South Africa Market Review
South African markets closed higher yesterday, recovering some of previous session losses, amid strength in gold miners. Harmony Gold Mining, Gold Fields and Sibanye Gold climbed 11.4%, 8.8% and 8.1%, respectively. Naspers gained 5.0%, after South Africa’s competition approved the acquisition of the company’s e-commerce firm, Kalahari.com, by Takealot. Nedbank Group, Standard Bank Group and Barclays Africa Group rose 4.2%, 4.0% and 2.6%, respectively. Investec gained 1.1%. Recent media reports indicated that it is interested in buying Coutts International. However, Aquarius Platinum, Royal Bafokeng Platinum and Anglo American Platinum fell 2.9%, 1.8% and 0.6%, respectively. The JSE All Share Index advanced 1.6% to close at 48,598.19.
UK Market Review
UK markets finished lower yesterday, after data indicated that service sector activity in the UK grew at a slower than expected pace in December. Banking sector stocks, Lloyds Banking Group and Royal Bank of Scotland Group fell 2.4% and 2.1%, respectively, amid ongoing concerns over Greece’s future in the eurozone. Housing sector stocks, Barratt Developments and Persimmon dropped 2.1% and 1.6%, respectively, after the BoE’s Credit Conditions Survey revealed significantly lower demand for home purchase loans during 4Q14. Bucking the trend, mining sector stocks, Fresnillo and Rio Tinto advanced 2.9% and 2.1%, respectively. The FTSE 100 Index declined 0.8% to close at 6,366.51.
US Market Review
US markets ended in the red yesterday, following downbeat US service sector activity data and as oil prices dropped further. Southwestern Energy, ONEOK and ConocoPhillips lost 5.0%, 4.2% and 4.1%, respectively. Fifth Third Bancorp, Citigroup and JPMorgan Chase & Company dropped 4.0%, 3.5% and 2.6%, respectively. TripAdvisor, Pandora Media and LinkedIn fell 3.7%, 3.5% and 3.5%, respectively. However, Newmont Mining climbed 4.2%, in line with a rise in gold prices. AOL advanced 3.4%, amid reports that Verizon Communications approached the company about a potential acquisition or joint venture. The S&P 500 Index dropped 0.9% to settle at 2,002.61, while the DJIA Index declined 0.7% to close at 17,371.64. The NASDAQ Index lost 1.3% to finish at 4,592.74.
Asia Market Review
Asian markets are trading firmer this morning. In Japan, Takata Corporation climbed 5.4%, after Sumitomo Mitsui Financial Group indicated that it was set to back the debt laden company if required. Daikin Industries added 0.7%, amid news that the company would spend $420.00mn for the widening its Goodman operations in the US. In Hong Kong, Citic Securities and Haitong Securities gained 4.3% and 2.5%, respectively. In South Korea, Hyundai Motor jumped 3.7%, after it indicated that it would invest KRW81.00trn over the next 4 years for global expansion as well as R&D purpose. The Nikkei 225 Index is trading 0.4% firmer at 16,946.36, while the Kospi Index is trading 0.2% higher at 1,885.26. The Hang Seng Index is trading 0.7% in the green at 23,642.14.
Commodities
At 06:00 SAST today, Brent crude oil fell 0.1% to trade at $50.15/bl. A report released by the American Petroleum Institute revealed that crude stockpiles dropped by 4.00mn bls last week. Yesterday, Brent crude oil dropped 4.1% to settle at $50.22/bl, amid lingering concerns over a supply glut in global oil market.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.3% to $3.78/bushel.
At 06:00 SAST today, gold prices declined 0.3% to trade at $1,215.00/oz. Yesterday, gold gained 1.1% to close at $1,218.58/oz., as demand for the safe haven asset increased amid intensifying fears that Greece might exit the eurozone.
Yesterday, copper rose 0.1% to close at $6,221.00/mt. Aluminium closed 1.8% lower at $1,755.25/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, despite data from the ISM showing that the services sector in the US expanded at a slower-than-expected pace in December. Additionally, another report revealed that factory orders in the US dropped more than anticipated in November. Going forward, investors will eye the minutes of the most recent policy meeting of the Fed and the ADP employment and trade data later today in the US for further direction.
The yield on benchmark government bonds fell yesterday. The yield on 2015 bond fell to 6.29% while that for the longer-dated 2026 issue declined to 7.76%.
At 06:00 SAST, the US dollar is trading flat against the South African rand at R11.7294, while the euro is trading lower at R13.9289. At 06:00 SAST, the British pound has remained unchanged against the South African rand to trade at R17.7632.
