Anchor Capital: Essential market review, 12 March

At 06:00 SAST today, gold prices declined 0.3% to trade at $1,152.23/oz. Yesterday, gold declined 0.6% to close at $1,155.31/oz, as a robust US dollar and expectations of higher US rates curbed appetite for the metal.

Yesterday, copper declined 0.6% to close at $5,754.50/mt. Aluminium closed 0.7% lower at $1,733.25/mt.

At 06:00 SAST, the US dollar is trading marginally higher against the South African rand at R12.2860, while the euro is trading 0.3% lower at R12.9113. At 06:00 SAST, the British pound has declined marginally against the South African rand to trade at R18.3355.

Yesterday, the euro declined against most of the major currencies. Meanwhile, the ECB President, Mario Draghi, in his speech yesterday reiterated that the recently introduced quantitative easing programme would help stave off the deflationary headwinds in the eurozone. Going forward, market participants will keep a tab on the consumer price index in Germany and Spain for February and the industrial production data from the eurozone for January, scheduled later today, for further direction.

At 06:00 SAST, the euro slipped 0.4% against the US dollar to trade at $1.0510, while it has weakened 0.3% against the British pound to trade at GBP0.7041.

On a monthly basis, manufacturing production in the UK unexpectedly dropped 0.5% in January. Manufacturing production had climbed 0.1% in the previous month.

The Federal Statistical Office Germany has reported that, in 4Q14, on a quarterly basis, the seasonally adjusted labour costs recorded a rise of 1.0% in Germany. Labour costs had climbed 0.2% in the prior quarter.

The ECB President, Mario Draghi, reiterated that the recently introduced quantitative easing programme would help stave off the deflationary headwinds in the eurozone. He further hinted that these stimulus measures might pose risks to the region’s financial stability, although these risks are expected to be “contained”.

The Mortgage Bankers Association has indicated that, in the week ended 6 March 2015, on a weekly basis, mortgage applications in the US fell 1.3%. In the prior week, mortgage applications had recorded a rise of 0.1%.

In January, the tertiary industry index in Japan registered a rise of 1.4% on a monthly basis, more than market expectations for a rise of 0.5%. In the previous month, the tertiary industry index had registered a revised unchanged reading.

The National Bureau of Statistics of China has reported that, in February, industrial production in China, climbed 6.8% on an annual basis, lower than market expectations for an advance of 7.8%. Industrial production had advanced 7.9% in the previous month.

Retail sales in China advanced 10.7% in February on an annual basis, compared with a rise of 11.9% in the previous month. Markets were expecting retail sales to rise 11.7%.

The Reserve Bank of New Zealand (RBNZ) kept the official cash rate unchanged at 3.5%, stating that inflation is estimated to remain low this year before gradually returning to the central bank’s 1.0% to 3.0% target band and an “extended” period of stability was needed. He further stated that the future interest rate adjustments would depend on the nation’s economic performance.

RMB Holdings Limited:

The financial services company, in its 1H15 results, indicated that net income was up 13.2% from the corresponding period of preceding year, to R3.51bn. Its diluted normalised EPS was R2.38, compared with R2.06 reported in the same period a year ago. The company announced interim dividend of R1.22/share, an increase of 22.0% from 1H14, payable on 30 March 2015.

Ascendis Health Limited:

The healthcare company, in its 1H15 results, stated that revenue from continuing operations climbed to R1.33bn from R0.66bn reported in the same period a year ago. Its diluted EPS from continuing operations was up 22.7% from the corresponding period of last year, to 35.10c. Its diluted normalised headline EPS stood at 43.10c, compared with 32.80c posted in the same period of previous year.

Bidvest Group Limited:

The company announced that it is in talks with Adcock Ingram to jointly control nearly half of Adcock Ingram, in a deal that would allow Bidvest an opportunity to add painkillers and cough syrups to its range of products.

Harmony Gold Mining:

The gold mining company announced that it has discovered gold and copper deposits at its KiliTeke exploration site in Papua New Guinea, which could be similar to its other resources in the Pacific Island nation.

Sibanye employees face arrest over union rivalry violence:

SA’s largest gold producer Sibanye Gold stated that 11 mine workers at its Beatrix mine in the Free State face arrest for attempted murder and assault after the conclusion of an investigation into a union clash in February that saw operations suspended for two days.

EOH continues on upward:

For the six months ended January 2015, technology group EOH has reported a rise in headline earnings per share rising of 26.4% on the back of a 39.4% increase in revenue to R4.60bn.

EOH to increase BEE stake:

Technology group EOH said on Wednesday it planned to increase its black economic empowerment stake to further strengthen its business.

