Anchor Capital: Essential market review, 19 February

Commodities
At 06:00 SAST today, Brent crude oil rose 0.1% to trade at $58.61/bl. Meanwhile, data from the American Petroleum Institute (API) showed that US crude stockpiles rose by 14.30mn bls last week.

Yesterday, Brent crude oil fell 4.4% to settle at $58.53/bl, amid profit booking by traders following recent gains in oil prices.

Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 1.2% to $3.60/bushel.

At 06:00 SAST today, gold prices advanced 0.3% to trade at $1,215.92/oz. Yesterday, gold gained 0.2% to close at $1,212.42/oz.

Yesterday, copper rose 1.8% to close at $5,759.50/mt. Aluminium closed marginally higher at $1,799.00/mt.

The yield on benchmark government bonds rose yesterday. The yield on 2015 bond advanced to 6.24% while that for the longer-dated 2026 issue rose to 7.69%.

At 06:00 SAST, the US dollar is trading marginally higher against the South African rand at R11.5919, while the euro is trading 0.2% higher at R13.2354.

Yesterday, the euro declined against most of the major currencies. Meanwhile, the Greek government has agreed to put in a request for loan extension from its international creditors following which the ECB would announce not to cut emergency funding to the debt ridden country. Going forward, market participants will eye the preliminary consumer confidence data in the eurozone due later today which is expected to show an improvement for February.

At 06:00 SAST, the euro advanced 0.2% against the US dollar to trade at $1.1419, while it has gained 0.1% against the British pound to trade at GBP0.7391.

On a monthly basis in January, the CPI slid 0.2% in South Africa, higher than market expectations for a fall of 0.1%. The CPI had registered a similar fall in the previous month.

In December, retail sales recorded an unexpected drop of 0.2% on a monthly basis in South Africa. In the previous month, retail sales had climbed 1.5%.

The National Statistics has indicated that the claimant count rate in the UK dropped to 2.5% in January, in line with market expectations. The claimant count rate had recorded a reading of 2.6% in the prior month.

The minutes of the BoE’s latest monetary policy meeting showed that all the nine members of monetary policy committee voted unanimously to keep the benchmark interest rate at a record low of 0.5% and the size of its asset-purchase program at GBP375.00bn.

The National Statistics has indicated that, in the UK, the ILO unemployment rate registered an unexpected drop to 5.7% in the October-December 2014 period. In the July-September 2014 period, the ILO unemployment rate had registered a reading of 5.8%.

The minutes of the Fed’s latest monetary policy meeting revealed that a majority of policymakers remained wary of raising interest rates earlier than anticipated as it could harm the nation’s economic recovery and labour market conditions.

On a monthly basis, the producer price index (ex-food & energy) unexpectedly dropped 0.1% in January, in the US, less than market expectations for a rise of 0.1%. Producer price index (ex-food & energy) had climbed 0.3% in the previous month.

In the US, housing starts eased 2.0%, on monthly basis, to an annual rate of 1,065.00k in January, compared with a revised level of 1,087.00k in the previous month. Market anticipations were for housing starts to fall to 1,070.00k.

On a monthly basis, industrial production in the US advanced 0.2% in January, less than market expectations for a rise of 0.3%. In the previous month, industrial production had registered a revised drop of 0.3%.

Japan has posted adjusted merchandise trade deficit of JPY406.10bn in January, following a revised adjusted merchandise trade deficit of JPY620.70bn in the prior month. Markets were expecting the nation to post a adjusted merchandise trade deficit of JPY598.10bn.

Discovery Limited: The company, in its trading statement for 1H15, revealed that it expects its normalised headline undiluted EPS to increase between 10.0% and 20.0% to reach between 325.8c and 355.4c, compared with the 296.2c reported for the same period previous year. However, it anticipates its headline undiluted EPS and basic EPS to increase between 95.0% and 105.0% from the same period a year ago.

RCL Foods Limited: The company, in its 1H15 results, indicated that actual revenue was up 38.8% to R12.03bn from the corresponding period of previous year. Its diluted headline EPS from continuing operations stood at R0.70, compared with R0.05 posted in the same period in the previous year. The company has declared an interim gross cash dividend of R0.15/share.