Yesterday, the euro and the British pound weakened against the South African rand, after the release of downbeat services Purchasing Managers’ Index (PMI) data in the eurozone and the UK. Later today, the preliminary consumer price inflation numbers and unemployment report in the eurozone would attract attention among market participants.
At 06:00 SAST, the euro slipped 0.2% against the US dollar to trade at $1.1875, while it has weakened 0.1% against the British pound to trade at GBP0.7842.
Economic Updates
According to the Bank of England’s (BoE) latest credit conditions survey for 4Q14, the overall availability of secured credit to households rose slightly in the three months to early December, while demand for secured lending for house purchases had declined significantly in 4Q14. The overall availability of credit to the corporate sector was unchanged in 4Q14, while demand for credit rose, except from small businesses.
Markit Economics has reported that the services Purchasing Managers’ Index (PMI) eased to 55.80 in December, in the UK, compared with a level of 58.60 in the prior month. Markets were anticipating the services PMI to ease to a level of 58.50.
The Markit services PMI advanced to 54.30 in December, in Spain. In the previous month, the services PMI had registered a reading of 52.70.
In December, the Markit services PMI in Italy eased to 49.40, lower than market expectations of a drop to 51.70. The services PMI had registered a level of 51.80 in the previous month.
The consumer confidence index in France climbed unexpectedly to 90.00 in December. In the previous month, consumer confidence had recorded a revised level of 88.00.
The final Markit services PMI in France recorded a rise to 50.60 in December, compared with a level of 47.90 in the previous month. Market anticipations were for services PMI to rise to 49.80. The preliminary figures had indicated an advance to 49.80.
Markit Economics has indicated that, in Germany, the final services PMI remained flat at 52.10 in December, compared with market expectations of a drop to a level of 51.40. The preliminary figures had indicated a fall to 51.40.
In December, the final Markit services PMI in the Eurozone recorded a rise to 51.60, compared with a reading of 51.10 in the prior month. Markets were anticipating services PMI to advance to 51.90. The preliminary figures had recorded a rise to 51.90.
The US Census Bureau has indicated that, on a monthly basis in November, factory orders registered a drop of 0.7% in the US, more than market expectations for a drop of 0.4%. Factory orders had registered a similar fall in the previous month.
The Institute for Supply Management (ISM) has reported that the non-manufacturing PMI in the US registered a drop to 56.20 in December, compared with market expectations of a drop to 58.00. In the prior month, the non-manufacturing PMI had recorded a reading of 59.30.
Corporate Updates
South Africa
Naspers: Media reports revealed that South Africa’s competition body gave the online retailer, Takealot, a conditional nod to acquire Kalahari.com, one of Naspers’ e-commerce firms.
Rockwell to spend R284.00mn on properties, equipment: Rockwell Diamonds is buying alluvial diamond properties, plant and equipment for R284.00mn from Bondeo 140CC, expanding its mining footprint in the Middle Orange River diamond mining area.
Absa Bank loses money over stalled Emalahleni golf estate development: A golf estate development in Mpumalanga has stalled, causing investors and Absa Bank to lose money.
Group takes G4S employees’ share payment gripe to Zuma: A group representing disgruntled employees of G4S Security has written to President, Jacob Zuma, asking him to intervene in the private security company’s share payment scheme, which has not paid out benefits to thousands of employees since it was started 10 years ago.
Vodacom-Neotel would be ‘super-dominant’ operator, Cell C says: Cell C Pty Limited, South Africa’s third- largest mobile-phone carrier, plans to tell regulators at a hearing next week that its business is threatened by Vodacom Group Limited’s proposed acquisition of Neotel Pty Limited.
Many questions about PPC, AfriSam merger: The proposed merger between cement producers AfriSam and PPC should be thoroughly scrutinised to determine its value for PPC shareholders, says Charl Kocks, principal of Ratings Afrika.
UK and US
Micron Technology: The semiconductor devices maker, in its 1Q15 results, indicated that its net sales climbed to $4.57bn from $4.04bn posted in the corresponding period a year ago. Its non-GAAP diluted EPS was recorded at $0.97, better than market estimates of $0.92/share. The company sees its 2Q15 revenue in the range of $4.10bn to $4.30bn, versus market expectations of $4.53bn.
Sonic Corporation: The drive in fast food restaurant chain, in its 1Q15 results, stated that its total revenue rose to $139.86mn from $126.65mn recorded in the same period a year ago. Its adjusted non-GAAP diluted EPS stood at $0.18, higher than market expected EPS of $0.16. The company further revealed that macroeconomic environment might impact results in FY15, although it expects EPS growth at the high end or slightly above its long-term range of 14.0% to 20.0% target in FY15, versus adjusted EPS in FY14.
