, including improvements in retail sales, a better GDP growth estimate, improving consumer sentiment etc. Globally we had encouraging confidence data from Germany, an unexpected interest rate cut by the Chinese central bank which buoyed markets and European Central Bank (ECB) Chief Mario Draghi reiterating the possibility of additional stimulus measures in the euro area. However, continuing tension in Ukraine (and between Russia and the West) as well as disappointing data from Europe, China and Japan also weighed on sentiment.
Locally, despite a tough consumer environment, we saw good MoM performances from a number of retail and industrial counters which also released impressive results in a difficult operating backdrop. On the economic side, it would seem SA consumers will remain under pressure for a while to come, with the National Treasury forecasting economic growth of 1.4% for 2014, the lowest since the 2009 recession. On the JSE, the All Share Index moved the needle ever so slightly with a gain of 0.4% MoM although the local market is up 7.9% YTD. Not surprisingly the Resi-20 lost 6.3% MoM (down 13.3% YTD), however the Indi-25 was up 1.7% MoM (ironically up 13.3% YTD – the same as the Resi-20 drop) and the Fini-15 gained 3.0% MoM (up 22.6% YTD).
Top-20 shares: November performance
Juxtaposed to the poor performance of other resource counters and especially gold stocks as the price of the yellow metal remained under pressure, Gold Fields’ share price rose 30.3% MoM (the second-best performer) and has increased by 44.2% YTD. This was despite the bullion producer posting a 6% decline in its 3Q earnings due to the falling gold price and work stoppages at its South Deep operation, which accounts for over 50% of overall production, due to upgrades at the mine. However, Gold Fields remains one of the lowest-cost operators, with a break-even price of $1,050/oz and with gold trading at c. $1,182, it is set up to make a 15% free cash-flow margin at $1,300/oz according to a report in Business Day.
In third spot among the top-20 best MoM performers, Zeder Investments, which has a portfolio that includes agriculture as well as food and related investments, saw its share price rocket 22.4%. In early November the company said its sum-of-the-parts (SoTP) valuation increased to R7.49. Zeder owns 30% of Pioneer Foods (which itself was up 17.1% MoM and has gained c. 52% YTD) and 31% of Quantum Foods.
Close on the heels of Zeder, the Spar Group rose 22.1% for the month despite concerns around local consumer spending as the SA consumer remains under pressure on the back of high debt levels, slow growth and unemployment. In August, Spar acquired an 80% stake in Irish firm BWG, a Spar brand owner in Ireland and southwest England, for R55mn with The Financial Mail reporting that after only two months in its fold, BWG had boosted what would have been an 8.2% rise in Spar pre-tax profit into an 11.2% rise in the year to end September. Sugar producer and property developer Tongaat-Hullet, which reported a 17% YoY rise in 1H profit last month (on the back of cost cuts and the sale of more sugar-related products), saw its share price rising 18.9% MoM. The Group’s share price has jumped 52.3% YTD. Lewis Group saw its share price climb 17.9% in November following news that Competition authorities had given it the green-light to acquire over 60 stores belonging to Ellerine, the furniture unit of African Bank Investments (Abil). Media reports indicated that the Lewis acquisition of Beares brand stores would allow it greater exposure to higher-income markets.
In November, Massmart (+17.6% MoM) reported a slightly better-than-expected rise in sales with total Group sales for the 44 weeks to 2 November, increasing to R62.5bn – up 10.4% YoY, while comparable store sales increased by 7.3%. During the month the company also filed a complaint with the Competition Commission against Pick n Pay, Shoprite and Spar in an attempt to end lease exclusivity agreements in the retail sector which it said, in many instances, prevent it (through its Game stores) from offering groceries at the retail level.
Telkom SA, which this week launched its fibre broadband in selected suburbs in Gauteng, KwaZulu-Natal and the Western Cape, continued on its upward trajectory rising a further 17.3% MoM. This was despite the company reporting mixed 1H15 results, which saw profit drop 62% YoY following a 1H14 medical-aid gain and costs related to job cuts. However, net revenue was relatively stable at R13.3bn (+1.6% YoY), while headline EPS (excluding one-off expenses) increased 12.1% YoY to ZAc261.7 and operating expenses were 2.4% lower at R9.2bn on the back of the Group’s efforts to cut costs and streamline processes. Telkom also said it plans on reinstating a dividend in FY15. To end November Telkom’s share price has gained 145.4% with the company emerging as the best performer on a YTD basis by far. Its closest competitor among the top-20 stocks YTD is Astral Foods which is up 65.3% – less than half of Telkom’s gains.
(Table available in the PDF version)
Top-20 shares: YTD
The Foschini Group saw its share price rise 16.8% in November, while its price has grown 52.1% YTD. This past month the retailer announced the launch of what it called “an omni-channel online retail platform” which will see all 17 of its store brands coming online. Earlier in November it released 1H15 results which were described as “satisfactory” in a difficult consumer environment. The results showed that turnover increased 9.7% YoY to R7.31bn, while HEPS from continuing operations was up 8% YoY to ZAc403.3. However, more importantly its cash sales component rose by a significant 20.3% YoY, accounting for 44% of total sales. The Group also completed the sale of the RCS Group, in which it had a 55% stake, to BNP Paribas.
