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South African Market Review South African markets closed in the green yesterday, lifted by gains in mining sector stocks. Glencore, Kumba Iron Ore and BHP Billiton surged 4.1%, 2.6% and 2.0%, respectively. Clicks Group, Massmart Holdings and Truworths International climbed 2.5%, 2.1% and 1.8%, respectively. Sibanye Gold advanced 0.2%, despite revealing that its profit for FY14 is expected to be lower. However, Tiger Brands plunged 5.2%, after indicating that FY15 trading outlook remains challenging, especially for the Nigerian businesses. Harmony Gold Mining dropped 2.7%, after it posted a drop in its 2Q15 production. Anglo American Platinum fell 0.1%, despite declaring growth in net sales revenue for FY14. The JSE All Share Index rose 0.2% to close at 52,105.38. |
UK Market Review
UK markets finished lower yesterday, following lacklustre Chinese trade data and as ongoing concerns over Greece weighed on market sentiment. However, losses were capped by gains in mining sector stocks. HSBC Holdings shed 1.6%, after reports indicated that its private-banking division made profits by handling secret accounts of holders including criminals and helped thousands of wealthy customers evade taxes. Peer banking sector stocks, Royal Bank of Scotland Group and Barclays declined 0.8% and 0.7%, respectively. On the brighter side, Fresnillo and BHP Billiton advanced 4.2% and 2.5%, respectively. Randgold Resources rose 2.0%, despite revealing a decline in its FY14 net income. The FTSE 100 Index declined 0.2% to close at 6,837.15. |
US Market Review
US markets ended lower yesterday, amid concerns over the standoff between Greece and its creditors, and following dismal Chinese trade data. Southwest Airlines dropped 2.0%, as it posted a drop in its passenger revenue per available seat mile in January. McDonald’s declined 1.4%, after reporting a drop in its January global comparable sales. However, Hasbro advanced 7.0%, after it reported 4Q14 earnings above markets estimates. Transocean, Noble Corporation and Ensco climbed 10.4%, 6.0% and 5.8%, respectively, following a rise in crude oil prices. The S&P 500 Index fell 0.4% to settle at 2,046.74, while the DJIA Index dropped 0.5% to close at 17,729.21. The NASDAQ Index fell plummeted 0.4% to finish at 4,726.01. |
Asia Market Review
Asian markets are trading mostly weaker this morning, amid ongoing tension between Greece and its international creditors and amid dismal Chinese marco economic data. In Japan, Daikin Industries slumped 5.3%, amid reports that the company might post lower-than-expected 3Q15 operating profit.. In Hong Kong, HSBC Holdings retreated 1.5%, amid reports of alleged tax evasion and money laundering at its Swiss division. In South Korea, retailers, Hyundai Department Store, Lotte Shopping and Shinsegae eased 1.2%, 0.9% and 0.6%, respectively, after South Korea’s finance ministry revealed that sales at major departmental stores were projected to drop 9.7% in January. The Nikkei 225 Index is trading 0.8% weaker at 17,571.72, while the Kospi Index is trading 0.4% lower at 1,940.23. The Hang Seng Index is trading flat at 24,523.20. |
Commodities
At 06:00 SAST today, Brent crude oil fell 0.4% to trade at $56.92/bl. Meanwhile, speculation regarding stimulus measures in China increased after the release of weak Chinese producer and consumer prices data. Yesterday, Brent crude oil fell 0.6% to settle at $57.17/bl. Meanwhile, the Organisation of the Petroleum Exporting Countries (OPEC) raised its oil demand forecast for 2015. At 06:00 SAST today, gold prices advanced 0.3% to trade at $1,243.09/oz. Yesterday, gold gained 0.4% to close at $1,239.03/oz, as tough talk by the new Greek government renewed fears about Greece’s future in the eurozone. Yesterday, copper rose 0.3% to close at $5,687.50/mt. Aluminium closed 0.1% higher at $1,859.00/mt. |
Currencies
Yesterday, the South African rand weakened against the US dollar. The US dollar continued to gain strength after a better-than-expected US labour print on Friday. Going forward, market participants will keep a tab on South African unemployment rate and manufacturing production data for further direction. The yield on benchmark government bonds were mixed yesterday. The yield on 2015 bond fell to 6.07% while that for the longer-dated 2026 issue advanced to 7.45%. At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R11.5828, while the euro is trading 0.1% higher at R13.1336. At 06:00 SAST, the British pound has gained 0.1% against the South African rand to trade at R17.6560. Yesterday, the euro advanced against most of the major currencies, despite growing concerns in Greece. Going forward, investors will keenly eye today’s industrial production data from France and the UK. At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.1338, while it has remained flat against the British pound to trade at GBP0.7439. |
Economic Updates
