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South African Market Review
South African markets closed higher on Friday, amid hopes that Greece would strike a deal with its creditors and following the ceasefire in the Ukraine. Impala Platinum, Lonmin and Anglo American Platinum gained 6.0%, 5.3% and 3.9%, respectively. Anglo American climbed 3.5%, despite showing losses in FY14 results which was a result of weak commodity prices. ArcelorMittal South Africa climbed 1.7%, after it reported revenue growth of 7.5% in FY14. SPAR Group advanced 1.2%, after reporting a 38.3% rise in its sales for the 17-week trading period ended 24 January 2015 over comparable period in the preceding year. On the downside, gold miners, Gold Fields and Harmony Gold plummeted 5.1% and 0.6%, respectively. The JSE All Share Index rose 0.9% to close at 52,967.63.
UK Market Review
UK markets finished higher on Friday, amid a rise in energy and mining sector stocks. Tullow Oil and BP rose 5.2% and 2.2%, respectively, in line with a rise in oil prices. Rio Tinto and Glencore gained 3.7% and 3.5%, respectively. Anglo American climbed 3.4%, although the firm reported a loss for FY15. Bucking the trend, airline sector stocks, easyJet and International Consolidated Airlines Group fell 2.0% and 1.3%, respectively. Severn Trent dropped 1.9%, after the firm, citing the impact of inflation and quasi taxes, stated that it expected an increase in its operating costs. The FTSE 100 Index advanced 0.7% to close at 6,873.52.
US Market Review
US markets ended in the green on Friday, amid strength in energy sector stocks and as better-than-expected economic growth data in Europe offset a decline in US consumer confidence. Pioneer Natural Resources, Helmerich & Payne and Denbury Resources surged 6.6%, 5.5% and 4.7%, respectively, tracking a rise in crude oil prices. CBS Corp. climbed 3.6%, following better-than-expected 4Q14 results. J. M. Smucker gained 1.3%, after posting better-than-expected 3Q15 earnings. However, ConAgra Foods and Campbell Soup declined 4.4% and 1.8%, respectively, after lowering their earnings guidance for FY15. The S&P 500 Index rose 0.4% to settle at 2,096.99, while the DJIA Index climbed 0.3% to close at 18,019.35. The NASDAQ Index advanced 0.7% to finish at 4,893.84.
Asia Market Review
Asian markets are trading in the green this morning, as investor sentiment was boosted after Japanese economy exited recession in the fourth quarter of 2014. In Japan, Fanuc jumped 4.3%, after the company planned to invest around $1.10bn in production and research facilities in Japan. Inpex Corporation and Showa Shell Sekiyu K.K. climbed 2.7% and 2.2%, respectively, following a rebound in crude oil prices on Friday. In Hong Kong, Boyaa Interactive International gained 0.9%, after it indicated plans to sell its stake in Blingstorm Entertainment Limited for more than CNY80.00mn. In South Korea, Posco and Samsung Electronics rose 1.3% and 1.0%, respectively. The Nikkei 225 Index is trading 0.4% higher at 17,987.71, while the Kospi Index is trading 0.2% firmer at 1,960.70. The Hang Seng Index is trading 0.2% in green at 24,735.25.
Commodities
At 06:00 SAST today, Brent crude oil fell 0.4% to trade at $59.19/bl. On Friday, Brent crude oil rose 4.2% to settle at $59.41/bl, on the back of another drop in US oil rig numbers and spending cuts by oil companies. Oil prices were further boosted, after eurozone preliminary GDP data for 4Q14 came in better than market expectations.
On Friday, the Illinois North Central No.2 Yellow corn spot prices rose 1.8% to $3.66/bushel.
At 06:00 SAST today, gold prices advanced 0.3% to trade at $1,233.06/oz, with talks between Greece and the European Union in focus later in the day. US markets will remain shut on account of Presidents’ Day. On Friday, gold gained 0.6% to close at $1,229.76/oz, as dismal macro releases in the US weakened the US dollar.
On Friday, copper marginally rose to close at $5,754.00/mt. Aluminium closed 0.2% lower at $1,822.50/mt.
Currencies
On Friday, the South African rand strengthened against the US dollar, following disappointing Reuters/Michigan consumer sentiment data in the US. Meanwhile, the US is having a public holiday in observance of President’s day today. Going forward, market participants will eye the latest FOMC meeting minutes scheduled to be released on Wednesday for further cues.
