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UK markets finished higher yesterday, amid a rebound in crude oil prices which led to an increase in energy sector stocks. Tullow Oil and BP surged 5.6% and 1.1%, respectively. BT Group jumped 4.5%, after sealing a deal to acquire mobile carrier EE for an amount of GBP12.50bn. Smith & Nephew advanced 2.6%, lifted by its higher-than-anticipated 4Q15 organic revenue. On the losing side, AstraZeneca shed 3.4%, after its 4Q15 profit fell short of market projections. easyJet fell 2.9%, following a decline in its passenger numbers as compared with the initial part of the year. Vodafone Group declined 2.4%, despite a less-than-expected decline in 3Q15 organic service revenues. The FTSE 100 Index advanced 0.1% to close at 6,865.93.
|US Market Review|
US markets ended in the green yesterday, as energy sector stocks advanced and following better-than-expected US initial jobless claims data. Hospira surged 35.3%, after Pfizer acquired the company for around $17.00bn. Denbury Resources and Spectra Energy climbed 8.6% and 4.4%, respectively, following a rebound in oil prices. Estee Lauder Companies advanced 8.1%, buoyed by upbeat 2Q15 results. However, Michael Kors Holdings declined 2.3%, following a slowdown in its 3Q15 comparable store sales and as the luxury retailer issued a weaker-than-expected 4Q15 earnings outlook.The S&P 500 Index climbed 1.0% to settle at 2,062.52, while the DJIA Index advanced 1.2% to close at 17,884.88. The NASDAQ Index rose 1.0% to finish at 4,765.10.
|Asia Market Review|
Markets in Asia are trading mostly lower this morning. In Japan, Nikon plunged 6.3%, after the firm lowered its FY15 earnings outlook. On the upside, Nisshin Steel surged 16.8%, after it lifted its FY15 profit guidance. In Hong Kong, banking sector stocks, China Citic Bank and Bank of China fell 1.4% and 0.9%, respectively. However, Cnooc rose 1.3%, amid a rebound in crude oil prices yesterday. In South Korea, Golden Bridge Investment & Securities and Shin Young Wacoal fell 1.5% and 2.4%, respectively. The Nikkei 225 index is trading 0.7% higher at 17,632.94. The Kospi index is trading 0.2% lower at 1,948.62, while the Hang Seng index is trading 0.3% in the red at 24,691.54.
At 06:00 SAST today, Brent crude oil is trading marginally lower at $56.04/bl. Yesterday, Brent crude oil rose 5.4% to settle at $56.05/bl, amid renewed supply concerns in Libya and as better-than-expected US jobless claims data and a higher economic growth forecast for the European Union boosted the outlook for energy demand.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 0.7% to $3.60/bushel.
Yesterday, copper rose 0.2% to close at $5,743.50/mt. Aluminium closed 0.5% higher at $1,871.00/mt.
Yesterday, the South African rand strengthened against the US dollar, as confidence in South African business conditions improved for January. In the US, data revealed that unemployment benefit claims rose last week albeit less than market expectations. Later today, investors will keenly eye US non-farm payroll numbers along with South Africa net reserves for further direction.
The yield on benchmark government bonds were mix yesterday. The yield on 2015 bond fell to 6.01% while that for the longer-dated 2026 issue advanced to 7.32%.
At 06:00 SAST, the US dollar is trading 0.3% higher against the South African rand at R11.3084, while the euro is trading 0.1% higher at R12.9679. At 06:00 SAST, the British pound has gained 0.3% against the South African rand to trade at R17.3341.
Yesterday, the euro has advanced against the US dollar, but declined against the South African rand. The euro was supported by data indicating that German factory orders increased more than expected in December. Going forward, market participants will keep a tab on today’s German industrial production data for December.
At 06:00 SAST, the euro slipped 0.2% against the US dollar to trade at $1.1467, while it has weakened 0.1% against the British pound to trade at GBP0.7481.
The business confidence index rose to a level of 89.30 in January, in South Africa. In the previous month, the business confidence index had registered a reading of 88.30.
