Anchor Capital: Essential market review, 18 March

South African markets closed firmer yesterday, amid strength in platinum and gold sector stocks. Lonmin climbed 9.4%. The platinum mining company announced the appointment of Ben Moolman as COO. Peers, Anglo American Platinum, Northam Platinum and Impala Platinum Holdings advanced 3.9%, 2.8% and 1.6%, respectively. Gold Fields, Harmony Gold Mining Company and AngloGold Ashanti climbed 6.2%, 3.9% and 3.6%, respectively. BHP Billiton gained 3.3%. The company recommended to its shareholders to approve the proposed demerger of South32. Retailers, Shoprite Holdings and Pick n Pay Stores rose 5.1% and 3.0%, respectively. However, SABMiller and Naspers both fell 1.2%. The JSE All Share Index rose 0.3% to close at 52,300.24.

UK markets finished higher yesterday, ahead of the 2015 budget statement to be presented by the UK’s Chancellor of the Exchequer George Osborne later today. Energy sector stocks, Tullow Oil and BG Group jumped 6.1% and 2.3%, respectively, amid speculation that North Sea oil producers would be benefitted from prospective UK budget tax breaks. BHP Billiton advanced 3.3%, after the company unveiled plans to spin off its non-core activities into a new company named South32. Peers, Fresnillo and Anglo American climbed 1.6% and 1.5%, respectively. Bucking the trend, Antofagasta dropped 2.8%, following downbeat FY14 results and after the firm significantly reduced its dividend payment. The FTSE 100 Index advanced 0.5% to close at 6,837.61.

US markets finished mostly lower yesterday, ahead of the Federal Open Market Committee’s monetary policy decision today. Macerich Company dropped 3.5%, after it rejected a hostile takeover bid worth more than $20.00bn from Simon Property Group. Electronic Arts declined 3.0%, after its peer, Nintendo, confirmed its plans to develop mobile phone games. Diamond Offshore Drilling and Marathon Oil lost 1.9% and 1.7%, respectively, in line with a fall in oil prices. On the flip side, Apple gained 1.7%, amid media reports that the technology company plans to launch a Web TV service as early as this fall. The S&P 500 Index retreated 0.3% to settle at 2,074.28, while the DJIA Index declined 0.7% to close at 17,849.08. However, the NASDAQ Index rose 0.2% to finish at 4,937.43.

Markets in Asia are trading higher this morning, ahead of the US Fed’s monetary policy outcome due later in the day. In Japan, Sony climbed 4.8%, after it upwardly revised its 3Q15 operating profit outlook. However, Inpex Corporation declined 3.2%, following a decline in crude oil prices yesterday. In Hong Kong, Air China and China Eastern Airlines Corporation gained 1.6% and 1.0%, respectively, amid hopes for lower fuel costs following a drop in international crude prices. In South Korea, Hyundai Motor and Kia Motors climbed 1.1% each, as they shrugged off news that their sales increased at a lower-than-market average rate in Europe in February. The Nikkei 225 Index is trading marginally higher at 19,437.31, while the Kospi Index is trading 0.2% firmer at 2,033.71. The Hang Seng Index is trading 1.0% higher at 24,145.14.

At 06:00 SAST today, Brent crude oil advanced marginally to trade at $51.35/bl. Data from the American Petroleum Institute indicated that crude inventories rose by 10.50mn bls to 450.00mn bls in the week ended March 13. Yesterday, Brent crude oil declined 2.4% to settle at $51.33/bl, as traders tracked developments surrounding discussions between Iran and world powers over Tehran’s nuclear programme.

Yesterday, the Illinois North Central No.2 Yellow corn spot prices dropped 2.1% to $3.47/bushel.

At 06:00 SAST today, gold prices advanced 0.1% to trade at $1,151.01/oz. Traders look forward to the outcome of the US Fed’s two-day policy meeting later today. Yesterday, gold declined 0.5% to close at $1,149.57/oz.

Yesterday, copper dropped 1.0% to close at $5,805.00/mt. Aluminium closed 0.9% higher at $1,788.50/mt.

Yesterday, the South African rand strengthened against major currencies. Meanwhile, data showed that the current account deficit in South Africa narrowed more than expected in 4Q14. Separate data revealed that US housing starts plunged in February, while building permits rose. Later today, investors look toward the Federal Open Market Committee’s policy statement along with South African consumer prices and retail sales data for further direction.