Emira Property Fund: The company, in its 1H15 results, revealed that revenue increased 16.6% to R0.86bn from the same period a year ago. Its diluted headline earnings per participatory interest stood at R0.71, compared with R0.75 posted in the same period for the previous year. The company announce a distribution R0.65 per participatory interest, an increase of 9.0% on the previous comparable period.

Adcock Ingram Holdings: The company, in its trading statement for 1H15, indicated that its basic EPS is expected to be in the range of R0.82 to R0.85, compared with R0.61 reported in the same period a year ago. It further stated that its headline EPS is expected to increase between 33.0% and 39.0% from the corresponding period a year ago.

Metair Investments: The company, in its trading statement for FY14, stated that its headline EPS is expected to be between 32.4% and 39.3% higher than the previous year. Furthermore, its EPS is expected to be between R2.95 and R3.10, compared with R2.29 reported in the preceding year.

City Lodge Hotels: The company, in its 1H15 results, revealed that revenue rose 20.3% to R0.64bn, compared with the same period a year ago. Its fully diluted headline EPS stood at R3.79, compared with R3.28 posted in the corresponding period previous year.

Blue Label Telecoms: The company, in its 1H15 results, stated that revenue advanced 13.8% to R10.33bn, compared with the same previous period a year ago. Its core EPS increased 17.4% to R0.44 from the preceding year.

Sasol Limited: The oil company announced that the directors have approved a change in its dividend policy. It has also decided to combine two of its reportable segments, Southern Africa Energy and International Energy, and their associated management structures, into one segment, now called Energy.

Illovo Sugar Limited: The company’s majority-held subsidiary, Zambia Sugar, announced details of its major investment project at its Nakambala sugar operations at Mazabuka which would give further impetus to the development of Zambian smallholder cane farmers and provide employment opportunities for local people during the construction phase scheduled for completion in 2016.

Arrowhead Properties Limited: The company proposed an equity raise of approximately R0.60bn through the issue of new Arrowhead A and B linked units in terms of a vendor consideration placing to fund acquisitions.

Naspers plans JSE listing for Novus unit: Media and internet group Naspers said on Wednesday that it plans to list its Novus printing unit on the JSE in March.

Curro proposes fifth rights offer: Fast-growing private education group Curro Holdings, which aims to have at least 80 schools by FY20, is embarking on its fifth rights offer in as many years.

Naspers to list Paarl Media: The Media24 group, a subsidiary of internet giant Naspers, has announced its intention to unbundle the Paarl Media Group, a leader in South Africa’s print industry.

UK and US

Actavis Plc: The pharmaceutical company, in its FY14 results, indicated that net revenue increased to $13.06bn from $8.68bn posted in the previous year. However, it posted a diluted loss of $7.42/share, compared with a loss of $5.27/share recorded in the previous year. The company expects total net revenue to be approximately $15.00bn in FY15. It also indicated that it is planning to change its name to Allergan, the moniker of the Botox maker it has agreed to acquire.

Duke Energy: The company, in its FY14 results, indicated that total operating revenue was up 5.1% to $23.93bn from the preceding year. However, its diluted EPS from continuing operations dropped to $3.46 from $3.63 posted in the previous year. The company established FY15 adjusted diluted EPS guidance range of $4.55 to $4.75.

EOG Resources.: The oil and natural gas producing company, in its FY14 results, indicated that net operating revenue increased to $18.04bn from $14.49bn reported in the previous year. Its net diluted EPS rose to $5.32, compared with $4.02 posted in the preceding year. The company’s capital expenditures for FY15 is expected to be in the range from $4.90bn to $5.10bn, including production facilities and midstream expenditures, and excluding acquisitions.

Williams Companies: The premier energy infrastructure providing company, in its FY14 results, indicated that its net income rose to $2.11bn from $0.43bn in the preceding year. Its diluted EPS from continuing operations was $2.91, compared with $0.64 reported in the previous year. It expects dividend of $2.38/share in FY15 with 10.0% to 15.0% annual dividend growth through FY17.

Marriott International: The hotel chain company, in its FY14 results, indicated that total revenue increased 7.9% to $13.80bn from the corresponding previous year. Its diluted EPS was $2.54, compared with $2.00 recorded in FY13. The company expects FY15 diluted EPS to be in the range of $3.00 to $3.12, an 18.0% to 23.0% increase annually.