In South Africa, electricity consumption dropped 1.6% on an annual basis, in December. In the prior month, electricity consumption had fallen 0.8%.
In South Africa, electricity production registered a drop of 1.0% on anannual basis, in December. In the previous month, electricity production had fallen 2.0%.
On a monthly basis, in the UK, the Halifax house price index climbed 2.0% in January, compared with a revised rise of 1.1% in the previous month. Market anticipations were for the Halifax house price index to rise 0.1%.
The Bank of England held its interest rate steady at 0.50% and asset purchase facility at a level of GBP375.00bn, in line with market expectations.
The SECO consumer climate advanced unexpectedly to -6.00 in 4Q14, in Switzerland. The SECO consumer climate had recorded a level of -11.00 in the prior quarter.
The Deutsche Bundesbank has reported that, in December on a seasonally adjusted monthly basis, factory orders in Germany rose 4.2%, higher than market expectations for an advance of 1.5%. In the prior month, factory orders had recorded a drop of 2.4%.
The European Central Bank (ECB), in its monthly bulletin, reiterated that the asset purchase programme would continue till September 2016. Further, the ECB stated that the asset purchase would continue till inflation shows gradual improvement towards the central bank’s target. However, the ECB indicated that the prospects of inflation remaining too low for prolonged period are likely.
The ECB, in its winter economic forecast, projected growth in the European Union and the eurozone to rise to 1.7% and 1.3%, respectively, both 0.2% higher than its forecast last autumn. For FY16, the ECB expects growth in the European Union and the eurozone to accelerate to 2.1 % and 1.9 %, respectively. Furthermore, the central bank opined that the sharp decline in oil prices since mid-FY14 might boost sluggish GDP growth in the economy.
In the week ended 31 January 2015, the seasonally adjusted initial jobless claims in the US climbed to 278.00k, compared with a revised reading of 267.00k in the previous week. Markets were anticipating initial jobless claims to rise to a level of 290.00k.
Sibanye Gold: The gold mining company revealed that gold mineral reserves at the group operations increased 12.0% to 19.90mn oz from 17.80mn oz declared at December2013, despite depletion of 1.70mn oz in FY14. It stated that underground gold mineral reserves increased by 14.0%, following the successful conclusion offeasibility studies on various organic growth projects at the operations. Furthermore, a maiden gold mineral resource of 8.90mn oz has been declared at the Burnstone project.
MTN Group: 394,606.89The company announced that Suren Sooklal has been appointed as its Chief Business Risk Officer, and would replace ShauketFakie, who is retiring this month.
Net 1 Ueps Technologies: The technology company announced that it has established a new subsidiary called Zazoo Limited in the UK to oversee the global expansion of the its mobile payments and value-added services businesses, including the activities currently conducted through its Net1 Mobile Solutions business unit based in Johannesburg, South Africa.
Pan African Resources: The company stated that Ron Holding would retire as Chief Executive Officer with effect from 1 March 2015. Furthermore, Cobus Loots, who is currently the Finance Director would succeed as CEO.
Coast2Coast plans another listing: Coast2Coast, the investment company behind Ascendis Health, has turned its attention to the development of its consumer brands business, Bounty Brands.
UK and US
Philip Morris International: The cigarette and tobacco company, in its FY14 results, indicated that net revenue edged up to $80.11bn from $80.03bn reported in the previous year. Its dilutedEPS stood at $4.76, compared with $5.26 posted in the preceding year. The company expects to report diluted EPS in the range of $4.27 to $4.37 for FY15.
McKesson Corporation: The pharmaceuticals distribution company, in its 3Q15 results, indicated that revenue increased 36.9% to $47.01bn, compared with the corresponding period previous year. Its diluted EPS from continuing operations rose to $2.01 from $0.70 posted in the same period a year ago. The company anticipates adjusted net diluted EPS from continuing operationsbetween $10.80 and $10.95 for FY15.
CME Group Inc.: The company, in its FY14 results, indicated that total revenue was $3.11bn, compared with $2.94bn recorded in FY13. Its diluted EPS increased 14.7% to $3.35 from the previous year.