The yield on benchmark government bonds fell yesterday. The yield on 2015 bond dropped to 0.2% while that for the longer-dated 2026 issue declined to 0.3%.

At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R12.3618, while the euro is trading 0.1% up at R13.1096.

Yesterday, the euro advanced against most of the major currencies. Data showed that consumer prices in the eurozone fell in line with the preliminary estimate on an annual basis in February, while the economic sentiment index in eurozone rose more than expected in March. Going forward, eurozone construction output and trade balance data will garner market attention.

At 06:00 SAST, the euro rose 0.1% against the US dollar to trade at $1.0607, while it has remained unchanged against the British pound to trade at GBP0.7185.

The current account deficit in South Africa dropped to R198.00bn in 4Q14, less than market expectations of a current account deficit of R216.00bn. South Africa had posted a revised current account deficit of R223.00bn in the previous quarter.

In South Africa, current account balance to gross domestic product (GDP) recorded an unexpected rise to a level of -5.1% in 4Q14, compared to market expectations of a steady reading. The current account balance to GDP had recorded a revised reading of -5.8% in the previous quarter.

ZEW Institute has reported that the economic sentiment index in Germany recorded a rise to 54.80 in March, lower than market expectations of an advance to 59.40. The economic sentiment index had recorded a reading of 53.00 in the previous month.

In March, the current situation index in Germany climbed to 55.10, compared to market expectations of an advance to 52.00. In the previous month, the current situation index had registered a level of 45.50.

The final consumer price index (CPI) in the eurozone fell 0.3% on an annual basis in February, compared to a fall of 0.6% in the prior month. The preliminary figures had also recorded a fall of 0.3%.

ZEW Institute has reported that the economic sentiment index registered a rise to 62.40 in March, in the eurozone, compared to a level of 52.70 in the previous month.

On a MoM basis, building permits in the US rose to a level of 1,092.00k in February, higher than market expectations of 1065.00 K and compared to a revised level of 1,060.00k in the prior month.

Housing starts dropped 17.0%, on monthly basis, to an annual rate of 897.00k in the US, in February, lower than market expectations of 1,048.00k. In the previous month, housing starts had recorded a revised level of 1,081.00k.

The merchandise (total) trade deficit in Japan narrowed to JPY424.60bn in February, less than market expectations of a merchandise (total) trade deficit of JPY1,000.80bn. Japan had posted a revised merchandise (total) trade deficit of JPY1,179.10bn in the prior month.

South Africa

Astral Foods Limited: The company, in its trading update for six months ended 31 March 2015, stated that headline EPS is expected to increase at least 150.0% from the same period of the previous year to R9.65. It further indicated that the continued improvement in profits into February 2015 can be ascribed to the post-festive season market for poultry products being stronger for a longer period than was originally estimated.

Clover Industries Limited: The company, in its 1H15 results, indicated that revenue increased 7.9% from the same period of previous year to R4.66bn. Its diluted EPS stood at R1.12, compared with R0.82 posted in the corresponding period of last year. Its diluted headline EPS increased sharply to R1.04 from R0.73 recorded in the prior year.

BHP Billiton: The mining company recommended to its shareholders to approve the proposed demerger of South32 at the shareholder meetings to be held on 6 May 2015. It believes that with a more focused portfolio, the company would be better placed to achieve further productivity benefits in its core assets.

Lonmin Plc: The platinum mining company announced the appointment of Ben Moolman as Chief Operating Officer with immediate effect.

Lupin to buy rest of SA drug firm: Indian drug maker Lupin has agreed to buy the rest of Cape Town-based generic drugs firm Pharma Dynamics.

Group Five faces collusion claim: A case of collusive tendering against construction company Group Five was referred to the Competition Tribunal on Tuesday, the Competition Commission said.

MTN Group considers Ghana listing: MTN Group Ltd.’s Ghana business is considering a local stock-exchange listing as a way to increase local ownership, the unit’s Chief Executive Officer Serame Taukobong told reporters Tuesday in the capital, Accra.

Clover says milk oversupply will weigh on prices: Clover Industries, South Africa’s biggest dairy processor, said an oversupply of milk will weigh on prices in the second half as competition drives production.

