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|South African Market Review
South African markets closed in the green yesterday, with market participants returning from the Easter Holidays. Sasol climbed 5.6%, supported by an uptick in oil prices. Gold miners, Harmony Gold, AngloGold Ashanti and Gold Fields gained 5.1%, 3.0% and 2.6%, respectively. Private school group, Curro Holdings rose 3.3%. Among retailers, Clicks Group, Foschini Group and Mr Price Group advanced 2.8%, 1.4% and 0.5%, respectively. Banking sector stocks, Nedbank Group, FirstRand and Capitec Bank added 1.9%, 1.4% and 1.3%, respectively. On the other hand, agriculture company, Tongaat Hulett dropped 4.0%, while construction company PPC Limited fell 3.2%. The JSE All Share Index rose 0.7% to close at 52,595.69.
UK Market Review
UK markets finished higher yesterday, led by gains in energy and mining sector stocks. BG Group climbed 6.7%, boosted by a rise in crude oil prices and after the company completed the purchase of assets in central Mongolia. Royal Dutch Shell and BP advanced 3.4% and 2.7%, respectively. Shire gained 4.4%, after the company announced that it had reached an agreement with the US FDA on a regulatory path for its investigational drug, SHP465. Miners, Rio Tinto and Antofagasta added 4.0% and 3.1%, respectively. EasyJet edged up 0.1%, while International Consolidated Airlines Group led the fallers, declining 1.2%. The FTSE 100 Index advanced 1.9% to close at 6,961.77.
US Market Review
US markets ended lower yesterday, with major indices giving back the day’s gains in the final hour of trading. General Motors declined 2.5%, after the Canadian government announced on Monday that it has agreed to sell around 73.40mn shares in the company to Goldman Sachs Group. Berkshire Hathaway retreated 0.5%. Starbucks fell 0.5%, as huge profits stoked suspicions among regulators and local governments over its tax practices in Europe. However, FedEx rose 2.7%, following the announcement that it would acquire TNT Express. The S&P 500 Index fell 0.2% to settle at 2,076.33, while the DJIA Index eased marginally to close at 17,875.42. The NASDAQ Index dropped 0.1% to finish at 4,910.23.
Asia Market Review
Markets in Asia are trading firmer this morning, as the Bank of Japan maintained its monetary policy stance intact. In Japan, Eisai added 0.8%, after the company indicated that the US Patent and Trademark Office granted patent approval for its weight loss drug, Belviq. However, Fast Retailing fell 0.5%, ahead of the release of its 1H15 results scheduled for tomorrow. In Hong Kong, Haitong International Securities Group, Shenyin Wanguo and Guotai Junan International Holdings jumped 20.1%, 13.5% and 13.2%, respectively. In South Korea, S-Oil and SK Innovation advanced 8.7% and 6.9%, respectively, following higher crude oil prices yesterday. The Nikkei 225 Index is trading 0.7% in the green at 19,775.73, while the Kospi Index is trading 0.5% higher at 2,057.15. The Hang Seng Index is trading 2.4% in positive territory at 25,877.70.
At 06:00 SAST today, Brent crude oil fell 0.7% to trade at $57.41/bl. Meanwhile, data from the American Petroleum Institute (API) showed a 12.20mn build in crude inventories last week. Yesterday, Brent crude oil rose 1.3% to settle at $57.83/bl, extending Monday’s gains.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 0.6% to $3.61/bushel.
At 06:00 SAST today, gold prices advanced marginally to trade at $1,209.81/oz. Yesterday, gold declined 0.5% to close at $1,209.22/oz, as the US dollar regained strength.
Yesterday, copper rose 1.4% to close at $6,084.50/mt. Aluminium closed marginally higher at $1,781.75/mt.
Yesterday, the South African rand weakened against the US dollar. The US Bureau of Labor Statistics reported that the number of US job openings climbed above market expectations in February. Meanwhile, separate data revealed that South Africa’s HSBC Purchasing Managers’ Index (PMI) rose above market expectations in March. Going forward, market participants will monitor the US FOMC meeting minutes due for release today, for further direction.
The yield on benchmark government bonds fell yesterday. The yield on 2015 bond declined to 6.04% while that for the longer-dated 2026 issue fell to 7.68%.
At 06:00 SAST, the US dollar is trading 0.3% lower against the South African rand at R11.8452, while the euro is trading 0.2% lower at R12.8347.
Yesterday, the euro declined against most of the major currencies, after the final print of the Markit services PMI in the eurozone came in slightly lower than the preliminary estimates in March. Separate data showed that the Sentix investor confidence in the eurozone ticked higher and in line with market anticipation for April. Later today, investors will keep a tab on retail sales data in the eurozone and factory orders in Germany.
At 06:00 SAST, the euro advanced 0.2% against the US dollar to trade at $1.0836, while it has gained 0.1% against the British pound to trade at GBP0.7308.
