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South Africa Market Review
South African markets closed in the green yesterday. Famous Brands gained 5.2%, after the company indicated that it has acquired a controlling 75.0% stake in Cater Chain Food Services. Banking sector stocks, FirstRand, Standard Bank Group and Barclays Africa Group climbed 1.5%, 1.4% and 1.1%, respectively. On the downside, platinum miners, Lonmin, Aquarius Platinum and Anglo American Platinum dropped 5.5%, 5.3% and 2.0%, respectively. Lonmin indicated that its 1H15 sales would be lower after it suspended operations at its furnace in the Bushveld Complex in South Africa. Times Media Group fell 0.5%, after its major shareholder, Blackstar, revealed its intent to take over the company. The JSE All Share Index rose 0.2% to close at 49,590.20.
UK Market Review
UK markets ended in negative territory yesterday, amid weakness in oil sector stocks. Royal Dutch Shell and Tullow Oil fell 2.5% and 1.1%, respectively, amid a persistent tumble in oil prices. Hargreaves Lansdown slid 2.9%, after the firm disclosed that its CFO, Tracey Taylor, had stepped aside. Marks & Spencer Group declined 2.7%, as problems emerged in deliveries of the company’s online orders. BHP Billiton dropped 2.5%, following downbeat imports data from China, the world’s biggest user of industrial metals. On the upside, Burberry Group and Next edged up 0.2% and 0.1%, respectively. The FTSE 100 Index declined 1.0% to close at 6,672.15.
US Market Review
US markets ended lower yesterday, led by losses in energy sector stocks. Denbury Resources, Newfield Exploration and ONEOK plummeted 10.1%, 8.5% and 7.9%, respectively, in line with a sharp fall in crude oil prices. ConocoPhillips declined 4.2%, after it announced that it would reduce its capital budget for FY15 by 20.0%. McDonald’s sank 3.8%, after the fast-food chain operator’s November same-store sales fell short of market estimates. However, Celgene advanced 3.6%, after the company’s partner, Agios Pharmaceuticals, reported encouraging data on its leukemia drug on Sunday. The S&P 500 Index fell 0.7% to settle at 2,060.31, while the DJIA Index dropped 0.6% to close at 17,852.48. The NASDAQ Index declined 0.8% to finish at 4,740.69.
Asia Market Review
Asian markets are trading in the red this morning, amid weakness in energy shares. In Japan, Japan Drilling and Inpex Corporation retreated 4.6% and 2.5%, respectively, tracking a decline in crude oil prices. Sony Corporation dropped 3.8%, after hackers raised demands and its games division suffered a brief network outage yesterday. In Hong Kong, lower crude oil prices dragged Cnooc and PetroChina and China Petroleum & Chemical Corporation 4.4%, 3.5% and 3.1%, lower, respectively. In South Korea, POSCO lost 1%. The Nikkei 225 Index is trading 0.7% lower at 17,810.30, while the Kospi Index is trading 0.4% lower at 1,971.47. The Hang Seng Index is trading 0.9% in negative territory at 23,827.37.
At 06:00 SAST today, Brent crude oil fell 1.0% to trade at $65.01/bl. According to a Bloomberg news survey, crude stockpiles in the US probably shrank by 2.50mn bls last week. Yesterday, Brent crude oil fell 3.7% to settle at $65.67/bl., amid ongoing worries about a global supply glut and as some disappointing economic data out of China and Japan sparked concerns over global economic growth and demand for crude oil.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 1.1% to $3.59/bushel.
At 06:00 SAST today, gold prices declined 0.2% to trade at $1,201.17/oz. Yesterday, gold gained 0.9% to close at $1,203.51/oz., amid speculation that central banks in Europe, Japan and China might have to resort to additional stimulus measures to support economic growth.
Yesterday, copper declined 0.9% to close at $6,458.25/mt. Aluminium closed 1.4% lower at $1,949.50/mt.