A. Schulman Inc.: The plastics supplier, in its 1Q15 results, revealed that its net sales advanced to $615.05mn from $585.40mn registered in the similar period earlier year. Its adjusted diluted EPS was reported at $0.63, better than market estimates of $0.62/share. The company reaffirmed its FY15 guidance and indicated that it remains confident that its adjusted net income would be in the range of $2.60 to $2.65 per diluted share.
Landec Corporation: The company, in 2Q15 results, indicated that its product sales climbed to $132.67mn from $120.03mn recorded in the similar period preceding year. Its diluted net income per share stood at $0.12, in line with market estimates.
Verizon Communications: The CEO, Lowell McAdam, has denied rumours that the telecommunications giant is in talks to buy online media giant AOL, but indicated that it might enter into a partnership with a media company in the future.
Boeing: The company revealed that it has delivered 723 airplanes in 2014, hitting its own target and marking an industry record. The company also stated that its sales team booked 1,432 net orders, carrying a value of $232.70bn at list prices, breaking the previous all-time high set in 2007.
Pioneer Natural Resources: The oil and gas exploration and production company announced that severe winter weather in West Texas has adversely impacted production and drilling operations in the Spraberry/Wolfcamp area.
Cempra: The company announced that it has received positive topline results from a global, pivotal Phase 3 clinical trial of solithromycin oral capsules, used for the treatment of community acquired bacterial pneumonia.
Plug Power: The CEO, Andy Marsh, stated that the company is on track for revenue of $130.00mn in FY15, compared with market consensus of $123.70mn and previous expectations of $120.00mn. He also indicated that the company has signed a multi-year deal with SouthernLINC Wireless, a wholly-owned subsidiary of Southern Company.
Bunzl: The distribution and outsourcing group announced that it has acquired Blake H Brown , which is engaged in the sale of a variety of personal protection equipment, principally gloves, to distributors throughout the US that supply customers operating in the welding and industrial sectors. The deal was agreed at the end of December and the acquisition being completed at the start of January.
Meggitt: The aerospace engineer announced that it has acquired Precision Engine Controls Corporation from United Technologies Corporation for a cash consideration of $44.20mn, funded from its existing resources.
LondonMetric Property: The company stated that it has completed a deal to buy a Tesco’s online distribution centre in Croydon for GBP21.10mn.
Galliford Try: The housebuilding and construction company announced that its Morrison Construction business has achieved financial close on the GBP48.50mn Hub North Scotland Limited contract with The Highland Council to deliver a community campus in Wick.
Entertainment One: The company stated that it has agreed to acquire a 51.0% stake in The Mark Gordon Company to create a studio joint venture that will finance and produce film, network, cable, and digital premium content, which it will distribute internationally.
Riverstone Energy: The energy investment company announced that Canadian Non-Operated Resources Corporation has closed its Peace River High joint venture arrangement with Tourmaline Oil Corporation.
Ferrexpo: The iron ore company, in its 4Q14 production update, indicated that its pellets production was 2.76mnt, lower than 2.89mnt produced in the preceding quarter. The company noted that 144.00kt of pellet production was lost due to electricity shortfall in December 2014.
Financial Times
UK FY14 car sales set to be best in a decade: The UK car industry is set to start the new year on a high, extending its record run of sales growth to 34 consecutive months and registering its best annual retail performance for a decade.
Blair’s corporate figures appear to slip: Profits at Tony Blair’s corporate empire appear to have fallen, judging by the most recent set of accounts filed by the former Prime Minister on behalf of his sprawling network of business entities.
UK pension deficits double to more than GBP100.00bn: Pension deficits at the UK’s largest companies nearly doubled over the past year to exceed GBP100.00bn, as record low interest rates continued to take a toll.
Waterstones plans more stores as book sales rise: The UK’s leading high street bookseller said that sales of the Kindle ebook reader had plummeted this Christmas as a physical books market battered by ecommerce showed signs of improvement.
Fashion group Jigsaw boosts Christmas sales: Jigsaw, the privately owned fashion retailer, emerged as a Christmas winner, with underlying sales up 10.0%, after it refused to participate in the frenzy of discounting in the run-up to the holiday.
Clydesdale Bank Chief David Thorburn to step down: The Chief Executive of Clydesdale and Yorkshire banks is stepping down amid plans to accelerate an exit from the UK market after years of poor performance and mis-selling charges.
Supermarket price war to intensify as Tesco readies cuts: The supermarket price war is set to intensify, with Tesco expected to announce significant cuts on Thursday and Asda pumping GBP300.00mn into lower prices.
Barbour hit by dispute over new contracts: Daily walkouts have begun at Barbour’s warehouse in Gateshead, triggering fears of delivery hold-ups after a breakdown in negotiations between the upmarket British outerwear brand and union-represented workers.
