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South Africa Market Review
South African markets lower on Friday. Blue Label Telecoms fell 4.1%, after revealing that it is no longer in discussions with an unnamed party that had expressed an interest in acquiring it. Platinum miners, Anglo American Platinum, Impala Platinum Holdings and Royal Bafokeng Platinum declined 3.7%, 1.1% and 0.6%, respectively. DRDGOLD, AngloGold Ashanti and Gold Fields dropped 2.7%, 0.7% and 0.3%, respectively. On the upside, Hospitality Property Fund, SA Corporate Real Estate Fund Nominees and Fountainhead Property Trust rose 1.7%, 1.5% and 1.2%, respectively. Omnia Holdings gained 1.1%, after the company indicated that it has acquired an 81.5% stake in Nanotron Investments. The JSE All Share Index dropped 0.1% to close at 48,043.19.
UK Market Review
UK markets finished in negative territory on Friday, pushing the FTSE 100 to its worst weekly drop since August 2011, amid the persistent weakness in oil sector firms. Petrofac and Royal Dutch Shell plunged 6.4% and 3.0%, respectively. Mining sector stocks, BHP Billiton and Rio Tinto declined 2.7% and 2.4%, respectively. SSE slipped 0.6%, after it was named as one of the companies to be penalised GBP4.60mn for failing to meet environmental targets. Bucking the trend, utility sector firms, United Utilities Group and Severn Trent climbed 3.6% and 1.6%, respectively, despite an announcement by the UK’s water authority that average water bills would fall by 5.0% by 2020. The FTSE 100 Index declined 2.5% to close at 6,300.63.
US Market Review
US markets ended in the red on Friday, as oil prices continued to decline and following soft Chinese industrial production data. Windstream Holdings fell 9.7%, after the appointment of Bob Gunderman as the new CFO strengthened prospects of a delay in the company’s plan to spin off its telecommunications network assets into an independent REIT. Halliburton fell 0.8%, amid reports that it would cut around 1,000 jobs in the Eastern Hemisphere. However, Adobe Systems climbed 9.0%, following upbeat 4Q14 results and after it revealed that it would acquire Fotolia for $800.00mn. The S&P 500 Index dropped 1.6% to settle at 2,002.33, while the DJIA Index fell 1.8% to close at 17,280.83. The NASDAQ Index declined 1.2% to finish at 4,653.60.
Asia Market Review
Asian markets are trading weaker this morning, mirroring Friday’s losses on Wall Street and following disappointing Tankan manufacturing data from Japan. In Japan, Sony Corporation retreated 2.6%, after the company’s Sony Pictures division continue to suffer series of cyber-attacks. Carmakers, Nissan Motor and Toyota Motor fell 2.6% and 1.8%, respectively. In Hong Kong, Bank of Communications declined 2.1%, despite news indicating that the bank planned to issue preferred shares worth CNY80.0 billion in both domestic and overseas markets. In South Korea, KB Financial Group and Samsung Electronics dropped 2.6% and 0.9%, respectively. The Nikkei 225 Index is trading 0.9% lower at 17,210.75, while the Kospi Index is trading 0.4% in the red at 1,913.80. The Hang Seng Index is trading 1.0% in negative territory at 23,012.41.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.5% to trade at $61.42/bl. The UAE Energy Minister, Suhail al-Mazrouei, indicated that the Organisation of the Petroleum Exporting Countries (OPEC) would not cut its crude output even if oil prices fall as low as $40.00/bl. On Friday, Brent crude oil fell 2.7% to settle at $61.09/bl., after the International Energy Agency (IEA) lowered its 2015 global oil demand outlook by 230.00kb/d to 900.00kb/d.
On Friday, the Illinois North Central No.2 Yellow corn spot prices rose 2.0% to $3.76/bushel.
At 06:00 SAST today, gold prices declined 0.4% to trade at $1,217.55/oz, as speculation continued to build up that the US Fed might consider an interest rate rise early next year. On Friday, gold declined 0.4% to close at $1,222.59/oz.
On Friday, copper rose 0.4% to close at $6,542.25/mt. Aluminium closed 0.8% lower at $1,913.15/mt.
Currencies
On Friday, the South African rand strengthened against the US dollar. Data released in the US showed that producer price inflation in the US edged down more than anticipated in November, while the Reuters/Michigan consumer confidence improved more than expected in December. Traders will keep a tab on today’s industrial production and NAHB’s housing market data in the US for further direction to the South African rand against the US dollar.
The yield on benchmark government bonds rose on Friday. The yield on 2015 bond rose to 6.43% while that for the longer-dated 2026 issue advanced to 7.97%.
