Anchor Capital: Essential market review 11 Dec
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South Africa Market Review
South African markets closed in the green yesterday, amid strength in gold miners. Gold Fields, AngloGold Ashanti and Sibanye Gold advanced 6.6%, 2.5% and 2.1%, respectively. Telkom SA SOC gained 4.6%, after the company indicated that the arbitration proceedings between a Blue Label subsidiary and its former subsidiary had been settled. PPC climbed 2.3%, after it revealed that it received a merger proposal from AfriSam Group. Retail sector stocks, Shoprite Holdings, Massmart Holdings and Cie Financiere Richemont SA rose 2.1%, 1.7% and 1.4%, respectively. On the downside, Platinum miners, Impala Platinum Holdings, Lonmin and Aquarius Platinum dropped 1.3%, 0.8% and 0.4%, respectively. The JSE All Share Index climbed 0.4% to close at 48,745.43.
UK Market Review
UK markets finished lower yesterday, led by a decline in oil firms, after the Organisation of the Petroleum Exporting Countries (OPEC) issued a weak outlook for oil demand in 2015. Petrofac and Tullow Oil fell 3.4% and 2.8%, respectively. BG Group dropped 2.9%, despite selling its Australian gas pipeline network to APA Group at a higher than expected price of $5.00bn. BP slipped 1.6%, after stating that it anticipates a $1.00bn restructuring charges in FY15 in an effort to streamline operations and corporate activities. Bucking the trend, Ashtead Group surged 9.1%, after the company announced that it expects its FY15 results to exceed its previous estimates. The FTSE 100 Index declined 0.5% to close at 6,500.04.
US Market Review
US markets closed lower yesterday, amid weakness in energy sector stocks. ONEOK, Chesapeake Energy and Denbury Resources fell 7.8%, 6.6% and 6.4%, respectively, as oil prices slumped after the OPEC downgraded its outlook for global oil demand in 2015. Yum! Brands dropped 6.2%, after it revealed its weak profit guidance for FY14 due to a slowdown in China. Goldman Sachs Group and Citigroup declined 2.5%, each. On the other hand, Southwest Airlines gained 1.8%, after the International Air Transport Association indicated that global airlines profit would reach a record high in next year. The S&P 500 Index dropped 1.6% to settle at 2,026.14, while the DJIA Index fell 1.5% to close at 17,533.15. The NASDAQ Index declined 1.7% to finish at 4,684.03.
Asia Market Review
Markets in Asia are trading weaker this morning, tracking overnight losses in US equity markets and amid a sell-off in energy stocks. In Japan, Inpex, Showa Shell Sekiyu KK and Japan Petroleum Exploration retreated 1.6%, 1.2% and 0.3%, respectively, following a sharp decline in crude oil prices yesterday. Banks, Mitsubishi UFJ Financial Group and Mizuho Financial Group lost 0.9% and 0.6%, respectively. In Hong Kong, China Petroleum & Chemical Corporation and Cnooc 3.1% and 2.9%, respectively. In South Korea, Kia Motors and Hyundai Motor slipped 1.8% and 0.6%, respectively. The Nikkei 225 Index is trading 1.0% lower at 17,234.30, while the Kospi Index is trading 1.2% in the red at 1,921.86. The Hang Seng Index is trading 1.1% in negative territory at 23,254.19.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.7% to trade at $64.19/bl. Yesterday, Brent crude oil fell 3.4% to settle at $63.73/bl after data from the US Energy Information Administration indicated that US crude oil inventories increased unexpectedly by 1.50mn bls in the week ended 5 December and as the OPEC reduced its estimate for 2015 crude demand.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 0.8% to $3.64/bushel.
At 06:00 SAST today, gold prices advanced 0.3% to trade at $1,229.80/oz. Yesterday, gold declined 0.4% to close at $1,226.31/oz.
Yesterday, copper declined 0.9% to close at $6,475.50/mt. Aluminium closed 0.9% lower at $1,937.75/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, despite data revealing that retail sales in South Africa climbed more than expected in October. Separate data indicated that the consumer price inflation in South Africa remained in line with market estimates in November. Going forward, market participants will keep a tab on South Africa's BER consumer confidence numbers and retail sales data in the US for further direction.
The yield on benchmark government bonds rose yesterday. The yield on 2015 bond rose to 6.44% while that for the longer-dated 2026 issue advanced to 7.94%.
At 06:00 SAST, the US dollar is trading 0.2% lower against the South African rand at R11.5186, while the euro is trading 0.1% lower at R14.3486. At 06:00 SAST, the British pound has declined 0.2% against the South African rand to trade at R18.1050.
