By Anchor Capital
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South African Market Review South African markets closed lower on Friday, amid a selloff in global equity markets. Sasol declined 2.4%, tracking a fall in crude oil prices. Banking sector stocks, FirstRand, Nedbank Group and Capitec Bank dropped 1.0%, 0.5% and 0.4%, respectively. Standard Bank Group fell 0.7%. The company announced the completion of sale of its Brazilian banking subsidiary, Banco Standard de Investimentos SA. Fountainhead Property Trust retreated 0.5%, after indicating that revenue from its total portfolio was down 0.7% for six months ended 28 February 2015, compared with the same period a year ago. However, Lonmin, Anglo American Platinum and Impala Platinum rose 2.5%, 2.0% and 1.0%, respectively. The JSE All Share Index fell 1.0% to close at 53,734.04. |
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UK Market Review UK markets finished lower on Friday, with the benchmark FTSE 100 index ending the week below the 7,000 level as investors responded to rule changes for Chinese stocks. Mining sector stocks, Anglo American and BHP Billiton declined 2.7% and 1.6%, respectively. Tesco fell 1.8%, amid expectations that the firm would announce a drop in its FY15 earnings, scheduled to be reported later in the week. Rolls-Royce Holdings slipped 0.2%, paring its earlier gains after the company announced that it won its largest ever order from Emirates Airline worth $9.20bn. On the higher side, BP advanced 1.3%, despite demands from its shareholders to be more honest about the likely impacts of climate change on its business. The FTSE 100 Index declined 0.9% to close at 6,994.63. |
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US Market Review US markets ended lower on Friday, amid new trading regulations in China, renewed worries about a Greek debt default and dismal US corporate earnings. American Express dropped 4.4%, after its 1Q15 revenue fell short of market estimates. Transocean, Noble Corporation and Helmerich & Payne declined 3.3%, 3.1% and 2.8%, respectively. Comerica fell 0.4%, even though its 1Q15 results came in above market expectations. General Electric eased 0.1%, as its 1Q15 revenue missed market expectations. On the other hand, Mattel climbed 5.8%, after reporting a narrower-than-expected 1Q15 loss. The S&P 500 Index fell 1.1% to settle at 2,081.18, while the DJIA Index dropped 1.5% to close at 17,826.30. The NASDAQ Index declined 1.5% to finish at 4,931.81. |
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Asia Market Review Markets in Asia are trading mostly lower this morning. In Japan, Itochu Corporation retreated 1.3%, as it stated that it would book a charge after an employee made wrong transactions at the company. However, Panasonic Corporation rose 2.4%, amid reports that its FY15 profit would increase significantly. In Hong Kong, brokerages declined broadly following stricter margin rules. Shenyin Wanguo HK, China Galaxy Securities, CITIC Securities and Haitong Securities declined 3.8%, 3.0%, 2.6% and 2.2%, respectively. In South Korea, SC Engineering and Samsung Electronics fell 4.3% and 1.6%, respectively. The Nikkei 225 Index is trading 0.2% higher at 19,695.18, while the Kospi Index is trading marginally lower at 2,143.22. The Hang Seng Index is trading 0.3% in the red at 27,571.60. |
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Commodities At 06:00 SAST today, Brent crude oil rose 0.9% to trade at $61.77/bl. Over the weekend, China announced that it lowered the amount of deposits it requires banks to hold as reserves to accelerate economic growth in the nation. On Friday, Brent crude oil fell 1.5% to settle at $61.21/bl, reversing some of the previous session’s gains. On Friday, the Illinois North Central No.2 Yellow corn spot prices rose 1.4% to $3.60/bushel. At 06:00 SAST today, gold prices advanced 0.1% to trade at $1,204.83/oz. On Friday, gold gained 0.5% to close at $1,204.22/oz, as demand for safe-haven assets increased amid uncertainty over Greece’s bailout negotiations and new trading regulations in China. On Friday, copper rose marginally to close at $6,069.00/mt. Aluminium closed 0.1% lower at $1,834.25/mt. |
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Currencies On Friday, the South African rand weakened against the US dollar. Data showed that on an annual basis, the core consumer prices climbed higher than market expectations in March, while the monthly readings matched the increase of the previous month. However, the headline prices rose but less than market anticipated increase. In addition, the Reuters/Michigan Consumer Sentiment Index rose more than market estimates in April. Going forward, traders will eye the Chicago Fed National Activity Index, scheduled later today. The yield on benchmark government bonds rose on Friday. The yield on 2015 bond advanced to 6.09% while that for the longer-dated 2026 issue rose to 7.85%. At 06:00 SAST, the US dollar is trading 0.2% lower against the South African rand at R12.0446, while the euro is trading 0.4% lower at R12.9954. On Friday, the euro advanced against most of the major currencies. On Saturday, the ECB President, Mario Draghi, rejected speculation that Greece might be forced to abandon the eurozone, reiterating that Europe’s single currency is irrevocable. In economic news, consumer prices in the eurozone rose in line with market expectations for March. At 06:00 SAST, the euro slipped 0.2% against the US dollar to trade at $1.07892, while it has weakened 0.2% against the British pound to trade at GBP0.7212. |
