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South Africa Market Review
South African markets closed in the green yesterday, tracking gains in global equity markets, amid expectations of more accommodative monetary policies from the European Central Bank (ECB) and the US Federal Reserve. Harmony Gold Mining, AngloGold Ashanti and Gold Fields gained 3.7%, 2.4% and 2.2%, respectively. Impala Platinum Holdings, Northam Platinum and Lonmin climbed 2.9%, 2.6% and 1.2%, respectively. Barclays Africa Group, Nedbank Group and Standard Bank Group rose 2.6%, 1.9% and 1.5%, respectively. Shoprite Holdings, Clicks Group and Famous Brands advanced 4.0%, 2.6% and 1.3%, respectively. However, Aveng, Sasol and PPC declined 4.3%, 3.8% and 3.5%, respectively. The JSE All Share Index advanced 1.3% to close at 49,595.44.
UK Market Review
UK markets finished higher yesterday, led by a rally in supermarket firms. Separately, the Bank of England kept its interest rate steady at 0.50% and asset purchase facility at GBP375.00bn. Tesco surged 15.0%, after reporting better-than-expected sales during the Christmas period and after unveiling plans of a turnaround. J Sainsbury and Wm Morrison Supermarkets rallied 9.9% and 7.7%, respectively. Standard Chartered rose 0.9%, after the lender stated that it would reduce costs by around $400.00mn by closing the bulk of its global equities business. On the downside, Marks & Spencer Group declined 3.5%, after announcing a fall in its 3Q15 non-food items sales. The FTSE 100 Index advanced 2.3% to close at 6,569.96.
US Market Review
US markets ended higher yesterday, after the ECB President reiterated that the central bank stands ready to unleash a quantitative easing programme in the eurozone. MeadWestvaco climbed 5.8%, after revealing its plans to spin off its specialty chemicals business into a separate, publicly traded company. Energy sector stocks, Valero Energy, QEP Resources and Denbury Resources gained 5.7%, 5.2% and 4.4%, respectively. Technology sector stocks, Apple, Microsoft and Intel advanced 3.8%, 2.9% and 1.9%, respectively. However, Family Dollar Stores fell 0.4%, after reporting downbeat 1Q15 earnings. The S&P 500 Index rose 1.8% to settle at 2,062.14, while the DJIA Index increased 1.8% to close at 17,907.87. The NASDAQ Index climbed 1.8% to finish at 4,736.19.
Asia Market Review
Asian markets are trading firmer this morning, tracking overnight gains on Wall Street. In Japan, Fast Retailing advanced 2.1%, after it reported a surge in its 1Q15 net income. Sony added 1.5%, after it postponed the launch of its Playstation 4 game consoles in China. In Hong Kong, China Mengniu Dairy, China Resources Land and Lenovo Group featured amongst the major gainers, rising 2.4%, 2.3% and 0.7%, respectively. In South Korea, LG Display rose 1.8%, amid hopes a buoyant growth outlook for the sector in 1Q15. The Nikkei 225 Index is trading 0.5% firmer at 17,255.94, while the Kospi Index is trading 1.2% higher at 1,926.87. The Hang Seng Index is trading 1.1% in the green at 24,092.59.
At 06:00 SAST today, Brent crude oil rose 0.7% to trade at $50.63/bl. The United Arab Emirates’ ambassador to the US, Yousef Al Otaiba, stated that the Organisation of the Petroleum Exporting Countries (OPEC) has no plans to curb production no matter how low prices decline. Yesterday, Brent crude oil rose 0.2% to settle at $50.28/bl.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.8% to $3.66/bushel. The US Department of Agriculture, in its weekly report, indicated that export sales of corn stood at 387.60kt for the 2014-15 marketing year.
At 06:00 SAST today, gold prices advanced 0.2% to trade at $1,211.29/oz. Yesterday, gold declined 0.2% to close at $1,208.79/oz.
Yesterday, copper declined 0.1% to close at $6,175.75/mt. Aluminium closed 2.8% higher at $1,811.50/mt.