Yesterday, the South African rand weakened against the US dollar, after data released in South Africa showed that the current account deficit narrowed less than anticipated in 3Q14. Market participants will keep a tab on South African manufacturing production data and the NFIB small business optimism survey in the US later today for further direction to the US dollar-South African rand pair.
The yield on benchmark government bonds rose yesterday. The yield on 2015 bond rose to 6.32% while that for the longer-dated 2026 issue advanced to 7.80%.
At 06:00 SAST, the US dollar is trading 1.0% higher against the South African rand at R11.5576, while the euro and the British pound are trading flat at R14.2088 and R18.0648, respectively.
Yesterday, the euro advanced against most of the major currencies, after the Sentix report revealed that confidence among investors in the eurozone improved more than expected in December. Going forward, traders will eye today’s industrial and manufacturing production and the NIESR GDP estimate report in the UK along with German trade balance data for further direction.
At 06:00 SAST, the euro slipped 0.1% against the US dollar to trade at $1.2294, while it has remained unchanged against the British pound to trade at GBP0.7865.
The current account deficit in South Africa narrowed to R230.00bn in 3Q14 from a revised current account deficit of R235.00bn reported in 2Q14.
The current account deficit to GDP ratio in South Africa dropped to 6.0% in 3Q14 from a revised level of 6.3% posted in 2Q14.
The Bank of England’s (BoE) monetary policymaker, Martin Weale, stated that productivity growth in the UK labour market is not anticipated to increase to pre-crisis levels in the near-term, largely due to international factors. He further indicated that consistently slow productivity growth has implications for interest rates over both the short and the medium term.
The consumer price index in Switzerland remained flat, on a monthly basis, in November, similar to a flat reading recorded in October.
On an annual basis, real retail sales in Switzerland rose 0.3%, in October, compared with a revised advance of 0.5% registered in September.
The business sentiment index in France rose unexpectedly 97.00 in November from a reading of 96.00 reported in October.
In October, on a seasonally adjusted monthly basis, industrial production in Germany climbed 0.2%, compared with a revised advance of 1.1% posted in September.
The Sentix investor confidence index in the eurozone rose to -2.50 in December from a reading of -11.90 recorded in November.
The Atlanta Federal Reserve (Fed) Bank President, Dennis Lockhart, expressing his confidence in the US economy stated that he expects the US Fed to begin increasing interest rates in the latter half of FY15.
The seasonally adjusted housing starts in Canada advanced to 195.60k in November, compared with a revised reading of 183.70k reported in October.
The Eco Watchers Survey for the future outlook indicator in Japan dropped unexpectedly to 44.00 in November from a reading of 46.60 registered in October.
The NAB business confidence index in Australia dropped to 1.00 in November from a revised reading of 5.00 posted in October.
Lonmin Plc: The platinum producer indicated that its 1H15 sales would be lower after it suspended its Number One furnace in the Bushveld Complex in South Africa when a leak of molten furnace matte was detected. However, the company stated that sales would balance out in 2H15. In order to mitigate operational risk as it carries out the repairs, the company has brought forward the planned hearth rebuild of the furnace which was originally scheduled for October 2015. The company expects the repairs to take around three months.
Famous Brands Limited: The fast-food chain company indicated that it has acquired a controlling 75.0% stake in Cater Chain Food Services, a local business distributing primarily red meat products to customers across South African and into certain markets in Africa. The company did not disclose the financial details of the deal.
Net 1 Ueps Technologies Inc.: The company announced that it plans to participate in the SASSA tender process for a five-year contract for the payment of social grants.
Times Media Group: The company announced that it has received an expression of interest to be taken over by its biggest shareholder, Blackstar Group SE.
Sandton office owner Pivotal joins JSE: Property investment and development capital growth fund, The Pivotal Fund, listed on the JSE’s main board on Monday. Its assets include some of Sandton’s highest quality offices.