Marathon Oil: The company, in its FY14 results, indicated that total revenue and other income dropped 4.5% to $11.26bn from the prior year. However, its diluted income from continuing operations rose to $1.42 from $1.31posted in the previous year. The company indicated that it would cut its FY15 capital budget by another 20.0% to $3.50bn.

NiSource Inc.: The energy holding company, in its FY14 results, indicated that its total net revenue increased 10.1% to $4.23bn from the previous year. It reported GAAP basic EPS from continuing operations of $1.68, compared with $1.57 posted in the prior year. The company’s utility capital investments are expected to reach approximately $1.30bn in FY15.

Pharmacyclics Inc.: The company, in its FY14 results, indicated that its total revenue grew to $0.73bn, compared with $0.26bn reported in the previous year, primarily due to $0.48bn increase in IMBRUVICA net product revenue. Its diluted net EPS stood at $1.10, compared with $0.87 posted in the prior year.

Ball Corporation: Media reports revealed that the beverage can maker is close to a deal to buy UK-based Rexam Plc this week.

Ocera Therapeutics: The company announced preliminary topline results from a Phase 2a investigator-sponsored study evaluating the company’s drug candidate OCR-002 (ornithine phenylacetate) versus placebo in patients with upper gastrointestinal bleeding (UGIB) associated with liver cirrhosis. The data demonstrated a favourable safety profile for OCR-002 and that the drug candidate was well tolerated.

Coca-Cola HBC AG: The company, in its FY14 results, indicated that net sales revenue dropped 5.3% to EUR6.51bn from the previous year. Its comparable EPS was EUR0.76, compared with EUR0.81 reported in the preceding year. The company expects annual capital expenditure over the medium term of FY15 to be in the range between 5.5% and 6.5% of net sales revenue.

Galliford Try: The company, in its 1H15 report, stated that group revenue rose 35.1% to GBP1.09bn from the corresponding period a year ago. Its diluted EPS stood at 41.30p, compared with 36.10p reported in the same period in the previous year. The company further stated that it is optimistic about the prospects for a number of recent and forthcoming sales outlets with housing market conditions looking good. It has increased its interim dividend by 47.0%.

SSE Plc: The energy company noted the publication by the Competition and Markets Authority (CMA) of its updated issues statement relating to the supply and acquisition of energy in Great Britain. It stated that it would maintain its approach of working constructively with the CMA.

RSA Insurance Group: The company announced that it has agreed to sell its 26.0% holding in Indian insurer Royal Sundaram Alliance Insurance company Limited to Sundaram Finance Limited, its joint venture partner.

Balfour Beatty: The infrastructure group announced that it has reached financial close and completed the acquisition of Gwynt y Môr offshore transmission project in the UK worth GBP352.00mn. It stated that it would invest GBP28.00mn of equity, which represents 60.0% of equity required.

Witan Investment Trust: The company announced the appointment of James Hart into its investment team, as Investment Director. It expects James Hart to take up employment at Witan in the second half of April.

Betfair Group: The internet betting company announced that its subsidiary TVG has acquired the HRTV horseracing television network from the Stronach Group. It would make an initial payment of $25.00mn and estimates that it would pay further consideration totalling $47.80mn over the seven-year period, although the total consideration is dependent upon TVG’s future handle.

Financial Times

Oil price fall hits UK biofuel plant: One of the UK’s biggest biofuel plants, the Ensus factory on Teesside, has been temporarily closed in the latest sign of how tumbling oil and bioethanol prices are affecting the green fuel industry.

Iberdrola profits fall as it grapples with renewables regulations: Profits at Iberdrola, the Spanish power generator, fell during FY14 as the group grappled with regulations in its home markets that offset the returns from its overseas operations.

UK watchdog says big energy groups do not enjoy unfair advantage: Britain’s competition authority has rejected suggestions that the biggest energy suppliers enjoy an unfair advantage by owning their own power generating businesses, suggesting that the big six suppliers may avoid a forced break-up of their generating and retail operations.

Eni to cut spending by EUR2.00bn as slide in oil prices hits profit: Eni, the Italian oil and gas group, is to cut capital spending this year in response to the collapse in crude prices, after a one-third slide in operating profits in the fourth quarter of last year.

