On Thursday evening news broke President Jacob Zuma had fired Pravin Gordhan as Finance Minister. The rand collapsed by more than 60 cents. Malusi Gigaba, who was previously the Minister of Home Affairs, has been appointed as his replacement. After a previous close of R13.038/$ on Wednesday, the rand had strengthened to a high of around R12.796/$ at 18:00. However, as rumours started to circulate, and were then later confirmed, the rand plunged to a low of R13.459/$ at 02:10 this morning. The local currency is currently trading at R13.49/$ level. Expect further weakness as European markets open.
On Wednesday, news broke the €29bn merger between London Stock Exchange and Deutsche Boerse has been blocked by European regulators. In a statement by Commissioner Margrethe Vestager, she emphasised they could not approve the merger on the terms proposed. The main reason for the European Commission blocking the deal was it would have resulted in a monopoly in the processing of bond sales. This latest merger attempt marked the 5th time that LSE and Deutsche Boerse have tried to combine its operations. A combination would result in Europe’s largest stock exchange.
On Tuesday, news surfaced China’s Tencent had spent $1.78bn buying a 5% stake in Tesla. Tencent bought around 8.2mn shares and is now the group’s 5th largest shareholder behind Elon Musk and investment companies Baillie Gifford, Fidelity and T. Rowe Price. The US electric car maker now has a deep-pocketed ally as it prepares to launch its mass-market Model 3. Tencent will act as both an investor as well as an advisor. Tesla stock traded sharply higher on the announcement, with the group closing in on Ford as the 2nd most valuable US automotive company behind General Motors.
Dow Chemical gained 1.49% on Monday after news broke it and DuPont have received the approval needed from EU regulators for their $130bn merger. This comes after the two parties agreed to substantial asset sales, which include key research and development activities. Originally, the European Commission was concerned the merger would leave the combined company few incentives to produce new products in the future. The sale of key assets will ensure competition in the sector, benefit European farmers and consumers and will see the continued development of safer products. This merger is one of three large deals in the chemicals industry, with ChemChina’s $43bn bid for Syngenta and Bayer’s acquisition of Monsanto featuring as the others.
Over the weekend, Old Mutual confirmed it had sold a 25% stake in its US fund management arm, Old Mutual Asset Management, to China’s HNA for $446mn. This disposal forms part of its plan to break itself into four parts by the end of next year, mainly due to regulatory changes which have rendered the business too complex to run in its current form. Following the disposal, the group’s remaining stake in Old Mutual Asset Management stands at 26%. Old Mutual currently plans to dual-list its UK asset management and African emerging markets businesses in Johannesburg and London, while reducing its stakes in Old Mutual Asset Management and Nedbank.
Ford shed 0.85% yesterday after the group confirmed it expects profits to decline by about 50% in the current quarter, weighed down by weakness in the automobile industry. The group anticipates worldwide sales to drop, despite reporting a slight increase in sales for the previous corresponding period. Ford will maintain its full-year forecast of only a slight decline in profits, with earnings expected to come in at $9bn this year, down from the $10.4bn recorded in 2016. Ford also made it clear it would be able to endure any change in costs if the Trump administration decided to apply a tariff or other kind of tax on its imports from Mexico.
Master Drilling released its 2016 full year results on Wednesday, in which the group reported a 1.5% decline in revenue to $118.1mn, mainly due to the impact of unfavourable foreign exchange movements and market conditions. The group’s operating profit declined by 12.8% to $25.8mn, while profit before tax fell by 12.1% to $25.3mn. However, the use of deferred tax assets on historically loss-making entities resulted in a 5.7% increase in profit after tax to $22.3mn. As a result, earnings per share increased by 5.9% to $0.143, while headline earnings per share grew by 3.6% to $0.143. In rand terms, HEPS were up 19.4%. CEO Danie Pretorius described the first quarter of 2016 as “probably the worst that we’ve experienced to date”. In spite of the tough operating conditions, the board declared its maiden dividend of 30 South African cents per share.
FedEx released its Q3 numbers on Tuesday. The group missed earnings estimates, but managed to report revenue more or less in-line with expectations. For the quarter, revenues increased sharply to $15bn, up from $12.7bn a year ago and better than estimates of an increase to $14.99bn. This increase comes on the back of the group recording record volumes and service levels. In contrast, FedEx reported adjusted earnings per share of $2.35, down from $2.51 a year ago and sharply lower than expectations of an increase to $2.62. The company explained the reason for the the earnings decline as “a significant negative net impact of fuel and one fewer operating day at FedEx Express and FedEx Ground.” It had also ramped up capacity ahead of what was expected to be a firmer holiday season but ended up providing capacity that went unused. FedEx is seen as a good proxy for the health of the US economy. Both FedEx and rival United Parcel Service Inc. are struggling to keep pace with the dramatic growth of e-commerce. While the earnings miss is disappointing, the strong revenue growth is encouraging.
Tiffany reported better-than-expected Q4 results on Friday, boosted by strong demand for its jewelry in Asia. During the period, net sales increased 1.3% to $1.23bn, up from $1.21bn a year ago and higher than estimates of an increase to $1.22bn. Despite the increase, the group’s sales in the Americas region declined by 3% to $587mn. This was mainly as a result of weak sales over the holiday period, caused by traffic disruptions at its flagship Fifth Avenue store in New York which is in close proximity to Trump Tower. Overall, net income declined to $157.8mn, down from $163.2mn a year ago. However, excluding certain items, earnings came in at $1.45 per share, beating expectations of $1.38 per share.
During the previous session, BEL released its results for the year ended 31 December 2016. In a year which was dominated by the findings of fraud and mismanagement in its subsidiary in the DRC and the weak economic environment, Bell concluded by itself that it did not achieve its goal of delivering financially sustainable results during the period. Overall, the group reported a modest profit of R39mn, down from R142mn previously. Earnings per share came in at 39 cents, down from the 148 cents reported a year ago, while headline earnings per share also slumped to 39 cents, sharply lower than the 138 cents reported in the previous corresponding period.