Yesterday, the South African rand strengthened against the US dollar. Data released in the US showed a less-than-expected fall in initial jobless claims last week. Meanwhile, the SACCI survey revealed that confidence among businesses in South Africa deteriorated in December. Later today, investors will eye nonfarm payrolls data in the US for further direction.
The yield on benchmark government bonds fell yesterday. The yield on 2015 bond fell to 6.18% while that for the longer-dated 2026 issue declined to 7.63%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R11.5926, while the euro is trading 0.2% higher at R13.6816. At 06:00 SAST, the British pound has gained 0.1% against the South African rand to trade at R17.4951.
Yesterday, the euro weakened against most of the major currencies, after the ECB Chief reiterated that policymakers stand ready to implement quantitative measures in the eurozone, if required. Meanwhile, economic data revealed that eurozone retail sales climbed more than expected in November and the producer price inflation eased more than anticipated in November. Later today, industrial production data in Germany and the UK is expected to attract attention among traders.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.1804, while it has gained 0.1% against the British pound to trade at GBP0.7821.
The South African Chamber of Commerce & Industry has indicated that the business confidence index in South Africa registered a drop to 88.30 in December, compared with a reading of 90.80 in the previous month.
In December, the net gold & forex reserves in South Africa registered a drop to $42.70bn, compared with a reading of $42.95bn in the previous month.
Statistics South Africa has reported that the electricity consumption in South Africa recorded a drop of 0.8% on an annual basis, in November. The electricity consumption had fallen 1.0% in the previous month.
The Bank of England held its interest rate steady at 0.50% and asset purchase facility at GBP375.00bn, meeting market expectations.
The Deutsche Bundesbank has indicated that, on a monthly basis, the seasonally adjusted factory orders slid 2.4% in Germany, in November, compared with a revised rise of 2.9% in the prior month. Markets were anticipating factory orders to fall 0.8%.
The business climate indicator in the eurozone dropped unexpectedly to a level of 0.04 in December, compared with market expectations of an unchanged reading. In the prior month, the business climate indicator had recorded a revised reading of 0.17.
Eurostat has reported that, on an annual basis, the seasonally adjusted retail sales registered a rise of 1.5% in November, in the eurozone, higher than market expectations for an advance of 0.2%. In the previous month, retail sales had registered a revised rise of 1.6%.
The producer price index (PPI) in the eurozone recorded a drop of 0.3% in November on a monthly basis, more than market expectations for a drop of 0.10%. The PPI had registered a revised similar fall in the prior month.
The US Department of Labor has reported that, in the week ended 3 January 2015, the seasonally adjusted initial jobless claims in the US registered a drop to 294.00k, higher than market expectations of a fall to a level of 290.00k. Initial jobless claims had registered a reading of 298.00k in the previous week.
The Board of Governors of the Federal Reserve has reported that consumer credit in the US advanced $14.08bn in November, compared with a revised advance of $15.97bn in the prior month. Market expectations were for consumer credit to climb $15.00bn.
The National Bureau of Statistics of China has reported that the consumer price index advanced 0.3%, on a monthly basis, in December, in China. The consumer price index had recorded a drop of 0.2% in the prior month.
Telkom layoffs of call centre staff raises ire of trade unions: The Communications Workers Union (CWU) has challenged telecommunication firm Telkom’s restructuring plan saying it wanted to shed temporary jobs ahead of new legislation protecting them.
FirstRand BEE partners to stay in with yield of R20.00bn: Firstrand’s black economic empowerment (BEE) deal matured at the end of last month, delivering value of about R20.00bn after debt for the banking group’s empowerment partners based on market prices on Wednesday.
Rockwell targets mining properties: Rockwell Diamonds will ask shareholders in coming weeks to approve a R284.00mn transaction to immediately expand its diamond production, as well as bring in fresh black economic empowerment partners.
Old Mutual will consider raising India joint venture stake – CEO: Anglo-South African financial services firm, Old Mutual, will discuss with partner, Kotak Mahindra, upping its stake in their Indian joint insurance venture following a rule change, Old Mutual’s Chief Executive said on Wednesday.
