The Week Ahead – 27 February 2017

  • Stock Market Analysis

Local companies that will be in the spotlight this week include:

  • Bidvest (Interim Earnings): Management guided for headline earnings per share (HEPS) from continuing operations to be between 4% and 5% y/y higher. Basic EPS are expected to between 37% and 42% higher with the difference being due to fair value capital gains on the back of an increase in the market values of associate companies Adcock Ingram and Comair.
  • Sasol (Interim Earnings): Management guided for HEPS to fall by between 34% and 44% y/y. This was mainly due to translation losses (~R1.3 billion), adverse labour issues and one-off items (Escravos GTL provision – R2.3 billion).
  • Curro (Full Year Results): In a recent trading statement, management said that HEPS would increase by between 52% and 67%, with the mid-point of this range slightly behind expectations. Our focus will be on learner numbers and campus utilisation.
  • Wilson Bayly Holmes (Interim Results): HEPS are expected to fall by between 37.5% and 42.5% y/y, with earnings adversely impacted by the settlement agreement signed with the Government of SA relating to claims of collusion during the 2010 World Cup tendering process. Adjusted HEPS are expected to increase by between 5% and 10% y/y, which is more-or-less in-line with expectations. Other than the effect of the single loss-making project in Australia, the management said that the group traded well over the period.
  • Cashbuild (Interim Results): Management expects HEPS to rise by between 38% and 48% y/y, well ahead of full year expectations (consensus: +7.3%). Excluding the BEE transaction, HEPS would have increased by between 5% and 10% y/y which appears to have disappointed the market.
  • Grinrod (Full Year Results): The company expects to record headline loss of between 60.5 and 62 cents per share, compared to headline earnings per share of 74.4 cents per share in FY15. The loss in 2H16 narrowed as a result of gradual improvement in volumes and rates.
  • Santam (Full Year Results): In its recent trading statement, management guided for HEPS to fall by between 39% and 44%, which was worse than market expectations (consensus: -28%). While the bottom-line performance missed expectations, the better-than-expected underwriting margin and increased commission ratio implied a lower claims ratio. Lower investment returns and forex losses were the key negative detractors to the overall performance.
  • MMI Holdings (Interim Results): Management guided for HEPS to be between 0% and 10% lower, tracking behind market expectations (expected: -2%). Earnings were impacted by weak underwriting experience in the group disability business and a decline in health administration operating earnings and a weak investment returns on policy holder assets.
  • Nedbank , AECI, JSE, Royal Bafokeng Platinum, SA Corporate Real Estate, Standard Bank, Mpact, MTN , Exxaro, Anheuser-Busch Inbev and Hyprop are due to release results this week. Steinhoff International is expected to release a first quarter sales and revenue update on Tuesday.

On the local corporate actions front, Tuesday marks the last day to trade in Hospitality Property Fund , Indluplace Properties and Resilient Properties to receive their recently declared distributions. These counters will trade ex-dividend on Wednesday.

As fourth quarter earnings season tapers off in the US, only a few retail counters are left to release results this week, where it is expected that Wal-Mart Stores , Macy’s, Home Depot , The Gap and Foot Locker benefited from recent momentum in US retail sales. Retail sales in the US have been growing steadily over the last two months, recording growth of 0.4% m/m in October and an upwardly revised 1% for December. Multinational tech firms HP and Hewlett Packard are also likely to grab investors’ attention with both companies set to report first quarter results. According to JP Morgan’s Q4 Earnings Season Tracker, 76% of S&P500 companies have reported EPS numbers ahead of estimates, surprising positively by an average of 2%. Looking at the overall market, fourth quarter EPS growth came in at 5% y/y with ~73% of sectors delivery positive growth. Top-line growth came in at 4% y/y with 52% of the counters beating sales estimates. Compared to FY16, projections for FY17 across the majority of key regions have been trending upwards except for the US. This is likely due to expectations for further dollar strength (adversely affects multinationals) over the medium term on the back of looming Fed rate hikes.

Europe remains busy this week with over 100 companies set to release results across the region. The financial and banking sector will be in the spotlight with HSBC kicking off the week with full year results followed by Barclays on Thursday and Royal Bank of Scotland on Friday. According to Bloomberg estimates, all three banks are expected to report declines in earnings in excess of 20% y/y. German multinational chemical, pharmaceutical and life sciences company Bayer and French car manufacturer Peugeot will also release FY16 numbers during the week. Based on JP Morgan’s Q4 Earnings Season Tracker, year-over-year EPS growth in Europe is standing at 10% thus far and was positive across nine sectors. With the majority of companies having already reported 4Q16 results, 51% beat EPS estimates as of last week.

In the Asia Pacific region, the focus will likely be on the Australian materials and energy sector with a number of large-cap counters set to report half and full year numbers. Bloomberg estimates are looking for most of these companies to report lower full year earnings (WorleyParsons -9.9% and Caltex Australia -15.5%), except for Fortescue Metals – expected to report growth of 121.1% for FY17 – mainly due to much higher iron ore prices.

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