At 06:00 SAST, the US dollar is trading 0.3% lower against the South African rand at R11.5782, while the euro is trading 0.4% lower at R14.3972. At 06:00 SAST, the British pound has declined 0.3% against the South African rand to trade at R18.1850.
On Friday, the euro advanced against most of the major currencies, as industrial production in the eurozone rose more than expected on an annual basis in October.
At 06:00 SAST, the euro slipped 0.1% against the US dollar to trade at $1.2437, while it has weakened 0.1% against the British pound to trade at GBP0.7917.
Economic Updates
In October, on an annual basis, construction output in the UK rose 0.7%, compared with a revised increase of 6.7% reported in September.
The Rightmove house price index in the UK dropped 3.3% in December, on a monthly basis, compared with a 1.7% fall in November.
The consumer price index (CPI) in Spain dropped 0.1%, on a monthly basis, in November, following a 0.5% advance posted in October.
On a monthly basis, in November, the final CPI in Italy fell 0.2%, compared with an advance of 0.1% recorded in October.
The current account deficit in France narrowed to EUR0.90bn in October from a deficit of EUR1.20bn registered in September.
Fitch Ratings (Fitch) had cut its credit rating on France to “AA” from “AA+”, on concerns about the country’s budget deficit.
On a monthly basis, the wholesale price index in Germany dropped 0.7% in November, following a 0.6% decrease reported in October.
The number of persons employed in the eurozone climbed 0.2%, on a quarterly basis, in 3Q14, compared with a revised rise of 0.3% posted in 2Q14.
On a seasonally adjusted monthly basis, industrial production in the eurozone rose 0.1% in October, following a revised increase of 0.5% recorded in September.
In November, the producer price index in the US dropped 0.2%, on a monthly basis, compared with a 0.2% climb posted in October.
The preliminary Reuters/University of Michigan consumer sentiment index in the US climbed more than expected to a reading of 93.80 in December from 88.80 reported in November.
The Japan’s Prime Minister, Shinzo Abe’s ruling coalition has won a landslide victory in lower house elections held on Sunday, 14 December 2014. Abe’s ruling coalition, consisting of LDP and Komeito has secured two-thirds majority in Parliament’s Lower House, winning 326 of 475 seats.
Industrial production in China increased 7.2%, on an annual basis, in November, compared with a rise of 7.7% registered in October.
Retail sales in China rose 11.7%, in November, on an annual basis, following an increase of 11.5% reported in October.
New Yuan loans in China advanced to CNY852.70bn in November, compared with CNY548.30bn posted in October.
Corporate Updates
South Africa
SABMiller Plc: The company, Gutsche Family Investments, the majority shareholders in Coca-Cola Sabco and the Coca-Cola Company have named Hüseyin M. Akin as Chief Executive Officer designate of Coca-Cola Beverages Africa, the recently announced bottling joint venture between these company.
Gold Fields Limited: The company indicated that its subsidiary, St Ives Gold Mining Company Pty Limited, which owns the St Ives Gold Mine in Western Australia, along with other major resources company and the State of Western Australia, has lodged an appeal against aspects of the Federal Court’s decision in native title proceedings to the Full Court of the Federal Court of Australia.
Omnia Holdings Limited: The company announced the acquisition of 81.45% of the ordinary and preference shares in Nanotron Investments Proprietary Limited.
Blue Label Telecoms Limited: The company indicated that it is no longer in discussions with an unnamed party that had expressed an interest in acquiring it.
SA dodges Fitch bullet: South Africa dodged an expected downgrade from ratings agency Fitch late on Friday, contrary to the views of experts who had widely expected it to slash the country’s credit rating.
A crisis for SA, but not for Eskom, says Matona: You’d think every incoming CEO of Eskom would get a memo advising them to admit that there’s a crisis to avoid sounding incompetent, out of touch, dishonest and ridiculous.
Mozambique launches new international airport: Mozambique’s President, Armando Guebuza, on Saturday inaugurated a new international airport in the northern port city of Nacala, which is shortly to be Brazilian mining giant Vale’s main hub for coal exports.
Empire-builder Wiese heads for the High Street: Not content with nailing down the largest takeover in South African corporate history, 71-year-old retail magnate, Christo Wiese, has now set his sights on expanding his empire in Britain’s retail market.
‘Cement tie-up does not make business sense’: A merging of South Africa’s two largest cement producers — PPC and Afrisam — has been under discussion at the PPC board since FY10, and is believed to have played a role in heightening tensions that eventually confirmed Ketso Gordhan’s exit from the group.