Blackstar to acquire interest in Kagiso Tiso Holdings: Blackstar, the majority shareholder in Times Media Group, is set to acquire a 22.9% interest in a reverse deal in Kagiso Tiso Holdings for R2.06bn in cash and new shares, Blackstar announced on Monday.
Insurers set sights on Africa as incomes rise: A growing middle class in sub-Saharan Africa is enticing European and South African insurers to buy local firms focusing mainly on life insurance and pensions, in the face of mature markets and strong competition at home.
Tiger learns from mistakes in Nigeria: Tiger Brands has not been put off buying businesses of scale and its rest-of-Africa strategy has been unaffected by its bad experience in Nigeria, CEO, Peter Matlare, says.
Allan Gray aims to change its Equity Fund: Allan Gray has proposed significant changes to its Equity Fund in an effort to “increase long-term returns and reduce risk through wider investment opportunities and lower fees”.
South Africans spent R3.95bn eating out in October: Restaurants and fast food outlets did a roaring trade in October, with patrons spending R3.95bn on food and drink, according to a survey released by Statistics SA on Monday.
SacOil goes for gold: SacOil, the oil & gas exploration company majority owned by the PIC, is considering extending its activities to the development of gas transportation infrastructure.
Exxaro continues to struggle: Despite reporting an 11.0% increase in both interim earnings and dividend (year-on-year) this August, South African diversified resources group, Exxaro, has had a tough year. The share price has dropped by 24.0% over the last 12 months and now, with the price hovering around R107.00 per share, Exxaro has fallen out of the JSE’s Top-40 companies in terms of market capital.
UK and US
H&R Block: The tax preparation company, in its 2Q15 results, indicated that its total revenue climbed slightly to $134.63mn from $134.34mn posted in the same period earlier year. Its non-GAAP adjusted loss per share from continuing operations was reported at $0.45, worse than market expected loss of $0.42/share.
Diamond Foods: The packaged food company, in its 1Q15 results, stated that its net sales climbed to $246.62mn from $234.67mn reported in the same period earlier year. Its non-GAAP diluted EPS stood at $0.28, better than market estimates of $0.25/share. Additionally, the company reiterated that its FY15 adjusted EBITDA is expected to be between $115.00mn and $123.00mn and non-GAAP diluted EPS is anticipated to be in the range of $0.90 to $1.10.
Ingles Markets: The supermarket chain, in its FY14 results, revealed that its net sales rose to $3.84bn from $3.74bn recorded in the earlier year. The diluted EPS for class A shares jumped to $2.28 from $0.87 registered in the previous year.
Photronics Inc.: The semiconductor photomask manufacturer, in its FY14 results, indicated that its net sales advanced to $455.53mn from $422.18mn posted in the previous year. Its diluted EPS jumped to $0.41 from $0.29 recorded in the preceding year.
Liberty Tax: The tax preparation company, in its 1H15 results, stated that its total revenue increased to $15.57mn from $15.38mn reported in the corresponding period a year ago. Its basic and diluted net loss per share of Class A and Class B common stock increased to $1.56 from $1.12 posted in the similar period prior year.
Verizon Communications: The company announced that it continues to see strong momentum for wireless customer growth in 4Q14. However, the company anticipates its promotional offers in 4Q14 to put short term pressure on its wireless segment EBITDA and EBITDA service margin as well as its consolidated EBITDA margin (non-GAAP) and EPS.
McDonald’s: The company announced that global comparable sales dropped decreased 2.2% and comparable sales in the US dropped 4.6% in November.
Digital River: The company announced that it has extended the deadline for Microsoft from 1 December 2014 to 19 December 2014 to give the latter more time to give a prior notice to the former about its decision related the extension of the Microsoft Operations Digital Distribution Agreement between the two companies.
Hanwha SolarOne: The company indicated that it has agreed to acquire Hanwha Q CELLS Investment Company Limited from Hanwha Solar Holdings Company Limited in an all-stock deal that would create the world’s largest solar cell manufacturer valued at about $2.00bn. The implied equity value for Hanwha Q CELLS is approximately $1.20bn.