Yesterday, the euro advanced against most of the major currencies. Later today, results of the TLTRO auction in the eurozone along with the ECB's monthly report is expected to keep investors interested.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.2455, while it has gained 0.1% against the British pound to trade at GBP0.7925.
Economic Updates
In November, on an annual basis, the consumer price index in South Africa advanced 5.8%, compared with an advance of 5.9% posted in October.
Retail sales in South Africa rose 0.4%, on a monthly basis, in October, following a revised fall of 0.7% registered in September.
The total trade deficit in the UK dropped to GBP2.02bn in October from a revised deficit of GBP2.82bn reported in September.
In October, the visible trade deficit in the UK fell to GBP9.62bn from a revised deficit of GBP10.51bn recorded in September.
Industrial production in Greece slid 0.7%, in October, on an annual basis, compared with a drop of 5.1% posted in September.
Industrial production in France dropped unexpectedly by 1.0%, on an annual basis, in October, following a 0.3% fall registered in September.
Benoit Coeure, a European Central Bank (ECB) Executive Board member, urged governments of the eurozone member nations to introduce structural reforms in order to promote growth and overcome the period of low inflation in the Euro area.
The budget deficit in the US fell to $56.82bn in November, compared with a budget deficit of $121.71bn posted in October.
The consumer confidence index in Japan fell unexpectedly to a reading of 37.70 in November from a reading of 38.90 reported in October.
On an annual basis, machinery orders in Japan eased 4.9% in October, following an advance of 0.7% reported in September.
On a seasonally adjusted basis, the number of people employed in Australia advanced by 42.70k in November, compared with a revised advance of 13.70k reported in October.
The consumer inflation expectations in Australia eased to 3.40% in December from 4.1% posted in November.
The Reserve Bank of New Zealand kept its interest rate steady at 3.50%, in line with market estimates.
Corporate Updates
South Africa
Standard Bank Group: The bank revealed that it has signed a $700.00mn (R8.60bn) 36-month term loan facility in London. Separately, the lender indicated that it amended an agreement to sell a stake in its global markets business to Industrial & Commercial Bank of China Limited due to losses related to missing aluminum.
Aspen Pharmacare Holdings: The company announced that Abbas Hussain has confirmed that he intends to tender his resignation as a director of the company with effect from 1 February 2015 due to a change in his responsibilities at GlaxoSmithKline. David Redfern, the Chief Strategy Officer and the Chairman of ViiV Healthcare, has been nominated by GSK to replace Abbas as its nominee director.
Telkom Sa Soc: The company announced that the arbitration proceedings between a Blue Label subsidiary, Africa Prepaid Services Nigeria and its former subsidiary, Multi-Links Telecommunications have been settled.
African Rainbow Minerals: The company indicated that clients of Allan Gray now own 10.0822% of the total issued ordinary shares of the company.
PPC Limited: The company revealed that it is considering a conditional, non-binding proposal it had received from AfriSam Group that proposes a merger between the two companies.
Acsion introductory listing 'a success' with shares tightly held: Property group, Acsion's, listing on the JSE's AltX on Tuesday was a success, management said, though the shares were tightly held and the listing was not a private placing.
San Francisco, Los Angeles sue Uber: Uber Technologies now faces a civil suit on its home turf as it battles regulatory and legal challenges in cities around the world.
Quantam catching the eye: JSE-listed Quantam Foods Holdings has popped up on the Moneyweb radar in recent days as institutional investors and insiders have begun to take positions in the stock.
Privatisation is back on the agenda: Privatisation is back on the South African government's agenda for the first time in more than a decade as it runs out of options to bail out cash-strapped state companies.
ABIL legislative push concerns investors: Investors in South African banks are growing increasingly concerned over proposed legislation stripping them of some rights as creditors, fallout from the August collapse of African Bank Investments Limited.
UK and US
Costco Wholesale: The warehouse club, in 1Q15 results, indicated that its total revenue climbed to $26.87bn from $25.02bn posted in the same period earlier year. Its diluted net EPS stood at $1.12, better than market estimates of $1.09/share.
Tyson Foods: The CFO, Dennis Leatherby, revealed the company's financial outlook for FY15 and indicated that its revenue is expected to be approximately $42.00bn and adjusted EPS is estimated to be in the range of $3.30 to $3.40, versus market estimated revenue of $42.40bn and EPS of $3.41.
Casey's General Stores: The convenience stores chain, in 2Q15 results, stated that its total revenue advanced to $2.15bn from $2.02bn reported in the corresponding period a year ago. Its diluted EPS rose to $1.28 from $1.01 posted in the same period previous year.