Tiger Brands (+16.6% MoM and up 44.8% YTD) seems to have regained its lustre and re-rated following a trading update at the beginning of November. The company also recorded strong FY14 results and overcame a disappointing first-half with headline EPS from continuing operations increasing 15% YoY to ZAc1,804 – ahead of market expectations. However, its full-year profit dropped 22% YoY on the back of an impairment charge after it wrote down the value of two businesses in Nigeria (Dangote Flour Mills and Deli Foods).
Coronation Fund Managers (+15.8% MoM) posted a 38% YoY surge in profit for FY14 to R2bn, while assets under management were up 20% YoY and diluted headline EPS rose 37%. Coronation, the biggest shareholder in Abil, also said that its retail business continued to attract a disproportionate level of industry flows as total net inflows amounted to R32bn.
MoM, JD Group was up 14.2%, while Astral Foods (up 13.4% MoM and 65.3% YTD) was the second best performer on the JSE YTD. The company released impressive results in November which showed that the poultry producer recorded a 99.6% YoY increase in FY14 headline earnings to R329.7mn, while revenue increased by 13% YoY to R9.6bn and operating profit rocketed 88% YoY to R493mn. These results were a significant turnaround from FY13 and were even more impressive if one considers the significant challenges facing the poultry industry locally, including cheap imports and record high feed prices.
MMI Holdings (+11.9% MoM) said in its 3Q14 trading statement last week that new business recurring premiums increased 22% YoY, mainly due to good growth in employee benefits. The Group also indicated that the total present value of premiums (PVP) increased 30% YoY, adding that progress has been made with strategic initiatives to diversify its earnings streams.
Rand-hedge, Richemont and RCL Foods both gained 11.3% MoM. The weak rand has boosted Richemont despite the company reporting disappointing 1H results, which showed profit for the period falling 23% YoY to EUR907mn and the operating margin declining 160 bpts to 24.1%. Richemont said the decline in the Chinese market was moderating but market pundits believe lower global growth, especially in China, will likely continue to affect company earnings negatively over the next few months.
Discovery Group, Transaction Capital and Arrowhead were up 11.1%, 11.0% and 9.6% MoM, respectively. Discovery released healthy results in November and announced that it would partner with Prudential by buying out the remaining 25% of Prudential’s UK private medical insurance market business for GBP155mn. Transaction Capital reported FY14 results which showed that it grew continuing headline earnings 17% YoY to R330mn, with continuing EBITDA up 18% YoY to R159mn. The company also said it had R1.2bn in cash to fund acquisitions for future growth. Last week Arrowhead Properties announced it had acquired residential properties valued at just over R1bn which means that once transferred, the Group will own an overall residential property portfolio valued at c. R1.6bn. Earlier in the month the company released results which showed the value of its investment properties grew substantially in FY14. Distribution for the year stood at ZAc133.24 per combined A and B unit – a 17.9% YoY increase.
Finally, looking at the remainder of the top-20 YTD performers Sibanye Gold (+63.8%) dropped to fourth spot (it had been swinging between first and second spot over the past few months), followed by Resilient Property Income Fund (+59.4%), RMI Holdings (+53.7%), Pallinghurst Resources (+53.5%) and Capitec Bank (+51.9%). Aspen has gained 48.9% YTD and last month said it was aiming to be awarded c. 50% of the R24bn contract to supply anti-retrovirals in South Africa. The Aspen share price also reached an all-time high of R413.00 on 24 November. YTD, Grand Parade Investments (+47.7%), Peregrine Holdings (+46.2%), Mr Price Group (+44.2%), EOH Holdings (+42.9%), Netcare (39.9%) and FirstRand (+38.5%) accounted for the remainder of the top-20 performers.
(Table available in the PDF version)
Bottom-20 shares: November performance
The shares making up the top-20 MoM worst performers and the top-20 YTD losers were very similar with construction and resource counters featuring prominently among both. Last month the Competition Commission announced its referral to the Competition Tribunal of a complaint around bid-rigging related to contracts for the construction of 2010 Soccer World Cup stadia. Although Group Five was not fined for widespread bid-rigging because it was the main whistleblower and received immunity, it has now been implicated in the stadia projects and the commission is seeking a penalty equal to 10% of its revenue in this case. MoM Group Five was the worst performer dropping 29%, while YTD the share is down 34%. Added to these woes, Group Five also released a trading update in November which further dented investor sentiment as it warned that EPS and HEPS for the six months ending 31 December would likely be more than 20% lower YoY.