Scottish Investment Trust Plc: The company, in its FY14 results, that stated that its income dropped to GBP19.85mn from GBP22.29mn recorded in last year. Its EPS declined to 11.51p from 13.41p posted in the previous year, due to a lower level of investment during the first part of the year and a higher contribution from special dividends in the preceding year.
Aviva Plc: The company confirmed that Andy Briggs would join the board of the company as an Executive Director and Chief Executive Officer of its UK & Ireland Life business, and that Sir Malcolm Williamson would become the Senior Independent Director of the company. The proposed appointments are likely to become effective by 2Q15, subject to shareholder and regulatory approval of the conditions of the proposed acquisition of Friends Life Group limited and regulatory approval of these appointments.
InterContinental Hotels Group: The hotel operator announced that it has accepted the offer from Constellation Hotels France Grand SA, an affiliate of Constellation Hotels Holding Limited, to acquire InterContinental Paris – Le Grand for EUR330.00mn. The transaction is expected to complete by the end of 1Q15.
Jardine Lloyd Thompson Group: The company revealed that it has agreed to acquire Hayward Aviation Limited from Towergate Insurance Limited for a cash consideration of GBP27.00mn.
Carillion Plc: The company indicated that it has inked a GBP75.00mn contract with Liverpool Football Club to expand its main stand at Anfield and to deliver associated improvement works.
Ultra Electronics Holdings: The company announced that its Sonar Systems business, based in Greenford, Middlesex, has been awarded a GBP27.00mn contract for the Royal Navy’s Sonar 2050 Technology Refresh (S2050TR) Programme.
esure Group: The company indicated that it has conditionally agreed to acquire the outstanding 50.0% of Gocompare.com Holdings Limited for a consideration of GBP95.00mn, increasing its holding to 100.0%. The acquisition is subject to competition and markets authority approval.
Hansteen Holdings: The property investment company announced that it has acquired nine multi-let and single-let industrial properties, located in established commercial zones across Germany, for a total of EUR56.60mn, inclusive of costs. A portfolio of seven properties has been acquired from SEGRO Plc and the remaining two from Tetra Pak Produktions GmbH & Company KG and from Kungsleden AB, respectively.
Big businesses plan UK hiring spree, says ManpowerGroup: Britain’s large companies plan to accelerate hiring in the new year, according to a survey by recruitment company, ManpowerGroup.
Bargain hunters help UK to best shop sales growth in three months: Britain’s high streets have recovered from their miserable early autumn after shoppers rushed to find pre-Christmas electrical bargains in November, helping retailers achieve their best sales growth in three months.
Sun journalist denies bribing police: A former managing editor of The Sun newspaper has denied bribing a police officer for information relating to the FY02 Soham murder inquiry into the deaths of two schoolgirls.
Cupid falls out of love with online dating websites: Cupid’s love affair with internet dating looked to be over as the online matchmaking company said it is selling Uniformdating.com, Cupid.com and Lovebeginsat.com to a corporate network Chaired by its Ukrainian co-Founder.
Gocompare founder to pocket GBP44.00mn selling her stake: The self-styled “Welsh girl from the valleys” who set up the Gocompare price comparison business said on Monday the venture had “never been about the money” even as she prepared to pocket GBP44.00mn selling her stake.
Payday lenders introduce lower-fee loans as new rules loom: The UK’s biggest payday lenders are trialling loans with lower fees ahead of rules starting next year that are expected to wipe out the majority of short-term credit providers.
Canary Wharf shareholder agrees to sell stake as battle hots up: Madison International Realty has become the second shareholder to choose to sell out of Canary Wharf in the face of a determined takeover bid.
BP fails in US Supreme Court gulf appeal: BP’s hopes of limiting the cost of compensation for its FY10 oil spill in the Gulf of Mexico have been dealt a severe blow by the US Supreme Court, which has refused to hear the case over what the UK oil company describes as unjustified payments.