PPC’s chair pulls a fast one on the activists: Bobby Godsell’s decision to withdraw from the nominees for the “new board” of PPC dismantles the pretence that the behind-the-scenes deal to scrap this week’s special shareholders meeting was a “compromise”.
Ivanhoe drills into mistrust at Platreef: Secret payments and confusion about who benefits from resource extraction have bred mistrust between communities, traditional authorities and a company that intends to mine in Limpopo.
Media moguls’ brave new world: “In the face of digital media and the decline of print media, Times Media Group currently has limited scope for future investment and therefore limited opportunity to optimise shareholder returns.
Unpicking why the lights went dim at Ellies: It has been a torrid year for Ellies — a share-price slump, a mid-year cash crunch, an expected first-half loss, a rights offer and a restructuring. CEO, Wayne Samson, finally breaks his silence
Court cuts off inventor of Please Call Me: Nkosana Makate, who invented the Please Call Me concept, says he is baffled by a high court refusal this week to let him appeal against an earlier judgment in favour of Vodacom, the company he accuses of stealing the idea from him.
Caxton trumpets R2.20bn cash pile: Caxton’s R2.20bn cash pile represents a “war chest” that enables it to exploit any opportunities that are available, group Chairman, Paul Jenkins, told the smattering of shareholders who attended the media company’s AGM this week.
SA to announce 1,000.00 megawatts (Mw) of renewable energy contracts: South Africa will announce a series of renewable energy projects on Monday that will add 1,000.00 Mw of power into the country’s constrained electricity grid, sources close to the deals told Reuters.
US, South Africa in a flap over chicken trade: Two United States senators have threatened to try to block South Africa from a lucrative US-Africa trade agreement if Pretoria doesn’t lift import duties on cheaper cuts of chicken.
UK and US
Sherwin-Williams: The paint maker, in its guidance for FY14, indicated that sales growth is expected to be approximately 9.0% over FY13, compared with market estimated growth of 9.8%. It lowered its EPS outlook to a range of $8.75 to $8.80 from a previous range of $8.70 to $8.80 and compared with market anticipations of $8.81/share. Additionally, the company stated that for FY15, it expects a sales growth in the range of 7.0% to 11.0% and EPS to be between $10.65 and $10.85, compared with market consensus of 6.5% and $10.83, respectively.
Apple: The company announced that it has integrated PayPal into its online store, allowing shoppers in the UK and the US to use PayPal as a payment option.
Berkshire Hathaway: The company announced that it is acquiring Charter Brokerage, an oil industry logistics provider, for undisclosed terms from Arsenal Capital Partners.
Eli Lilly & Co.: The US Food and Drug Administration has approved the company’s drug, Cyramza, for the treatment of non-small cell lung cancer.
MetLife Inc.: The insurance company announced that its board has approved the company to repurchase its common stock worth $1.00bn.
Ford Motor: The automaker indicated that vehicle sales in its 20 traditional European markets climbed 7.1% from January through November, in an industry where growth was 5.7%. Additionally, the company announced that it would launch more than 12 new performance vehicles for global enthusiasts through 2020.
Tesla Motors: The company announced that its Chief in China, Veronica Wu, has resigned and Tom Zhu, its current head of charging station network development in China, would be taking over the role.
Bellway Plc: The residential property developer, in its interim management statement relating to the 18 week period ended 30 November 2014, announced that the reservation rate remains robust at 147 per week, compared with 144 per week posted for the same period previous year. The company has made a significant investment of GBP233.00mn on attractive land opportunities, compared with GBP121.00mn posted in the corresponding period a year ago. The operating margin is expected to be around 20.0% for the current financial year. The company also indicated that it is well placed to deliver further disciplined volume growth, slightly in excess of 10.0% for FY15, with further improvements in profitability and return on capital employed.
BAE Systems: The company announced that it has agreed to acquire Esterline Corporation’s wholly-owned subsidiary, Eclipse Electronic Systems Inc., for cash consideration of approximately $28.00mn. The company also indicated that it has completed the acquisition of Perimeter Internetworking Corporation.
ICAP Plc: In relation to the company’s earlier announcement that the Group Finance Director, Iain Torrens, would step down with effect from 12 December 2014, the company further revealed that its CFO, David Ireland, would act as the Interim Group Finance Director, until the appointment of a new Group Finance Director.
Carillion Plc: The support services and construction company stated that it launched a GBP150.00mn convertible bond offer to help repay borrowing under its revolving credit facility and to fund recent acquisitions.