UK and US
Constellation Brands: The drinks company, in its 3Q15 results, indicated that its net sales climbed to $1.54bn from $1.44bn posted in the same period earlier year. Its diluted non-GAAP EPS on a comparable basis was recorded at $1.23, better than market estimates of $1.14/share. The company sees its FY15 EPS in the range of $4.25 to $4.35, versus market consensus of $4.24/share.
Bed Bath & Beyond: The retail store chain, in its 3Q15 results, stated that its net sales rose to $2.94bn from $2.86bn reported in the similar period a year ago. Its net diluted EPS climbed to $1.23 from $1.12 registered in the same period preceding year. The company expects its FY15 EPS to be between $5.05 and $5.09, versus market consensus of $5.04/share.
Family Dollar Stores: The variety store chain, in its 1Q15 results, revealed that its net sales advanced to $2.56bn from $2.50bn posted in the corresponding period earlier year. Its adjusted diluted net EPS was recorded at $0.44, worse than market estimates of $0.62/share.
Apollo Education Group: The company, in its 1Q15 results, indicated that its net revenue dropped to $719.05mn from $848.15mn recorded in the similar period prior year. Its diluted EPS from continuing operations stood at $0.44, better than market estimates of $0.42/share. The company sees its FY15 revenue to be between $2.74bn and $2.80bn, versus market consensus of $2.81bn.
PriceSmart Inc.: The warehouse clubs operator, in its 1Q15 results, stated that its total revenue rose to $656.02mn from $605.60mn registered in the corresponding period a year ago. Its diluted net EPS was recorded at $0.68, worse than market expected EPS of $0.73.
Helen of Troy: The company, in its 3Q15 results, revealed that its net revenue climbed to $435.67mn from $380.73mn reported in the same period prior year. Its non-GAAP adjusted diluted EPS stood at $2.17, better than market estimates of $1.57/share. The company sees its FY15 EPS in the range of $5.01 to $5.11, versus market consensus of $4.92/share and it expects its FY15 revenue to be between $1.39bn and $1.42bn, versus market consensus of $1.40bn.
Facebook: The company indicated that it has acquired QuickFire Networks, a maker of gear for delivering video content and transcoding and processing software.
Gilead Sciences: The company has agreed to a deal with the health insurer, Anthem Inc., wherein the former’s hepatitis C drug, Harvoni, would be the latter’s primary treatment for patients infected with the most common strain of the liver-destroying virus.
Yahoo! Inc.: Media reports revealed that activist investor, Starboard Value LP, expressed concerns about the company’s potential next moves and it reiterated that the company should monetise its stakes in Alibaba and Yahoo Japan Corporation to reduces costs and explore a combination with AOL Inc.
GoPro Inc.: The company revealed that it plans to expand its international distribution to include China in late 2015.
GW Pharmaceuticals: The company revealed that its investigational drug, Sativex, which it was developing in collaboration with Otsuka Pharmaceutical Development & Commercialization, failed to alleviate pain in cancer patients, as per its clinical studies.
Tesco Plc: The company, in its trading results for 3Q15 and Christmas week, announced that like-for-like sales fell 0.3% in the Christmas week, and by 2.9% in the 19-week period, following reported like-for-likes which had dropped 5.4% in the previous quarter. The company further stated that it has appointed Matt Davies to head its UK and Ireland business, effective from 1 June 2015. It also announced its turnaround strategy by slashing prices of 380 branded products by an average of 25.0%, effective immediately.
Marks & Spencer Group: The company, in its 3Q15 interim management statement, announced thatits sales were higher 2.8% in the food segment, with a 17.0% increase in the Christmas week. In the womenswear, sales declined 5.4% as it was impacted by unseasonal conditions and also disruption in its distribution centre. The company further stated that its gross margin guidance for general merchandise remains unchanged at 150-200 bps and 10bps-30bps for food. The company also guided an improvement in its operating costs performance and control of costs and capital expenditure.
Howden Joinery Group: The company, in its FY14 trading update, announced that total sales from its UK depots of approximately GBP1,070.00mn, compared with GBP940.70 mn reported in the previous year. It expects that profit before tax for FY14 would be ahead of market expectations.