Price comparison websites start to mature: Just two years ago Gocompare, one of the UK’s four big price comparison sites, was being touted as a potential stock market candidate with a valuation of as much as GBP500.00mn.
London’s Camden Market brings alternative lifestyle to Stock Exchange: The owner of London’s Camden Market, renowned for attracting tourists and musicians in search of a gig, is to float on the stock exchange.
Watchdog warns retailers over supplier payments: Retailers must provide much more clarity about the extent and nature of payments they receive from their suppliers in their audited accounts, the UK’s Financial Reporting Council has warned amid growing political scrutiny of the sector.
Towergate offloads aircraft cover unit Hayward Aviation: Insurance broker, Towergate, has made the first of several expected disposals as one of Britain’s biggest private companies tries to raise cash as part of a fight to stay in business.
Petropavlovsk shares plunge on $235.00mn refinancing plan: Petropavlovsk, the struggling Russian gold miner, has set out plans for a deeply discounted rights issue, as part of a refinancing deal to alleviate the burden of more than $900.00mn of debt.
Quindell calls in PwC for independent review of business: Quindell has called in auditors PwC to conduct an independent review of its claims-processing business, the first substantial move at the company since Founder and Chairman, Rob Terry was forced out last month.
Renewed pressure on crude oil prices weighs on US energy groups: Renewed pressure on crude oil prices on Monday weighed heavily on the shares and bonds sold by US energy companies.
Conoco slashes investment after oil slump: ConocoPhillips has become the first major oil and gas company to detail cuts to its capital spending plans following the steep fall in crude prices since June, by revealing that it will spend about 20.0% less next year than in FY14.
Saudi in ‘race against time’ to cut reliance on oil: Saudi Arabia has warned it is in “a race with time” to cut its reliance on oil as the world’s governments move to tackle climate change by curbing the use of fossil fuels.
US sues Deutsche in $190.00mn taxes claim: Deutsche Bank and other firms are being pursued for more than $190.00mn over allegedly setting up shell companies to avoid paying US taxes in FY00, according to a lawsuit filed Monday by the US attorney for the Southern District of New York.
PwC sold ‘tax avoidance on industrial scale’: MPs accused a firm of accountants of “selling tax avoidance on an industrial scale” on Monday after a tense parliamentary hearing sparked by the leak of hundreds of Luxembourg tax rulings.
Berkshire’s specialist insurance arm lands foothold in Singapore: Berkshire Hathaway’s specialist commercial insurance arm has secured its first permit to operate outside the US in the latest sign the recently-formed division of Warren Buffett’s conglomerate is aiming to reshape the industry.
Merck’s Cubist takeover highlights lure of antibiotics: The $9.50bn takeover of Cubist, the US biotech company, by Merck & Co highlights renewed interest from big pharma in the long-neglected market for antibiotics.
Superbug threat drives $9.50bn Merck deal: The growing threat from deadly superbugs prompted Merck to spend about $9.50bn including debt to buy Cubist, the US biotech company, its Chairman said on Monday as he confirmed a deal that highlights big pharma’s fresh interest in antibiotic drugs.
Saint-Gobain targets Sika with SFr2.75bn bid for Burkard stake: French industrials group Saint-Gobain has signed a SFr2.75bn (EUR2.30bn) deal to gain control of its family-controlled rival, Sika, despite fierce opposition from the Swiss group’s board and management.
Axel Springer pays EUR446.00mn for control of digital joint venture: Axel Springer, Europe’s biggest newspaper publisher by circulation, is taking full control of its digital classifieds joint venture for EUR446.00mn in cash and an equity stake.
Sales slide continues at McDonald’s: The slide in sales at McDonald’s continued last month as the world’s largest fast-food chain reported a 4.6% drop in same-store sales in the US.
Weir Group: Lost 5.3% to GBP17.41, on continued worries that reduced expenditure among shale oil companies will force the pumpmaker to cut earnings guidance.