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Economic Updates On an annual basis, the average earnings excluding bonus rose 1.8% in the UK, in the December-February 2015 period, more than market expectations for an advance of 1.7%. In the September-November 2014 period, the average earnings excluding bonus had climbed 1.6%. The ILO unemployment rate dropped to 5.6% in the UK, in the December-February 2015 period, meeting market expectations. In the September-November 2014 period, the ILO unemployment rate had registered a level of 5.7%. The number of unemployment benefits claimants in the UK recorded a drop of 20.70k in March, following a revised loss of 29.10k in the previous month. Markets were expecting number of unemployment benefits claimants to decline 29.50k. The real retail sales in Switzerland eased 2.7% on an annual basis, in February. Real retail sales had fallen 0.3% in the previous month. The European Central Bank (ECB), President Mario Draghi rejected the possibility of a Greece exit from the eurozone, restating that Europe’s single currency is irreversible. Further, he warned investors against dumping the single currency and opined that the Greece government should work more in order to satisfy the terms of its 240.00bn-euro bailout program. The seasonally adjusted current account surplus in the eurozone dropped to EUR26.40bn in February. The eurozone had registered a revised current account surplus of EUR30.40bn in the previous month. In March, the consumer price index (CPI) registered a rise of 1.1% in the eurozone on a monthly basis, at par with market expectations. In the previous month, the CPI had recorded a rise of 0.6%. On a monthly basis, in the US, the CPI (ex-food & energy) registered a rise of 0.2% in March, at par with market expectations. In the prior month, the CPI (ex-food & energy) had registered a similar rise. The Reuters/University of Michigan has indicated that, in April, the preliminary Reuters/Michigan consumer sentiment index rose to a level of 95.90 in the US, higher than market expectations of an advance to 94.00. The Reuters/Michigan consumer sentiment index had recorded a reading of 93.00 in the previous month. The seasonally adjusted CPI climbed 0.4% on a monthly basis in Canada, in March, higher than market expectations for an advance of 0.3%. In the prior month, CPI had climbed 0.2%. The consumer confidence index in Japan rose to a level of 41.70 in March, compared with market expectations of a rise to a level of 41.30. The consumer confidence index had recorded a level of 40.70 in the previous month. The People’s Bank of China announced a one percentage point cut in the reserve requirement of commercial banks, freeing up about $200.00bn for lending in a measure to boost the nation’s economy. |
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Corporate Updates South Africa Fountainhead Property Trust : The company, in its unaudited interim results for the six months ended 28 February 2015, stated that revenue from its total portfolio dropped 0.7% from the same period a year ago to R627.93mn. However, its headline EPS increased to 29.67c from 29.37c recorded in the corresponding period of previous year. The company indicated that it has declared a distribution per unit of 30.60c, compared with 29.00c reported in the same period of last year.Royal Bafokeng Platinum: The platinum mining company, in its quarterly production update for the period 1 January 2015 to 31 March 2015, indicated that its total milled tonnes increased 6.1% 540.00kt from the corresponding period of preceding year. However, the built-up head grade reduced by 9.8% to 3.87g/t (4E), with overall concentrator recovery ending 1.8% lower than the same period in FY14. The company stated that expansion and replacement projects remain on track and within budget. FirstRand Limited: The company announced that James Formby would be appointed as CEO of Rand Merchant Bank, when Alan Pullinger takes up the group Deputy CEO position at the end of September 2015. Standard Bank Group Limited: The banking company announced that it has completed the sale of 100.0% of the shares in its Brazilian banking subsidiary, Banco Standard de Investimentos SA, to Banco Inbursa, SA Institucion de BancaMultiple, GrupoFinancieroInbursa, the listed Mexican banking group. It stated that the transaction proceeds are expected to total approximately $50.00mn. AECI Limited: The chemicals company announced the appointment of Edwin Ludick as the acting Managing Director of its wholly-owned subsidiary, AEL Mining Services, with effect from 15 May 2015. Molefe given SA’s worst job: Transnet boss Brian Molefe has stepped into the country’s hottest seat after Public Enterprises Minister Lynne Brown named him as acting CEO of Eskom on Friday. Xenophobia hits MTN, Sasol square on: South African companies with operations north of the border are suffering a fierce backlash from this week’s wave of xenophobic violence, blamed on remarks by Zulu King Goodwill Zwelithini. Sun Air’s sudden departure haunts embattled SAA: South African Airways is facing a R1-billion damages claim from Johannesburg businessman Robert Watson for allegedly orchestrating the failure of rival airline Sun Air in 1999 and misleading