Hays Plc: The recruitment company, in its 2Q15 trading update, announced that its net fees increased 7.0% on a headline basis. On a like-for-like basis, net fees grew 11.0%, driven by 16.0% jump in permanent segment. Temporary segment, which accounted for 58.0% of its net fees in 2Q15, reported net fees growth of 8.0% on like-for-like basis. The company further stated that Asia Pacific region’s fees grew 5.0% and Continental Europe & rest of world recorded 2.0% growth on actual basis, while UK & Ireland generated 13.0% increase in net fees.
Dunelm Group Plc: The company, in its 1H15 trading update, announced that total sales were GBP406.40mn, compared with GBP356.40mn reported in the same period a year ago. It further stated that the total number of superstores trading at the period end was 142 and its target is to operate from around 200 superstores across the UK.
Grafton Group : The company, in its FY14 trading update, announced that its revenue stood at GBP2.08bn, an increase of 9.5% on revenue of GBP1.90bn posted in the preceding year. It further stated that trading conditions were favourable in 4Q14 with positive momentum from a sustained recovery in the UK and Irish economies leading to increased demand in the residential repair, maintenance and improvement and new build markets.
CRH Plc: The building materials company stated that it has spent EUR0.19bn on 21 acquisitions and investments in 2014, while it has booked proceeds of EUR0.35bn through 16 disposals.
BTG Plc: The company announced that it has completed the acquisition of PneumRx.
TalkTalk Telecom: The company announced that it has acquired the blinkbox movies business and the Tesco broadband and voice base from Tesco Plc. It further stated that the assets have been acquired free of debt and as a single transaction for cash.
Market volatility risks deterring London listings: Thetrainline.com, Britain’s largest online ticket retailer by sales, plans to be the UK’s first technology flotation of the year, but bankers are warning that market volatility and geopolitical concerns could deter other listings.
Tesco soars 15.0% on news of biggest overhaul in retailer’s 96-year history: Tesco has unveiled the most radical overhaul in its 96-year history, as the Chief Executive of Britain’s biggest retailer set out a blueprint for recovery, including closing the head office, slashing thousands of jobs and scrapping this year’s dividend.
Hays profits from growth in City jobs: Hays has followed rival recruitment group, Robert Walters, in reporting a double-digit rise in quarterly net fees, helped by increased hiring of permanent staff by companies in the City of London.
TalkTalk set to drop Blinkbox brand after buying Tesco division: Broadband provider, TalkTalk, plans to abandon the Blinkbox movies brand as soon as possible, after agreeing to acquire the lossmaking division from Tesco.
HSBC’s Hong Kong Chief steps down: Anita Fung, head of HSBC’s Hong Kong operation, is stepping down as the bank creates a role to oversee all of Greater China amid efforts to expand and broaden its business in the region.
US businessman Robert Sarver raises bid for Rangers to GBP20.00mn: American businessman, Robert Sarver, raised his offer for Rangers, putting another GBP20.00mn on the table and offering GBP6.50mn to help the troubled Scottish club get through its cash crisis.
M&S misses Christmas forecasts after delivery and weather blows: Marks and Spencer boss, Marc Bolland, was forced on to the back foot on Thursday as analysts questioned explanations for the company’s Christmas delivery disruption and the shares fell on worse-than-expected sales figures.
StanChart shuts global equities business: Standard Chartered is pulling out of institutional equities globally in an abrupt move that underscores the bank’s new efforts to cut costs and refocus as it also axes another 2,000 jobs in its retail division.
Peltz launches campaign for shake up of DuPont board: Nelson Peltz, the veteran investor, on Thursday night launched a campaign to force his way on to the board of DuPont, escalating a wave of hedge fund activism across the chemicals sector.
Santander to raise up to EUR7.50bn via overnight share sale: Santander is raising up to EUR7.50bn from a share sale as new Executive Chairman, Ana Botín, radically breaks with the strategy of her late father and slashes the Spanish bank’s dividend by two-thirds.
GM says US sales could hit FY01 levels: Mary Barra, General Motors’ Chief Executive, has forecast that this year’s US auto sales could reach levels not seen since FY01, in the latest sign of the unexpected strength of the market’s recovery.