Dangote group expects $9bn refinery to start by 2017: A new $9 billion oil refinery producing 500,000 barrels per day being developed by Africa’s richest man, Aliko Dangote, is expected to come on stream in Nigeria by 2017, a senior Dangote Group official said Tuesday.

UK and US

Oracle Corporation: The technology company, in its 3Q15 results, indicated that revenue increased to $9.33bn from $9.31bn posted in the same period previous year. Its diluted EPS stood at $0.68, in line with market expectations. The company projects 4Q15 adjusted EPS to be in the range of $0.90 to $0.96, compared with the market estimate of $0.94.

Adobe Systems: The computer software company, in its 1Q15 results, stated that it achieved revenue of $1.11bn, above the high end of the targeted range of $1.05bn to $1.10bn and compared with $1.00bn posted in the corresponding period last year. The company reported non-GAAP diluted EPS of $0.44, better than market estimate of $0.39. It also unveiled Adobe Document Cloud, a modern way to manage critical documents at home, in the office and across devices.

Aeterna Zentaris: The biopharmaceutical company, in its FY14 results, stated that revenue dropped sharply to $0.01mn from $6.18mn posted in the previous year. The company reported a basic and diluted loss per share of $0.28, compared with basic and diluted EPS of $0.24 recorded in the preceding year.

Clean Diesel Technologies: The company, in its FY14 results, indicated that revenue dropped to $41.20mn from $51.80mn posted in the previous year. The company posted basic and diluted loss per share of $0.78, compared with a loss per share of $0.86 recorded in the preceding year. The company stated that FY15 would be a pivotal year as it further invests in its advanced materials strategy. The company does not expect to record revenue from this strategy in FY15, but believes that it would enable to drive profitable growth in FY16 and beyond.

Apple Inc.: According to media reports, the company is planning to launch its own online television service as it works to build out its already-robust ecosystem. The iPhone maker will offer a “slimmed-down” bundle of TV networks, anchored by such names as ABC, CBS, and Fox. The service would have a total of about 25 channels.

CME Group: According to media reports, the company has held talks with BGC Partners about buying GFI Group’s trading-software units, Trayport and Fenics, after BGC won out over CME and GFI management in a bid for the company.

Nektar Therapeutics: The stage-clinical biopharmaceutical company announced topline results from its Phase 3 BEACON study evaluating single-agent NKTR-102 in patients with advanced breast cancer.

Antofagasta Plc: The copper mining company, in its preliminary FY14 results, indicated that group revenue dropped 11.4% from the preceding year to $5.29bn. Its basic EPS stood at 46.60¢, compared with 66.90¢ posted in the previous year. The company stated that due to continued uncertainty in the copper market at the start of FY15, it has decided to recommend a final dividend of 9.80¢/share, bringing the total dividend to 21.50¢/share.

Sainsbury Plc: The company, in its trading statement for the ten weeks to 14 March 2015, stated that like-for-like retail sales (excluding fuel) was down 1.9% and down 3.9% (including fuel). It revealed that the company has seen volume growth across the food business and an average uplift of over 3.0% on the 1,100 products where it has made price reductions during the period. The company expects food deflation to persist during FY15 and competitive pressures on price would continue.

IG Group Holdings: The company, in its trading update for 3Q15, revealed that sudden movement in the value of the Swiss franc on 15 January 2015 reduced its revenue by GBP11.80mn to GBP91.80mn, 5.1% less from the same period of last year. However, excluding this, on an underlying basis, revenue was up by 7.1% from the corresponding period of previous year to GBP103.60mn.

Just Eat: The media company, in its FY14 results, stated that revenue from its continuing operations increased sharply to GBP157.00mn from GBP96.80mn recorded in the previous year. Its diluted EPS was 9.40p, compared with 1.40p reported in the prior year. The company indicated that investment for growth in areas such as technology, marketing and people would continue and as a result for FY15, it expects revenue to marginally exceed GBP200.00mn, at current exchange rates.

Sky Plc: The media company announced that it has further invested $5.00mn in 1Mainstream, a pioneering OTT startup company. The expansion of the partnership is part of the company’s ongoing programme of investing in startups that continue to innovate and gain market share.