Avanir Pharmaceuticals: The biopharmaceutical company, in FY14 results, revealed that its total revenue jumped to $115.03mn from $75.37mn registered in the prior year. Its basic and diluted net loss per share narrowed to $0.31 from $0.53 recorded in the preceding year.
Lands End: The clothing retailer, in 3Q15 results, indicated that its net revenue from merchandise sales and services dropped to $373.08mn from $383.85mn recorded in the same period prior year. Its diluted EPS was registered at $0.56, better than market expectations of $0.40/share.
Vera Bradley: The luggage design company, in 3Q15 results, stated that its net revenue declined to $125.20mn from $128.95mn posted in the corresponding period earlier year. Its net diluted EPS from continuing operations was registered at $0.21, better than market estimates of $0.19/share. The company sees its 4Q15 diluted EPS from continuing operations in the range of $0.43 to $0.47, versus market consensus of $0.50/share and its 4Q15 net revenue to be between $158.00mn and $163.00mn, versus market consensus of $168.00mn.
Francesca's Holdings: The company, in 3Q15 results, revealed that its net sales increased to $87.11mn from $79.63mn reported in the corresponding period previous year. Its diluted EPS stood at $0.17, in line with market estimates. The company sees its FY15 EPS in the range of $0.75 to $0.81, versus market expectations of $0.89/share and FY15 revenue to be between $366.00mn and $372.00mn, versus market consensus of $374.20mn.
Covenant Transportation: The Chairman, President and CEO, David R. Parker, revealed that due to experienced improvements in its operating results for 4Q14, the company expects to report consolidated earnings in a range of $0.70 to $0.78 per diluted share, versus market consensus of $0.47/share.
Apple: The company and IBM delivered the first wave of the latter's MobileFirst for iOS solutions. This support cloud services that would bring big data and analytics capabilities to iPhone and iPad users.
Microsoft: Media reports revealed that the company is planning to release Windows 10 in autumn 2015.
Tesla: Media reports indicated that the company's US registrations of new cars for 2014 through October are expected to be 22.0% lower. However, total registrations for the month of October were up 152.0%.
Ashtead Group: The industrial equipment rental company, in its 2Q15 results, indicated that its total revenue climbed to GBP529.40mn from GBP439.20mn posted in the same period earlier year. Its diluted EPS advanced to GBP0.18 from GBP0.14 recorded in the corresponding period year ago. Additionally, the company indicated that it expects its FY15 results ahead of the previous expectations.
Micro Focus International: The software and information technology business, in its 1H15 results, stated that its revenue climbed to GBP208.32mn from GBP207.54mn reported in the similar period prior year. However, its diluted EPS dropped to GBP0.21 from GBP0.24 recorded in the corresponding period prior year.
Stagecoach Group: The transport company, in its 1H15 results, revealed that its revenue rose to GBP1.55bn from GBP1.47bn registered in the same period earlier year. Its adjusted diluted EPS from continuing and total operations rose to 13.80p from 13.60p reported in the same period prior year.
Carillion Plc: The facilities management and construction services company, in its trading update for FY14, stated that total revenue is expected to be similar to that in FY13 as growth in Middle East and UK construction services was offset by weak performance of Public Private Partnership projects due to its policy of recycling equity investments in mature projects. Additionally, it expects profit in FY14 to be cash-backed with underlying net debt (excluding the effect of business acquisitions) reducing in line with expectations.
PZ Cussons: The company, in its trading update for 1H15, indicated that due to a turmoil in northern Nigeria its sales had declined in that region. Due to the same reason its group operating profit is expected to be 4.0% down from the same period prior a year ago, as profit growth in Europe and Asia was more than offset by weaker trading in Africa.
BG Group: The oil and gas company announced that it has agreed to sell its wholly-owned subsidiary, QCLNG Pipeline, to APA Group, an Australian gas infrastructure business, for approximately $5.00bn.
Standard Chartered: The banking and financial services company announced it has agreed to extend its Deferred Prosecution Agreements with the US Department of Justice and the New York County District Attorney's Office which were entered into in December FY12.
Rolls-Royce: In relation to the company's earlier announcement related to a GBP1.00bn share buyback, the company indicated that it has put in place a programme for the same as it has recently completed the sale of the energy gas turbine and compressor business to Siemens on 1 December 2014. The company further indicated that the first GBP250.00mn tranche would be a non-discretionary programme and is irrevocable, when it is in a prohibited period.
Financial Times
One in five suppliers bullied, says UK small business lobby: One in five small UK businesses is bullied by the big companies they supply, according to research by the Federation of Small Businesses.