Axa set to take over City’s Pinnacle skyscraper site in GBP300.00mn deal: The City of London’s most prominent stalled construction site is to become the Square Mile’s tallest skyscraper after French investor Axa Real Estate lined up a GBP300.00mn deal to buy it.

Cyber attack risk requires $1.00bn of insurance cover, companies warned: Companies will need as much as $1.00bn in cyber insurance coverage as the costs of hacking attacks mount, industry experts are warning, but some businesses are struggling to secure even a tenth of that.

Sapinda proposes alternative Petropavlovsk deal: Sapinda, the investment group that is threatening to push Petropavlovsk into bankruptcy unless it renegotiates it debt restructuring, has said it is prepared to invest $100.00mn into the gold miner as part of a revised deal.

Old Mutual seeks shorter notice periods for directors: Britain’s bosses should have much shorter notice periods in line with ordinary workers to reduce the multimillion pound termination payments enjoyed by some of the country’s top directors.

UBS and Credit Suisse face tougher capital demands: Switzerland’s two biggest banks will have to take “additional measures” to ensure they weather another financial crisis, but they and their investors will have to wait until the end of the year to find out what those are.

UK watchdog cracks down on asset managers: The UK’s GBP5.00tn asset management industry is not doing enough to guard against potential insider trading and market abuse, the UK’s financial watchdog has found in the latest salvo on an industry that is garnering increasing regulatory scrutiny.

Expensive drugs cost lives, claims report: The adoption of expensive new drugs by the NHS is doing patients more harm than good, according to a study that urges a sharp reduction in the price pharmaceuticals companies are paid for their products.

Lockheed aims to slash cost of F35 jets: Lockheed Martin is on track to slash 30.0% from the cost of each F-35 joint strike fighter, bringing the price of the controversial aircraft below that of previous, less capable generations of fighters, Marillyn Hewson, the company’s Chief Executive, said on Wednesday.

Ball closes in on formal GBP4.30bn Rexam bid: Ball Corporation of the US is expected to announce a formal offer to buy its UK-based rival Rexam as early as Thursday in a GBP4.30bn deal that would create a powerhouse in the production of beverage cans, said people familiar with the situation.

Balfour Beatty completes GBP352.00mn Welsh wind power deal: Balfour Beatty has completed its acquisition of a GBP352.00mn Welsh offshore transmission project, just one day after its new Chief Executive outlined early turnround efforts for the troubled UK construction group to boost profitability.

Narendra Modi calls for ‘new era’ for Indian defence firms: Narendra Modi, Indian prime minister, sharply criticised local state companies dominating the country’s huge arms industry and called on Indian and foreign groups to invest in a “new era” worth billions of dollars in orders for the global defence sector.

Vice squad’s $1.00mn win lights up Las Vegas: Shane Smith, the co-founder and Chief Executive of Vice Media, has taken his place among the high-rollers in Las Vegas after winning $1.00mn at the Bellagio casino and spending $300,000 of his winnings on a meal for more than 30 employees and business partners.

Peter Oborne criticism of Telegraph newspaper ‘well founded’: An attack on the integrity of the Daily Telegraph by one of its most respected journalists appears “well founded”, an independent analysis of the newspaper’s coverage of the HSBC tax avoidance scandal has concluded.

Browett leaves Monsoon Accessorize in surprise move: John Browett has unexpectedly left Monsoon Accessorize, after spending two years running the privately owned retailer.

Coca-Cola Hellenic warns of trading conditions in Russia: Coca-Cola Hellenic, the world’s second-largest Coca-Cola bottler, warned on Wednesday of deteriorating business conditions in Ukraine and Russia, its biggest market.

New Tesco Chairman seeks to win over shareholders: John Allan, the new Chairman of Tesco, is set to meet some of the supermarket chain’s biggest shareholders over the next few weeks to convince them that he is the right man for the job, after some investors pushed for the appointment of veteran retailer Archie Norman.

Sports shoe maker loses track of bosses: Directors of London-quoted Chinese sports shoe maker Naibu have been forced to admit that they have lost all contact with the company’s chairman and senior Executive, in the latest controversy to hit Aim.

Pernod Ricard Chief takes aim at ‘craft’ spirits: Alexandre Ricard has been Chief Executive of Pernod Ricard for barely a week, but he is already stirring things up at the world’s second-biggest distiller by sales with a call to big brand owners to fight back against the craft spirits industry.