Kier Group: The integrated property, residential, construction and services company announced that it has been awarded all of the three lots under the GBP2.00bn Southern Construction Framework, one of the largest regional construction frameworks in the UK. It stated that the four-year regional construction framework would encompass a pipeline of multiple contracts valued at GBP1.00mn upwards.

Financial Times

Just Eat delivers strong full-year results: Just Eat, the online takeaway company, reported a 62 per cent jump in full-year revenues to £157m on the back of £1bn of orders.

Fridman looks to avert political row by selling North Sea fields: Russian billionaire Mikhail Fridman is preparing to sell a dozen North Sea gasfields at the heart of a fierce row over ownership, in a move that would avert a high-profile legal battle with the UK government.

New owners of BHS to review ailing stores: The new owners of BHS have put the future of almost a third of its stores under review just days after snapping up the business for £1. People close to Retail Acquisitions, the previously unknown investment group that bought BHS last week, said 52 underperforming stores were being reviewed.

Emirates National Oil moves to buy out Dragon Oil shareholders: The majority owner of Dragon Oil, the cash-rich explorer with production assets off Turkmenistan, is seeking to buy out the other shareholders with an approach that values the group’s equity at about $4bn.

Barclays pays out £16.5m in share awards: Barclays has paid its top managers almost £16.5m in shares from deferred bonus schemes and new stock awards – half the amount the bank paid out last year – underlining how it has reined in remuneration costs.

TSB’s Sabadell talks show challenges of UK challenger banks: Spanish bank Sabadell’s proposal to take over TSB last week is the latest sign that “challengers” in the UK lack the scale to break the stranglehold of Britain’s largest lenders, experts say.

French Connection shares slide despite narrower loss: French Connection warned that high street trading remains challenging after its full-year results sent shares down 11 per cent on Tuesday.

Trinity Mirror in talks over investing in Daily Express: The publisher of the Daily Mirror is in preliminary talks about investing in the Daily Express with its owner Richard Desmond, according to people familiar with the matter.

Sainsbury sees ‘green shoots’ of recovery as sales beat forecasts: J Sainsbury said it was seeing some “green shoots” of recovery in its performance, as underlying sales fell by less than expected in its final quarter.

Fortescue pulls $2.5bn bond as iron ore distress deepens: Fortescue Metals Group pulled a proposed US$2.5bn bond and refinancing of the company’s debt on Wednesday in a sign of deepening distress in the iron ore market.

Macerich spurns Simon’s $22bn hostile offer: Macerich rejected a $22.4bn hostile takeover bid from Simon Property on Tuesday saying that the offer “substantially undervalues” the high-end malls company.

BHP unwinds Billiton merger with South32 spin-off plan: BHP Billiton chief Andrew Mackenzie on Tuesday hailed the “perfect timing” to create a company “unparalleled in the resources industry”, as the miner unveiled its plans to spin off non-core assets.

Raised offer from Valeant knocks Endo out of Salix race: Valeant’s chief executive dug deep to raise his company’s offer for Salix by $1bn on Monday, putting a $15.8bn price tag on the gastrointestinal drugmaker to thwart an eleventh-hour counter-offer from his erstwhile protégé.

Advent to pay $300m for 35% stake in Crompton Greaves: Crompton Greaves, a Bombay-listed electrical engineering company that is part of the Avantha Group, is close to reaching agreement to sell a 35 per cent stake in its consumer business to private equity firm Advent International for about $300m, according to two people familiar with the situation.

SpaceX mocks rival in tetchy congressional hearing: A senior executive of SpaceX, the space launch provider, has mocked the company in charge of the US’s most sensitive satellite launches, in a tetchy congressional hearing dominated by fears about US access to space.

Apple close to launching online TV service: Apple is close to launching the latest step in its assault on the living room, with plans to start an online television service this year.

Vivendi chief dismisses claims of Universal Music sale: Vivendi chief executive Arnaud de Puyfontaine has scotched reports that the French media group could sell its music business, saying any disposal would be over his “dead body”.

Nintendo’s shift into mobiles powers up shares: Shares in Nintendo were poised to surge by a fifth on Wednesday morning, after the Japanese games console maker made its biggest move yet to capture the growing mobile gaming market, finally opening up its Mario and Donkey Kong characters to smartphones and tablets.

Darktrace takes $18m investment on $80m valuation: Darktrace, the British cybersecurity company backed by the Mike Lynch, founder of UK software group Autonomy, has raised $18m on a valuation of $80m in a move designed to fuel ambitious plans to go global.