Honda fined $70.00mn for US reporting lapses: Honda has agreed to pay a record $70.00mn fine to US authorities after the Japanese carmaker failed to report incidents of death or injury and warranty claims over more than a decade.
Deezer buys Muve Music to tap US streaming market: Deezer, the world’s biggest music subscription service after Spotify, has acquired Muve Music from Cricket Wireless as part of an aggressive strategy to expand in the US.
EasyJet: Edged down 1.7% to GBP16.16 after its Finance Director, Chris Kennedy, agreed to move to Arm.
Vodafone: Climbed 4.5% to GBP2.26 with talk of a Vodafone-Sky tie-up doing the rounds once again.
Santander: going off the scrip: “Banco Santander, due to our business model, due to our diversification, we have a ratio of capital that – we are very comfortable with it,” the Spanish bank’s then-Chief Executive said two months ago. Javier Marin lost his job soon after. The message about capital stayed. Early in December, analysts were told by the new Executive team that Santander was well capitalised. Even so, analysts estimate that at the end of FY14 Santander had a capital ratio under the fully loaded Basel III rules of 8.5%. This is low versus peers, despite Santander’s habit of paying its dividends in stock. But shareholders might also wonder about the broader purpose of this increase, which will raise the Basel III ratio to a decent 10.0% later this year. One simple answer might be that there is no change to the past message. Santander considered itself well capitalised before, but back then it was deleveraging. It now sees a chance to expand its loan book across markets as different as Spain, the UK and Mexico as those economies improve. Taking advantage of a turn in these markets will soak up capital. In return for supplying it at a price near book value, shareholders will enjoy organic growth, and a return on tangible equity of perhaps 12.0%-14.0%.
Yara: piece of this: Oil prices have collapsed. So market pundits and traders scurry around like crazed chickens looking for beneficiaries. Well, look no further than Yara, the Norwegian fertiliser company. Its shares have jumped a quarter in the last month taking its forward price-to-earnings ratio (13.00 times) towards the higher end of its 10-year range. The real boost for Yara, though, has come from lower natural gas prices. Makers of nitrogen-based fertilisers benefit from this because gas is used to make the ammonia, the building block for nitrogen products. According to Yara, a decline of $1.00 per million British thermal units in the European gas price could lift its operating profit by $145.00mn, more than a tenth of the total. Even better, the natural gas hub price (at Zeebrugge in Belgium) has dropped sharply in the past month due to a warm winter. It is now down a third, the equivalent of over $3.00, year on year. Currency moves also help. Fertiliser prices are primarily based in US dollars. But most of Yara’s assets are in Europe, so its overhead costs are primarily in euros and Norwegian krone. A weak euro with a strong dollar is therefore an ideal scenario. Add that to the falling oil price and the chance of more corn planting as the price of that commodity rises, and there is plenty to keep traders pecking away at Yara’s shares for a while yet.
Samsung: less bad: Doing a little better-than-expected is important, when that improvement saves you from stepping off a cliff. That image is something of an exaggeration in Samsung’s case. It is a diverse business with bags of excess cash. Still, in the third quarter half of its sales came from smartphones; these fell 15.0% from the year before. History is clear on what handset sales declines do: accelerate, taking margins with them. Call it Motonoberry’s law. It admits of exceptions very rarely. One analyst called it “the first tangible proof of normalisation of the handset business”. Well, let’s not get ahead of ourselves. Samsung’s announcement did not provide results by product. Even putting aside the problems of structural opacity and disregard for non-family shareholders that make Samsung so hard to own, stabilisation in the mobile business is a necessary but not sufficient condition for appreciation in the shares. The other necessary condition is strong performance in the chip business, especially memory chips. In the third quarter, chips accounted for more than half of operating profits. Its guidance for the coming quarter was for volumes to be flat or down — previous guidance had been for volume growth. There were some Micron-specific reasons for this, and Samsung is investing to widen its competitive advantage. Still, Micron’s numbers suggest the memory market is a little bit softer than it was. Better-than-expected is not, in Samsung’s case, enough to justify a higher share price.
*Published with special permission by Anchor Capital (ACG)
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