shareholders. UK and US General Electric Co.: The company, in its 1Q15 results, indicated that revenue stood at $29.40bn, compared with market expectations of $34.27bn. However, the company reported EPS of $0.31, better than market estimate of $0.30. The company stated that it is on track for industrial EPS goal of $1.10 to $1.20 for FY15. Honeywell International: The company, in its 1Q15 results, stated that its net sales dropped 4.8% from the same period a year ago to $9.21bn. Its diluted EPS was $1.41, compared with $1.28 recorded in the corresponding period of previous year. For FY15, the company raised the low end of its FY15 EPS guidance range to$6.00 to $6.15 and expects its sales to be between $39.00bn and $39.60bn. Reynolds American: The tobacco company, in its 1Q15 results, revealed that revenue stood at $2.06bn, higher than market expectations of $1.98bn. Its EPS was $0.86, better than market estimate of $0.80, helped by increased cigarette prices. The company stated that it expects adjusted EPS in the range of $3.65 to $3.80 for FY15. Seagate Technology: The data storage company, in its 3Q15 results, indicated that its revenue fell 2.2% from the corresponding period of prior year to $3.33bn. Its diluted net EPS was down to $0.88 from $1.17 posted in the same period of preceding year. Comerica Inc.: The financial services company, in its 1Q15 results, stated that its net interest income increased to $413.00mn from $410.00mn posted in the same period last year. Its diluted net EPS remain unchanged at $0.73, compared with the corresponding period of previous year. For FY15, the company expects average loan growth consistent with FY14, reflecting typical seasonality throughout the year and continued focus on pricing and structure discipline. Chemical Financial: The company, in its 1Q15 results, revealed that its total interest income increased 16.7% from the same period of last year to $62.63mn. Its diluted EPS stood at $0.54, compared with $0.46 posted in the corresponding period of prior year. Mylan NV: The generic and specialty pharmaceuticals company dismissed rumours of a possible merger with Teva Pharmaceuticals and stated that it remains committed to a stand-alone business strategy, which includes a $28.90bn unsolicited offer for competitor Perrigo, announced on 8 April. Athersys Inc.: The pharmaceutical company announced that its Phase 2 clinical study of MultiStem cell therapy did not show a significant difference from those given a placebo as measured by the Global Stroke Recovery Assessment scale. Its stem-cell therapy, the only product to reach human trials, failed a mid-stage study testing it as a treatment for a type of stroke, wiping off more than 40.0% of the company’s market value. Supertel Hospitality: The real estate investment trust announced that it closed on the sale of two Savannah Suites hotels on 1 April and also entered into an agreement to sell two hotels located in Alexandria, Virginia, for $19.00mn on 13 April. AstraZeneca Plc: The pharmaceutical and biologics company announced that the US Food and Drug Administration (FDA) have granted Orphan Drug Designation for the MEK inhibitor selumetinib for the treatment of uveal melanoma. Rolls-Royce Holdings: The energy company announced that it has been awarded an order, worth $9.20bn, to provide Trent 900 engines and TotalCare® service support to Emirates. It stated that the engines would power 50 Airbus A380 aircraft that will enter service from 2016. Financial Times FTSE 250 dividends rise 20.0% in first quarter: Underlying dividends paid out by FTSE 250 companies – generally seen as a proxy for UK industry – rose one-fifth in the first quarter of this year, while FTSE 100 companies turned in a broadly flat performance. David Cameron steps into Tullow Oil’s row with Gabon government: David Cameron has intervened in an escalating row between UK oil companies and the government of Gabon after the petroleum ministry expropriated assets from the explorer Tullow Oil and threatened Royal Dutch Shell with a fine for non-payment of back taxes. UK bank shareholders want end to bonuses based on adjusted earnings: Big shareholders in UK banks want lenders to stop paying bonuses based on adjusted earnings that exclude fines, restructuring costs and non-core units, raising the prospect of protest votes at annual meetings starting this week. AA wheels out shake-up for the 21st century: The AA will on Monday offer investors’ fresh details about plans to reinvigorate the business weeks after completing a near-GBP1.00bn refinancing. Cameron echoes Thatcher with plans for Lloyds sell-off: David Cameron has sought to channel the spirit of Margaret Thatcher for the second time in a week by promising that retail investors will take part in a GBP9.00bn post-election sell-off of Lloyds Banking Group shares. Petrobras shares rise as company prepares to end results delay: Investor optimism is rising that Brazil’s embattled state-owned oil company Petrobras will emerge from a crippling corruption scandal without defaulting on its $137.00bn in debt. $5.90bn deal fuels hot property M&A market: Prologis, one of the world’s largest industrial property landlords, has agreed to buy KTR Capital, a real estate focused private equity company, for $5.90bn, including about $700.00mn in mortgage debt. Deutsche Bank prepares to spin off Postbank: Deutsche Bank is preparing to divest its Postbank retail