Carlsberg appoints Cees ‘t Hart as CEO to cure Russian hangover: The world’s fourth-largest brewer by volume announced on Wednesday that Chief Executive Jørgen Buhl Rasmussen would step down in June, to be replaced by Cees ‘t Hart, the boss of FrieslandCampina, the Dutch maker of Yazoo flavoured milk and Puddis desserts.

Samsung buys mobile payments company to compete with Apple: Samsung Electronics has bought US mobile payments company LoopPay, signalling its intent to take on Apple in the sector.

Google joins fight to curb US data hunt: Google has joined the battle against efforts by US law enforcement agencies to search for personal data held on servers outside the US, claiming that a proposed rule change in the country’s courts would have “monumental” ramifications.

Snapchat funding round could value group at $16.00bn: Snapchat has been in talks with potential investors about raising money at a valuation of at least $16.00bn, as their enthusiasm grows about the company’s potential to expand beyond disappearing messages.

Sony to spin out division behind the Walkman: Sony plans to make the department responsible for the Walkman brand a separate subsidiary in October.

Drahi offers to buy EUR3.90bn Vivendi stake in Numericable-SFR: Patrick Drahi has offered to buy Vivendi’s 20.0% stake in Numericable-SFR for EUR3.90bn in a deal that would tighten the billionaire entrepreneur’s grip on France’s second-biggest telecoms operator.

Shadow transport secretary pledges Labour will bin rail franchising system: Labour’s transport spokesman has promised to rip up Britain’s rail franchising model and ensure publicly run operators take over trains as soon as possible if the party wins May’s general election.

Arm Holdings: Rose 2.5% to GBP10.99 amid growing optimism about its royalty revenues.

Coca-Cola HBC: Lost 3.1% to GBP11.43 after the bottler’s full-year results showed a greater than expected drag from currency depreciation.

GrubHub, Yelp, Just Eat: couch potatoes: Let’s call it the couch potato investment theory: over time, more and more people will choose not to leave the comfort of their houses to eat a meal, buy clothes or stock up on groceries. And in the realm of food delivery, couch potato stocks — such as GrubHub, Yelp and Just Eat — have already become some of the priciest items on the menu. Their valuations range from 58 times forward earnings (Yelp) to 71 times (Just Eat). Not all couch potatoes are the same. Yelp derives most of its revenue from local advertising, and has only recently moved into couch potato territory with its acquisition of Eat24, a food delivery platform (the restaurants themselves do the deliveries). With a price tag of $134.00m, Yelp paid 3.7 times Eat24’s FY15 sales for a business that is growing at 60.0% a year. Margins are slim though: Deutsche Bank expects just $2.00mn in earnings (before interest, tax, depreciation and amortisation) from Eat24 this year on sales of $36.00mn. Eat24 was already integrated with the Yelp platform before the acquisition, so it is questionable how much upside there is for Yelp. Meanwhile, Just Eat, which operates in 13 countries, is also expanding rapidly. It is slightly less profitable than its US peers, as it expands in new markets. Investors are also backing competitors such as Deliveroo and Delivery Hero. Catering to couch potatoes is not as easy as it sounds.

Severstal: rub the right way: Consider Severstal, the Russian steelmaker. It wins from the rouble’s halving against the dollar since last summer. Results on Wednesday revealed just how much the company has benefited from the rouble’s decline. In the fourth quarter, production costs fell to $203.00 per tonne for semi-finished steel, down from $279.00 the year before. Those costs make Severstal a very competitive steelmaker, one of the lowest-cost producers in the world. Who is laughing now? Shareholders should be. While global steel share prices have made no headway in FY15, Severstal’s shares have risen 32.0% this year in dollar terms to two-year highs. That is even better than the Russian RTS dollar-based stock market index (up 16.0%), the best performer in the world this year, helped by a bounce in commodity prices. Note that almost all of the company’s $3.40bn of debt is in US dollars, nearly $800.00mn of which comes due this year. So the company depends on exports (29.0% of volume) to balance this liability. The profitability of these exports could be threatened by export tariffs, which the Russian Ministry of Industry and Trade might implement. Moody’s has noted that this announcement stems from complaints by local customers at the sharp rise in domestic (rouble) steel prices. Those have leapt almost 50.0% over the past year at a time when global steel prices have fallen.