Costco ready to pivot supply chain amid tariff threats, posts string revenue growth despite profit miss

Local Market Commentary

The Top 40 index gained 0.68% to close at 80,951.0 points, while the All Share index rose by 88,260.1 points. South Africa’s current-account deficit narrowed sharply to 0.4% of GDP (R31.6 billion) in Q4, outperforming economist forecasts of 0.9%. The improvement was driven by a stronger trade surplus. Meanwhile, Microsoft has quietly invested over R20 billion in South African data centres over the past three years and is increasing its investment to R25.8 billion, focusing on AI infrastructure and workforce development, as announced by Vice Chair Brad Smith in Johannesburg.

European Market Commentary

European shares recovered from early losses to close flat on Thursday, as an ECB interest rate cut boosted bank stocks, countering pressures from rising bond yields. The STOXX 600 erased a 0.9% decline after the ECB lowered its deposit rate by 25 basis points to 2.5%, marking its sixth cut in nine months. The central bank signalled a shift towards less restrictive monetary policy, supporting loan growth. However, future rate decisions are expected to face greater scrutiny amid lingering inflation risks, especially as Germany ramps up military and infrastructure spending. Meanwhile, potential U.S. reciprocal tariffs pose a downside risk to the eurozone economy.

U.S. Market Commentary

Wall Street closed lower on Thursday, with the Nasdaq entering a correction after falling 10.4% from its 16 December peak, amid uncertainty over U.S. trade policy. President Trump granted a one-month exemption on 25% tariffs for Canadian and Mexican goods under USMCA, following a similar move for automotive products. The S&P 500 briefly dipped below its 200-day moving average, while the CBOE Volatility Index rose to 24.87, its highest since December. Meanwhile, U.S. jobless claims declined more than expected, and traders now anticipate the Federal Reserve’s first 25-basis-point rate cut in June.

Asia Market Commentary

Asia-Pacific markets mostly declined this morning, as Japanese long-term bond yields surged to their highest levels since the 2008 financial crisis. China’s export growth slowed sharply, rising just 2.3% year-on-year in the January-February period, well below the 5% forecast. This marked a steep drop from December’s 10.7% increase, as higher U.S. tariffs weighed on demand, dampening one of China’s few economic bright spots.

Currency Market Commentary

South Africa's rand strengthened to a near three-month high against the dollar on Thursday, as concerns over U.S. tariff policies pressured the greenback. The pound extended its decline against the euro, reaching its weakest level since January, as Germany’s plans for increased fiscal spending bolstered the eurozone’s growth outlook. Meanwhile, the Japanese yen’s recent rise to a five-month high prompted Finance Minister Katsunobu Kato to warn of potential intervention against excessive currency fluctuations.

Commodity Market Commentary

Gold edged lower this morning due to profit-taking but remained on track for a weekly gain as uncertainty over U.S. tariffs supported safe-haven demand. Investors are also awaiting U.S. non-farm payrolls data. Oil prices were steady but headed for their biggest weekly drop since October, as concerns over U.S. trade policy weighed on demand outlooks just as major producers prepare to boost output.

Sanlam (SLM) +0.35%
Sanlam achieved a 14% increase in net result from financial services (NRFFS), reaching R14.1 billion (R15.4 billion with a one-off reinsurance recapture fee), driven by growth in life and general insurance, investment management, and credit structuring. Net operational earnings rose 24% to R17.2 billion (34% with the reinsurance recapture fee). Headline earnings per share increased by 37%, and attributable earnings per share surged by 52%, thanks to gains from Sanlam’s Namibia sale to SanlamAllianz and a partial divestment in Shriram Finance. New business volumes grew by 6%, with net client cash flows increasing by 52%. Group equity value per share reached R81.23, with a return on GEV of 20.3%, surpassing the 15.6% hurdle rate.

FirstRand (FSR) +0.13%
FirstRand delivered strong operational results for the six months to 31 December 2024, exceeding expectations. The group’s credit loss ratio (CLR) of 84 bps was better than anticipated, driven by strong retail credit performance in South Africa and the UK. Normalised earnings increased by 10% to R20.9 billion, and net income after the cost of capital (NIACC) rose 12%. The CET1 ratio stood at 13.6%, enabling a 10% increase in the total dividend to 219 cents. The group’s diversified operations in South Africa and internationally contributed to the positive performance, with notable growth in FNB’s broader Africa franchise (+9%) and the UK operations (+13%).

Mustek Limited (MST) +0.07%
Mustek reported a significant decline in earnings for the six months ending 31 December 2024. Basic earnings per share decreased by 74.72% to 23.01 cents, with revenue falling 14.1% to R3.66 billion. Operating profit dropped 47.1% to R95.58 million. Despite the decline, the company improved its gross profit margin to 13.8% and net asset value per share increased by 3.74%. Headline earnings per share fell 74.31% to 23.47 cents.

Walgreens Boots Alliance (WBA) -1.40%

Sycamore Partners is set to take Walgreens Boots Alliance private in a $10 billion deal, marking the end of its nearly century-long presence in public markets. The acquisition price of $11.45 per share represents an 8% premium, though a fraction of the company’s $100 billion valuation a decade ago. Walgreens has struggled with declining drug margins and competition from lower-cost rivals like Amazon and Walmart, with its market capitalisation plummeting 90% since 2015 to $9.3 billion. The transaction, valued at approximately $23.7 billion including debt, reflects Sycamore’s conservative pricing strategy, accounting for potential asset liquidation scenarios. Shareholders may receive an additional $3 per share from future monetisation of Walgreens' interests in VillageMD.

Costco Wholesale (COST) -2.02%

Costco Wholesale is prepared to adjust its international supply chain if tariffs under a potential Trump administration drive significant price increases, CEO Ron Vachris stated. The retailer’s flexible "treasure hunt" store model allows it to swiftly adapt its product mix and potentially source from tariff-free regions. Despite missing Wall Street’s Q2 profit expectations with earnings of $4.02 per share (versus the forecasted $4.11), revenue rose 9% to $63.72 billion, surpassing estimates. However, shares dipped nearly 1% in extended trading.

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