Cigna Corporation: The health insurance service company, in its FY14 results, indicated that total revenue was up 7.8% to $34.91bn from the prior year. Further, the company’s adjusted income from operations rose to $7.43/share from $6.79/shareposted in FY13. The company expects its FY15 consolidated revenue to grow 8.0% to 10.0% from FY14.
Estee Lauder Companies: The manufacturer and marketer of prestige skincare, makeup, fragrance and hair care products company, in its 2Q15 results, indicated that net sales were$3.04bn, compared with $3.02bn recorded in the same period a year ago. Its diluted EPS increased 3.7% to $1.13,compared with the corresponding period previous year. The company forecasts net sales would grow between 2.0% and 3.0% in constant currency in FY15 and diluted net EPS are projected to be between $2.72 to $2.80.
Becton Dickinson and Co.:The medical technology company, in its 1Q15 results, indicated that revenue was $2.05bn, an increase of 1.8% from the same period a year ago. However, the company’s diluted EPS dropped to $1.20 from $1.37 posted in the same period preceding year. The company estimates that revenues for FY15 would increase approximately 5.0%,compared with the previous guidance of 4.5% to 5.0% growth.
Cummins Inc.: The company, in its FY14 results, indicated thatnet sales were $5.09bn, 10.9% higher than FY13. Its diluted EPS rose to $2.44 from $2.32 posted in the preceding year. Furthermore, the company expects revenue growth of between 2.0% and 4.0% in FY15.
Pfizer Inc.: The company announced that it has entered into anagreement to acquire Hospirafor $90.00/share in cash for a total enterprise value of approximately $17.00bn, to boost its portfolio of generic injectable drugs and copies of biotech medicines.
Vodafone Group Plc: The telecommunications company, in its 3Q15 interim management statement, revealed that group revenue increased 13.5% to GBP10.89bn while organic service revenue declined 0.4% to GBP9.79bn. The company stated that it remains on target to deliver EBITDAfor FY15 in the range of GBP11.60bn to GBP11.90bn and expects free cash flow to be positive after all capex.
Smith & Nephew Plc: The medical equipment manufacturing company, in its FY14 results, indicated that revenue increased 6.5% to $4.62bn, compared with the previous year. However, its diluted EPS dropped to55.70¢ from 61.40¢ posted in the preceding year. The group expects to deliver higher underlying revenue growth in FY15 than in FY14.
easyJet Plc:The company, in its passenger statistics for January 2015, indicated that the number of earned seats flown rose marginally compared to the same period a year ago. Additionally, the number of passengers as a proportion of the number of seats available for passengers increased by 85.1%, compared to an increase of 85.4% in the same period preceding year.
Beazley Plc: The insurance company, in its FY14 results, indicated that its revenue increased 5.9% to $1.77bn, compared with the previous year. However, its diluted EPS dropped to 41.80¢ from 51.20¢ posted the preceding year.
Grainger Plc: The industrial supply company, in its trading updatefor the four months ended 31 January 2015, stated that average sales priceswere achieved at around 3.9% above September 2014 vacant possession value. Its reported sales for the period were GBP102.30mn, down from GBP104.00mn posted in the period ended 31 January 2014.
Premier Farnell: The electronics and electronic parts distribution company, in its trading update for FY15, indicated that positive momentum in sales growth has been delivered through 2H15. Furthermore, the company expects group sales per day growth of 4.0% in 4Q15 and 3.3% growth annually.
GlaxoSmithKline: The pharmaceutical and healthcare company announced that it has successfully agreed the sale of 4,471,202 shares in Genmab, which represents its entire shareholding of approximately 7.9% of the share capital of Genmab.
AstraZeneca Plc: The pharmaceutical and biologics company announced that it would acquirethe rights to Actavis’ branded respiratory business in the US and Canada for an initial consideration of $600.00mn on completion and low single-digit royalties above a certain revenue threshold. Furthermore, in its FY14 results, the company stated that its revenue increased 1.5% to $26.10bn from the previous year. However, its diluted EPS was $0.98, compared with $2.04 in the preceding year. The company expects its FY15 sales revenue to decline by mid single-digit percent.