The yield on benchmark government bonds fell on Friday. The yield on 2015 bond declined to 6.02% while that for the longer-dated 2026 issue dropped to 7.55%.
At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R11.6541, while the euro is trading 0.1% higher at R13.3069. At 06:00 SAST, the British pound has advanced 0.1% against the South African rand to trade at R17.9841.
On Friday, the euro weakened against most of the major currencies, despite Germany reporting better-than-expected economic growth data in 4Q14. Meanwhile, investors would keenly eye the eurogroup meeting scheduled later today for further direction. Market participants will also look forward to the ZEW economic sentiment survey in the eurozone scheduled tomorrow.
At 06:00 SAST, the euro advanced 0.2% against the US dollar to trade at $1.1419, while it has remained almost unchanged against the British pound to trade at GBP0.7400.
Economic Updates
Rightmove reported that the house price index climbed 6.6% on an annual basis in the UK, in February. The Rightmove house price index had climbed 8.2% in the prior month.
The office for National statistics has reported that, in the UK, construction output climbed 5.5% in December, on an annual basis, at par with market expectations. In the prior month, construction output had climbed by a revised 5.8%.
The Conference Board (CB) leading economic index rose 0.1% on a monthly basis in the UK, in December. In the previous month, the CB leading economic index had recorded a drop of 0.3%.
In Switzerland, the producer and import price index eased 0.6% in January on a monthly basis, less than market expectations for a fall of 0.7%. In the prior month, the producer and import price index had registered a drop of 0.4%.
On a monthly basis in January, the consumer price index dropped 1.6% in Spain, lower than market expectations for a fall of 1.7%. The consumer price index had fallen 0.6% in the prior month.
On a quarterly basis, the flash gross domestic product (GDP) registered a rise of 0.1% in 4Q14, in France, compared with a rise of 0.3% in the prior quarter. Markets were expecting GDP to climb 0.10%.
In 4Q14, the seasonally adjusted preliminary GDP in Germany rose 0.7% on a quarterly basis, more than market expectations for a rise of 0.3%. In the previous quarter, GDP had climbed 0.1%.
On an annual basis, the seasonally adjusted preliminary GDP advanced 0.9% in the eurozone, in 4Q14, more than market expectations for a rise of 0.8%. In the previous quarter, GDP had risen by 0.8%.
In February, the preliminary Reuters/Michigan consumer sentiment index in the US dropped unexpectedly to a level of 93.60. In the prior month, the Reuters/Michigan consumer sentiment index had registered a level of 98.10.
The flash GDP rose 0.6% in Japan on a quarterly basis in 4Q14, lower than market expectations for a rise of 0.9%. GDP had registered a revised drop of 0.6% in the prior quarter.
Actual foreign direct investment (FDI) in China rose 29.4% in January on an annual basis. In the prior month, actual FDI had advanced 10.30%.
On a seasonally adjusted annual basis, new motor vehicle sales climbed 0.2% in Australia, in January. New motor vehicle sales had fallen by a revised 1.1% in the prior month.
In 4Q14, on a quarterly basis, retail sales in New Zealand registered a rise of 1.7%, more than market expectations for an advance of 1.25%. In the prior quarter, retail sales had climbed by a revised 1.6%.
Corporate Updates
South Africa
Anglo American: The company, in its FY14 results, revealed that group revenue, including associates and joint ventures, dropped 6.3% to $30.99bn from previous year. Its underlying diluted EPS stood at $1.72, compared with $2.08posted in the previous year.
SPAR Group: The retailing company, in its trading update for the 17-week period ended 24 January 2015, indicated that group sales increased 38.3% over the comparable period in 2014. Excluding the impact of the BWG Group (SPAR Ireland), group sales in South Africa increased by 8.7%, with internally measured price inflation of 5.9%. Its sales in comparable stores grew by 8.1%.
Arcelormittal South Africa: The company, in its FY14 results, stated that revenue grew 7.5% to R34.85bn from the previous year. The company reported a headline loss per share of 0.57c, compared with a loss of 0.56c posted in the preceding year. The company expects higher production and sales volumes in 1H15, following the completion of the reline of the blast furnace at Newcastle and the seasonal slowdown in 4Q14.
Pioneer Food: The company announced that Mr Leon Cronje would step down as Group CFO and Financial Director on 1 March 2015 and remain on the Executive Committee of the company until the end of his contractual period in December2015, retaining existing other responsibilities.