Other construction and engineering companies featuring prominently among the bottom-20 shares included Aveng (down 16.0% MoM and 35.7% YTD), Stefanutti Stocks (-13.6% MoM and 44.4% YTD), Murray & Roberts Holdings (-11.3% MoM and 25.0% lower YTD) and Wilson Bayley Holmes Ovcon (WBHO -7.5% MoM). Aveng said recently that its two-year order book contracted slightly (-2%) in the three months through September, weighed down by the Group’s Australian unit where various large contracts are being completed. The company has also highlighted that its key markets (SA and Australia) remained difficult due (in part) to the lack of infrastructure spending.
York Timber continued its downward spiral emerging as the second-worst performer MoM (-24.5%) while YTD the share price is down 38.4%. Company CEO Pieter van Zyl said in a recent Financial Mail article that the company intends unlocking “the value of our timber resources,” through a radical upgrade of York’s timber processing facilities to bring them “…into line with international best practice,”. With a MoM drop of 20.8%, Eqstra was the third-worst performer and is also down 48.8% YTD. A lower gold price weighed on DRD Gold which saw its share price decline by a further 20.1% MoM. The share is now down 34.0% YTD despite the company posting an 18% QoQ increase in revenue from R447.4mn in 4Q14 to R528.5mn in 1Q15 last month. Allied Electronics PRF shares dropped 16.4% MoM and is now down 29.0% YTD.
Pressure continued on ArcelorMittal (down 16.3% MoM and 26.9% YTD) with a global oversupply of iron ore, increasingly negative demand out of China and no real catalyst (at least in the short term) to push iron ore prices higher. Added to that, Parliament’s trade and industry portfolio committee last month urged government to push ahead with proposed measures to introduce a developmental price for steel in order to promote beneficiation and, at the same time, there is also the distinct possibility that the SA government will implement a carbon tax which could cost the company upwards of R600mn p.a.
(Table available in the PDF version)
Bottom-20 shares: YTD
With the global slump in oil prices, Sasol’s share price dropped 15.9% MoM. The counter was hit especially hard following OPEC’s decision not to cut oil production in order to boost oil prices, which have plummeted c. 30% so far this year. PPC saw its share price slump 13.6% as market uncertainty took its toll on the cement producer and, added to that, the company posted poor FY14 results revealing that cash generated from operations was down 10% YoY to R2.6bn, while headline EPS was flat. Earlier in the month CEO Ketso Gordhan resigned and then embarked on a campaign to get reinstated amid media reports and accusations that the PPC board was dysfunctional.
Pinnacle Holdings dropped a further 13.4% MoM with the share price now down 54.4% YTD. Investment firm, Brait saw its share price lose 13.1% MoM following the announcement that it was divesting of its stake in retailer Pepkor. Brait said that it planned to spend the R26.4bn it received from the sale on acquisitions in SA and Europe in the next 18 months. Late last month African Oxygen (-12.1% MoM) said it had initiated a cost-cutting plan as the company grapples with weak local demand for its products.
Assore (-11.9% MoM and -47.0% YTD) continued to record significant losses on lower iron ore demand, especially from China. Last month the Group said it expected 1H profit to drop by as much as 45% YoY due to the slump in iron ore prices, while HEPS was expected to fall to R10.79 for the six months to end December vsR23.52 in the same period last year – a decline of between 37.5% and 45.9%.
Omnia Holdings, Ellies Holdings, Bell Equipment, MTN Group and BHP Billiton were down 11.8%, 11.7%, 11.0%. 10.6% and 7.4% MoM, respectively. Among these Ellies was the worst performer in the YTD bottom-20 having lost 79.7% of its value, while Bell Equipment is down 39% YTD. Omnia’s share price fell on the back of disappointing results which saw revenue increase by only 1.1% YoY to R7.6bn, profit dropping 4.7% YoY to R404mn and basic EPS sliding 4.9% YoY to ZAc606.
With petroleum accounting for c. 25% of BHP Biliton’s EBIT, the Group has also been impacted by the OPEC announcement last week and MoM the share is down 7.4% just enough to land it in the top-20 worst performers for November.
Other shares among the bottom-20 worst performers YTD, which didn’t feature among the MoM worst performers, include Coal of Africa (-52.7%), LonMin Plc (-43.5%), Kumba Iron Ore (-41.9%), Impala Platinum (-34.4%), African Rainbow Minerals (-29.3%), Harmony Gold (-27.3%), Adcock Ingram (-27.0%) and Exxaro Resources (-24.0%). Coal of Africa last month completed the first part of its capital raising, with the company receiving cash of $21.8mn for the sale of 251mn additional shares, divided according to subscription agreements on London’s Alternative Investment Market and the JSE. Kumba’s share price also remained under pressure since the company’s income is derived from iron ore, and the drop in the iron-ore price has therefore weighed heavily on the counter. Lower platinum prices and the after effects of strike action continued to impact Lonmin and Impala, while Harmony has been a victim of the lower gold price and industrial action.