Stamp duty reforms to boost UK house sales: Stamp duty reform will boost UK house sales by as much as 5.0% during the next year, according to a survey of estate agents.
StanChart sets up financial crime risk group: Standard Chartered has responded to its deepening US regulatory woes by creating a new financial crime risk committee on its board and bolstering its compliance team by hiring nine senior Executives around the world.
Rusbridger to step down as Guardian editor: Alan Rusbridger is to step down as editor of The Guardian after two decades in which the newspaper has become one of the world's most influential liberal voices.
Third Director quits Rangers board: A third Director has quit the board of Rangers, less than two weeks ahead of a crucial annual meeting when the cash-squeezed Scottish football club will seek to raise more funds.
Christie's Americas president departs in shake-up: Christie's President of the Americas, Doug Woodham, is to leave the auction house just days after the departure of Chief Executive, Steven Murphy, as incoming CEO, Patricia Barbizet launches a leadership shake-up.
Barclays Chairman Walker swipes at Peace over multiple roles: Sir David Walker has taken the unusual step of taking a swipe at a fellow FTSE 100 bank Chairman by questioning how Sir John Peace manages to Chair Standard Chartered while also doing several other high-profile jobs.
Quindell shares plunge after Rob Terry sells stake: Quindell endured its second-worst day of trading, with its shares falling by up to 45.0%, after founder Rob Terry sold most of his stake in the company.
Shazam hopes new features will help it get closer to IPO: Shazam is introducing a suite of features designed to convince people to use its music recognition app for longer periods of time, as the British tech start-up looks to increase revenues before an ambitious and long-mooted $1.00bn initial public offering.
Investec apologises for 'I can't breathe' headline on research note: Investec, the Anglo-South African bank, has apologised for publishing a research note headlined "I can't breathe" — the dying words of Eric Garner, an unarmed black man who was killed in a police chokehold last July — about the US regulatory difficulties of Standard Chartered.
HSBC fires head of European currency trading: The foreign exchange rate-rigging scandal claimed another victim this week when HSBC fired Stuart Scott, its European head of currency trading, a month after the London-listed bank was fined $618.00mn by regulators over the issue.
Carillion looks to UK building resurgence to offset flat revenues: Carillion is pinning its hopes on a resurgence in UK building projects after winning work contracts worth GBP4.60bn worth in FY14, offsetting the FTSE 250 construction group's warning on flat revenues.
BP expects $1.00bn job cuts charge: BP has responded to tumbling oil prices with a sweeping cost-cutting programme that will lead to $1.00bn in restructuring charges over the coming year and the loss of several thousand jobs across the group.
Rivals and oil price weigh on Stagecoach: Falling oil prices might be good news for consumers but not for Stagecoach. As cheaper fuel makes driving more appealing, the group said it could be one of the reasons why an expected rise in bus passengers in the UK failed to materialise in the past six to eight weeks.
Angola launches $1.60bn Africa infrastructure fund: Angola's sovereign wealth fund has launched $1.60bn African infrastructure and hotels funds to help diversify its portfolio as the slide in crude prices threatens the country's oil-dependent economy.
Eon-Batista tie-up Eneva files for bankruptcy: The Brazilian power company controlled by Eon and Eike Batista has filed for bankruptcy, marking a new low in the ill-fated partnership between Germany's biggest utility and Brazil's one-time richest man.
Lending Club valued at $5.40bn in IPO: Lending Club, the world's biggest peer-to-peer lender, has priced its initial public offering at $15.00 a share to give the eight-year-old company a valuation of $5.40bn.
Drug resistance to cost $100.00trn by FY50, study finds: Without global action, drug resistant infections will cause 10.00mn deaths a year worldwide by FY50 — more than cancer — and will cost at least $100.00trn during the next 35 years, according to the first economic analysis of the problem.
Double hit brings Airbus shares down to earth: Airbus on Wednesday delivered a double dose of bad news, as it reined in earnings expectations for FY16 and postponed the eagerly awaited delivery of its newest passenger jet.
Mahindra poised to seal deal for remnants of Saab car group: Indian billionaire, Anand Mahindra, is close to sealing a long anticipated deal to buy the remnants of collapsed Swedish car group, Saab, marking the tycoon's latest attempt to accelerate his company's global expansion by acquiring a premium auto brand.
Sika's founding family seeks to oust Swiss group's directors: The founding family of Sika has launched a bid to oust three members of the board of directors, as the battle for control of the 104-year-old Swiss industrial group intensifies.