Hargreaves Lansdown: Fell 2.9% to GBP9.63, following Friday’s surprise resignation of its CFO, Tracey Taylor.
Songbird: bird in the hand: Shares in the company (which owns 69.0% of Canary Wharf) were trading at GBP1.60 a year ago. Higher? In June the company said its net asset value was GBP3.19. Lower? The Qatar Investment Authority and Brookfield offered GBP2.95 per share in November, which was rejected. Higher? A revised valuation last month, compiled independently, put NAV at GBP3.81. Lower? Another estimate of NAV, which adjusts for tax and mark to market valuations of derivatives (so-called triple NAV), stands at GBP3.04. As poor old Brucie pauses for breath, there is only one number that matters. The latest (and final) offer from QIA and Brookfield, a US asset manager, is GBP3.50. Songbird has not yet given a full response but its initial reaction is sniffy, saying that it does not reflect the full value of the company. The offer is, after all, a discount to the latest GBP3.81p NAV, and that NAV does not include any potential profits from a string of developments that Canary Wharf is planning. But put those NAVs to one side. Balance sheet valuations are art as much as science, as the one-fifth jump between the June NAV and the November NAV figures shows. What is more certain is that the cash offer is a 119.0% premium to where the shares were a year ago. London property is a popular asset class as money pours in from around the world, but it has not doubled in a year. It is far easier to sell on the way up than it is to either time the top of the market, or sell on the way down. The QIA offer looks good.
Dalian Wanda: big fish: Size is not everything, except when it is. Dalian Wanda will vault past peers to become the largest Hong Kong-traded Chinese property company, with a market capitalisation of up to $30.00bn, when it lists this year. China Overseas Land and Investment and China Vanke — next in line — are valued at $25.00bn and $22.00bn respectively. Such size could warrant a fast track into MSCI indices. Dalian Wanda has got here quickly. In just over a decade, Founder and ex-People’s Liberation Army soldier, Wang Jianlin, has built the company’s (pre-offering) net asset value to nearly $20.00bn. It is more than just large: Dalian Wanda is also unusual among private China property developers for its reach, with 175 projects in 111 cities. It has recently expanded overseas to cities including London and Los Angeles. And it is still growing: projects planned through to FY16 will require funds of $70.00bn. The deal may work out all the same. At least half of the issue — which is 13.0% of the company overall — is already locked up by anchor investors. And should the stock join the big indices, tracker funds will be forced to buy. Still, anchor investors need only keep their shares for six months after listing. Given the recent run in blue-chip property names against which Dalian Wanda is priced, that might be a better time for other investors to buy.
BHP Billiton: a miner by any other name: The name (unveiled on Monday) of next year’s planned BHP Billiton mine spinout refers to the 32nd southern parallel, actually. The latitude is where many of the new company’s South African and Australian assets are digging out nickel, manganese and other commodities that BHP has become too big to manage properly. Well, a rose by any other name. What smells sweetest is cash flow. A more pressing implication of South 32 for a BHP shareholder then is that if there is now a name, then the spinout is getting closer. BHP commits itself to increasing its dividend over time, or at the least maintaining the absolute level of the payout. This is presently just under half of earnings ($1.21 paid out on $2.53 per share in FY14 financial year, for example). This progressive policy means that BHP’s dividend payout ratio will increase once the earnings of assets assigned to South 32 depart. So the ratio rises to perhaps 55.0%. So it looks as though, even if commodity prices continue to fall, dividend investors still have a cushion. One answer for BHP is to crank out more volume per dollar of capital spent on either resource. Rival Rio Tinto is aiming to do the same volume trick in iron ore, though – guess the effect on prices – and has taken to calling itself the Cash Machine, a hint of dividends increasing next year when a Glencore bid may otherwise tempt Rio holders. Whatever the name, it comes back to cash.
*Published with special permission by Anchor Capital (ACG)
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.