BT Group Plc: The telecommunications services company revealed that it has agreed to acquire EE for GBP12.50bnto create a wireless and broadband giant in the UK’s telecommunications industry.
Pan-European digital current account launched: A new type of digital current account has launched to make transacting money across Europe more efficient as the sector faces mounting criticism for lacking innovation and competition.
BT-EE deal sets stage for Europe telecoms reshuffle: BT’s GBP12.50bn acquisition of EE, Britain’s largest mobile network, was a deal forged in Bonn, agreed in Paris and delivered in London — and the results will be felt even more widely as they set the stage for a reshuffle of power in the European telecoms sector.
Ball in talks with Rexam over GBP4.29bn bid: Ball Corporation of the US is in talks to buy Rexam, the UK-based drinks can manufacturer, in a GBP4.29bn deal that would create a powerhouse in the production of cans for beverages including soft drinks and beer.
London tech investors look to mirror success of Silicon Valley: More than $2.00bn has been raised by new technology funds in London in the past five years, as venture capital flows into Europe’s burgeoning start-up scene.
Venture capital funds sprout amid rush to invest in London tech: After Connect Ventures, a technology-focused venture capital fund, was founded in FY12, its partners struggled to find offices in their preferred east London. Start-ups were springing up so quickly in the area that demand for workspace was fierce.
AstraZeneca to pay $600.00mn for Actavis respiratory drugs: AstraZeneca has agreed to pay $600.00mn for the rights to Actavis’s branded respiratory drugs business in North America as it scrambles to find new sources of revenues to offset the loss of patents on older drugs.
Dairy Crest upbeat despite milk market woes: Dairy Crest sold enough flavoured milkshakes and cheddar cheese to weather the storm of plunging milk prices, which battered its poorly performing dairy operations in the third quarter.
Songbird Estates shareholders back GBP2.60bn Canary Wharf takeover: Shareholders in Songbird Estates, the Canary Wharf property group, have approved a GBP2.60bn takeover bid from Qatar and Canadian fund manager Brookfield Property Partners.
Watchdog warns UK stores over Tesco probe: An investigation into Tesco’s relations with its suppliers, following accusations of bullying and delayed payments, could drag other British supermarkets into its net after the groceries regulator and government urged suppliers to come forward.
Brazilian judge freezes Batista family assets: A Brazilian judge has frozen the assets of Eike Batista and his family as part of a landmark insider trading trial that could put the country’s former richest man in jail, according to court documents seen by the Financial Times.
LSE to sell Russell asset management unit: The London Stock Exchange Group confirmed that it is to sell the asset management business it acquired as part of its $2.70bn purchase of Russell Investments, the index provider.
Interpublic agrees to board shake-up: Interpublic Group has reached a settlement with Elliott Management, the activist hedge fund, to reshuffle the advertising company’s board as it seeks to boost its financial performance.
Smith & Nephew ‘can prosper on its own’: Smith & Nephew can prosper as a standalone company, its chief executive has insisted, brushing away takeover speculation surrounding the UK medical device maker.
Pfizer steps up M&A with $17.00bn deal to buy Hospira: Pfizer has unveiled its biggest deal since abandoning an ill-fated pursuit of AstraZeneca, agreeing to buy a maker of copycat biotech drugs and sterile injectables in a transaction which is valued at around $17.00bn.
Daimler signals dividend rise with ‘significant’ profit growth: Daimler plans to reward shareholders with a dividend increase and has forecast “significant” profit growth in FY15.
Pandora shares tumble as it cuts forecasts: Investors tuned out of Pandora after a pullback in holiday advertising caused the internet radio company to miss revenue targets, and its FY15 sales forecast came in below analysts’ estimates.
Amy Pascal steps down from Sony Pictures: Amy Pascal, whose embarrassing emails were leaked online in the damaging hack of Sony Pictures, is stepping down from her role as co-Chairman of the movie studio.