The South Africa’s HSBC PMI climbed to 51.60 in March, compared with market expectations of an advance of 50.10. The HSBC PMI had registered a reading of 50.00 in February.
The services PMI advanced to 58.90 in the UK, in March, compared with market expectations of an advance to 57.00. The services PMI had registered a reading of 56.70 in the prior month.
The final services PMI recorded a drop to 52.40 in France, in March, compared with a reading of 53.40 in the prior month. The preliminary figures had indicated a drop to 52.80. Markets were anticipating services PMI to fall to 52.80.
Compared with a reading of 54.70 in the prior month, the final services PMI in Germany advanced to 55.40 in March. Market anticipations were for services PMI to advance to a level of 55.30. The preliminary figures had indicated a rise to 55.30.
In February, the producer price index (PPI) recorded a rise of 0.5% in the eurozone on a monthly basis, compared with a revised fall of 1.1% in the prior month. Markets were anticipating the PPI to climb 0.1%.
In March, the final services PMI in the eurozone registered a rise to 54.20, compared with market expectations of a rise to 54.30. Services PMI had recorded a reading of 53.70 in the previous month. The preliminary figures had indicated an advance to 54.30.
The consumer credit in the US registered a rise of $15.52bn in February, compared with a revised rise of $10.80bn in the previous month. Markets were anticipating consumer credit to advance $12.65bn.
The Minneapolis Fed President, Narayana Kocherlakota, opined that the central bank should wait until the latter half of 2016 before raising US interest rates and further suggested that rates in the nation must gradually be raised to around 2.0% by the end of 2017.
The Bank of Japan (BoJ) has kept its key interest rate unchanged at 0.1% and maintained its asset purchases unchanged citing a continued moderate recovery in the nation’s economy following a rise in exports and increase in business fixed investment. Further, the BoJ expects Japan’s economy to continue its moderate recovery trend.
The Reserve Bank of Australia held interest rate unchanged at 2.25%, citing a below-trend pace of growth and expectations that inflation will remain consistent with its target over the next one to two years. It also indicated that a lower exchange rate is required to achieve balanced growth in the economy.
Capital & Counties Properties: The property company revealed that completion of Earls Court Partnership Limited (ECPL), the investment vehicle established with Transport for London in respect of Earls Court 1 & 2, has occurred following the grant of leases and transfers of land into ECPL.
Harmony Gold Mining: The gold mining company revealed that an employee was fatally injured in an engineering related accident while performing maintenance work at Unisel mine near Welkom on Saturday, 4 April 2015. Following the incident, the production at the mine has been stopped and an investigation is underway.
Aveng Limited: The company announced that it has agreed to dispose of 70.0% of Dimopoint Proprietary Limited, a special purpose vehicle created for the purpose of holding Aveng’s industrial property portfolio and which is wholly owned by Aveng Africa Proprietary Limited, to Imbali Props 21 Proprietary Limited, an entity of the Collins Property Group, for approximately R1.13bn to be settled in cash. It further stated that the properties are currently tenanted by various entities within the Group, and Aveng Africa will sign a head lease in respect of the properties for periods of 5 and 12 years.
MTN to access $1.00bn: South African mobile phone operator MTN Group has said easing of sanctions against Iran would allow it to transfer about $1.00bn in accumulated dividends and a loan repayment from its Iranian unit.
Delta International’s Africa story on track: Africa-focused Delta International Property Fund (Delta International) says its growth ambitions on the continent are on track, after confirming its authority to issue 29.00mn shares in the market, if its board of directors want to. This follows the fund’s primary listing move from Bermuda to the Stock Exchange of Mauritius in March.
UK and US
International Speedway Corporation: The company, in its 1Q15 results, indicated that its total revenue increased 3.6% from the same period a year ago to $136.55mn. However, its basic and diluted EPS dropped to $0.32 from $0.43 recorded in the corresponding period of last year. The company reiterated its previously announced revenue guidance for FY15 to be in the range of $615.00mn to $630.00mn and diluted EPS to be between $1.10 and $1.30.
Schnitzer Steel Industries: The steel manufacturing company, in its 2Q15 results, stated that revenue dropped 29.9% from the corresponding period of previous year to $439.23mn. It incurred a net diluted loss of $7.24/share, compared with EPS of $0.07 recorded in the same period of prior year. The company stated that it has commenced with two strategic initiatives to reduce cost and integration of the Auto Parts and Metals Recycling Businesses into a single division by the end of fiscal 2015.
Hooker Furniture Corporation: The company, in its FY15 results, revealed that net sales rose 7.0% from the preceding year to $244.35mn. Its diluted EPS stood at $1.16, compared with $0.74 reported in the previous year. The company stated that it expects some margin deterioration in its 1Q16 results as it has experienced increased ocean freight rates since late July.