Morgan Advanced Materials: In light of the company’s earlier announcement that its CEO, Mark Robertshaw, would step down on 31 December 2014, it further indicated that the current CFO, Kevin Dangerfield, would be taking responsibility as the Interim CEO from 1 January 2015, until a new CEO is appointed.
Financial Times
Africa’s richest tycoon adds another $2.00bn into Nigeria refinery: Aliko Dangote, Africa’s richest businessman, is increasing the size of his investment in an oil refinery, petrochemical and fertiliser plant in Nigeria by more than a fifth to $11.00bn despite a looming slowdown in Africa’s biggest economy.
UK electricity supply auction worth GBP1.80bn a year set to begin: An auction that officials estimate could cost more than GBP1.80bn a year to secure the UK’s electricity supplies beyond FY30 begins on Tuesday, aimed at procuring certain supply of nearly 50.00 Gw of capacity — the bulk of the nation’s peak energy demand.
US stripper well operators eye closures amid low oil price: Analysts examining the effect of the oil price’s precipitous decline on companies should spare a thought for stripper well operators, the mom-and-pop businesses that coax the last trickles of crude from long-ago drilled holes.
Chinese nuclear group to buy UK wind farms: China’s biggest nuclear power generator is preparing to enter Europe’s renewable energy market, snapping up three UK wind farms from French utility EDF in a signal of its intent to build a global generating business.
UN climate agreement reached in marathon session: The fortnight it took for UN climate talks to finally stagger to an end in Lima on Sunday morning has shaken many assumptions about what it will take to achieve the historic global climate deal due to be sealed in Paris next December.
Countryside to double building rate to combat homes shortage: Countryside has set out an ambitious expansion plan to double in five years the number of homes it builds as it aims to join the ranks of Britain’s biggest developers.
Tougher capital audits loom for UK lenders: British banks will have their calculations of how much capital they hold assessed by auditors for the first time under proposals to be announced this week ahead of the Bank of England’s stress tests of leading lenders.
Petsmart $8.70bn sale marks largest FY14 buyout: Petsmart, the US pet supplies retailer, has agreed to sell itself to a consortium led by BC Partners, the European private equity firm, in an $8.70bn deal that is the largest leveraged buyout of the year.
Bank traders lose big on AbbVie-Shire bets: City of London trading desks at several big investment banks lost money after the collapse of AbbVie’s $54.00bn takeover offer for Shire, raising fresh questions about whether banks are skirting a ban on making speculative bets with their own funds.
PayPal expands lending programme to merchants: PayPal is pushing to expand into the alternative lending market popularised by faster growing start-ups such as Lending Club, after already advancing more than $200.00mn of loans to consumers and small businesses.
Countryside to double building rate to combat homes shortage: Countryside has set out an ambitious expansion plan to double in five years the number of homes it builds as it aims to join the ranks of Britain’s biggest developers.
Volvo cuts back on lavish motor shows and sponsorship: Volvo is pulling back from the world’s motor shows, reducing its attendance at the typically lavish trade fairs to three main events a year as the Swedish carmaker seeks better ways to market its vehicles.
Rise in online shopping drives lending for delivery fleets: The surge in online shopping has boosted investment in delivery vans this year, as retailers and logistics companies rush to expand their commercial vehicle fleets.
ITV and Sky set for showdown over fees: The UK’s two biggest commercial broadcasters, Sky and ITV, are set for a regulatory showdown over calls that pay-TV providers should pay hundreds of millions of British pounds a year to carry free-to-air channels.
Maurice Lévy tries to pick up Publicis after failed deal with Omnicom: The latest phrase to enter Maurice Lévy’s vocabulary is “to be ubered” and the head of Publicis Groupe, one of the world’s largest advertising groups, is using it with alarming frequency.
Social supermarket to sell surplus food at discount to poor: A new “social supermarket” is aiming to cater to the poor by redistributing surplus food at budget prices — a model that has become popular in mainland Europe in recent years.
Rise in online shopping drives lending for delivery fleets: The surge in online shopping has boosted investment in delivery vans this year, as retailers and logistics companies rush to expand their commercial vehicle fleets.
Card retailers spread thrifty tidings: Greetings card providers hoping to capitalise on the busiest time of the year are facing a fierce battle this Christmas as competition intensifies for the cheapest products.
Birmingham council reels amid scathing management report: Birmingham’s Chamberlain Square may be dominated by the bustling Christmas market but for councillors inside their imposing offices there is a distinct lack of festive cheer as they digest damaging reports into their administration.
