Anchor Capital: Essential market review, 11 February

Commodities
At 06:00 SAST today, Brent crude oil fell 1.3% to trade at $ 55.58/bl. Meanwhile, the American Petroleum Institute indicated that US crude stocks rose 1.60mn bls last week. Yesterday, Brent crude oil fell 1.5% to settle at $56.29/bl, after the International Energy Agency stated that oil stockpiles in the OPEC could rise to a record 2.83bn bls by mid-2015. Meanwhile, disappointing Chinese inflation figures also put pressure on oil prices.

Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.8% to $3.63/bushel.

At 06:00 SAST today, gold prices advanced 0.3% to trade at $1,236.96/oz. Yesterday, gold declined 0.4% to close at $1,233.55/oz, on a stronger US dollar.

Yesterday, copper declined 1.5% to close at $5,604.75/mt. Aluminium closed 2.3% lower at $1,815.75/mt.

The yield on benchmark government bonds rose yesterday. The yield on 2015 bond rose to 6.11% while that for the longer-dated 2026 issue advanced to 7.58%.

At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R 11.6744, while the euro is trading 0.1% /lower at R13.2149. At 06:00 SAST, the British pound has declined 0.1% against the South African rand to trade at R17.8026.

Yesterday, the euro declined against most of the major currencies and advanced against the South African rand. Meanwhile, data revealed that industrial production in the UK plunged in December and production in France rose more than anticipated. Going forward, investors will keep a tab on Eurogroup meeting and current account data from France.

At 06:00 SAST, the euro remained flat against the US dollar to trade at $1.1319, while it has gained 0.1% against the British pound to trade at GBP0.7424.

The South African Revenue Service has reported that, in 4Q14, the unemployment rate recorded an unexpected drop to a level of 24.3% in South Africa. Markets were anticipating the unemployment rate to climb to 25.6%.

The National Statistics has reported that, in December, industrial production registered a drop of 0.2% on a monthly basis in the UK, more than market expectations for a fall of 0.1%. In the previous month, industrial production had recorded a revised unchanged reading.

The National Institute of Economic and Social Research (NIESR) has indicated that, on a monthly basis, NIESR estimated gross domestic product (GDP) registered a rise of 0.7% in the UK, in the November-January 2015 period. NIESR estimated GDP had climbed by a revised 0.5% in the August-October 2014 period.

The consumer price index in Switzerland dropped 0.4% in January on a monthly basis, less than market expectations for a fall of 0.6%. In the prior month, the consumer price index had fallen 0.5%.

The State Secretariat for Economic Affairs (SECO) has indicated that, in January, the seasonally adjusted unemployment rate remained unchanged at 3.1% in Switzerland, lower than market expectations of an advance to a level of 3.2%.

In December, on a seasonally adjusted monthly basis, industrial production in Italy recorded an unexpected rise of 0.4%. Markets were expecting industrial production to remain flat.

On a monthly basis, in France, industrial production rose 1.5% in December, compared with a revised fall of 0.2% in the previous month. Markets were anticipating industrial production to climb 0.4%.

The NFIB Research Foundation has reported that the small business optimism index fell unexpectedly to 97.90 in January, in the US. In the prior month, the small business optimism index had recorded a level of 100.40.

The investment lending recorded a rise of 6.0% in Australia on a monthly basis, in December. The investment lending had registered a revised drop of 1.9% in the prior month.

Kumba Iron Ore: The mining company, in its preliminary FY14 results, indicated that revenue dropped 12.6% to R47.60bn, compared with the preceding year. Its diluted EPS stood at R33.38, compared with R48.03 posted in the previous year. The company expects crude steel production to grow by approximately 2.0% in FY15.

Santam Limited: The financial services company, in its trading statement for FY14, stated that it expects its EPS as well as its headline EPS to be between 35.0%and 45.0% higher than the previous period. Furthermore, the increase in Headline EPS and EPS has been driven by a significant improvement in underwriting results compared to the comparative period in FY13.

Sun International: The company, in its 1H15 trading statement, revealed that its EPS is likely to be between R8.26 to R8.59, which is 155.0% to 165.0% higher compared with the same period preceding year. Its headline EPS is expected to increase 10.0% to 15.0% from the same period a year ago.

Wilson Bayly Holmes-Ovcon: The company, in its trading statement for the six months ended 31 December 2014, indicated that its total EPS would increase by up to 5.0%in relation to the comparative period, while headline EPS would decrease by between 5.0% and 10.0% from the same period a year ago.

Clover Industries: The company, in its 1H15 trading statement, indicated that its headline EPS to be between 36.0% and 46.0% higher and its EPS is expected to be between 31.0% and 41.0%higher than the previous year’s corresponding period. The company further stated that revenue increased by 11.0% if the phasing out of raw milk sales at cost to Danone is excluded.