Moonpig halts app purchases as it probes security flaw claim: Moonpig has suspended purchases of its personalised greetings cards through mobile apps while it investigates claims that personal data of customers may have been exposed for almost 18 months through a security flaw.
Online shopping brings cheer to House of Fraser sales figures: Department store operator House of Fraser, majority owned by a Chinese conglomerate, has joined John Lewis in reporting strong Christmas sales driven by record levels of online shopping.
White House says Obama to veto Keystone: US President, Barack Obama, has threatened to veto legislation to approve the controversial Keystone XL pipeline, which Republicans have made their first priority in the new US Congress.
FDA paves way for biosimilar drug approval: The US pharmaceuticals watchdog has published a bullish assessment of a copycat biotech drug, paving the way for it to approve its first ever “biosimilar” — a novel category of medicine that looks set to cut America’s ballooning healthcare costs.
Entertainment One buys majority stake in Mark Gordon Company: The UK-listed company announced its arrival as a significant investor in global video content on Tuesday, with a $132.60mn deal for a 51.0% stake in the Mark Gordon Company, the Los-Angeles based production company behind the medical drama.
Handbag discounts hurt Michael Kors: Sentiment on luxury retailer Michael Kors soured further with the latest blow coming from analysts at Credit Suisse, who downgraded the stock because of a “dramatic” increase in discounts for the company’s handbags.
Motorola returns to Chinese smartphone market: Motorola is planning a return to the Chinese smartphone market to take on local manufacturers such as Xiaomi and Huawei, as the venerable mobile maker’s recovery gains momentum.
Ashtead: Edged down 6.2% to GBP11.09, followed US peer United Rentals sharply lower.
Lex:
Kroton: school of hard knocks: There are non-cyclical industries in Brazil. One is growing with counter-cyclical ebullience: education. (A subsidiary of Pearson, owner of the FT, has an education business in Brazil.) A leader in the sector is Kroton, which has $7.50bn in market value and has increased revenues at a 50 per annual rate over the past five years (helped by acquisitions). Margins are wide and getting wider. Its biggest business is face-to-face college-level education; it also provides courses over the internet. It has more than 1.00mn students, and enrolment is growing in the double digits. Between the start of FY12 and the end of last year, the shares rose nearly eightfold. There is strong support for growth, demographically and politically. More students take college entrance exams every year. In her recent inauguration speech, President, Dilma Rousseff made “Brazil, a country of education” the motto of her second term. This is not all idealism. A paper from Itaú-Unibanco argues that Brazil’s state-funded student loan programme — which started offering very attractive terms in FY10 — has helped keep unemployment low. As job creation has decelerated, the unemployment rate has been relatively stable in part because more young people are going to school. This is reminiscent of what happened to shares in US education companies when that government tightened its loan policies for for-profit schools (they were crushed, and have stayed crushed).
Coach: sensible shoes: Coach hopes that the $574.00mn acquisition of luxury shoemaker, Stuart Weitzman, will do just that. In the face of such consumer apathy, same-store sales in North America have been falling for the past few quarters. In the three months ending in September, same-store sales were down 24.0%. Coach shares fell a third last year. Its market capitalisation, which stood at over $22.00bn in FY12, is now down to $10.00bn. That is all very nice, but Weitzman will have only a limited impact on the group as a whole — it has annual revenues of $300.00mn, against Coach’s $5.00bn. The high heels (and their celebrity backing from the likes of Gisele and Kate Moss) will give Coach some much needed glitz. But the company needs something more substantial if it is to walk out of the swamp in which it finds itself.
BP: Call this a core holding?: Think bigger than that in British capitalism. Think of BP. The name seems to be practically hard-wired into Britons’ pension investments, given large institutional holdings, a 99.9% free float, and the oil supermajor’s dividend. As crude prices continue to fall, it is time for a review of this particular item of investor permaculture. Even bearing dividends in mind, the total return on BP over the past 10 years is minus 4.0%; the MSCI World Energy index gained by 86.0% in the period. The 90 percentage points of underperformance is embarrassing enough, especially when compared with ExxonMobil which outperformed the index by 43 percentage points. This is usually the point at which a rejoinder is made: the stock incurred two unusually big holes in the period, one lying at the bottom of the Gulf of Mexico, and the other (politically) in Russia, where BP has been left with a stake in Rosneft. BP has cash (after selling $40.00bn in assets since FY10) to pay its liabilities from the Macondo disaster. It does not rely on the cash from Rosneft’s dividends, which is just as well given the risk to its profit. And the yield on BP’s own dividend is now 6.0%.
*Published with special permission from Anchor Capital (ACG)