Gawker reshuffles for the age of Vox and BuzzFeed: Gawker Media, the US network of news and gossip websites, joined the parade of media organisations announcing leadership shake-ups as owner Nick Denton said he would step back as President to share power with a seven-person board.
Politico and Axel Springer buy Brussels news service: Politico and German publisher, Axel Springer, are acquiring the website and weekly newspaper European Voice and rebranding it as the European edition of the political website.
Bloomberg looks to rewrite the news: Within weeks of leaving New York's City Hall for the final time as Mayor last New Year's eve, Michael Bloomberg was back to work at Bloomberg LP, occupying a desk on the fifth floor of his financial data empire's sleek Manhattan headquarters and attending editorial meetings.
Instagram hits 300.00mn monthly users to take it ahead of Twitter: Instagram, the photo-sharing app, has overtaken Twitter in user numbers after announcing it has 300.00mn monthly active users taking, editing and sharing pictures of travel, fashion and food.
European telecoms industry sees return of conditions for growth: The European telecoms industry will return to growth in FY16 after six years of declining revenues as investments in fibre broadband and 4G mobile begin to pay off for larger groups in the sector, according to new research from Etno, the group that represents Europe's larger telecoms companies.
Airlines on course for record profits, fuelled by low oil prices: The global airline industry will report record profits in FY15 as falling oil prices and economic growth push up earnings, the main aviation trade body said on Wednesday.
Stagecoach: Fell 6.9% to GBP3.79, after its interim results showed its profit mix shifting to rail operations from its bellwether UK bus division.
Micro Focus: Faded 7.1% to GBP10.51 on mixed first-half figures.
US wireless: tough call: Vodafone's Chief Executive weigh so lightly? Traders know it. It is the enduring satisfaction that comes from selling big, right at the top. Mr Colao agreed to sell Vodafone's 50.0% stake in Verizon's wireless business in September of FY13 for $130.00bn in cash and shares. So he can look at the foul weather in the US from a distance. Subscriber growth has held steady at the big players, but revenue per subscriber trends have been shaky since Vodafone and Verizon shook hands. Shares in all four competitors have underperformed the market badly since then. The issue now is cash. Even before competition rose, both companies were prodigious spenders. After investments, dividends, buybacks and acquisitions, AT&T has run a fair-sized deficit recently. Verizon is not miles away from being in the same situation. And there is another big spectrum auction on the way which will sop up more cash. The dividends are not in danger, but if the margin of safety tightens, the two companies' appeal to value investors will diminish, pulling their valuations down.
BG Group: fair dinkum: The UK's BG Group will want to avoid becoming the butt of another one with its Australian Queensland-Curtis LNG project in which it has a three-quarters stake. On Wednesday, BG said it had sold a pipeline attached to the project — to move gas from wells to plant — for $5.00bn. This means that BG can get serious on the project at last. Good: QCLNG will represent two-thirds of production growth next year, says Deutsche, and according to BMO Capital Markets, is a quarter of BG's net asset value. But that assumes oil prices of $80.00/bl. There is also BG's debt. As a fast-growing explorer, BG has not had any free cash flow (post capital spending) since FY08, according to S&P Capital IQ. That figure is also before dividend payouts. At least, having got a good price for the QCLNG pipeline, BG can use the proceeds (after taxes and expenses, roughly $4.30bn) to reduce its net debt of $12.00bn. But that is only step one, considering investors already pay up in the market for BG's superior production growth outlook versus other oil majors. With an enterprise value to next year's forecast debt adjusted cash flow of 9.80 times, BG shares trade at a 50.0% valuation premium to its peers.
Ashtead: memories for hire: Ashtead might operate in the gritty business of hiring out construction equipment, but its results are sparkling. 1H15 revenues rose 16.0% and earnings per share were up over a quarter, as the company enjoys the recovery in the US (home to most of its business) and takes market share. The shares, already up 42.0% this year, rose another 10.0% on Wednesday. To dive into the shares now is to be confident that the company is well positioned next time life gets tough. Ashtead's end markets are inherently cyclical. When people stop building they stop renting diggers, forklifts and hydraulic rock splitters. The company's protection from the worst of this comes in two forms. First, it keeps its kit up to date, giving itself an advantage over rivals who cannot afford to. Capital spending will rise from GBP741.00mn last year to about GBP950.00mn this year as Ashtead expands and renews its equipment. Second, Ashtead keeps its balance sheet strong. Net debt is a comfortable 2.00 times earnings before interest, tax, depreciation and amortisation. A valuation of 16.00 times next year's earnings — a premium to rival United Rentals on 13.00 — suggests comfort with the strategy.
*Published with special permission by Anchor Capital (ACG)