Anchor Capital: Essential market review, 24 March

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South African Market Review
South African markets closed lower yesterday. Among platinum miners, Aquarius Platinum, Lonmin and Impala Platinum Holdings declined 3.5%, 2.3% and 0.6%, respectively, but Northam Platinum and Royal Bafokeng added 1.3% and 0.9%, respectively. Harmony Gold and Sibanye Gold lost 2.8% and 1.5%, respectively. Advtech Limited dropped 1.1%, despite reporting a 9.4% increase in its FY14 revenue from the last year. However, Pallinghurst Resources climbed 4.5%, after its FY14 results showed that net gain on investments rose sharply from the previous year. Peregrine Holdings advanced 3.9%, after it stated that it expects its FY15 headline and basic EPS to be at least 20.0% higher from prior year. The JSE All Share Index fell 0.1% to close at 52,559.35.
UK Market Review
UK markets finished higher yesterday, with the FTSE 100 index extending its record close from the previous session. Standard Chartered topped the gainers, advancing 6.5%.Mining sector stocks, BHP Billiton and Glencore gained 3.4% and 2.6%, respectively. Energy sector stocks, Royal Dutch Shell and BG Group rose 1.5% and 0.8%, respectively, supported by an increase in crude oil prices. Hikma Pharmaceuticals, debuting as a as part of the FTSE 100 index, ended unchanged. On the downside, Burberry Group led the fallers, declining 2.6%. Airline sector stocks, International Consolidated Airlines Group and easyJet slipped 0.1% and 0.3%, respectively. The FTSE 100 Index advanced 0.2% to close at 7,037.67.
US Market Review
US markets ended in the red yesterday, reversing earlier gains in the final half hour of trading. Kansas City Southern dropped 8.0%, after the firm lowered its revenue outlook for FY15. Gilead Sciences shed 2.0%, as the company issued a warning of a potentially fatal complication for patients being treated with two of its hepatitis C drugs. Monsanto fell 2.0%, following a report by the WHO that the company’s weed killer ingredient was carcinogenic. However, Tenet Healthcare climbed 4.9%, after the announcement that it would form a joint venture with United Surgical Partners International for outpatient surgery centres. The S&P 500 Index declined 0.2% to settle at 2,104.42, while the DJIA Index fell 0.1% to close at 18,116.04. The NASDAQ Index dropped 0.3% to finish at 5,010.97.
Asia Market Review
Asian markets are trading weaker this morning, as an unexpected contraction in the Chinese manufacturing sector in March dented investor sentiment. In Japan, GS Yuasa Corporation retreated 2.7%, after the company lowered its FY15 net income outlook. Aeon Co. fell 0.2%, after it posted lower-than-expected preliminary earnings for FY15. In Hong Kong, China Merchants Bank, China Citic Bank Corporation and Bank of China declined 2.9%, 1.9% and 1.6%, respectively. In South Korea, Hotel Shilla, the hotel and retail unit of Samsung Group, climbed 1.0%, after it indicated plans to purchase a 44.0% stake in US-based duty free retailer, DFASS, for $105.00mn. The Nikkei 225 Index is trading 0.1% in the red at 19,743.45, while the Kospi Index is trading marginally lower at 2,036.04. The Hang Seng Index is trading 0.6% weaker at 24,343.99.
Commodities
At 06:00 SAST today, Brent crude oil declined 0.6% to trade at $53.48/bl. Yesterday, Brent crude oil rose 1.1% to settle at $53.79/bl, as a weaker US dollar offset concerns over global oversupply after Saudi Arabia stated that it was pumping around 10.00mn bls/d of crude oil which is a near record-high.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 1.7% to $3.69/bushelAt 06:00 SAST today, gold prices fell 0.3% to trade at $1,185.78/oz. Yesterday, gold gained 0.6% to close at $1,189.54/oz, as the US dollar extended losses.Yesterday, copper rose 1.3% to close at $6,149.50/mt. Aluminium closed 0.2% lower at $1,787.75/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, as the US dollar weakened further amid expectations that the US Federal Reserve (Fed) might raise interest rates later rather than sooner. Meanwhile, data showed that existing home sales in the US rose, but less than market expectations in February. Later today, investors will eye US consumer price inflation and new home sales data along with reports on South African non-farm payrolls and leading indicator for further direction.The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.06% while that for the longer-dated 2026 issue fell to 7.69%.At 06:00 SAST, the US dollar is trading 0.2% higher against the South African rand at R11.9305, while the euro is trading 0.1% lower at R13.0155. At 06:00 SAST, the British pound has gained 0.1% against the South African rand to trade at R17.8124.Yesterday, the euro advanced against major currencies, amid hopes for progress on the Greek debt front. Meanwhile, the preliminary print on consumer confidence showed that consumers in the eurozone were more upbeat in March. Moving ahead, flash PMI readings on manufacturing and service sectors of the Eurozone and Germany are set for release today.At 06:00 SAST, the euro fell 0.3% against the US dollar to trade at $1.0909, while it has weakened 0.2% against the British pound to trade at GBP0.7307.
Economic Updates
The CBI trends selling prices fell to a level of 4.00 in March, in the UK, compared with a reading of 8.00 in the previous month.On an annual basis, M3 money supply recorded a rise of 2.3% in Switzerland, in February. In the previous month, M3 money supply had registered a revised rise of 2.9%.In March, the preliminary consumer confidence index in the eurozone recorded a rise to -3.70, compared with market expectations of an advance to a level of -6.00. The consumer confidence index had recorded a level of -6.70 in the prior month.The ECB President, Mario Draghi, stated that latest data indicates that growth in the eurozone is gaining pace, the credit of which can be mainly attributed to the recent fall in global oil prices, improving external demand, the depreciation of the euro and the central bank’s recently launched quantitative easing programme. He further hinted that consumer price inflation in the euro bloc is expected to remain low or negative in the near term, amid a fall in energy prices, however, the region’s inflation is anticipated to pick up gradually towards the end of FY15.The Fed Vice Chairman, Stanley Fischer, indicated that the hike in the interest rates from near zero would probably be warranted before the end of 2015. Further he noted that the subsequent rate hikes would not be uniform or predictable.