Sun International: The company agreed with the shareholders of Dreams S.A.to merge its casino and hotel portfolio of assets with the company’s latam portfolio. It is anticipated that the merger would give the company approximately 50.0% of the combined entity.
Gold Fields abandons South Deep targets: Gold Fields has backed off its steady state production target at its South Deep mine in SA as its reverses its strategy of using Australians to teach the workforce about mechanised mining and instead taps into a small pool of domestic experience to pull the mine back into line.
Woolies warns of power cuts: Woolworths, whose 9.3% rise in first-half profit saw its shares surge more than 6.0% on Thursday warned that sales may be further hurt by load shedding.
Amplats mines ‘are a hard sell’: Glencore’s decision to distribute its stake in Lonmin to shareholders is indicative of how difficult it will be for Anglo American to attain a favourable price for the mines its platinum unit is selling.
De Beers diamond division becoming Anglo American’s crown jewel: Diamond company De Beers, once a niche business for globalminer Anglo American, is rapidly rising to become the jewel in its crown – with a brighter outlook than many of its metals.
Pressure on Group Five’s earnings to remain intense: A spate of less-than-impressive results by WBHO, Group Five and Aveng shows that market conditions might be worse than what investors initially perceived and has condemned the construction & materials index to six-year lows.
UK and US
VF Corporation: The clothing company, in its FY14 results, indicated that total revenue was up 7.5% to $12.28bn from the previous year. However, its diluted EPS dropped to $2.38 from $2.71 posted in the prior year. The company expects revenue to increase by 8.0% on a currency neutral basis and by 3.0% on a reported basis in FY15.
Exelon Corporation: The energy company, in its FY14 results, stated that its adjusted non-GAAP operating revenue increased to $27.89bn from $25.43bn posted in the previous year. However, its non-GAAP diluted EPS was down 4.4% to $2.39, compared with the preceding year. The company issued a guidance range of adjusted non-GAAP EPS of $2.25 to $2.55 for FY15.
Ventas Inc.: The company, in its FY14 results, revealed that total revenue was $3.08bn, compared with $2.81bn reported a year ago. Its net diluted EPS increased to $1.60 from $1.54 recorded in the previous year. For FY15, the company expects its NAREIT FFO diluted EPS to be in the range of $4.55 to $4.66 and normalised FFO diluted EPS to be between $4.63 and $4.71.
DTE Energy Co.: The energy and energy technology provider, in its FY14 results, indicated that operating revenue was up 27.3% to $12.30bn from the previous year. Its diluted EPS from continuing operations was $5.10, compared with $3.76 posted in the preceding year. The company increased its operating EPS guidance range to $4.48 to $4.72 from the range of $4.43 to $4.67 provided in November.
J. M. Smucker Co.: The company, in its 3Q15 results, stated that net sales were down 1.7% to $1.44bn, compared with the corresponding period a year ago. The company’s EPS was $1.58, compared with $1.59 reported in the same period preceding year. For 4Q15, the company anticipates a modest decline in its net sales compared with the same period last year.
Interpublic Group of Companies: The advertising holding company, in its 4Q14 results, revealed that revenue came in at $2.21bn, compared with $2.12bn posted in the same period a year ago. The company’s EPS stood at $0.57, lower than market estimates of $0.58.
Red Robin Gourmet Burgers: The restaurant chain company, in its FY14 results, indicated that total revenue increased 12.7% to $1.15bn from the previous year. Its diluted EPS was $2.25, compared with $2.22 posted a year ago. In FY15, the company expects total revenue growth of 12.0% to 13.0% including comparable restaurant revenue growth of 2.0% to 3.0%.
Ruth’s Hospitality Group: The fine dining company, in its FY14 results, stated that total revenue increased 7.4% to $0.35bn from the previous year. However, it net diluted EPS dropped to $0.46 from $0.63 reported in the preceding year. The company expects cost of goods sold to be 31.5% to 33.5% of restaurant sales in FY15.
Apple Inc.: Media reports revealed that the company is entering the vehicle market and has already started working on the company branded electric vehicle.
Hormel Foods: The food company is reportedly in talks to buy Applegate Farms, a maker of organic hot dogs and bacon, in a deal worth between $600mn and $1.00bn.
Rolls-Royce Holdings: The manufacturing company, in its FY14 results, indicated that revenue declined 6.2% to GBP13.74bn from the previous year. Its diluted EPS dropped sharply to 3.68p from 72.44p posted in the prior year. The company projected that its revenue would grow in the range of GBP13.40bn to GBP14.40bn in FY15. Furthermore, the company announced the retirement of the President and Chief Executive Officer, James M. Guyette. He will step down from the board on 8 May 2015 and from his role on 31 May 2015.