Mitcham Industries: The company, in its FY15 results, indicated that total revenue dropped 9.7% from the previous year to $83.15mn. It reported a diluted net loss of 0.74/share, compared with diluted EPS of $0.36 posted in the prior year. The company currently expects its 1Q16 equipment leasing revenues to be somewhat improved from the 4Q15, driven mainly by the resumption of a project in Europe, activity in Alaska and seasonal activity in Russia.
FedEx Corporation: The courier delivery services company announced its decision to buy the Dutch package delivery firm, TNT Express, for an agreed EUR4.40bn ($4.80bn), stepping up the challenge to rivals United Parcel Service and Deutsche Post in Europe.
Informatica Corporation: The technology company announced that it has entered into a definitive agreement to be acquired by a company controlled by the Permira funds and Canada Pension Plan Investment Board for approximately $5.30bn.
Regulus Therapeutics: The biopharmaceutical company announced the selection of RG-125 (AZD4076), a GalNAc-conjugated anti-miR targeting microRNA-103/107 for the treatment of Non Alcoholic Steatohepatitisin patients with type 2 diabetes/pre-diabetes, as a clinical candidate by AstraZeneca under the companies’ strategic alliance to discover, develop and commercialize microRNA therapeutics.
Rio Tinto: The company stated that it has successfully completed its off-market buy-back tender of Rio Tinto Limited shares, which was increased to A$560.00mn from the indicative A$500.00mn announced due to strong demand. It revealed that the buy-back price was A$48.44/share which represented a discount of 14.0% to the market price for Rio Tinto Limited shares.
Micro Focus International: The company confirmed that it continued to trade in line with the guidance provided in interim results presentation in December 2014on a constant currency basis. It further stated that following the completion of its merger transaction with TAG, it has now completed its detailed integration review in relation to the merger. Some of the key deliverables from the review were the design of a combined organisation to be implemented with effect from 1 May 2015, a restructuring plan for the next 24 months, combined budget for FY16, decisions on product branding, product focus and confirmation of the company’s cash flow profile.
Vedanta Resources: The mining company’s subsidiary, Cairn India Limited, announced that it has filed a Writ Petition with the Hon’ble Delhi High Court praying for quashing/setting aside the order passed by the Tax Authorities under Section 201 of the Income Tax Act, 1961.
John Laing Infrastructure Fund: The real estate company stated that it has been notified by John Laing Capital Management (JLCM), the investment adviser to the company, that David Marshall has decided to retire and will therefore be leaving JLCM with effect from 1 July 2015.
Shell in ‘advanced’ talks with BG over GBP46.00bn deal: Royal Dutch Shell is in advanced talks to acquire BG Group for around GBP46.00bn ($68.00bn), in a deal that would expand the Anglo-Dutch group’s foothold in some of the world’s most exciting oil provinces and cement its dominance of the global trade in natural gas.
Silver Ridge hedge fund launch delayed over FCA inquiry: UK regulators have held up the launch of a new hedge fund because one of the founders headed up foreign exchange at Citigroup during a period when the bank has admitted rate-rigging.
Flybe boss blasts Gatwick for ignoring regions in Heathrow battle: Saad Hammad, Chief Executive of Flybe, has hit out at Gatwick airport for failing to address the needs of Britain’s regions in its battle with rival Heathrow to win support for expansion.
Rangers shares cancelled after failure to find nomad: Shares in Aim-quoted Rangers International Football Club were cancelled after it failed to find a nominated stock market adviser or nomad to replace WH Ireland, which quit a month ago.
Charlemagne teams up with Tehran group to offer Iran fund: UK investors are preparing to re-enter Iran as the prospective nuclear agreement between the west and Tehran, announced last week, begins to bear fruit.
Home-grown small reactors on agenda to revive nuclear programme: Leading British businesses and universities are pinning their hopes on home-grown small reactors to help revive the country’s stalled nuclear power station programme.
UBP Chief rejects claims that Swiss private banking is dead: The Chief Executive of Union Bancaire Privée, which last month expanded its assets under management by a third with the purchase of the non-UK operations of Coutts from Royal Bank of Scotland, believes Switzerland still has plenty to offer clients.
Afren appoints industry veteran Alan Linn as Chief Executive: Afren, the financially distressed oil and gas explorer, on Tuesday appointed industry veteran Alan Linn as its next Chief Executive amid talks to conclude a recapitalisation plan for the London-listed company.
UK banks need to work harder on profitability, study finds: Britain’s five largest banking groups must “urgently tackle” low returns for shareholders and work harder to become more profitable, accountancy firm KPMG has warned.
Savills Chief’s pay jumps by 33.0% ahead of expansion push: Jeremy Helsby, Chief Executive of the property adviser Savills, has seen his pay jump 33.0% after launching the biggest expansion programme in the company’s history.