Holdsport Limited: The company, in its sales update for the five months ended January 2015, indicated that total sales increased by 10.5%,compared to the corresponding period last year. Additionally, retail sales increased by 10.7% with sales for comparable stores increasing by 9.4% during the period.

Sibanye Gold: The gold mining company stated that it has reached formal agreement with all representative unions at Beatrix, resulting in commitment from the unions to ensuring peaceful co-existence and hence a safe working environment. The operations have resumed at the affected sections from the evening shift on 9 February 2015.

Northam Platinum: The platinum mining company announced that it has entered into a sale of assets agreement with Aquarius Platinum on 9 February 2015, wherein it would acquire the Everest Mining Assets and Everest Mining Right for a total cash purchase consideration of R450.00mn.

Aquarius Platinum: The company announced that its subsidiary, Aquarius Platinum(South Africa) (Pty) Limited, has entered into an agreement to sell its entire interest in the Everest mine and related mining and processing infrastructure and immovable properties to Northam Platinum Limited, for an aggregate consideration of R450.00mn in cash.

UK and US
The Coca-Cola Co.: The beverages company, in its FY14 results, indicated that its net revenue dropped 1.8% to $46.00bn from the previous year. Its net diluted EPS stood at $1.60, compared with $1.90 posted a year ago. The company expects FY15 comparable currency neutral EPS growth to be mid single digits.

CVS Health Corporation: The retailer and health care company, in its FY14 results, stated that net revenue increased to $139.37bn, compared with $126.76bn recorded in the preceding year. Its net diluted EPS was $3.96, compared with $3.74 posted in FY13. The company anticipates adjusted EPS of FY15 to be between $5.05 and $5.19.

Regeneron Pharmaceuticals: The pharmaceutical company, in its FY14 results, indicated that total revenue was up 34.0% to 2.82bn, compared with the previous year. Its net diluted EPS dropped to $3.07 from $3.81 posted in the prior year. The company anticipates net product sales for FY15 to grow 25.0% to 30.0% compared with FY14.

Cerner Corporation: The health care information technology solutions company, in its FY14 results, indicated that total revenue was $3.40bn, compared with $2.91bn posted in the preceding year. Its diluted EPS rose to $1.50 from $1.13 posted in FY13. The company forecast FY15 revenue to be between $4.80bn and $5.00bn.

Pioneer Natural Resources: The oil and gas company, in its FY14 results, stated that its total revenue and other income increased to $5.06bn from $3.65bn posted in the previous year. Its net diluted EPS stood at $6.38, compared with loss per share of $6.16 posted in the preceding year. The company expects production to average 192.00 mboepd to 197.00 mboepd which reflects an estimated production loss due weather-related production curtailments experienced in January and rejection of ethane due to weak market conditions.

HCP Inc.: The real estate investment trust, in its FY14 results, revealed that total revenue increased 7.9% to $2.27bn from the previous year. However its diluted EPS from continuing operations was $1.94, less compared with $1.97 posted in the prior year. The company expects FY15 FFO per share to be in the range of $3.14 to $3.20, representing a growth rate of 6.0%; FFO as adjusted per share to be in the range of $3.15 to $3.21, representing a growth rate of 5.0% and EPS to be in the range of $1.98 to $2.04.

Omnicom Group: The marketing and corporate communications holding company, in its FY14 results, indicated that revenue was $15.32bn, compared with $14.58bn recorded a year ago. It stated that its net diluted EPS was $4.24, compared with $3.71 recorded in FY13.

Starwood Hotels & Resorts: The company announced that it would spin off its vacation ownership business, Starwood Vacation Ownership, into a separate publicly traded company to take advantage of increasing growth opportunities within the timeshare industry.

First Solar: The company announced that Apple has committed $848.00mn for clean energy from its California flats solar project in Monterey County, Calif. Furthermore, Apple would receive electricity from 130 MW AC of the solar project under a 25-year power purchase agreement to provide clean energy to a commercial end user.

Achillion Pharmaceuticals: The innovative pharmaceutical company revealed that it has commenced an underwritten public offering of 10,000,000 shares of its common stock.

TUI AG: The company, in its 1Q15 results, indicated that revenue improved 5.4% to GBP3.54bn from the same period in the previous year. It further stated that the company is confident of delivering underlying operating profit growth of 10.0% to 15.0% in FY15.

Babcock International Group: The engineering support services company, in its interim management statement for the period from 1 October 2014, revealed that the board remains confident that its results for FY15 would be in line with its expectations. It further stated that it entered 4Q15, starting 1 January 2015, with its order book at around GBP20.00bn and a bid pipeline of around GBP13.00bn. Its order book provides 70.0% revenue visibility for FY16.