In November, Adcock Ingram reported c. R50mn profit after tax in the quarter to September. The company which was the object of a an intense take-over bid between Bidvest and Chilean drug-maker, CFR Pharmaceuticals, saw the deal thwarted by Bidvest which replaced Adcock chairman Khotso Mokhele with Bidvest chairman Brian Joffe. Bidvest has refuted claims it is intent on increasing its stake (currently at 21%) in Adcock even though the Competition Tribunal approved the future acquisition of control of the struggling Adcock to above 35%. Exxaro has also seen its share price come under pressure on the back of its exposure to iron ore through its ferrous metals segment although the group also has exposure to coal, titanium dioxide and other base metals.
(Table available in the PDF version)
South Africa Market Review
South African markets closed higher yesterday, recovering some of losses recorded in the previous session. ArcelorMittal South Africa gained 5.8%, after it indicated that it would hand over the requested environmental information to an environmental activist group. Gold Fields, Harmony Gold Mining and Sibanye Gold rose 3.4%, 2.6% and 1.5%, respectively. Harmony Gold Mining revealed that it would implement a new plan to return the Kusasalethu mine to profitability. Barclays Africa Group, Nedbank Group and Standard Bank Group advanced 2.8%, 2.8% and 1.6%, respectively. However, Niveus Investments, Net 1 UEPS Technologies and Omnia Holdings fell 15.2%, 7.1% and 4.3%, respectively. The JSE All Share Index climbed 1.5% to close at 49,591.43.
UK Market Review
UK markets finished higher yesterday, led by a rebound in mining and energy sector stocks. Tullow Oil, BP, Royal Dutch Shell ‘A’ surged 6.0%, 4.7% and 4.1%, respectively. Shares of BP and Royal Dutch Shell were further boosted following speculation that the two oil giants were planning to merge. Friends Life gained 2.4%, after it was acquired by Aviva in an all-share deal for a sum totalling GBP5.60bn. Mining sector stocks, BHP Billiton and Rio Tinto climbed 2.2% and 0.7%, respectively. On the contrary, Royal Mail lost 3.0%, after the UK regulator, Ofcom, announced that it would not enforce conditions for rivals in the postal-service market. The FTSE 100 Index advanced 1.3% to close at 6,742.10.
US Market Review
US markets ended higher yesterday, after the release of upbeat US construction spending data. Biogen soared 6.4%, following positive results from an early-stage trial of its experimental drug to treat Alzheimer’s disease. Alexion Pharmaceuticals and Mallinckrodt rallied 4.3% and 4.0%, respectively. Valero Energy and Marathon Petroleum surged 4.0% and 3.7%, respectively. Shares of railroad companies, CSX Corporation, Union Pacific and Norfolk Southern advanced 4.0%, 3.8% and 2.8%, respectively. However, Ascena Retail Group dropped 0.7%, after reporting a drop in its 1Q15 revenue. The S&P 500 Index advanced 0.6% to settle at 2,066.55, while the DJIA Index rose 0.6% to close at 17,879.55. The NASDAQ Index climbed 0.6% to finish at 4,755.81.
Asia Market Review
Asian markets are trading mostly firmer this morning, mirroring overnight gains on Wall Street. In Japan, Takata Corporation climbed 2.6%, amid news that the company would form a review panel to enquire airbag safety issues. However, Otsuka Holdings slumped 4.4%, after the company agreed to acquire Avanir Pharmaceuticals for a consideration of $3.54bn. In Hong Kong, Sands China and Galaxy Entertainment retreated 4.3% and 3.6%, respectively. In South Korea, Hyundai Motor advanced 1.4%, even after it posted an annual decline in US auto sales for November. The Nikkei 225 Index is trading 0.7% higher at 17,791.74, while the Kospi Index is trading 0.3% in the green at 1,970.98. The Hang Seng Index is trading 0.2% in negative territory at 23,602.93.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.1% to trade at $70.73/bl. The American Petroleum Institute report indicated that US crude inventories shrank by 6.50mn bls last week. Yesterday, Brent crude oil fell 2.2% to settle at $70.64/bl.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 1.1% to $3.49/bushel.
At 06:00 SAST today, gold prices advanced 0.1% to trade at $1,199.44/oz. Yesterday, gold declined 1.1% to close at $1,198.28/oz., as the US dollar strengthened after data showed that construction spending in the US improved for November.
Yesterday, copper declined 0.7% to close at $6,470.50/mt. Aluminium closed 3.0% lower at $1,983.50/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, after data released in the US showed that construction spending rebounded more-than-expected for October. Going forward, market participants will eye November’s SACCI business confidence survey in South Africa and ISM non-manufacturing Purchasing Managers’ Index (PMI) report in the US later today for further direction.
The yield on benchmark government bonds rose yesterday. The yield on 2015 bond rose to 6.06% while that for the longer-dated 2026 issue advanced to 7.65%.