Cameroon renews MTN mobile licence for 15 years, approves 3G and 4G:

MTN has indicated that Cameroon has renewed the operating licence of Africa’s largest telecoms provider MTN and allowed the firm to start offering third and fourth generation (3G and 4G) services in the Central African country.

UK and US

Memorial Resource Development: The natural gas and oil company, in its FY14 results, stated that total revenue grew 75.0% to $0.41bn from the preceding year. It reported a net loss of $0.76bn, compared with net income of $0.08bn recorded in the previous year. For FY15, the company expects to spend approximately $0.50bnon drilling and completions capital budget and to complete between 40 and 45 gross wells in the Terryville Field.

Elbit Systems Limited:

The defense electronics company, in its FY14 results, revealed that revenue was up 1.1% to $2.96bn from the previous year. However, its diluted EPS from continuing operations was $4.01, compared with $4.33 posted in the prior year.

Homeinns Hotel Group:

The hotel chain company, in its FY14 results, indicated that total revenue increased 5.2% to RMB6.68bn from the last year. Its diluted EPS stood at RMB4.55, compared with RMB2.10 reported in the preceding year. The company announced a share repurchase program of up to $35.00mn, effective for one year from 11 March 2015.

Scientific Games Corporation:

The company, in its FY14 results, revealed that total revenue climbed 63.8% to $1.79bn from the previous year. However, it incurred a net diluted loss of $2.77/share from continuing operations, compared with loss of $0.30/share reported in the last year. During 4Q14, the company completed the acquisition of Bally Technologies.

Inter Parfums Inc.:

The company, in its FY14 results, indicated that net sales dropped 11.4% to $0.50bn from the preceding year. Its diluted EPS attributable to common shareholders was $0.95, compared with $1.27 posted in the prior year. The company has raised its FY15 EPS guidance range to $0.98 to $1.00,from its previous guidance of $0.95 to $0.98.

Raven Industries Inc.:

The company, in its FY15 results, stated that net sales was down 4.2% to $0.38bn from the previous year. Its diluted EPS dropped to $0.86, compared with $1.17 reported in the prior year. Meanwhile, media reports revealed that the company has laid off 115 employees, including 75 in the Sioux Falls area, in response to a persistently weak agriculture market.

Vera Bradley Inc.:

The luggage design company, in its FY15 results, revealed that net revenue fell 4.1% from the last year, to $508.00mn. Its diluted net EPS from continuing operations was $1.01, compared with $1.48 posted in the previous year. For FY16, the company anticipates net revenues of $510.00mn to $525.00mn and diluted EPS from continuing operations is expected to be between $0.82 and $0.92.

Bank of America Corporation:

The banking company announced that its board of Directors have authorized a $4.00bn common stock repurchase program. It indicated that the Federal Reserve Board did not object to the company’s capital plan for the period from 2Q15 to 2Q16 and the company has been granted about 6 months to fix issues identified in the annual capital exam.

Morgan Stanley:

The company announced that it has received no objection from the board of Governors of the Federal Reserve System to its FY15 capital plan which includes a share repurchase of up to $3.10bn of common stock beginning in 2Q15 through the end of 2Q16. It further announced an increase in its 2Q15 dividend to $0.15/share from the current $0.10/share.

ACADIA Pharmaceuticals Inc.:

The pharmaceutical company announced the retirement of UliHacksell as the Chief Executive Officer and as a member of the board, effective immediately. The company also revealed that it would not seek regulatory approval for its lead drug candidate to treat Parkinson’s disease psychosis until 2H15. The company had previously planned to submit the NDA in 1Q15.

Hikma Pharmaceuticals Plc:

The pharmaceutical company, in its preliminary FY14 results, stated that revenue from continuing operations rose 9.1% to $1.49bn from the previous year. Its diluted EPS was $1.39, compared with $1.07 reported in the prior year. For FY15, the company stated that its focus would be on strengthening its product portfolio and pipeline, building its manufacturing and product development capabilities, enhancing sales and marketing activities and expanding its geographic footprint.

Michael Page International Plc:

The professional recruitment company, in its FY14 results, revealed that revenue after exceptional items was 4.1% higher at GBP1.05bn from the last year. Its diluted EPS was 19.10p, compared with 13.70p reported in the previous year. The company stated that fee-earner and total headcounts were at record levels at the end of the year.

Bwin.Party Digital Entertainment Plc:

The company, in its FY14 results, indicated that its total revenue was down 6.2% from the preceding year, to EUR611.90mn. It reported a diluted loss of 11.30c/share, compared with diluted EPS of 5.30c posted in the previous year. The company announced a final dividend of 1.89p/share, subject to shareholder approval at the AGM scheduled on 21 May 2015.

