The Week Ahead

22 August 2014

Our regular look at the news making the headlines, using our market insight information and analysis tools - now with online videos and tutorials.

By Shaun Murison,  Market Analyst


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Market overview

Local Data

It has been a relatively quiet week in terms of local economic data, with Consumer Price Index (CPI) data perhaps finding the highest prevalence. The headline CPI figure, as reported by STATSSA, showed annualised inflation in July 2014 to be at 6.3%, which is 0.3% lower than the annual rate of 6.6% in June 2014.

Following the recent African Bank Limited (ABL) debacle, Moody’s ratings agency has now downgraded the four major banks and Capitec, while placing Investec under review for a ratings downgrade as well. Moody’s has justified its decision, citing that, due to the ABL bailout, the South African Reserve Banks’ (SARB) ability to further lend systemic support is greatly diminished should the need arise.

A warning of further downgrades was issued amidst weak economic conditions persisting in the current high inflationary environment Capitec, first to fall under the rating’s sword was swift to respond opposing the view that the company should be viewed in the same light as the troubled bank/retailer ABL. Almost as a reassurance to investors, the company announced a further 3% repurchase of non-participating preference shares, while SARB vocalised dissent at the ratings downgrades.

The Standard and Poor’s ratings agency has also lent its support to South African lenders commending the recent SARB bailout actions and reaffirming its stance on major banks contradicting the view of its ratings agency peer. The net result has been the clichéd “knee jerk” reaction within the sector. Significant losses (Capitec initially declined more than 6% on the news, Standard bank more than 3%) have now been mostly offset; although one still feels there is an air of discomfort among investors within the banking space. 

International Data

In China, HSBC Flash Manufacturing PMI data fell short of consensus estimates with a reading of 50.3 alluding to minor industry expansion.

In the US, economic data has been relatively upbeat for the most part, with building permits data coming in ahead of expectation, while weekly jobless claims showed 14 000 less people filed for unemployment insurance benefits than in the preceding week. CPI data showed inflation to be at 0.1%. The Philly Fed Manufacturing Index, a leading economic indicated improving conditions with a reading of 28, which was well above consensus estimates of 19.7.

In Europe, Manufacturing PMI data alluded to a larger than expected industry contraction in France and only minor industry growth in Germany.

In the UK, the vote to holding the current level of asset purchases was reported as being unanimous, while 7 MPC committee votes were in favour of keeping official lending rates on hold with 2 votes being in favour of raising rates. Retail sales were weak showing a marginal growth of 0.1% month-on-month.

Source: IG Insight, as of  22/08/2014

Top movers

Source: IG Insight, as of 22/08/2014

Ratings downgrades, lower commodity prices and weaker earnings have impacted markets this week creating a difficult trading environment for those with a bullish intent as the focus has gravitated towards the negative.

Retailers have continued to highlight the impact of a pressured consumer environment as earnings guidance has disappointed for the most part. Shoprite Holdings’ soft headline earnings increase of 3.3% was a far cry from that of a share priced for growth trading on a P/E north of 20. The full-year earnings growth figure highlights a contraction in the second half of the year, considering earnings growth of around 8% was achieved in the first six months of the reporting period.

An intraday share price loss close to 10% was realised by Shoprite on the news, a move almost exactly mimicked by Massmart, after it disseminated a disappointing trading statement into the public domain. Massmart guidance warns of an interim decline in headline earnings of between 23% and 29% compared to that of the company’s previous year.

In the resource space, BHP Billiton shed more than 5% following results which missed consensus estimates (marginally) in terms of revenue ($67.2 billion vs est. $67.9 billion) and underlying profit ($13.4 billion vs est. 13.6 billion). Market participants were perhaps most disappointed by the absence of a share buyback programme being announced. BHP Billiton did however announce that it would demerge parts of its non-core assets (manganese, silver, aluminium, nickel etc.) into a separate listing titled NewCo. The primary listing will be on the Australian Stock Exchange (ASX), with a secondary listing on the Johannesburg Stock Exchange (JSE).

Last week’s trading statement, in which Impala Platinum guided towards a more than 70% decline in upcoming earnings has kept the company’s share price under pressure. A strengthening dollar and in turn sharp decline in the underlying price of spot platinum has not allowed for any reprieve from weakness for the counter. 

Earnings focus

BHP BIlliton released their full-year earnings on Tuesday, to the disappointment of investors. The results fell short of expectations, with the significant share price decline highlighting investor dissatisfaction. Read more on Shaun’s analysis.

Woolworths is set to release their full-year results on Thursday, 28 August. The retailer is expected to report significant growth in Australia and New Zealand. Will the latest figures tempt investors to put Woolworths at the top of their shopping list?

Broker consensus

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When and where





27 August 2014

18.30 Durban Country Club, Durban 1.5hrs

17 Septemebr 2014

18.30 Protea Hotel, Stellenbosch 1.5hrs
18 September 2014 18:30 The Westin, Cape Town 1.5hrs

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Broker consensus

Source: INET BFA, as of 22/08/2014

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.