At 06:00 SAST, the US dollar is trading flat against the South African rand at R11.1269, while the euro is trading unchanged at R13.7808. At 06:00 SAST, the British pound has remained flat against the South African rand to trade at R17.4062.
Yesterday, the euro advanced against most of the major currencies, after the eurozone’s annual producer price inflation numbers for October came in line with market estimates. Traders will keep a tab on today’s services PMI data across key European nations and the UK for further direction to risk appetite.
At 06:00 SAST, the euro remained unchanged against the US dollar and the British pound to trade at $1.2384 and GBP 0.7917, respectively.
Economic Updates
The National Association of Automobile Manufacturers of South Africa (NAAMSA) indicated that new vehicle sales in South Africaadvanced 0.9%, on an annual basis, in November, compared with a 4.9% increase reported in October.
The number of people unemployed in Spain fell unexpectedly by 14.70K in November, compared with an increase in the number of unemployed people of 79.20K reported in October.
The construction Purchasing Managers’ Index (PMI) in the UK dropped to 59.40 in November from a reading of 61.40 posted in October.
The producer price index in the eurozone eased 0.4%, on a monthly basis, in October, following a 0.2% climb posted in September.
The US Federal Reserve Bank (Fed) Vice Chairman, Stanley Fischer, cautioned that a decline in the US consumer prices would compel the central bank to delay interest rate hike. However, at the same time, he hinted that the Fed might soon get rid of its forward guidance language that interest rates in the nation would remain close to zero for a “considerable time”.
On a monthly basis, in October, construction spending in the US rose 1.1%, compared with a revised 0.1% fall recorded in September.
The official non-manufacturing PMI in China advanced to 53.90 in November from a reading of 53.80 registered in October.
In 3Q14, the seasonally adjusted Gross Domestic Product (GDP) in Australia rose 2.7%, on an annual basis, following a revised similar rise reported in 2Q14.
Corporate Updates
South Africa
Arcelormittal South Africa Limited: The company announced that it would not challenge an appeal court ruling that the company must hand over documents related to its largest steel plant to the Vaal Environment Justice Alliance (VEJA). Additionally, the company indicated that it would raise its prices if the government implements a carbon tax in FY16.
Datatec Limited: The company announced that its subsidiary, Logicalis Group Limited, has inked agreements to acquire 100.0% of the issued share capital of Inforsacom Holding GmbH, a German ICT services and solutions provider.
Curro Holdings Limited: The independent schools group announced that it has acquired St Dominic’s, a 123 year old independent school in Newcastle.
Harmony Gold Mining: The mining company revealed that it would implement a new plan to return the Kusasalethu mine to profitability, wherein it would commence a Section 189 consultation process in terms of the Labour Relations Act and would work with representative unions to evaluate various options, including an option to cut jobs.
Crookes Brothers slashes interim dividend in bid to fund growth: Diversified agri-business Crookes Brothers on Tuesday cut its interim dividend by 19.0% to R0.65/share for 1H15.
Alexander Forbes’ results ‘confirm suitability of strategic choices’: Diversified financial services group Alexander Forbes Group Holdings lifted 1H15 headline EPS to R0.12 from a loss of R0.23 in the previous interim period.
Investors urged to stick with PPC’s board: PPC investors should vote against a resolution to remove the cement company’s board as its activist shareholders have not made a compelling enough case for such drastic action, says global shareholder voting research firm Glass Lewis & Company.
Illovo plans to boost diversification with Zambia distillery: Illovo Sugar plans to build an alcohol distillery in Zambia, its second biggest market by earnings, as part of its long-term strategy to generate 20.0% of operating profits from downstream sources.
Uncertainty surrounds Cambist: A former employee at OneLaw, the company that operate(d) the Cambist Online Platform, has told Moneyweb how staff members at the company were called together on Monday morning and dismissed with immediate effect.
S&P stay of execution gives Eskom bond lift: Standard & Poor’s decision not to cut Eskom Holdings SOC Limited to junk has given some relief to holders of the South African power utility’s bonds.
Ford cancels SKF components contract, hits South African jobs: Some 250 jobs at a South African forging company could be cut after US motor company, Ford, cancelled a components contract with SKF, just weeks after strikes hit car parts manufacturers, a union said on Tuesday.
Strong balance sheet a competitive advantage in Africa: Access to funding is the top challenge in delivering large, complex infrastructure projects, a PwC survey among 95 infrastructure owners, funders and representatives of construction and operating companies and public enterprises in sub-Saharan Africa shows.
Wal-Mart’s South Africa growth slowed by mall food fight: As South African supermarket chains seek to defend their business from the encroaching heft of Wal- Mart Stores Inc., the US retailer is getting mired in a food fight at the mall.
Steinhoff unperturbed by Pepkor criticism: Steinhoff stuck to its guns over its handling of the Pepkor transaction at a fairly uneventful AGM on Tuesday, as Chairman, Dr Len Konar said he would “disagree agreeably” with the views of corporate governance activist, Theo Botha.