Witan Investment Trust Plc:

The investment management company, in its FY14 results, indicated that its total income dropped to GBP0.12bn from GBP0.33bn recorded in the previous year. Its EPS was lower to 50.35p, compared with EPS of 160.40p posted in the preceding year. The company declared a final dividend of 15.40p/share, an increase of 6.9% from the prior year.

Tullow Oil Plc:

The oil and gas exploration company revealed that two appraisal wells on the Amosing discovery have together now tested in excess 11,500 bls/d of oil. It stated that the latest appraisal well at the Ngamia field, Ngamia-7, drilled in the eastern flank of the field, successfully encountered 132.00m oil pay and has now been suspended for future use. Furthermore, the Ngamia-7 well in Northern Kenya has been successfully tested and has extended the eastern flank area of the oil field.

HICL Infrastructure Company:

The infrastructure investment company announced a new investment of GBP7.20mn, being a 45.0% interest in the Priority Schools Building Programme in the North East Batch Project.

Galliford Try Plc:

The housebuilding and construction company announced that it has reached financial close with the Education Funding Agency over the Priority School Building Programme to build six new secondary schools and six primary schools in the North East worth GBP160.00mn and has secured a GBP26.00mn contract with Flintshire Council for the Holywell Learning Campus in North Wales.

First Property Group Plc: The real estate company announced the appointment of Wolfhart Hauser as Chairman, effective on 18 May 2015.

Financial Times

RBS suffers setback in GBP30.00mn lawsuit: The Royal Bank of Scotland has lost a key pre-trial battle in a GBP30.00mn lawsuit where it is being sued by a property group over allegations of not only mis-selling interest-rate hedging products but also manipulating a benchmark that underpinned the instruments.

Annuity escape plan for pensioners:

Radical plans to give millions of existing pensioners new flexibility to sell their annuities for cash are under serious consideration by ministers ahead of next week’s Budget, building on the far-reaching reforms of the pensions system announced last year.

UK manufacturing output falls in January:

UK manufacturing output fell unexpectedly in January, dealing a blow to hopes that the sector was recovering after a weak spell in the autumn.

Brother Industries agrees to buy Domino Printing in GBP1.00bn deal:

Japan’s Brother Industries has agreed to buy Cambridge-based Domino Printing Sciences after the bar-code printer maker hit challenges in expanding in the fast-growing digital market.

Boohoo proves upwardly mobile as turnround sees revenues rise:

Budget online fashion retailer Boohoo.com appears to have halted its recent decline, posting a 27.0% increase in full-year revenues after a boost in mobile traffic.

Bwin.party in discussions with suitors over sale possibilities:

Bwin.party, the online gambling company, confirmed on Wednesday that it has received indicative offers from several groups interested in buying part or all of the company.

Cairn plunges on $1.60bn India tax bill:

Cairn Energy shares plunged in early London trading on Wednesday after the UK-listed oil explorer was served with a $1.60bn bill by the Indian tax authorities.
FirstGroup selects Wolfhart Hauser to take on chairman’s mantle:

FirstGroup has lined up a new chairman to replace John McFarlane who leaves for Barclays in May.

Eon plans spin-off as it reports record annual loss:

Eon, Germany’s biggest utility by market capitalisation, posted a record annual loss of EUR3.20bn on Wednesday as the shift to renewables in Europe’s biggest economy continues to squeeze the earnings of conventional power generating businesses.

US banks boost dividends:

US banks are poised to reclaim the top spot among S&P 500 sectors paying out the largest dividends to shareholders, after the Federal Reserve on Wednesday released its stress test health check of financial companies.

Deutsche and Santander fail US stress test:

The Federal Reserve has vetoed the US capital plans of Deutsche Bank and Santander in a stinging rebuke for the European banks even as US lenders got the green light to launch their biggest payouts to shareholders since the financial crisis.

Endo looks to crash $14.50bn Valeant-Salix deal:

Endo is trying to gatecrash one of the biggest pharmaceutical takeovers of the year by offering $15.70bn to acquire Salix – topping a lower offer from Valeant, and accelerating the frenetic pace of dealmaking in the drugs industry.

GSK selects Singapore as Asia hub:

GlaxoSmithKline, the UK-listed drugmaker, has designated Singapore as its Asia headquarters and will shift some of its US and UK staff to the city-state, in an effort to tap growing demand in the region.

Holcim and Lafarge rethink EUR41.00bn deal:

Holcim and Lafarge, Europe’s two biggest cement groups by sales, are in talks to renegotiate the terms of their EUR41.00bn merger after a divergence in the value of the two companies over the past year.

