The Week Ahead

25 April 2014

Our regular look at the news making the headlines, using our market insight information and analysis tools.

By Shaun Murison,  IG Market Analysts

View market data

Company announcements

Dividends

Economic catalysts

Market overview

In a shortened trading week, our local bourse has once again managed to trade to all-time highs following major European and US peers which gained on improved global sentiment.

Local Data

Inflation readings through Producer and Consumer Price index (PPI & CPI) readings were slightly higher than consensus estimates had predicted. Headline CPI for March was reported at 6% annualised, testing the outskirts of the reserve banks targeted band while being 0.1% higher than both the previous month’s reading and expectation. Food and non-alcoholic beverages was a major contributor to the reading, increasing 1.4% from February and 7% on an annualised basis.

Headline Producer Price Index (PPI) data showed inflation at a factory level jump to 8.2% in March on an annualised basis. Consensus forecasts had predicted an optimistic 7.8% year on year increase. The major contribution (2.9%) to the figure came from food, beverage and tobacco products which added 8% yoy. High annualised inflation readings were recorded for electricity (+14.6%), agriculture (+13.3%) and chemical, rubber and plastic products (+11.3%).

International Data

In the US, stronger corporate earnings and renewed merger and acquisition activity has helped provide optimism that the world largest economy is helping lead a global recovery in financial markets. Economic data however was mixed with existing home sales and core durable goods orders (m/m) beating analyst expectations, while weekly unemployment claims and new home sales data falling short of estimates.

In China HSBC Flash Manufacturing PMI data showed an improvement on the previous months reading although still alluding to minor industry contraction.

 

Source: IG Insight, as of  25/04/2014

Top movers

Source: IG Insight, as of 25/04/2014

Mobile operators Vodacom and MTN find themselves under pressure, in a week where we have seen broad-based gains in equity markets. A quarterly update from MTN appears as the negative catalyst for the sector.

Although the subscriber database of MTN increased 1.1% over the period, the Average Revenue Per User (ARPU) declined 11.4% (qoq) in South Africa as well as declining in most geographic regions where the company operates. On a positive note, data revenue increased more than 40% and now accounts for around 17% of the company’s revenue.

On the gainers list we have witnessed an outperformance by financial and retail counters. Steinhoff has once again traded to all-time highs extending the company’s share price gains, which now amount to more than 150% since the lows in May last year.

Students of technical analysis will tell you the price has now experienced an upside breakout from the short-term trading range which had been in place for the last two months. The company still trades on a modest price to earnings ratio (P/E) of around 12, which is a discount on our local equity market, as earnings growth has supported the current pricing of the share.

Woolworths has experienced a rebound this week as investors appear to have discounted what was initially perceived as expensive acquisition proposal for Australian retailer David Jones. The deal is subject to approval by shareholders and the relevant Australian regulatory authorities and would be funded by Woolworths through a combination of existing cash and a new debt issue.

Broker consensus

Brokers view on the markets.

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