ICAP Plc: The company, in its trading statement for 3Q15, stated that group revenue was 1.0% lower than the same period last year on a constant currency basis and 2.0% lower on a reported basis. The group remains focused on delivering its cost savings programme and is on track to reach the target of GBP43.00mn for the current year and at least GBP60.00mn on an annualised basis.

Halma Plc: The health and environmental technology company, in its trading update from 28 September 2014 to date, indicated that the board expects adjusted profit before tax for FY15 to be in line with market expectations. It stated that it would continue to identify potential acquisition opportunities which meet the company’s strategic and financial criteria.

Catlin Group Limited: The specialty insurance and reinsurance company, in its FY14 results, announced that total revenue rose 7.8% to $4.40bn from the preceding year. Its diluted EPS was $1.11, compared with $1.08 posted in FY13.

Bellway Plc: The home building company, in its trading update for 1H15, indicated that it has completed the sale of 3,754 homes, an increase of 15.7% compared with the same period last year. Its housing revenue has risen by approximately 19.0% to over GBP820.00mn. The company further stated that it is well placed to deliver further volume and profit growth in FY15.

Millennium & Copthorne Hotels: The company, in its FY14 results, revealed that revenue dropped 28.8% to GBP826.00mn from the previous year. Its diluted EPS stood at 33.90p, compared with 69.00p posted in the prior year. The company stated that in FY15, it would continue to focus on ownership and management of hospitality real estate assets, and commit to significant capital to the refurbishment of key gateway city and other properties, further strengthening the business.

Randgold Resources: The mining company’s Chief Executive stated that Africa’s continued emergence as major economic region depends on a renewed commitment to collaboration between mining companies and the countries which host them.

Ultra Electronics Holdings: The company announced that its Sonar Systems business, based in Greenford, Middlesex, has won a GBP18.00mn contract to supply sonobuoys for the Royal Navy’s Merlin maritime patrol helicopter. Additionally, the company indicated that the contract would be executed over the next two years to ensure the Royal Navy maintains a persistent anti-submarine warfare surveillance capability against hostile submarines.

James Fisher & Sons: The company announced the acquisition of the National Hyperbaric Centre Limited, based in Aberdeen, Scotland, for initial consideration is GBP3.50mn in cash plus a potential GBP1.00mn earn out based on specific future contracts undertaken post completion and prior to 31 March 2016.

Financial Times
UK company pension deficits hit GBP370.00bn high: Pension deficits at UK private companies have ballooned to a record GBP367.50bn — prompting calls for policy makers to help companies close the gap.

Sky pledges cuts as Premier League rights rocket: Sky has promised at least GBP200.00mn a year in extra cost cuts to help fund the unexpectedly high price it paid to secure the majority of Premier League football rights.

UK government closes ranks on HSBC tax issue: The UK government insisted on Tuesday that ministers did not know the full facts about the HSBC tax scandal until this week, in a collective closing of ranks in Parliament and in British financial services over the affair.

UK supermarkets challenge cash machine levys: Supermarkets are challenging local councils that are making them pay about GBP200.00mn of business rates on their in-store cash machines.

UK manufacturing growth still muted with tie to domestic spending: Growth in UK manufacturing remains muted, emphasizing the extent to which the economic recovery continues to be dependent on domestic spending and the service sector.

UK business secretary Vince Cable raises concerns on HSBC clean-up: Doubts over HSBC’s claims to have cleaned up its act after alleged collusion with widespread tax-dodging by rich clients of its Swiss private bank have been raised by the UK business secretary in a letter to bank chairman Douglas Flint.

Grangemouth threatened by fracking moratorium, says Ineos: The Grangemouth petrochemicals plant, Scotland’s most important industrial complex, is unlikely to survive in the long term without the development of local shale gas resources, its owner Ineos has warned.

Rosneft chief Igor Sechin says $7.00bn debt repayment will be met: Rosneft’s chief executive has sought to allay investor fears that the Russian state-owned oil producer might default on its debt. Western sanctions are starting to bite, but Igor Sechin said the group would meet a $7.00bn repayment due this week.

Rosneft Chief Igor Sechin takes aim at Opec: Igor Sechin, the President of Russian state-controlled energy company Rosneft, lashed out at Opec on Tuesday saying the cartel had “lost its teeth” and its policy had led to the “destabilisation” of the oil market.

Future of Pimco chief economist in doubt: The future of Paul McCulley as Chief economist at Pimco was left in doubt after the bond fund management company poached Morgan Stanley’s Joachim Fels to a new senior role.

Pandit-backed P2P lending platform strikes deal with Mainspring: A peer-to-peer lending platform backed by former Citigroup Chief Executive Vikram Pandit is set to announce an agreement to distribute loans on behalf of a speciality finance company.