Fresnillo Plc: The company, in its trading update for FY14, stated that it estimates an adverse effect on the deferred tax charge in the region of $55.00mn. Despite the lower silver price, the company expects the year end revaluation of the Silverstream to result in a gain in the region of $75.00mn. Furthermore, it has re-evaluated its plans for the Soledad and Dipolos operations and decided to write down the carrying value of certain property, plant and equipment that could not be utilised or reassigned, or remains at the site and is no longer considered to have a future economic benefit to the group.
Severn Trent: The company, in its trading update, indicated that the group is on track to deliver in line with its expectations for FY15. It anticipates that its bad debt level will remain unchanged at around 2.2% of turnover (UK GAAP) for the full year. It continues to expect top line growth to moderate in the 2H15 in its non-regulated business, although FY15 PBIT is still anticipated to be in line with its expectations. The company announced that FY16 dividend would be set at 80.66p, a reduction of 5.0% compared withFY15 total dividend of 84.90p.
Riverstone Energy Limited: The energy company, in its FY14 results, indicated that its total comprehensive income was $20.64mn, compared with $0.58mn reported in the period from 23 May 2013 to 31 December 2013. Its diluted EPS from continuing operations stood at 25.93¢, compared with 0.47¢ posted in the period from 23 May 2013 to 31 December 2013. The company also stated that its net asset value grew to $1.24bn, despite falling oil prices hitting the energy sector.
British Land Co.: The company has commenced the development of 4 Kingdom Street, a new 146,000 sq ft office building at Paddington Central. It stated that the practical completion of the scheme is expected in early FY17.
Jardine Lloyd Thompson: The insurance and brokerage company announced that Ardian has agreed to buy its 26.2% stake in Milestone, the holding company of Siaci St HonorĂ©, the company’s French associate.
Kier Group Plc: The residential and construction company announced that it has secured new contracts worth GBP177.00mn, which include redevelopment of Birmingham women’s hospital for the Birmingham women’s NHS trust and new emergency and paediatrics wing at Scarborough hospital for The York teaching hospital NHS foundation trust.
RPS Group Plc: The company announced the acquisition of Klotz Associates Inc., a Texas based consultancy providing engineering, planning and environmental services, for a maximum consideration of $24.10mn.
Financial Times
Leading groups’ dividends set to creep ahead by less than 1.0%: Dividend payments from the world’s largest listed companies are expected to rise by less than 1.0% this year, according to the Henderson Global Dividend Index.
Rolls-Royce accused in Petrobras scandal: Rolls-Royce has been accused of involvement in a multibillion-dollar bribery and kickback scheme at Petrobras, Brazil’s state-controlled oil producer, as more foreign companies are dragged into the country’s largest corruption scandal.
Liquid Telecom raises $150.00mn to extend broadband in Africa: Liquid Telecom, a telecoms group aiming to build better broadband in parts of Africa than is available in the UK, has raised $150.00mn to extend its superfast fibre networks across the continent.
Asset managers’ pay set to beat investment bankers: Asset managers are set to be paid more than investment bankers by FY16, according to new research, illustrating a shifting balance in global capital markets following the financial crisis.
Defer banker bonuses for 10 years, says MP: Some top bankers should have their bonuses deferred for up to 10 years to raise standards in the industry and improve long-term risk management, Andrew Tyrie, a Conservative MP, has said.
Shire has ‘nothing to hide’ on tax, says chief: Shire’s Chief Executive has defended the company’s tax arrangements after being identified as one of the beneficiaries of alleged “industrial scale” avoidance orchestrated by PwC, the accountancy group.
UK company plans to boldly go and make machines in space: British companies are attempting to boldly go where no manufacturer has gone before by enabling huge pieces of hardware for satellites to be built in space.
Challenger banks Aldermore and Shawbrook race to list in London: Challenger banks Aldermore and Shawbrook are locked in a race to list on the stock exchange in the next few weeks to exploit a window of opportunity ahead of the UK general election.
Grameen Bank set to go under full government oversight: Bangladesh’s Grameen Bank, the microfinance pioneer founded by Muhammad Yunus, the Nobel peace laureate, is set to come under full government oversight for the first time.