In February, the Chicago Fed national activity index in the US recorded a drop to -0.11. The Chicago Fed national activity index had recorded a revised level of -0.10 in the prior month.

In the US, existing home sales climbed 1.2%, on monthly basis, to a level of 4.88mn in February, compared with a reading of 4.82mn in the prior month. Markets were anticipating existing home sales to climb to a level of 4.92mn.

Supermarket sales in Japan slid 0.8% in February on an annual basis. In the prior month, supermarket sales had registered a drop of 1.7%.

The Nomura/ JMMA has reported that compared with a reading of 51.60 in the prior month the preliminary manufacturing PMI recorded an unexpected drop to a level of 50.40 in Japan, in March. Markets were expecting manufacturing PMI to climb to 52.00.

In March, the flash HSBC/Markit manufacturing PMI index dropped to 49.20 in China, compared with market expectations of a drop to a level of 50.40. HSBC/Markit manufacturing PMI index had recorded a level of 50.70 in the prior month.

Corporate Updates
South AfricaAdvtech Limited: The educational company, in its preliminary FY14 results, revealed that revenue increased 9.4% from the previous year to R1.93bn. Its diluted headline EPS stood at 41.30c, compared with 38.60c reported in the prior year. The company announced that it has reached a mutual agreement with the Group CEO, Mr. Leslie Maasdorp, to part ways and Mr. Frank Thompson has been appointed as interim CEO.Peregrine Holdings Limited: The asset management company, in its trading statement for FY15, indicated that it expects its headline EPS and basic EPS to be at least 20.0% higher than the last year.Transaction Capital Limited: The finance company, in its pre-closing trading statement, stated that during FY14, a group restructuring was initiated with the disposal of Paycorp and Bayport. It indicated that during 1Q15, the company’s remaining divisions were reconstituted to support the strategic objectives of the newly established group. The company stated that it has made progress towards its strategic, operational and financial objectives in the first five months of FY15, despite challenging economic and regulatory environment. The company also indicated that it is well positioned to meet its organic and acquisitive growth targets and the organic growth trajectory is tracking ahead of previously communicated expectations. The group is well capitalised to fund organic growth and to effect significant acquisitive activity and has appropriate access to the debt capital markets.Pallinghurst Resources Limited: The specialist natural resources investment company, in its FY14 results, stated that its net gain on investments and income from operations increased sharply to $61.59mn from $20.98mn recorded in the previous year. Its basic and diluted EPS stood at $0.07, compared with $0.02 posted in the last year.

