M&A activity is alive and kicking in global and local markets, but not all outcomes are positive. Regulators are also coming down hard on companies. Outside the bureaucracy, tech is still a major growth driver with noise from geopolitics becoming increasingly louder as the U.S. election looms.
Battle lines drawn in US-EU Trade War
German Finance Minister Christian Lindner warned that the European Union (EU) could retaliate if the U.S. kicked off a trade war. A Financial Times report noted that a basket of 28 European stocks exposed to U.S. tariffs compiled by Barclays has tumbled 7% since late September as the former president’s odds of an election victory shorten.
Tech & comms S&P growth drivers
Earnings for companies in the S&P 500 Index (VOO-NASQ) are expected to climb 4.3% from a year ago. However, when stripping out the Magnificent Seven mega tech companies, the anticipated profit expansion nearly disappears, according to data compiled by Bloomberg Intelligence. Take out tech and communications more broadly, and the growth turns negative.
Colgate smiling after results
Colgate (CL-NASQ) reported Q3 sales growth of 6.8% led by 3.7% volume growth, delivering the best results from a consumer staples stock this reporting season. While earnings growth was basically flat in developed markets (-3% in U.S.), the company got a +11% kick in Latin America. The company raised FY24 sales guidance to 7-8% from 6-8% previously.
BHP, Vale sign settlement over Brazil dam failure
Bloomberg reports that BHP Group (BHPL-TRQX) and partner Vale reached a final settlement with Brazilian authorities valued at US$31.7 billion over Samarco’s Fundao dam failure in 2015. BHP said it had already set aside $6.5 billion to cover its share and no further provision is expected. The companies have already paid out $7.9 billion in remediation and compensation since 2016.
Antitrust concerns derail Tapestry, Capri deal
Regulators have blocked the proposed takeover of Capri Holdings by Tapestry (TPR-NASQ) due to antitrust concerns. Tapestry shares rose +13.6% on the news while Capri shares tanked -49%. The deal aims to consolidate brands like Coach, Jimmy Choo, Michael Kors and Versace with specific focus on the handbag category.
FirstRand to appeal financing agreement judgement
FirstRand (FSR-JSE) and MotoNovo ended up on the wrong side of a UK Court of Appeal ruling relating to motor financing agreements. The argument is technical, but the court found FirstRand’s motor finance disclosures were inadequate. FirstRand disagreed with the ruling and will take this to the UK’s Supreme Court of Appeal. FirstRand had already made provisions of £127 million in June 2024, but the market hates uncertainty and investors will need to stomach some until the dust settles.
SA removal from grey list gathers momentum
The Financial Action Task Force (FATF) has announced nine upgrades for South Africa of the 22 actions required to address deficiencies in its system for combatting money laundering and terrorism financing. In a statement issued on Friday after the FATF October plenary held in Paris, the National Treasury said that eight of the nine had been “largely addressed” and one “partly addressed”. Business Day reported that the remaining three related to the timely access of beneficial ownership information in respect of companies and trusts, and the imposition of remedial action and dissuasive sanctions by designated AML/CFT supervisors. Treasury cautioned it would be difficult to exit the grey list after the next cycle, as this would require SA to address all six outstanding action items by February.
M&A activity by Foschini
The Foschini Group (TFG-JSE) announced a deal to acquire 100% of White Stuff, a British fashion and lifestyle retailer. Sky News reported that the deal is worth roughly £50 million and Companies House filings have the company generating £5 million of EBIT and £3.5 million of bottom line for the last year under review. If accurate, TFG bought it for 14x P/E on a 3% EBIT margin and management will back themselves to push that to something closer to 8% over time.
Antitrust body scuppers Vodacom, Remgro Fibre deal
The Competition Commission prohibited the proposed R13.2 billion ($745 million) Vodacom (VOD-JSE) deal to buy a stake in Remgro (REM-JSE) fibre businesses. The nation’s antitrust regulator plunged the deal into jeopardy last year after it urged the Competition Tribunal to block the acquisition. Vodacom will await the body’s detailed reasons for prohibiting the transaction before considering all options available to it, which may include a request to the Competition Appeal Court. Remgro is also considering “all alternatives” at its disposal, it said separately.
Stock focus: Pick n’ Pay
Pick n Pay (PIK-JSE) results gave investors reason for cheer, with net debt at only R2.2 billion, which suggests no additional spending in H1. A +16% boost to Boxer trading profit places it firmly in the upper echelon of SA retailers on profit growth momentum and suggests a premium multiple at IPO. The performance is well above expectations and the turnaround is well underway, which means the stock should rally.