GoPro boosted by bumper holiday sales: GoPro leapt over Wall Street’s highest forecasts for its fourth quarter, with revenues of $634.00mn and earnings of 96.00 cents, after bumper holiday sales of its action cameras.
Sprint starts to stem loss of subscribers: Sprint, the third-largest US wireless carrier, posted a quarterly loss of $2.40bn in the final three months of last year, although it dramatically slowed the rate at which it was losing customers.
Vodafone’s 4G service helps arrest slide in revenues: Vodafone almost reversed a long-term slide in revenues in the third quarter on the back of the voracious appetite for videos and social media using smartphones on its superfast 4G networks.
AstraZeneca: Lost 3.4% to GBP45.29 after its full-year earnings missed forecasts.
Twitter: cruising altitude: With its latest quarterly numbers, Twitter delivered a graphic demonstration of how a business built on those terms could play out. Engagement — measured by the number of timeline views per monthly active user — turned up for the first time in five quarters. Users were not put off by an increase in ads. With a 10.0% improvement in pricing, ad revenue for each timeline view went up 60.0%. All of this will come as a relief to investors made wary by recent turmoil in Twitter’s management ranks. The trouble is, the company’s heady valuation can be justified only on the assumption that its user base will grow enormously — a view current management has set a high store by, whatever Mr Williams says. On that measure, the 4.00mn net new monthly users added in the fourth quarter was a let-down, even allowing for some technical headwinds. Twitter management promises a return to normal growth in coming quarters. Investors swept up by the enthusiasm around the latest earnings had better hope they are right.
AstraZeneca / Sanofi: inversion: AstraZeneca clocked in with a 3.0% rise in sales for the year but — even excluding a pile of one-off costs — net profit was down 8.0%. It told investors to expect falling sales, and modest earnings growth, in FY15. This excludes the impact of currency which, at the pound’s current level, will probably worsen the sales decline and wipe out the earnings growth. Then there is Sanofi, which expanded sales by 5.0% and earnings by 7.0%, and also sees modest earnings growth this year — but, at the current level of the euro, will receive a currency boost. Analysts expect Sanofi’s growth to accelerate in FY16 and FY17; it has a diverse portfolio with slow, consistent growers such as insulin; hard to copy treatments for rare diseases; and vaccines. Analysts expect declines in revenues and profits in those years at AstraZeneca, which will face generic competition for US Nexium (7.0% of total sales) imminently, and for US Crestor (11.0% of sales) next year. The other explanation is that AstraZeneca’s growth will be strong a few years further out. This depends on the immuno-oncology drugs in its pipeline selling as well as it hopes. No drug class creates more excitement. Roche, Bristol-Myers Squibb and Merck are also active in the space.
Pfizer: only in America: The earnings outlook that Pfizer shared last week highlighted its biggest challenge. Revenues will fall this year, while earnings per share will stay roughly flay because of deep cost cuts and share buybacks. The company churns out a whopping $90.00bn in annual revenue. How can such a monster grow — and so attract a better valuation? Pfizer is considering mitosis. It will spend a ridiculous $400.00m in FY15 exploring putting its higher-growth units into new company. Hospira would fit into Pfizer’s low-growth segment (“Global Established Pharmaceutical”). The generic injectable marketplace is growing 10.0% a year and should reach a market size of $70.00bn by FY20. Hospira’s other area is biosimilars, therapies that replicate biological (as opposed to traditional chemical) drugs. Biosimilars are a small business, but Pfizer estimates the market could reach $20.00bn by FY20. The growth that Hospira brings could make Pfizer’s Established segment more attractive as a standalone company. Hospira does not come cheap. The $90.00 per share price is three times the price of two years ago. But this deal may not be the end of the story — and AstraZeneca might not have been the last word on Pfizer’s efforts to avoid US taxes. AstraZeneca is off the table; a foreign address may not be. If a spin-off is completed, the smaller Pfizer units would be more digestible to an international buyer — or could invert into a smaller international target.
*Published with special permission by Anchor Capital (ACG)