Anglo American: The mining company announced that the Chairman, Sir John Parker, has been appointed to the board of Pennon Group initially as an independent non-Executive Director and Deputy Chairman from 1 April 2015. It further announced the appointment to the group Management Committee of Anik Michaud as group Director – Corporate Communication, with effect from 30 March 2015.

UK and US

Flexion Therapeutics: The biotechnology company, in its FY14 results, revealed that it reported a loss from operations of $26.99mn, compared with a loss of $17.77mn recorded in the previous year. Its basic and diluted net loss stood at $1.97/share, compared with a loss of $23.02/share posted a year ago. The company expects FY15 to be an another important year as the readout from its first pivotal trial would happen later this year along with completion of enrolment of its Phase 3 trial. The company looks forward to the prospect of filing a New Drug Application.

iDreamSky Technology: The mobile game publishing company, in its FY14 results, indicated that total revenue increased sharply to RMB984.15mn from RMB246.57mn recorded in the previous year. It reported a diluted net loss of RMB11.34/share, compared with a loss of RMB6.97/share reported in the prior year. For 1Q15, the company expects revenue of RMB340.00mn, an increase of 95.3% from the same period a year ago.

China Finance Online Co.: The web-based financial services company, in its FY14 results, revealed that net revenue increased 58.7% from the preceding year to $83.70mn. However, it incurred a net diluted loss of $0.07/share, compared with a loss of $0.08/share reported in the previous year. Going forward, the company expects to continue to invest in its data, product and technical capabilities to achieve its long term strategic plan.

China Recycling Energy: The industrial waste-to-energy solution providing company, in its FY14 results, indicated that its total revenue dropped sharply to $19.66mn from $63.19mn recorded in the previous year, mainly due to fewer systems completed and sold in FY14. Its diluted EPS was $0.28, compared with $0.29 posted in the last year.

BioLineRX Limited: The clinical-stage biopharmaceutical company, in its FY14 results, stated that its research and development expenses were NIS42.44mn, marking a decrease of 3.7% from the previous year. Its basic and diluted net loss was NIS0.12/share, compared with a loss of NIS0.27/share posted in the prior year. The company expects top-line results from its Phase 2a clinical study of BL-8040 in the 2H15.

Digital Ally: The company, in its FY14 results, revealed that its total revenue dropped 2.1% from the last year to $17.44mn. It reported a diluted loss of $3.54/share, compared with a loss of $1.17/share posted in the previous year. The company believes that its FY15 revenue should increase to approximately $25.00mn and that operating income should approximate $2.50mn, absent any unanticipated non-recurring expenses.

Humana Inc.: The company announced that it has reached a definitive agreement to sell the stock of its wholly-owned subsidiary, Concentra Inc., to MJ Acquisition Corporation for about $1.06bn, as the health insurer refines its focus on providing patient care.

Tenet Healthcare: The healthcare services company indicated that it would form a joint venture with United Surgical Partners International to create the largest provider of ambulatory surgery in the US.

Micro Focus International: The technology company indicated that its net debt at 31 January 2015 was $1,510.00mn and since that date the group has used surplus cash and drawn down $75.00mn of its $225.00mn revolving facility to make a voluntary repayment of $150.00mn of the Term loan B. It stated that its objective remains to reduce net debt to 2.50 times facility EBITDA.

Centamin Plc: The gold mining company, in its FY14 results, revealed that revenue dropped 6.2% from the preceding year to $472.58mn. Its diluted EPS stood at 7.11¢, compared with 16.77¢ reported in the previous year. The company provided its FY15 gold production guidance of 420.00koz at cash operating cost of $700.00/oz and all-in-sustaining cost of $950.00/oz. In addition, production is expected to achieve the 450.00k-500.00k oz/annum target rate from 2H15 onwards.