Fridman bids $2.8bn for Turkcell mobile group: Mikhail Fridman, the Russian oligarch, has made a $2.8bn bid for a controlling stake in Turkcell, in the latest twist in a prolonged battle over Turkey’s biggest mobile group.

Orange to spend €15bn on networks in fight with low-cost rivals: Orange will spend €15bn in the next three years to improve fibre and mobile networks as the telecoms group faces fierce competition from low-cost rivals in its French home market.

BT and TalkTalk spar over calls to split up group: BT and TalkTalk have clashed again over whether the UK’s national broadband network should be run as a separate business or remain part of the wider BT group.

Talks urged in US-Gulf airlines’ dispute: US airlines and their fast-growing Gulf rivals should work out their differences through dialogue and the “appropriate channels”, the chief executive of Abu Dhabi-based Etihad Airways said on Tuesday.

Dragon Oil: rose 12.5 per cent to 602p after saying it had received a takeover approach from ENOC, its majority shareholder.

Randgold Resources: gained 1 per cent to £46.72, amid Takeover speculation.

Petrobras: cashing out: Petrobras has a serious image problem (and not just the recent scandal). The market simply loathes the company. Credit Suisse surveyed 160 portfolio managers and found that 60 per cent were underweight the stock; most dislike the recent management changes; almost a fifth think the company will never (never!) generate free cash flow. Radical action is required. Most companies would borrow to fill such a gap. But indebtedness at Petrobras is already dangerously high following big investments in refineries and offshore fields. Net debt is R$261bn, four times the estimated 2014 earnings before interest, tax, depreciation and amortisation. No surprise Moody’s downgraded the company last month. Heaping on more debt is, therefore, not the way back into investors’ hearts. It merely defers the real problem. Asset sales are the next option. The company wants to sell R$10bn of assets this year, about a quarter of its longer term target. If it can do so, that will help. But a cash outflow of at least R$25bn would remain. The next option is equity issuance. Even issuing just enough equity to close this year’s deficit and prevent debt from rising could increase the share base by a fifth.

Apple: unbundle of joy: Pay TV distributors – Dish Network, Time Warner Cable – have repeatedly been locked in nasty disputes with content companies such as CBS and Viacom over so-called carriage agreements in recent years. Those deals dictate how much the distributors pay for programming. The leverage of top talent means content costs have risen faster than distributors can pass them on to consumers. And yet, there is a rush for internet-based television distribution. Late on Monday it was reported that Apple would join Dish Network and Sony as purveyors of a “skinny” TV bundle. Rather than paying $100 a month for hundreds of channels from traditional cable or satellite services, consumers would pay Apple perhaps $35 a month for a few, important channels. It is not clear that skinny bundles paired with fast internet service and say, Netflix, is great value. But the à la carte approach, and similar bundles, is gaining traction. The bank estimates broadband revenue for big cable companies will grow a healthy 11 per cent annually between 2014 and 2016. Two of those, Cablevision and Charter Communications, have now subtly shifted their personas to “connectivity” companies (Cablevision has even unveiled a mobile WiFi phone service called Freewheel). One sticking point in an already concentrated US broadband market, however: regulators imposing “net neutrality” could be even tougher adversaries than Hollywood moguls.

US Steel: heavy metal: This is the name of the efficiency initiative at United States Steel, the group descended from Andrew Carnegie’s 19th century empire. Carnegie would be happy to know that the programme seems to be working. The company’s 2014 net income of $700m was the highest since 2008, and the company claims that the programme alone was worth $575m of annual operating income. The problem for US producers was an import surge enabled by slowing consumption in China and the rising dollar. The price for benchmark US hot-rolled coil steel is down to $492/tonne, a level not seen since mid-2009; last August the price was $680/t. Monthly imports have averaged well above 3.5m tonnes a month since early 2014, after averaging about 2.5m tonnes in 2012 and 2013. US Steel said 2015 earnings before interest, tax, depreciation and amortisation would be about a quarter lower than the $1.7bn it achieved in 2014. Yet these can just be guesses without knowing the direction of steel prices. Those prices are the true catalyst for stock price movements. Efficiency programmes just allow companies to survive long enough for a rebound.