Cosatu calls for Eskom investigation: Trade union federation Congress of South African Trade Unions (Cosatu) has called on Public Enterprises Minister, Lynne Brown, to investigate the root causes of the problems at Eskom and “take stern action against those who have failed to do their job to ensure proper management of the entity”.
Sanral escapes the Moody’s chop: Moody’s Investors Service has refrained from downgrading roads agency, Sanral, in spite of pressure on Sanral’s cash flow following the announcement of a review panel to assess the impact of its controversial e-toll system in Gauteng.
UK and US
Microchip Technology: The company revealed its revised financial guidance for 3Q15, wherein it indicated that net sales are expected to be down between 2.0% and 5.0% sequentially and non-GAAP EPS is estimated to be between $0.60 and $0.64. In its previous guidance, the company expected its net sales to be down between 2.0% and 7.0% sequentially and non-GAAP EPS to be between $0.59 and $0.64. Market expects the company’s 3Q15 EPS at $0.62 and revenue at $520.80mn.
Ascena Retail Group: The retailer, in its 1Q15 results, indicated that its net sales dropped slightly to $1.19bn from $1.20bn posted in the same period earlier year. Its total net diluted EPS stood at $0.32, better than market estimates of $0.26/share. The company sees its FY15 adjusted diluted EPS from continuing operations in the range of $0.90 to $1.00.
OmniVision Technologies: In its 2Q15 results, the digital imaging products maker stated that its revenue declined to $394.05mn from $397.25mn reported in the same period preceding year. Its non-GAAP diluted EPS was registered at $0.60, better than market expectations of $0.51/share. The company expects its 3Q15 EPS in the range of $0.22 to $0.38, versus market consensus of $0.33/share and 3Q15 revenue between $275.00mn and $305.00mn, versus market anticipations of $331.70mn.
Bob Evans Farms: The company, in its 2Q15 results, revealed that its net sales increased to $333.28mn from $332.60mn posted in the corresponding period a year ago. Its non-GAAP diluted EPS was reported at $0.36, better than market anticipations of $0.33/share. The company sees FY15 EPS to be between $1.90 and $2.10, versus market consensus of $1.92/share.
Bazaarvoice Inc.: In its 2Q15 results, the company indicated that its revenue climbed to $47.33mn from $41.15mn registered in the corresponding period earlier year. Its non-GAAP basic and diluted net loss per share was posted at $0.05, better than market expected loss of $0.09/share.
Powell Industries: The manufacturer of packaged equipment, in its FY14 results, stated that its revenue rose to $647.81mn from $640.87mn posted in the preceding year. Its diluted EPS stood at $0.20, compared with market estimated loss of $0.08/share. The company sees its FY15 EPS in the range of $1.75 to $2.30, versus market consensus of $2.46/share and its FY15 revenue between $650.00mn and $710.00mn, versus market expectations of $738.80mn.
Ford Motor: The company revealed that its US sales dropped 1.8% on an annual basis, to 187,000.00 vehicles in November. Markets were expecting a drop of 2.0%.
General Motors: The company reported US sales of 225,818.00 vehicles in November, up 6.0% compared with the sales in the same period prior year and more than market expected a rise of 2.6%.
Avanir Pharmaceuticals: The company announced that it has entered into a definitive agreement with Otsuka Pharmaceutical, wherein the latter would acquire the former an approximate consideration of $3.50bn.
Cypress Semiconductor: The company announced that it has entered into a definitive merger agreement with Spansion, wherein the transaction valued at approximately $4.00bn.
Idera Pharmaceuticals: The biopharmaceutical company revealed that it has come up with new preclinical data that showed cancer immunotherapy with intratumoral injections of IMO-2055 and ipilimumab demonstrated potent and systemic anti-tumor activity in multiple preclinical cancer models.
Merlin Entertainments: The company, in its trading update for the 47 weeks ended 22 November 2014, announced that the business has traded well since the summer with all three operating groups reporting continued revenue growth. The company indicated that it expects to deliver EBITDA in the range of GBP407.00mn to GBP411.00mn for FY14, representing growth of between 4.4% and 5.4% year-on-year compared with earnings of GBP390.00mn posted in FY13.
St. Modwen Properties: The company, in its FY14 trading update, stated that initial indications suggest that results would reflect an uplift in property valuations, due to market driven movements in an improving regional market as well as the company’s own value add development and asset management activities. Its profit before all tax is therefore likely to be at the top end of market expectations. The company added that it remains in a strong position financially, approaching GBP200.00mn of undrawn facilities in place.
Northgate Plc: The company, in its 1H15 results, indicated that its revenue increased to GBP304.95mn from GBP288.78mn posted in the same period last year. Its underlying diluted EPS rose to 28.00p from 18.00p recorded in the corresponding previous year. The company also stated that its plans to open new sites in the UK are on track and trading from these new sites is exceeding its initial plans. The company remains confident that it is well positioned to deliver further growth and attractive returns to shareholders. The company is currently trading slightly ahead of its expectations.