SVG Capital: The private equity company, in its results for the 13 months to 31 January 2015, indicated that its total operating income was GBP11.91mn, compared with GBP14.11mn recorded in the year ended 31 December 2013. Its diluted EPS from continuing activities was 51.30p, compared with 121.10p reported in FY13. The company stated that it expects to make at least one further investment in a private equity fund this year, as well as investments alongside such funds.

Victrex Plc: The high performance polymer solutions company announced the appointment of Dr Martin Court as an Executive Director, effective from 1 April 2015.

Halfords Group: The automotive company announced the appointment of Jill McDonald as Chief Executive Officer with effect from 11 May 2015.

Interserve Plc: The company and its joint venture partner Kajima stated that they have reached financial close on the project to design and build seven secondary schools across Hertfordshire, Luton and Reading.

Dairy Crest Group: The diary company indicated that the previously announced transaction of sale of assets of its Dairies operations to Muller UK & Ireland Group remains on track and has received the approval of its shareholders.

Financial Times

Tax cut pushes North Sea oilfield deals back on stream: Deals for North Sea oilfields – which have been held back by the plummeting price of Brent crude – could soon come back on stream, as a new tax cut helps to draw in private equity investors.

Centamin shares rise on maiden dividend: Centamin shares rose 16.0% Monday after the Egyptian gold miner declared a higher-than-expected maiden dividend, in spite of a big drop in earnings and a rumbling legal dispute over its prime mining asset.

Easier account switching could fuel bank runs, says BBA: Banks have warned that they are more vulnerable to a run on deposits now that digital systems allow customers to move large sums or switch their account to a different lender at the touch of a button.

Private equity begins to entice ordinary investors: Beyond the public markets, where company share prices blink on trading screens on a second-by-second basis, there is a world of private companies and a $3.80tn industry of fund managers claiming a special set of skills for extracting value from them.

Investors snap up European bank loans: Rising competition between investors to buy non-core loans being sold by European banks has driven up prices in most areas and triggered a 40.0% jump in the value of deals done last year.

RSA’s Hester awarded two-thirds of bonus despite missing targets: Stephen Hester, Chief Executive of RSA, has been awarded two-thirds of his potential annual bonus even though the FTSE 100 insurer missed financial performance targets.

US regulators veto ‘living wills’ of RBS, HSBC and BNP Paribas: US regulators vetoed the living wills of Royal Bank of Scotland, HSBC and BNP Paribas on Monday, ordering the banks to improve the planning in the event of their demise.

Minister tells over-55s to leave pension decision until autumn: The pensions minister has advised over-55s considering cashing in their pension pots in April to wait until the autumn, as the government conceded it has big concerns about the risk of fraudsters preying on savers.

Pharmacyclics Chief to receive $3.60bn from takeover: Executives and directors at Pharmacyclics are set to share almost $4.00bn from the sale of the company for $21.00bn to AbbVie, which won a three-way bidding war for the Californian biotech group this month.

Pirelli deal sends waves through tyre sector: China National Chemical Corp’s agreement with the controlling shareholders of tyremaker Pirelli has paved the way for a EUR7.00bn takeover of the Italian group, marking the latest foray by Chinese investors into Italy.

Sika family plan appeal if court setback threatens St Gobain takeover: The founding family of Switzerland’s Sika is planning to take further legal action if a court decision jeopardises the speciality chemical group’s takeover by French industrials giant St Gobain.

Vivendi urged to spin off Universal Music: The activist investor pushing for a break-up of Vivendi wants the French media group to spin off its Universal Music Group division to take advantage of investor excitement over the future of streaming music.

Akil Sharma’s ‘Family Life’ takes Folio prize: A semi-autobiographical novel about a young Indian-American immigrant is the second winner of a GBP40,000 book prize set up to rival the UK Man Booker.

Optimal Payments strikes EUR1.10bn digital wallet deal for Skrill: Optimal Payments has expanded its digital wallet with the EUR1.10bn reverse takeover of rival Skrill in a move that will propel the combined online payments business into the FTSE 250.

Hutchison Whampoa and TelefĂłnica set to close GBP10.50bn deal for O2: Hutchison Whampoa will finalise a deal to buy O2 in the UK from Spain’s TelefĂłnica for close to GBP10.50bn to create Britain’s largest mobile network as early as Tuesday morning.