Trading Update : 6 November 2024
M&A activity is alive and kicking in global and local markets, but not all outcomes are positive. Regulators are also coming down hard on companies. Outside the bureaucracy, tech is still a major growth driver with noise from geopolitics becoming increasingly louder as the U.S. election looms.
Battle lines drawn in US-EU Trade War
German Finance Minister Christian Lindner warned that the European Union (EU) could retaliate if the U.S. kicked off a trade war. A Financial Times report noted that a basket of 28 European stocks exposed to U.S. tariffs compiled by Barclays has tumbled 7% since late September as the former president’s odds of an election victory shorten.
Tech & comms S&P growth drivers
Earnings for companies in the S&P 500 Index (VOO-NASQ) are expected to climb 4.3% from a year ago. However, when stripping out the Magnificent Seven mega tech companies, the anticipated profit expansion nearly disappears, according to data compiled by Bloomberg Intelligence. Take out tech and communications more broadly, and the growth turns negative.
Colgate smiling after results
Colgate (CL-NASQ) reported Q3 sales growth of 6.8% led by 3.7% volume growth, delivering the best results from a consumer staples stock this reporting season. While earnings growth was basically flat in developed markets (-3% in U.S.), the company got a +11% kick in Latin America. The company raised FY24 sales guidance to 7-8% from 6-8% previously.
BHP, Vale sign settlement over Brazil dam failure
Bloomberg reports that BHP Group (BHPL-TRQX) and partner Vale reached a final settlement with Brazilian authorities valued at US$31.7 billion over Samarco’s Fundao dam failure in 2015. BHP said it had already set aside $6.5 billion to cover its share and no further provision is expected. The companies have already paid out $7.9 billion in remediation and compensation since 2016.
Antitrust concerns derail Tapestry, Capri deal
Regulators have blocked the proposed takeover of Capri Holdings by Tapestry (TPR-NASQ) due to antitrust concerns. Tapestry shares rose +13.6% on the news while Capri shares tanked -49%. The deal aims to consolidate brands like Coach, Jimmy Choo, Michael Kors and Versace with specific focus on the handbag category.
FirstRand to appeal financing agreement judgement
FirstRand (FSR-JSE) and MotoNovo ended up on the wrong side of a UK Court of Appeal ruling relating to motor financing agreements. The argument is technical, but the court found FirstRand’s motor finance disclosures were inadequate. FirstRand disagreed with the ruling and will take this to the UK’s Supreme Court of Appeal. FirstRand had already made provisions of £127 million in June 2024, but the market hates uncertainty and investors will need to stomach some until the dust settles.
SA removal from grey list gathers momentum
The Financial Action Task Force (FATF) has announced nine upgrades for South Africa of the 22 actions required to address deficiencies in its system for combatting money laundering and terrorism financing. In a statement issued on Friday after the FATF October plenary held in Paris, the National Treasury said that eight of the nine had been “largely addressed” and one “partly addressed”. Business Day reported that the remaining three related to the timely access of beneficial ownership information in respect of companies and trusts, and the imposition of remedial action and dissuasive sanctions by designated AML/CFT supervisors. Treasury cautioned it would be difficult to exit the grey list after the next cycle, as this would require SA to address all six outstanding action items by February.
M&A activity by Foschini
The Foschini Group (TFG-JSE) announced a deal to acquire 100% of White Stuff, a British fashion and lifestyle retailer. Sky News reported that the deal is worth roughly £50 million and Companies House filings have the company generating £5 million of EBIT and £3.5 million of bottom line for the last year under review. If accurate, TFG bought it for 14x P/E on a 3% EBIT margin and management will back themselves to push that to something closer to 8% over time.
Antitrust body scuppers Vodacom, Remgro Fibre deal
The Competition Commission prohibited the proposed R13.2 billion ($745 million) Vodacom (VOD-JSE) deal to buy a stake in Remgro (REM-JSE) fibre businesses. The nation’s antitrust regulator plunged the deal into jeopardy last year after it urged the Competition Tribunal to block the acquisition. Vodacom will await the body’s detailed reasons for prohibiting the transaction before considering all options available to it, which may include a request to the Competition Appeal Court. Remgro is also considering “all alternatives” at its disposal, it said separately.
Stock focus: Pick n’ Pay
Pick n Pay (PIK-JSE) results gave investors reason for cheer, with net debt at only R2.2 billion, which suggests no additional spending in H1. A +16% boost to Boxer trading profit places it firmly in the upper echelon of SA retailers on profit growth momentum and suggests a premium multiple at IPO. The performance is well above expectations and the turnaround is well underway, which means the stock should rally.
Information correct at time of publishing. It is important to conduct thorough research and analysis using a combination of fundamental and technical analysis techniques to make informed trading decisions. Additionally, consider your risk tolerance, investment objectives, and time horizon when assessing company performance for trading.