Astrazeneca: The pharmaceutical company stated that the US Food and Drug Administration (FDA) approved it to file the new drug application for its lung cancer drug, IRESSA.
Aviva Plc: The life and health insurer indicated that it has agreed to acquire Friends Life Group Limited for about GBP5.60bn. Following acquisition, Friends Life shareholders would own about 26.0% of the issued ordinary share capital of the enlarged Aviva Group.
Howden Joinery Group: The company announced that its UK Howden Joinery depots have achieved product sales of GBP1.00bn in the year to date as better consumer sentiment and several government initiatives continued to bolster the country’s housing market.
Grafton Group: The company indicated that it has completed the acquisition of Crescent Building Supplies (Ruislip) Limited for an undisclosed amount.
Mitie Group: The company stated that it has extended its transformational partnership delivering integrated facilities management (FM) for Lloyds Banking Group to 2022.
Unite Group Plc: The developer and manager of student accommodation indicated that it has bagged planning approval for the development of a one acre site in the centre of Aberdeen.
Kier Group: The company confirmed that Bev Dew would take up the role of the Finance Director with effect from 1 January 2015.
Financial Times
Overseas purchases of UK companies hit low: The number of British companies bought by overseas investors has fallen to the lowest level for quarter of a century, according to new data on mergers and acquisitions published by the Office for National Statistics on Tuesday.
Schlumberger cuts seismic survey fleet as oil weakens: Schlumberger, the world’s largest oil services group, is cutting back its fleet for offshore geological surveys and taking an $800.00mn write-down on the value of its ships, in the first significant cutback in the industry following the recent fall in crude prices.
Lloyds sells Irish mortgage portfolio to Goldman Sachs and CarVal: Lloyds Banking Group’s troubled Irish loan book is now more than two-thirds below its peak after it sold a GBP1.60bn portfolio of mortgages to Goldman Sachs and CarVal, the private equity group.
Jaguar Land Rover settles pay dispute: A pay dispute at Jaguar Land Rover that raised fears of a return to FY70s-style industrial strife in British carmaking appears to have been resolved after the company parked plans to tinker with its pension scheme.
FinnCap boosted by strong pipeline of capital raising: FinnCap, the largest broker to Aim-listed companies, reported an increase in revenue and profits during 1H15, boosted by a strong pipeline of capital raising.
Autonomy founder to call in US regulators: Autonomy founder, Mike Lynch, plans to ask US regulators to investigate evidence that he believes shows Hewlett-Packard made “false representations to the market” over its massive writedown on its acquisition of the UK software maker.
ITE Group sales fall but earnings beat expectations: The imposition of sanctions on Russia and the political crisis in Ukraine caused a sharp decline in full-year revenues at ITE Group, although the trade show operator still managed to beat analysts’ expectations.
Times newspaper turns first operating profit since FY01: Rupert Murdoch’s Times newspaper titles have reported their first operating profit in 13 years, bringing an end to a stretch of losses that totalled nearly GBP400.00mn.
Cenkos looks north to tap regional revival: Cenkos, the small-cap broker, is to open an office in the north of England, the second London group in as many months moving to harness the spread of the UK’s economic revival to its regions.
Fillip for Olympic quarter cultural hopes: George Osborne has announced plans to support a major new cultural quarter at the Olympic Park in East London, intended to lure big institutions such as the Smithsonian, the Victoria and Albert Museum and University College London to the site.
Black Friday breaks records at John Lewis: The lure of Black Friday bargains lifted weekly sales at John Lewis to the highest levels in its 150-year history, with one tablet computer sold every second in the rush for pre-Christmas bargains.
UK oil groups to receive $40.00mn from Iraqi-Kurdistan deal: Gulf Keystone Petroleum and Genel Energy – the oil group run by former BP Chief Executive, Tony Hayward, – have welcomed a deal between Baghdad and the Kurdistan Regional Government that has enabled them to receive $40.00mn in overdue export revenues.
Early investors to make big gains on Lending Club IPO: High profile Wall Street names including Lawrence Summers, former US Treasury Secretary, and John Mack, former Morgan Stanley Chief, stand to make tens of millions of US dollars when Lending Club lists on the New York Stock Exchange next week.
Mexico exchange names Sacristán as new head: Mexico’s stock exchange has named a veteran financier, Jaime Ruiz Sacristán, to take over as its president from January after the resignation of the long-serving, Luis Téllez.
Citigroup to close LavaFlow trading venue: Citigroup is to shut down the private trading venue that was fined by US regulators earlier this year as the bank
Sanofi agrees EUR250.00mn R&D outsourcing deal: Sanofi of France has entered exclusive talks over a EUR250.00mn drug discovery alliance with Evotec of Germany aimed at increasing productivity from its research and development effort.
Otsuka to buy US maker of promising Alzheimer drug: Otsuka Holdings of Japan has struck a deal to buy Avanir Pharmaceuticals of California for $3.50bn in its second large acquisition in the US market in just over a year.