Lex
Vivendi: other people’s money: Money is not, as the apostle Paul wrote in a sharply worded note to his stock broker in Ephesus, the root of all kinds of evil. The root of all kinds of evil is other people’s money. We all find our own money perfectly pious. It is when one person gets a hold of another’s pile that things begin to happen. Vincent BollorĂ©, chairman and dominant shareholder of Vivendi, has a mountain of other people’s money. He has, or will soon have, final say on about EUR16.00bn in cash, only about EUR1.20bn of which is his own. The rest belongs to Vivendi’s other shareholders. This is the sort of thing that gets activist investors out of bed. Now one has. On Monday Vivendi confirmed receipt of a letter from P Schoenfeld Asset Management, which owns 1.0% of Vivendi (Mr BollorĂ© has 8.0%). PSAM wants a bigger dividend, and has a point. Vivendi has done well to sell a tangle of minority stakes and pile up EUR4.60bn in net cash. Another EUR7.00bn in cash, and between EUR2.00bn and EUR3.00bn of liquid shares, will appear when other divestments close. Vivendi’s market capitalisation is EUR30.00bn. So just half its value is in its television, film and music businesses. Last month the company said it would return EUR5.70bn to shareholders between FY15 and FY17. Only EUR3.00bn of this is a sure thing, coming in the form of dividends. The other EUR2.70bn is in a buyback programme restricted to buying shares for under EUR20.00 apiece – roughly EUR3.00 below the current price. Capping a buyback in this way is wise but should be followed by a commitment to pay the money out in dividends if the price stays high.

Tenet/United Surgical: knife edge: Dislike hospitals? Then why not try surgery at your friendly, local “ambulatory surgical center”? These are smaller, specialised facilities where relatively minor surgeries can be performed, usually at a lower cost and during a shorter stay. ASCs are becoming more important as the US seeks to restrain healthcare spending. Companies, of course, have spotted the opportunity. On Monday Tenet Healthcare, a large hospital chain, announced a complex deal to acquire private equity-owned United Surgical Partners. The deal will create the country’s largest ASC group. The federal government’s healthcare authority recommended this year that Medicare (the health insurance programme for the elderly) reimburse hospitals for procedures that could be performed at ASCs at the lower rate they would have paid a surgical centre for the same procedure. Such a move could save Medicare an estimated $15.00bn over the next few years and consumers another couple of billion dollars in co-payments. Whether or not it is adopted, the proposal underscores the growing influence of ASCs. Tenet, known for its chain of hospitals stretching across the Sunbelt, has been open about extending its business past in-patient care. Tenet will form a joint venture with United Surgical. The hospital group will contribute its 44 ASCs, 20 imaging centers and $425.00mn to a joint venture. United Surgical will put in 202 ASCs and 16 surgical hospitals. Tenet, which will also refinance $1.50bn of United Surgical debt, will initially own 50.1% of the vehicle with options to buy out the rest in the next five years. The overall equity value of the joint venture is $2.60bn

Yahoo: search and rescue: Internet search is a lucrative business – just ask Google. The company accounts for two-thirds of desktop searches in the US. But change is afoot this year. Microsoft and Yahoo, numbers two and three in US search, could revisit their search agreement with each other. Yahoo’s market share in this field has risen (now 13.0%, ComScore says) after it became the default for Mozilla Firefox. Meanwhile Google’s exclusive search deal with Apple’s Safari browser is up for grabs; UBS estimates that the Safari deal could drive nearly $8.00bn in sales for Google this year. So FY15 could become the year of the search wars. This all matters more for Yahoo than for most of its rivals. Search will be a crucial part of the company after its stake in Alibaba is spun out. Its search agreement with Microsoft accounted for 35.0% of revenues last year. But that agreement with Microsoft has had its drawbacks. Under the FY09 deal, which covers desktop usage, Yahoo-branded searches essentially distribute Bing results. Microsoft controls the search algorithm and handles ad sales, taking a 12.0% fee. Disappointing sales have led Yahoo to consider ending the deal. Chief Executive Marissa Mayer said in the January earnings call that discussions were under way. The agreement allows Yahoo to wriggle out after five years if certain targets are not met. The window for renegotiation expires this week. Otherwise the agreement will stay in force for another five years.

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