Foreign websites click with South Korean shoppers: Ahn Hee-jung is an avid user of overseas online shopping sites. Having splurged $6,000.00 on home appliances, the 31-year-old South Korean pharmaceutical researcher is thinking of buying a locally made Samsung or LG television from Amazon or eBay.
Cloudy horizon for Iomart: About the time the Scots were tussling over independence, Glasgow-based cloud computing business Iomart was negotiating with a private equity-backed rival to surrender its autonomy.
Cable accuses National Air Traffic Services of under-investment: Vince Cable, business secretary, accused National Air Traffic Services of “skimping on large-scale investment for very many years”, as ministers await a report on Friday’s computer problems that caused havoc to flights in and out of Britain.
Network Rail attacked by regulator for poor performance: Britain’s rail regulator has issued a damning rebuke to the Chief Executive of Network Rail, saying that almost every aspect of the business is getting worse.
Drax: Fell 9.9% to GBP5.09, after the Department of Energy & Climate Change said it was looking to deter further investment in converting coal-fired power stations to run on biomass.
Shale & high-yield debt: Dynasty revival: “I’ve been looking over this whole shale thing,” says Joan Collins’ character in a FY82 episode of Dynasty. “I realise that I’m relatively new to the business, but you know what they say – fresh eyes, fresh approach!” Admittedly, Alexis Carrington Colby has an ulterior motive for lending to a producer brought low by the decade’s oil glut. The debtor is her ex-husband. Still, Alexis is a canny investor in distressed debt. She spies value in the Denver Carrington company’s research into newfangled shale oil extraction technology. Overlooked productivity could mean that cash flows (or recoveries in default) hold up better than everyone else, obsessed by the oil price, seems to think. Alexis trudges through break-even prices for various shale fields, to get a sense of where capital projects will struggle to earn a positive return. But then she spots something more interesting, in a Citi research note: Overall oil rig counts rose above 1500.00 in FY14, from 1370.00 in FY13. Capex cuts could bring the count back below 1300.00 next year – but production per rig rose by a third in FY14. If the growth rate continues, it would be as if 1700.00 rigs were drilling at FY14 productivity. The rate could also fall. But when rapid expansion ends, cost cutting starts and cash flow improves. Alexis will be keeping her eye on that, rather than the oil price soap opera.
SeaWorld: rough waters: It is not, as a rule, good news when a searing popular documentary attacks the ethics of your business. But at SeaWorld the problems go deeper than that. On Thursday, the company’s troubles prompted the departure of Chief Executive, Jim Atchison. Its shares have nearly halved this year, as visitors have been put off by the film Blackfish, which highlights what the filmmakers assert is inhumane treatment of killer whales in SeaWorld parks. That share price reaction may look extreme – the SeaWorld brand accounts for just 3 of the group’s 11 parks and half of its profits. And SeaWorld parks are not just whales. But the theme park business is fragile. SeaWorld expects revenue this year to fall by up to 7.0% and operating cash flow by up to 16.0%. After playing down lower attendance earlier in the year, declines in 2Q14 and 3Q14 were sharp. Theme park competition is stiff, particularly in Florida where SeaWorld is up against the deep pockets of Comcast (owner of Universal Studios) and Disney. There are reasons for optimism. Efforts are under way to improve the killer whale shows, for example by building bigger tanks. They are essential if SeaWorld is to win back visitors. An international expansion is planned. And given the sharp drop in the share price, private equity may decide to pay another visit.
Carlsberg: strange brew: Carlsberg, the Danish brewery mixed just such a drink without realising it when they bought out Scottish and Newcastle in FY08. The deal nearly doubled their position in Russia, an oil-dependent economy, by way of S&N subsidiary Baltika. Russia’s sharp tax increase on beer in FY10, which hit beer consumption, was bad enough. The collapse of oil prices and the rouble has made matters worse. Russia represents a quarter of Carlsberg’s beer volumes and operating profits. It has about 38.0% of the Russian market, double its nearest competitor. Yes, Asia has been performing much better, but as a proportion of overall profits it is only 22.0%. It would have to grow much faster than it has recently to offset the damage from the eastern European division. Carlsberg, with an estimated EUR1.00bn of free cash flow this year and a healthy balance sheet, might need to buy another business in Asia or elsewhere to dilute the bitter brew they have in Baltika. Carlsberg management cannot afford to wait for last call. It already trades cheaply to its peers. Smaller Russian brewers have started to erode Baltika’s market share. In FY07, these smaller brewers had just 15.0%. Their share is increasing: it is now 23.0%, up from just over a fifth in mid-2013. Glasses, please!
*Published with special permission by Anchor Capital (ACG)