The British Retail Consortium (BRC) has reported that, on an annual basis in January, retail sales across all sectors advanced 0.2% in the UK, compared with a drop of 0.4% in the previous month. Market expectations were for retail sales across all sectors to rise 0.5%. The Banque de France has indicated that, in January, the business sentiment index registered an unexpected rise to a level of 98.00 in France. Markets were anticipating the business sentiment index to remain unchanged. The seasonally adjusted trade surplus in Germany expanded to EUR19.10bn in December, compared with a revised trade surplus of EUR 17.90bn in the previous month. Markets were anticipating the nation’s trade surplus to drop to EUR16.00bn. The non-seasonally adjusted current account surplus in Germany widened to EUR25.30bn in December, compared with market expectations of a current account surplus of EUR20.80bn. Germany had posted a revised current account surplus of EUR 18.90bn in the previous month. The investor confidence index recorded a rise to 12.40 in the eurozone, in February, higher than market expectations of a rise to 3.00. In the prior month, the investor confidence index had recorded a level of 0.90. The Cabinet Office of Japan has indicated that compared with a level of 38.80 in the prior month, the consumer confidence index in Japan advanced to 39.10 in January. The Canadian Mortgage and Housing Corporation have reported that, in January, the seasonally adjusted annualised rate of housing starts in Canada recorded an unexpected rise to 187.30k. Markets were expecting housing starts to fall to a level of 178.50k. The business confidence index in Australia climbed to 3.00 in January. The business confidence index had registered a level of 2.00 in the previous month. On a quarterly basis, in 4Q14, the house price index advanced 1.9% in Australia, compared with a revised rise of 1.4% in the previous quarter. Market expectations were for the house price index to advance 1.8%. |
Corporate Updates
South Africa Tiger Brands Limited: The company, in its 1Q15 trading statement, revealed that turnover amounted to R8.20bn, reflecting a 7.0% increase compared with the corresponding period of the prior year. It further indicated that outlook for FY15 remains challenging, especially for the Nigerian businesses. Imperial Holdings: The company, in its trading statement for 1H 15, indicated that its EPS is expected to fall 16.0% to 19.0% from EPS of R8.31 reported in the same period a year ago. Its core EPS is expected to decline between 13.0% and 16.0%from core EPS of R9.37 posted in the corresponding period previous year. New Europe Property Investments: The company, in its trading statement for the six months ended 31 December 2014, indicated that it expects a 15.0% improvement over the distributable EPS compared with the previous year. Sibanye Gold Limited: The gold mining company, in its trading statement for FY14, indicated that its profit is expected to drop 8.0% and 4.0% to between R1.55bn and R1.63bn from previous year. It headline earnings are estimated to be approximately 38.0% and 35.0% lower, compared with headline earnings reported for FY13. Harmony Gold Mining: The gold mining company, in its 2Q15 report, indicated that revenue decreased 16.2% to R3. 72bn, compared with the previous quarter, as a result of the 14.0% decrease in gold sold and decrease in the Rand gold price. The company further stated that it reported headline loss of R496.00mn, due to lower production and restructuring costs. Sasol Limited: The company announced that the Executive Director, Ms V N Fakude, would be directly accountable for the Strategy and Sustainability portfolio comprising risk & safety, health and environment and human resources. Furthermore, soon to be appointed Executive Director, Mr B Nqwababa, who will be joining as the company’s new Chief Financial Officer on 1 March 2015 would be directly accountable for the finance portfolio, comprising financial control; corporate finance, business development and portfolio management; investor relations and information management. Amplats to reveal plans for mines: Anglo American Platinum will reveal its plans for the disposal of its Union and Rustenburg platinum mines before the middle of the year, it said on Monday as it reported a return to profitability. Synergy becomes a listed subsidiary of Vukile: Synergy Income Fund is now a listed subsidiary of Vukile Property Fund (Vukile), as the drawn-out move to gain control of the small-cap fund is put to bed. UK and US NetEase, Inc.: The China-based internet technology company, in its FY14 results, indicated that total revenue was RMB12.48bn, compared with RMB9.78bn recorded in the preceding year. Its diluted earnings per ADS rose to $5.85 from $5.50 posted in the previous year. For FY15, the company plans to introduce more mobile games, including mobile games adapted from or inspired by their existing popular PC client games. Masco Corporation: The manufacturing company, in its FY14 results, indicated that net sales increased 4.0% to $8.50bn, compared with FY13. It’s reported EPS from continuing operations was $2.39, compared with $0.83 posted in the previous year. The company stated that it is committed to serving the customer by accelerating their innovation pipeline and continuing its strong operating performance in FY15. Computer Sciences: The information technology services company, in its 3Q15 results, indicated that revenue dropped 9.5% to $2.95bn from the same period a year ago. The company reported diluted loss per share of $2.23, compared with EPS of $1.81 posted in the same period a year ago. Hasbro Inc.: The toy and board game company, in its FY14 results, indicated that net revenue increased 4.8% to $4.28bn, compared with the preceding year. Its diluted EPS stood at $3.20, compared with $2.17 posted in the preceding year. TECO Energy Inc.: The energy-related company, in its FY14 results, indicated that total revenue was $2.57bn, compared with $2.36bn recorded in the prior year. It’s diluted EPS from continuing operations increased to $0.92 from $0.88 posted in the previous year. The company expects FY15 EPS to be between $1.08 and $1.11. Diamond Offshore Drilling: The drilling contractor company, in its FY14 results, indicated that total revenue declined 3.8% to $2.81bn, compared with the previous year. Its diluted EPS was $2.81, compared with $3.95 recorded in the previous year. Additionally, the company announced that it has chosen not to declare a special dividend. Pfizer: The drugmaking company announced that it has entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. to buyback $5.00bn of its common stock. It stated that the agreement is part of its existing share repurchase authorisation under which an additional $11.00bn of authority was announced in October 2014. Qualcomm: The chip making company stated that it would pay a $975.00mn fine as part of a long-awaited settlement with Chinese antitrust authorities which also includes several changes to the company’s practices in licensing patents for mobile phones sold in China. The company also updated its FY15 guidance, stating that revenue is estimated to be in the range of $26.30bn to $28.00bn, compared with its prior guidance range of $26.00bn to $28.00bn. Netflix Inc.: The company announced that it would offer a broad range of great global entertainment to Cuban consumers as Internet access improves and credit and debit cards become more widely available. It further stated that people in Cuba with internet connections and access to international payment methods would be able to subscribe to the company and instantly watch a curated selection of popular movies and TV shows, starting immediately. Randgold Resources: The company, in its production results for FY14, indicated that gold production increased by 26.0% to 1.15mn oz from the previous year. Its group sales were 1.13mn oz, compared with 0.91mn oz in FY13. However, the company stated that its profit declined 16.8% to $271.16mn, compared with the previous year, mainly as a result of the drop in gold price. The company’s basic EPS stood at $2.54, compared with $3.02 posted in the prior year. BG Group: The oil and gas company stated that Helge Lund would join the company as Chief Executive and an Executive Director with effect from 9 February 2015, ahead of the previously announced start date of 2 March 2015. Rolls-Royce Holdings: The company revealed that it has been awarded three contracts totalling up to $442.00mn to produce and support Lift Systems for F-35B Lightning II aircraft, including price reductions from prior contracts. Land Securities Group: The company announced that it would proceed with construction of the new Westgate Oxford, with preparatory works to begin imminently and construction set to start in spring FY15. Furthermore, the development is expected to generate up to 1,000 construction jobs with a further 3,400 retail positions opening up once the centre is completed in 2017. Countrywide Plc: The property services company announced that it has agreed to increase the amount of its current finance facilities from GBP150.00mn to GBP250.00mn for the general corporate purposes of the group, including the funding of potential acquisitions. Financial Times Swiss tax row raises spectre of fresh legal action for HSBC: HSBC faces the possibility of fresh legal action in the UK and US after the bank was hit by detailed allegations that it colluded in tax-dodging by clients of its Swiss operation. US and UK politicians press for HSBC clampdown: US and UK politicians called for a regulatory clampdown on HSBC after Europe’s biggest bank by assets was hit by detailed allegations that it colluded in tax-dodging by clients of its Swiss operation. Towergate lines up David Ross as new CEO: Towergate’s new owners have turned to one of the UK insurance broker’s transatlantic rivals to lead its efforts to recover from a cash crisis and a restructuring its GBP1.00bn of debt. HSBC tax leaker to advise Spain’s Podemos party: HervĂ© Falciani, the former HSBC systems engineer responsible for the biggest Swiss private banking data leak in history, has teamed up with Spain’s far-left Podemos party to advise on tax policy. Rail manufacturers enjoy good times after slew of large orders: Big projects led by a new train line for London are providing the UK’s rail manufacturing industry with its best outlook for almost a decade. HSBC in Swiss tax avoidance storm: HSBC has admitted that its Swiss private bank may have held accounts for tax-dodging clients, after secret files from Europe’s biggest bank were leaked to several news organisations exposing widespread tax-avoidance practices. Randgold raises dividend as it eyes acquisitions: Randgold Resources became the first blue-chip London miner to raise its dividend this year as it predicted opportunities for acquisitions amid a turbulent outlook for commodities. Nat Rothschild fillip for Asia Resource Minerals: Shares in Asia Resource Minerals jumped more than a third on Monday after financier Nat Rothschild offered to make a $100.00mn equity injection into the Indonesian coal mining venture. First privately run NHS