operation in the latest strategy overhaul by a big global bank in response to sluggish markets and a welter of tough new regulations since the financial crisis. Rothesay Life gears up for a potential GBP3.00bn IPO: The pensions insurer set up by Goldman Sachs has chosen the 47-floor landmark to be its new headquarters – a symbol of its ambitions as the business gears up for a potential GBP3.00bn listing. GE Executive seeks renewal of funding for Export-Import Bank: The US risks compounding the mistake it made by not joining a new China-backed Asian infrastructure bank if Republicans in Congress go through with a threat to shut down the country’s export credit agency, GE’s top international Executive has warned. Non-Chinese companies warm to renminbi: Non-Chinese companies are increasingly using the renminbi as an international currency and expect to more than double the volume of transactions in the next five years, despite several obstacles, according to research. Google overhauls search rankings for mobiles: Google will this week overhaul the way its search engine recommends websites on mobiles, an algorithmic shift that is likely to penalise many sites, including those of Microsoft and the European Union. Comcast and TWC to address antitrust concerns over $45.00bn merger: Comcast and Time Warner Cable will hold a vital meeting with the US Justice Department this week in an attempt to allay the concerns of antitrust officials about a merger of the country’s two largest cable providers. Nomad Foods to buy Birds Eye owner Iglo for EUR2.60bn: Iglo, the frozen foodmaker behind Birds Eye fish fingers, is poised to be acquired by Nomad Foods for EUR2.60bn, according to people familiar to the matter. Malaysian telecoms group looks at London IPO: A Malaysian telecoms group has begun work on a potential flotation in London to further plans to build the first land-based fibre internet infrastructure between Singapore and Hong Kong. Dubai airport Chief backs Heathrow runway expansion: The head of Heathrow’s biggest rival has criticised the political deadlock over building another runway in Britain’s southeast, condemning the failure to expand the west London airport as “scandalous”. InterContinental Hotels: Gained 0.2% to GBP27.22 on a retread of speculation that Starwood Hotels was under pressure to seek a merger. Qinetiq: Climbed 3.8% to 202.50p after Barclays turned positive on the defence technology outsourcer, whose Chief Executive Steve Wadey starts this month. |
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Lex Qualcomm: chips off the block: Qualcomm has openly considered this idea in the past, and recently investors have started clamouring for it as well. The most valuable part of Qualcomm is considered by analysts to be its licensing business, which supplies most of the IP for 3G and 4G wireless in smartphones. These licensing royalties account for just a quarter of revenue, but two-thirds of profits. Meanwhile Qualcomm’s chipset business brings in the bulk of revenue but less than half of profits. The businesses can complement each other when a new wireless communication standard is being introduced: for example Qualcomm can develop the IP behind a new standard like LTE (Long Term Evolution), and then simultaneously develop chipsets that incorporate LTE to prove how the technology works. But this synergy matters less at a time like the present, when Qualcomm already licenses a large majority of global handset, Credit Suisse points out. Breaking up a company can make sense if one part of the company is weighing the other down, or if different segments have different growth trajectories. But in this case, both of Qualcomm’s business are facing similar headwinds, which has helped drive its share price down 17.0% in the past 12 months. The licensing business has suffered declining revenues and profits, due to falling prices for smartphones (royalties are paid on the price of the phone) and to smaller royalty rates (such as the recent settlement in China). The chipset business has also seen growth slow, and is under pressure from increased competition from companies like MediaTek. Nevertheless chipsets are Qualcomm’s only source of profit growth. Boutique banks: small is beautiful: Houlihan Lokey, a specialist in advising on large volumes of small restructuring and M&A deals, is the latest boutique to see market conditions as strong enough for a sale. The bank is reportedly preparing for a $200.00mn initial public offering later this year. Orix, the Japanese group which owns 51.0% of the broker, is expected to sell some of its shares. Other boutiques should also be considering their options. One of them is FBR & Co. The firm has a more balanced focus on investment banking and providing institutional capital markets services then either Houlihan or Sterne Agee. Roughly 57.0% of its FY14 revenues came from investment banking (comprising capital raising and advisory business), 28.0% from institutional brokerage, and the rest from interest, dividends, and investment income. After the financial crisis, FBR racked up a series of annual losses, but it has made profits in each of the past three years. The broker’s shares have risen more than 130.0% over the past three years, and now trade at a small premium to book value. But the good times will not last forever. A sale to a larger player would better position the company for any potential future turmoil. |