UTC plans spin-off for Black Hawk unit:

United Technologies plans to dispose of its business that builds the Black Hawk military helicopter, in a move that shows the determination of Greg Hayes, the new Chief Executive, to reshape the US aerospace and building systems conglomerate.

Weak euro wipes GBP33.00mn from PageGroup profits:

PageGroup, the FTSE 250 recruiter, has seen currency headwinds in Europe, the US and Asia takes a GBP33.00mn bite out of its annual profits.

Alibaba investment values Snapchat at $15.00bn:

Alibaba has invested $200.00mn in Snapchat, valuing the fast-growing social app at $15.00bn, according to two people familiar with the deal.

Alibaba partners alternative lenders to open doors to China:

Alibaba is teaming up with two alternative lenders in the UK to help small and medium-sized British companies do business in China.

Ericsson to cut 2,200 jobs in Sweden:

Ericsson will cut 2,200 jobs in Sweden as part of an attempt to slash SKr9bn in annual costs by FY17.

Serco:

Edged 0.2% lower to 206.40p awaiting details of its strategic review and rights issue.

Ormonde Mining:

Gained 44.7% to 3.40p after receiving a second takeover approach from Almonty Industries of Canada.

The MSCI Europe index is up 14.0% so far this year. This looks a little disconnected. Europe is, after all, the place trying to cope with Greece and Ukraine. Four explanations for the rally predominate: quantitative easing (as it relates to asset allocation); QE (as it relates to currencies); a nascent economic recovery; and valuations. The bond buying under the current QE plan, UBS points out, is greater than the net issuance of all credit products in the EU – sovereign, corporate, high-yield, low-yield. This must push investors toward another asset, and equities are the only one big enough. Investors could go abroad but, so far, fund flows indicate they are staying. A lower euro, driven by a wilful central bank, helps exporters. And indeed, shares in some exporters (carmakers in particular) have shone. At the same time, composite indices of economic indicators are on the rise and, more importantly, the data are beating expectations more often. Consumer confidence in the eurozone is at a post-crisis high. It is not all good, but much of it is marginally better. Finally,valuations. HSBC points out that while price to earnings ratios on the MSCI are very high by the standards of the past decade, earnings are depressed; relative to long-term average earnings multiples look a little more attractive (this is almost the reverse of US stocks).Deutsche Post: delivery time: Shares in Deutsche Post fell as much as 5.0% on Wednesday as its full-year results fell short of forecasts and the company offered little by way of comfort for next year. Deutsche Post’s two main profit drivers – the German mail and European parcels business (PeP) and express deliveries (under the DHL brand) – looked decent enough. Express grew its operating margins by 90 basis points to 10.0%. Together, these businesses represent 86.0% of operating earnings. But DHL freight forwarding, the business of moving the world’s trade from point to point, continues to struggle. Deutsche Post recognised three years ago that a business relying on phone calls and carbon copies required more investment to keep up with rivals such as Kuehne + Nagel of Switzerland. Freight forwarding was once a fifth of group operating earnings. It now accounts for half of that. Management needs to push harder to get the recovery programme there on track. Deutsche Post dwarfs its European rivals with a EUR35.00bn market value. Yet it does not come close to leading in profitability. Its operating margin, at 5.0%, trails rivals which offer near double that. Its PeP and Express divisions each have margins well above, also. That said, Deutsche Post has an international model that smaller, more profitable rivals, such as CTT in Portugal, do not duplicate. At some point, that scale may pay off.

Tech companies: obscured by clouds

The migration from traditional, on-premise hardware and services to the cloud (software delivered over the internet) is a big deal for IBM, Oracle, SAP and Microsoft. Their shares and valuations swing with their cloud growth. SAP’s cloud software and support revenues were EUR1.00bn last year. But the figure including cloud service – that is, consulting – was EUR1.30bn (and, of course, the distinction between support and consulting is crystalline). At Oracle, cloud software sales were $1.30bn in the past 12 months. Cloud infrastructure – memory and computing power as opposed to applications – get a separate line ($500.00mn). Meanwhile, Microsoft reports cloud revenues under the “commercial other” category – a hodgepodge. It gives an “annual run rate” for cloud sales specifically ($5.50bn). The run-rate number includes commercial Office 365 subscriptions, Azure, and Dynamics CRM. Yet it understates the impact of the cloud on revenues, because Microsoft sells server software that other cloud software vendors use. At Amazon, Web Services sales have been lumped under “other”, but happily revenues will be broken out next quarter. Those hoping for margins or product breakdowns for this huge business will have to wait. Google only mentions the word “cloud” once in its annual filing.