Informatica becomes year’s biggest leveraged buyout: The European private equity group Permira has teamed with Canada’s largest pension fund to acquire Informatica, the US data software and services company, in a $5.30bn deal that marks the largest leveraged buyout this year.
Vivendi enters exclusive talks to buy Dailymotion: Vivendi has entered exclusive talks with Orange to buy 80.0% of the French telecom operator’s Dailymotion video-sharing website for EUR217.00mn, the two companies said.
Indian ecommerce start-ups pile into cricket sponsorship: Upstart businesses in India’s booming ecommerce sector will open a new front in their battle for customers over the next two months – by going head to head as backers of the glitzy annual Indian Premier League cricket tournament.
Pao bias case risks setting back cause of tech sector women: The gender discrimination trial that transfixed Silicon Valley for much of this spring risks setting back the cause of women in the tech industry, some senior women in the start-up world have warned.
Abertis to spin off EUR4.00bn telecoms infrastructure business: Abertis, the Spanish infrastructure company, will spin off its telecoms business into a Spanish-listed public company valued at close to EUR4.00bn in one of the largest European initial public offerings this year.
BG Group: Rose 6.7% to 910.40p, in line with a rise in crude oil prices.
Eurozone banks: deferring the inevitable: Now Brussels may investigate whether deferred tax assets of banks in Greece, Italy, Portugal and Spain – which those regulators counted towards the banks’ capital – amount to illegal state aid. DTCs make up varying proportions of banks’ common equity tier one (CET1) capital ratios. In Greece, they account for about a third, providing an uplift of 4 to 6 percentage points, notes Berenberg. At Italian lenders Intesa Sanpaolo and UniCredit, they add 230.00 and 190.00 basis points respectively to the CET1 ratio. At Spanish lender BBVA, the boost is about 70.00bp. Greek banks cannot be fixed quickly. Others can be. Investors assume that greater awareness of ECB capital scrutiny partly explains Santander’s capital raising so soon after it passed the ECB test. DTCs still account for 100.00bp of its CET1 ratio after its capital raising. Sabadell may view the capital surplus of UK lender TSB, which it is buying, as a way to bolster its own CET1 ratio. Capital requires core, not peripheral, solutions. Until eurozone banks grasp that, their valuations will continue to languish below 0.9 times book value, compared with, say, 1.10 times in the US.
Private equity: True north: On Tuesday, Silicon Valley software company Informatica was acquired for $5.00bn in a leveraged buyout. The equity will be provided by traditional financial sponsor Permira and the Canadian Pension Plan Investment Board. This makes CPPIB a direct investor, rather than a traditional “limited partner”. LPs give capital to firms such as Permira which then invest it; the groups then extract management fees and a fifth of the profits (the “carry”) from the LPs. For the PE firm, the added firepower that a direct investor brings allows it to chase multibillion-dollar buyouts when leverage constraints pinch and partnering with rival firms has become verboten. CPPIB ($287.00bn in total investment assets) and another Canadian institution, Ontario Teachers’ Pension Plan ($225.00bn), have participated with traditional firms in the large buyouts of companies including IMS Health, Neiman Marcus and 24 Hour Fitness. This flurry of co-investments could sputter. A seminal study recently showed that partnership deals lag the performance of standard private equity funds. The researchers, at Insead and Harvard, cite the “lemon” problem: the institutions only get to participate in less compelling deals where marginal equity was needed. Hefty management fees have always been a cushion for PE firms. No such backstop exists for capital providers.
Healthcare Reits: Senior moment: Property and healthcare: two of the most timeless and popular asset classes. Yet the two combined – US healthcare real estate investment trusts, three of which are valued at upwards of $30.00bn – get little attention (it does not help that two of them go by the anodyne names HCP and Healthcare Reit). But on Monday the third of the big three, Ventas, announced a flurry of transactions worthy of notice. Ventas announced that it would be spinning off most of its nursing homes for the elderly into a new listed entity to be worth $4.00bn. Separately, it said it would acquire $1.40bn worth of hospitals from a private equity firm. Ventas says an emphasis on retirement accommodation would bump up its organic profit growth rate by 40 basis points, to just over 4.0%. But risks abound. A regulatory change in FY08 allows Reits to go beyond simple rent collection to become operators. Ventas is the operator of more than half of its retirement accommodation assets. That model is working well at the moment because the US economy is growing. But the operators suffer when household income and wealth decline. Reits, like all yield instruments, have also suffered of late as Fed tightening looms (Ventas shares were down as much as a tenth this year). Falling equity prices become problematic because Reits have used their cost of capital advantage (around a 20 times earnings multiple) for acquisitions to bolster their low-single digit organic growth (Ventas spent $3.00bn on acquisitions in FY14).