hospital seeks GBP10.00mn taxpayer bailout: The first NHS hospital to be managed by a private company has asked for a government bailout of nearly GBP10.00mn, just six weeks before it is handed back to the public sector. Nissan accelerates on solid US sales and weak yen: Nissan has raised its annual profit forecast on the back of surging US car sales and a weaker yen — even though it is still grappling with slowing orders in China and other emerging markets. Dalian Wanda buys Sepp Blatter nephew’s sports rights agency: Chinese property developer Dalian Wanda has won an auction for Infront Media, the Swiss company led by the nephew of Fifa president Sepp Blatter that distributes broadcasting rights for some of the world’s biggest sporting events. Qualcomm in $975.00mn record China fine: Qualcomm on Monday agreed to pay a record $975.00mn fine to settle allegations by Chinese authorities that it violated the country’s anti-monopoly law, ending a two-year patents fight and helping send its shares up 3.0% in after-market trading. Alibaba invests $590.00mn in Chinese smartphone maker Meizu: Alibaba has invested $590.00mn in a little-known domestic smartphone maker, the ecommerce group’s latest salvo to extend its reach into mobile internet. CSR: Rallied 1.1% to 861.50p on reports that Qualcomm, its likely acquirer, was likely to pay China a fine to resolve an antitrust investigation. |
Lex:
Turkish banks: account closed: Most banking regulators aim to prevent crises. Turkey’s Banking Regulation and Supervision Agency may risk contributing to one. Asya Bank’s woes have made traders nervous. Asya, the 12th largest publicly listed bank in Turkey by assets, had a Tier I capital adequacy ratio of 15.0% in September. The sector average is 14 per cent. Nevertheless the state insurance fund was ordered to step in. The sector does not generate enough profitability, however. Last year, according to Moody’s, loan growth was 19.0% versus a 12.0% return on equity. Assets are growing faster than equity; leverage is increasing. This is not sustainable. The conservative policy of the BRSA, which has forced banks to maintain larger capital buffers, has also depressed returns on capital. But the previous chairman of the BRSA, pushed to take action against Asya, resigned because of ill-health in November. Policy may change. Turkish banks had a good run in FY14. Banks within the MSCI Turkey index rallied 32.0%, ahead of the broader index. Yet the sector trades below its five year average forward price to book ratio. That is deserved — returns on equity are not exciting. Without the promise of sustainable loan growth, or improving returns, expecting the valuation multiple to expand is optimistic. Turkish financial shares cannot go higher without more loan growth or better returns. Don’t bank on either this year. UK North Sea: deconstruction: That is hard to do, when the subject in question is North Sea oil. Big picture themes abound here, from Scottish independence to employment and the economy. But focus on the (slowly rusting) nuts and bolts of the matter — production facilities are ageing, and the decommissioning process will take decades. That GBP14.00bn is not much against the GBP12.00bn a year that oil companies in the UK pay the oil services industry. But energy companies face the choice of keeping high cost oilfields going or paying to shut them down. Marathon, for example, will probably need to consider doing something with its Brae field. Production, which peaked at 120,000 barrels a day should cease in four years. Help is available. Most decommissioning costs can be deducted for tax purposes. So the decommissioning industry may grow faster even if oil prices stay low. Already, production in the UK North Sea has fallen steadily, down by about two-thirds since FY00. But decommissioning has hardly begun, and even the supply chain for this industry is young. Engineering groups such as Wood Group and AMEC, offshore specialists such as Saipem and Subsea 7 and specialist companies such as Able should all be busy. The North Sea should become one large deconstruction project over the coming couple of decades. That should keep Derrida fans happy. US coal: at the top, looking down: Coal has long been the dominant fuel in US electricity production. It accounted for as much as half of power generation as recently as the early and mid-2000s. It will hold the top perch for several more years, but its market share is expected to fall towards 30.0% as demand for natural gas and renewables grows. Natural gas prices, because of the fracking production boom, have more than halved since FY08. At the same time, coal fired plants are implementing the US Mercury and Air Toxics Standards. Add this all up, and a tenth of coal-fired capacity will be retired in the next few years according to S&P. And so the coalmakers are feeling the pain of this slow decline towards second place. Shares in Arch Coal, Alpha Natural Resources, Walter Energy, Peabody Energy, have halved in the past year. Creditors are scared. In recent weeks Arch, Walter and Peabody have cut or eliminated dividends to preserve cash. Peabody is working with its lenders to loosen the demands of its loans. Arch’s bonds trade below 30.00 cents on the dollar; last year it was lossmaking before its $400.00m in interest costs. Painful. |
*Published with special permission by Anchor Capital (ACG)