Hedge funds push GM for $8.00bn share buyback: A central figure in the FY09 restructuring of the US auto industry is seeking a seat on General Motors’ board, in a surprise effort to force the company to spend $8.00bn on share buybacks, the company said on Tuesday.

New Look chief says retailer ready for IPO: New Look is ready for a stock market float, according to its chief executive, as the fashion retailer blamed warm autumn weather for a dip in third-quarter sales.

Under-fire NBC news presenter suspended for six months: Brian Williams, the NBC News presenter and managing editor who sparked a furore when it emerged that he had told a bogus story about the Iraq war, has been suspended without pay for six months by the Comcast-owned broadcaster.

Omnicom warns strong US dollar to hit FY15 revenues: Omnicom warned that the strong US dollar would weigh on revenues this year, as it reported higher revenues and profit in the fourth quarter.

Higher South Korea dividends fuel hopes for Kospi re-rating: South Korean companies are moving to boost their notoriously low dividends, prodded by government and shareholder pressure to return more of their growing cash piles to investors as earnings growth slows.

Coke cautions on FY15 currency challenge: Coca-Cola cautioned that the strong dollar would hit its profits and revenues in FY15, a “transition year” where its restructuring efforts would take time to pay off in a “volatile macroeconomic environment”.

Apple first to top $700.00bn valuation at close of day: Apple became the first US company to record a stock market valuation above $700.00bn at the close of trading, prompting its chief executive Tim Cook to say it could overcome the “law of large numbers” and keep growing rapidly.

US venture capital behind over half of London’s start-up funding: US technology investors provided more than half of all the money raised by London-based start-ups last year, as American venture capital groups look to cash in on the city’s fledgling digital groups.

SoftBank Q3 profits fall well below expectations: SoftBank, the acquisitive Japanese telecoms group founded by billionaire Masayoshi Son, sharply underscored analysts’ expectations on Tuesday as it reported third quarter results.

América Móvil’s quarterly profit tumbles 78.0%: Foreign exchange losses have pummelled profits at Mexican phone group América Móvil, which is already under pressure from tough new legislation at home.

Aena embarks on Spain’s largest IPO since financial crisis: Airports operator Aena will on Wednesday notch up the biggest flotation on the Madrid stock market since FY07, highlighting how investors are betting on a sustained economic recovery in Spain.

Aena to float at EUR58.00 a share in Spain’s second-biggest IPO: Aena, the Spanish airports operator, will be floated on the Madrid stock market on Wednesday in the biggest initial public offering in Spain since FY07 and the second biggest in the country’s history.

Drax: Gained 5.8% to 412.60p, with the stock initially squeezed higher by speculation that GDF Suez or RWE might bid for the power station operator.

Michelin: two-lane highway: Michelin, the French tyremaker, has always aimed to be very good: make the highest quality tyres and customers would pay up. Its fourth-quarter results on Tuesday did not impress. Although full-year operating earnings of EUR2.20bn missed consensus by only 3.0%, the market had clearly hoped for a clearer sign of improvement in the last quarter. The shares fell as much as 5 per cent. Promises of better pricing (due to product mix) and lower raw material costs in FY15, saving EUR100.00m, did not turn heads. That EUR100.00mn is only 5.0% of operating earnings. Although its shares had a good run from late October, up 26.0%, they still trailed those of Continental and Japan’s Bridgestone. They have been trailing for several years, too. Valuation for Michelin seems reasonable at 4.50 times forward earnings before interest, tax, depreciation and amortisation, below an average of six times for its global peers. Understandably, the market may see Michelin as a recovery story. But with too many sub-scale factories keeping unit costs higher, Michelin needs to get a better grip.

UBS: clockwork movement: UBS Chief Executive Sergio Ermotti has been taking lessons from the watchmakers and has spent the past three years trying to turn his bank into a smoothly performing machine. Here are the net profits, rising from SFr3.20bn to SFr3.60bn last year. That in turn has pushed the tier one capital ratio up to a healthy 13.4%. And as a consequence of that strong capital position, UBS doubled the regular dividend to 50.00c and will also make a 25.00c special payout. So get out the loupe and look at what is gumming up the system. There are some familiar problems. The charges for litigation rose from SFr1.70bn in FY13 to SFr2.50bn in FY14. Overall costs are looking sticky — the cost to income ratio increased from 88.0% to 91.0%. And there are some new imperfections in the mechanics. Risk weighted assets in the investment bank, which Mr Ermotti has been cutting back, are starting to tick up again. That is partly due to exchange rates and technical changes, but it is a worrying sign. More seriously, the recent appreciation of the Swiss Franc will hurt returns in UBS’s wealth management business — two-thirds of its costs are in the domestic currency but only one-third of its income. And lower Swiss interest rates will damage net interest margins.