Coach and Brown Shoe Company vie for Stuart Weitzman: Coach, the US accessories group, is among a small list of bidders vying to acquire Stuart Weitzman, the woman’s luxury shoemaker, in a deal that is likely to be agreed before the end of FY14.
Christie’s Chief Murphy to step down: Steven Murphy has stunned the art world by revealing he will step down as Christie’s Chief Executive at the end of FY14, less than a month after the auction house smashed records for the biggest sale in history.
Chinese tech group Xiaomi to invest in Silicon Valley start-up: Xiaomi, the fast-growing Chinese smartphone maker, is making its first US investment, as part of a $40.00mn fundraising for internet-of-things start-up Misfit.
Royal Mail shares fall as Ofcom rejects claims: Royal Mail shares fell after Britain’s postal regulator rejected the company’s argument that its ability to deliver letters across the UK for a fixed price was threatened by new competitors.
BP: Rose 4.7% to GBP4.34, as speculation of a Royal Dutch Shell bid was given a wide airing.
Royal Mail: Lost 3.0% to GBP4.06, after regulator Ofcom said it would not take action to limit competition among direct mail-delivery groups.
Cigarettes: smoke ’em if you got ’em: Smokers in the developed world are out in the cold. Regulators have moved smoking from bars into streets; advertising has moved from screens to, at best, still pictures. Two years ago, Australia introduced “plain” packaging – adorned with such gruesome warnings that the adjective hardly fits. This week China, home to 300.00mn smokers and accounting for a third of the world’s tobacco use, according to Euromonitor, announced a ban in Beijing’s indoor public spaces, to commence in June. The Chinese market is dominated by state-owned enterprises and counterfeit goods, so the direct impact on multinationals will be small. But the message is clear. Growth will become harder to find, even in the emerging world. Forecasts are faltering: expected earnings per share have fallen about one-tenth as the year has progressed. Typical is Philip Morris, with 70.0% of sales in emerging markets. Since its FY08 spin-off from US-focused parent Altria, the company has achieved annual earnings per share growth of one-tenth. This year, growth will fall 6.0%. Japan Tobacco and British American have a similar tale of woe. And yet the stocks are not cheap, on mid-teens multiples of FY15 EPS.
Saipem and South Stream: Eni ideas?: The Black Sea is the largest basin of anoxic water in the world: it lacks oxygen. So it is a bit like the long-delayed South Stream gas pipeline to Europe from Russia. On Tuesday Vladimir Putin cut off the air entirely. The project will not go ahead, he said. South Stream always had its doubters. But one committed fan was the Italian oil services company, Saipem. It won two projects worth EUR2.40bn this spring to lay pipe under the Black Sea from Russia to Bulgaria. While Saipem has yet to receive formal notice, termination of South Stream will hurt. The project represents over a tenth of its EUR22.50bn backlog. Next, assuming that Saipem delivered roughly EUR2.00bn of the project next year (preparatory work had already begun), Credit Suisse thinks the company could lose EUR200.00mn in operating profits, a fifth of the total. The shares lost 9.0%. South Stream is not the only problem. Saipem must contend with the threat of declining capital spending from oil companies in the years ahead, and with a leveraged balance sheet. At over three times net debt to earnings before interest, tax, depreciation and amortisation, Saipem stands out as the most indebted of its rivals. Technip (even after recently buying CGG), Subsea 7 and Wood Group all carry little gearing. Russia’s decision on South Stream has left Saipem gasping. Analysts expect cash flow after spending will be positive next year. If so, Saipem should use the money to cut debt and prepare for the new atmosphere in the energy industry.
Aviva: hope springs: About GBP1.00bn. That is the amount of value that the stock market believes will be destroyed by Aviva’s acquisition of rival UK insurer Friends Life. Before talks were announced last month, Aviva’s market capitalisation was GBP15.80bn. It closed on Tuesday, when the deal was confirmed, at GBP14.80bn. And that was after a share price bounce – the details were apparently more attractive than November’s outline. The GBP225.00mn of cost savings might be responsible. Taxed and capitalised they are worth about GBP1.80bn, well north of the GBP400.00mn premium that is being offered. Add the savings to what the two businesses already produce, and Aviva’s annual cash flow will improve from GBP400.00mn to about GBP1.00bn. That gave Aviva Chief Executive, Mark Wilson, the confidence to raise this year’s final dividend by 30.0%. There will be more increases. The plan is to reduce dividend cover from 2.80 times last year to 2.00 times over the medium term. There should also be cash to invest overseas or in back books of the life assurance business (where Friends specialises). Perhaps the GBP1.00bn share price drop is harsh. The regulatory flux around such products suggests it is difficult to predict who will benefit. And the deal will add several more years of restructuring to two companies that have already been restructuring for years. All the while, competitors have been able to focus on selling and managing insurance policies.
*Published with special permission by Anchor Capital (ACG)
