Taking Stock - Barloworld shares surge on strong financial results.

In todays taking stock, we discuss how Barloworld shares surge on strong financial results, special dividend.

Research Team

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Sasfin Wealth
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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Johannesburg-listed stocks posted modest gains on Monday, with the All-share index closing up 0.7% at 70,866 points. Financials and resources offered the biggest boosts to the overall market, as these indices added 1% and 1.22% respectively. Meanwhile, energy regulator Nersa has presented four new options to Eskom for determining the tariffs it will be allowed to charge from April 1 next year, but the utility is persisting with its court application to compel Nersa to process its application according to the existing pricing methodology. Nersa earlier rejected Eskom’s application, which asked for a 20% increase, because the existing pricing methodology has lapsed.

 

 

EUROPEAN MARKET COMMENTARY

European stocks pared losses Monday to close mixed, as investors reacted to news that U.S. Federal Reserve Chairman Jerome Powell has secured a second term and monitored the latest coronavirus wave. The pan-European Stoxx 600 provisionally closed flat, with telecoms stocks climbing 1.8% to lead the gains while travel and leisure shares slumped 1.3% on concern about a return of Covid lockdown restrictions in some countries. European investors will be keeping an eye on the spread of Covid-19 across the continent after Germany and Austria re-imposed strict containment measures last week.

 

 

US MARKET COMMENTARY

US stocks slumped Monday afternoon, reversing an earlier rally that came after President Joe Biden announced he would nominate Chairman Jerome Powell to continue to lead the Federal Reserve, rather than nominating Fed governor Lael Brainard for the post. Bank stocks and Treasury yields moved higher after the White House announced the Fed decision. Shares of JPMorgan rose 2.1%, while Morgan Stanley rose nearly 2.5%. The move higher in rates appeared to take a bite out of some tech stocks, whose future earnings are less attractive to investors when yields are higher.

 

 

ASIAN MARKET COMMENTARY

Asian stock markets are trading mostly lower this morning, following the negative cues from Wall Street overnight, as Treasury yields and the U.S. dollar jumped on concerns over quicker policy tightening after President Joe Biden announced his intent to nominate Jerome Powell for a second term as Federal Reserve Chair. Among the major miners in Australia, BHP Group is gaining more than 4%, OZ Minerals is up almost 1% and Rio Tinto is adding almost 4%. Fortescue Metals is surging almost 8% and Mineral Resources is rising almost 3%.

 

 

CURRENCY MARKET COMMENTARY

The rand dipped on Monday, as the U.S. dollar rose on Federal Reserve Chair Jerome Powell's nomination for another term. At the close of the session, the rand was trading around R15.87 to the dollar or 0.85% weaker. In the absence of local drivers, the rand takes its cue from global factors, with the outlook for U.S. monetary policy a major theme. Domestic data releases this week include a leading business cycle indicator on Tuesday and the producer price index on Thursday.

 

 

COMMODITIES MARKET COMMENTARY

Gold prices edged up this morning but hovered close to their lowest level in more than two weeks hit in the previous session, as the dollar gained on U.S. President Joe Biden’s nomination of Federal Reserve Chair Jerome Powell for a second term. Meanwhile, oil prices dropped earlier today, reversing gains in the previous session, on growing talk the United States, Japan and India will release crude reserves to tame prices despite the threat of demand faltering as COVID-19 cases flare up in Europe.

LOCAL COMPANIES

Naspers and Prosus (NPN, PRX) 0% and 0.7%, respectively

Naspers and Prosus announced strong growth in the six months to end-September 2021, with both increasing revenue by 29% and trading profit by some 8%. This growth was mainly driven by continued expansion and consumer acceptance of food delivery, which saw revenues increase by 86% to $1.3 billion (around R20.6 billion) in the six months under review. Unfortunately, it is taking longer than some investors were hoping to translate the investment in the “next big trend” into profits. The food delivery business reported that trading losses increased by 55% to $312 million compared to the same six months of 2020, according to the figures presented by both Naspers and Prosus.

 

Barloworld (BAW)+7.5%

Shares in Barloworld surged 7.54% to close at R145.18 on Monday after the JSE-listed industrial processing, distribution and services company reported strong financial results and declared an ordinary and special dividend. Group revenue from continuing operations grew by 22.5% to R41.6 billion in the year to end-September 2021. Operating profit from continuing operations improved 119% to R4.3 billion as the operating margin improved by 450 basis points to 10.3%. Barloworld finance director Nopasika Lila said if you compare this to the group loss last year of R2 billion, “this has been a phenomenal performance”. She said the Equipment Southern Africa and Eurasia divisions represented 70% of Barloworld’s total revenue. “New acquisition [activity] exceeded our expectations at R6.6 billion and thus contributed 16% of the 23% group growth in the financial year,” Lila added. The group’s net debt following the Ingrain acquisition declined to R2.3 billion from R2.7 billion in the prior year. A turnaround in group headline earnings per share was achieved with earnings of 1 195 cents per share from the 268 cents per share loss in the previous year.

 

Netcare (NTC) 2.7%

South Africa’s largest private hospital group Netcare plans to digitalise its entire ecosystem, with the rollout set to begin in 2022. The digitalisation means that Netcare patients can expect to – among other services – receive doctors’ prescriptions and view detailed patient records from the palm of their hands. Group revenue increased 11.5% to just over R21 billion from R18.84 billion in 2020, improving group Ebitda (earnings before interest, taxes, depreciation and amortisation) to R3.19 billion, 24.8% up from the previous Covid-hit year. The group’s Ebitda margin came in slightly better this period, at 15.2% compared to 13.6% in 2020. However, Netcare estimates that the 18 month-long pandemic may have cost it about R1.5 billion in group Ebitda. Despite this, the group improved its bottom line, with profit after tax increasing by 188.8% on the last period to R904 million.

 

 

 

 

 

 

INTERNATIONAL COMPANIES

Zoom (ZM) -3.6%

Zoom reported better-than-expected quarterly earnings on Monday, while warning investors of a revenue slowdown at the video-chat company as the pandemic comes to an end. Revenue increased 35% from a year earlier in the quarter, which ended Oct. 31, slowing from 54% growth in the prior period. Net income jumped 71% to $340.3 million, according to a statement. For the fiscal fourth quarter, Zoom forecast adjusted earnings of $1.06 to $1.07 per share on $1.051 billion to $1.053 billion in revenue, which implies 19% growth. Analysts polled by Refinitiv had expected $1.05 in adjusted earnings per share and $1.02 billion in revenue. Zoom stock moved swiftly higher last year as the company expanded from a contender in a narrow category of business software to a fabric of culture. Millions of people adopted its software to remotely attend classes and meet after the coronavirus pandemic made those types of gatherings difficult if not impossible. Revenue growth was above 300% as recently as the quarter that ended in January. Now Zoom has reported its slowest growth since at least 2018, before its 2019 initial public offering. While Zoom is reckoning with decelerating growth because so many businesses made their purchases last year, the company is expanding its usage within big organizations. Zoom said that over 2,500 customers are spending more than $100,000 a year, up 94% from the same period a year earlier. During the quarter, Zoom said it had called off its plan to acquire cloud contact center software provider Five9 for $14.7 billion. In announcing the news, Zoom said its own cloud contact center software would launch in early 2022.

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Research Team
Media, Sasfin Wealth