Russian report says 100 groups hit by $1.00bn cyber attack: As many as 100 banks and other financial institutions around the world have been hit by one of the most sophisticated cyber attacks to strike the finance industry, says a report from Russian security company Kaspersky, due to be released on Monday.
Tesco prepares to wield axe again: Tesco is preparing to make deeper than expected job cuts by removing at least 1,000 store management staff as it battles falling sales and profits.
UK unveils dementia drug discovery centres: Britain will launch on Monday what its proponents say will be the world’s most ambitious attempt to discover drugs for dementia.
Lord Browne to head Huawei’s UK board: Huawei has recruited former BP Chief Executive Lord Browne to head a UK board of directors that will oversee British operations in the latest attempt by the Chinese technology group to dispel international concerns over its corporate governance.
Government spend on railways falls: The government’s contribution to running Britain’s railways has shrunk rapidly over the lifetime of the coalition, with passengers shouldering by far the greatest burden of the GBP12.70bn needed to keep the country’s trains on track.
BWin Party: Dived 18.5% to 83.60p on a report that potential suitors were rumoured to have “lost interest” in buying the online casino outright
BT: Fell 2.4% to 439.00p, after Virgin Media set out a GBP3.00bn plan to grow its UK fibre broadband network by a third.
Lex:
Corruption: doing the dirt: For all you poor suckers who don’t already know: corruption pays. The annual yearbook of equity returns, compiled by the London Business School, shows that the more corrupt a country is, the better the returns its equity markets offer. Correlation is not causation, the squares will insist. Perhaps. The data only goes back to 2000, covering a period when emerging markets have outperformed. And the measure of corruption kept by Transparency International may oversimplify. In the 1990s, academics discovered that companies with poor governance traded at a discount. A decade later, after big investors such as Calpers forced reforms through, the discount was gone. Is something similar happening in emerging markets? It might, but remember that investors can shake up a company because they own it. It is far harder for them to force change in a country. Investors must trust in support from voters, activists and politicians. The mania for “Brics” investing has now run its course. Those who would hope to harvest the corruption premium over the next 15 years must be sure to buy at deep discounts.
Rolls-Royce: map reading: Management “guidance” — their projections of performance in future periods — helps investors navigate short-term twists and turns. When companies promise too much or keep moving their targets, investors lose faith. Rolls-Royce is starting to rebuild investors’ trust after last year, when it switched its guidance four times and the share price fell 31.0% in FY14. On Friday, Rolls-Royce released full-year results that met expectations. This was not too difficult; it last set the market’s expectations just a few months ago, in October FY14. Pre-tax profits were down 8.0% to GBP1.60bn and revenues fell for the first time in a decade. Lower commodity prices, cuts in defence spending and economic uncertainty all got blamed. There was good news too. The company delivered the first of its new wide-body aeroplane engines and ended the year with GBP74.00bn in its order book, 5.0% more than last year and a record for the company. Boss John Rishton outlined FY15 targets which were only slightly softer than those provided in October. The share price ended the day up 4.0%. Better target-setting would help Rolls to get its short term guidance right. They might also help the shares, on 16 times earnings, to close the discount to rival Safran. But investors should put away the street map, and use a road atlas instead.
Zynga and King: dangerous games: Witness this week’s 20.0% share price plunge at Zynga, maker of once-popular FarmVille, which left the stock near its all-time low. Revenues and users are vanishing. It is getting crushed (har har) by rivals such as King Digital, which is profitable and is growing full-year sales. King’s hit game, Candy Crush, has been followed by other successes, and its share price is recovering from its post-IPO dip. Zynga, aside from a modestly popular online poker game, has not had a hit since FarmVille. The difference between the companies goes much deeper than poker v matching candies. They also have different share structures — which leads to very different outcomes when going gets rough. Zynga’s multi-class share structure makes other founder-controlled companies such as Facebook (10 votes per supervoting share) look egalitarian. Its extra-super-voting shares (mostly held by founder Mark Pincus) get 70 votes a share. A second class, mostly held by VCs, get seven votes a share. The remaining shares get a single vote. By contrast, at King Digital, every share has one vote. The founders have big stakes — as much as 11.0%– and British venture capital firm Apax Partners holds 44.0%. But no single entity has majority voting power. If King Digital stops producing hits one day, or runs into trouble (fourth-quarter revenues were a little weak), its shareholders will be able to decide how they want to dispose of or redirect the company. Zynga’s shareholders can only write Mr Pincus a strongly worded letter, and hope for the best.
