Local Market Update

Shares on the Johannesburg Stock Exchange closed lower, with both the Top-40 index and the All-Share index experiencing declines to 70,331 and 75,621 points, respectively. South Africa's consumer inflation in April slowed to 6.8%, slightly below analysts' predictions of 7.1%. The South African Reserve Bank is expected to announce its decision on interest rates to address inflationary pressures and maintain the target range of 3% to 6%. Meanwhile, a cholera outbreak in Hammanskraal has resulted in seventeen fatalities, attributed to contamination of the water source from malfunctioning sewage plants that was previously discussed in parliament.

European Market Update

European markets ended the day with losses on Wednesday. In the U.K., inflation figures showed a decrease in the headline rate from 10.1% to 8.7%, although it surpassed the consensus estimate of 8.2% from Reuters. Prices rose by 1.2% month on month, exceeding the forecast of 0.8%. Despite a slight easing in food and non-alcoholic beverage inflation, the rate remained high at 19.1%. The International Monetary Fund (IMF) and the Bank of England both revised their forecasts, indicating that they no longer expect a U.K. recession this year. Additionally, the ifo Business Climate Index, an important indicator of German economic sentiment, declined in May following six consecutive increases.

US Market Update

The major indices on Wall Street closed with losses on Wednesday as discussions between the White House and Republican representatives regarding raising the U.S. debt ceiling continued without reaching a deal. The ongoing lack of progress in raising the $31.4 trillion debt limit, coupled with the approaching June 1 deadline, has heightened investor concerns about the potential for a severe default. Additionally, market attention was directed towards Federal Reserve policy. Stocks remained in negative territory even after the release of minutes from the Fed's May meeting, which indicated that officials had a diminished certainty regarding the need for future interest rate hikes.

Asia Market Update

Hong Kong's Hang Seng index experienced significant losses, leading the decline in Asia, as it dropped 2% and reached a two-month low, falling below the 19,000 level for the first time since March 20. Chinese electric vehicle (EV) manufacturer Xpeng saw its shares plummet by nearly 8% in line with losses in its U.S.-listed stock. The company reported disappointing first-quarter results, with revenue halving to 4.03 billion Chinese yuan ($571.6 million) compared to the expected 5.19 billion yuan. Xpeng also posted a net loss of 2.34 billion yuan, exceeding the anticipated loss of 1.9 billion yuan and widening from the 1.7 billion yuan loss reported in the first quarter of 2022.

Commodity Market Update

This morning, gold prices remained range-bound as investors awaited progress in the ongoing debt ceiling negotiations. The potential for a stronger dollar limited gains in the precious metal. In early Asian trading, oil prices declined due to uncertainty surrounding the United States' ability to avoid a debt default, despite the possibility of additional production cuts by OPEC+. Additionally, news of Britain's inflation rate falling by a smaller margin than anticipated raised the likelihood of further interest rate hikes, further pressuring oil prices.

Currency Market Update

During yesterday's trading session, the South African rand weakened against the stronger U.S. dollar, with investors closely watching the upcoming interest rate decision by the central bank. By the end of the day, the rand was trading at approximately R19.23 to the dollar, representing a 0.42% depreciation. In contrast, this morning, the U.S. dollar strengthened, reaching a two-month high against the euro and a six-month high against the yen. The resilience of the U.S. economy prompted traders to reduce their expectations of rate cuts happening this year.

REUNERT LIMITED (RLO) -2.5%

During the six-month period ending on March 31, 2023 (H1 FY: 2023), the Group experienced a 21% increase in revenue, reaching R6.2 billion compared to R5.1 billion in the previous year. This growth was primarily driven by higher cable volumes in the Electrical Engineering Segment and increased sales in the Applied Electronics Segment, fuelled by rising demand for renewable energy products and the accelerated delivery of the defence export order book. Operational improvements and enhanced throughput in the Applied Electronics and Electrical Engineering Segments resulted in positive operating leverage for the Group. The ICT Segment performed in line with expectations and the guidance provided in the 2022 year-end results. Additionally, the Group's operating profit benefited from a preliminary insurance pay-out of R44 million, compensating for the business interruption caused by the COVID-19 pandemic. Consequently, the Group's operating profit rose by 33% to R620 million (H1 FY: 2022: R465 million). The profit for the period increased by 32% to R422 million (H1 FY: 2022: R319 million), accompanied by a 32% increase in earnings per share and a 37% increase in headline earnings per share. As of March 31, 2023, all segments maintained healthy order books. While both international and local macroeconomic conditions present elevated risks, the Group remains well positioned for the 2023 financial year.

RFG HOLDINGS LIMITED (RFG) +1.2%

In the 26-week period ending on April 2, 2023 (H1 2022: 27 weeks), the Group experienced a 10.2% increase in revenue, reaching R3.8 billion. This growth was primarily driven by a price inflation of 14.8% and strong trading performances in both the regional and international businesses, particularly in March. However, the Group faced challenges such as slower consumer spending and a competitive environment, resulting in volume pressure in certain product categories. Total group volumes declined by 8.5%, with negative mix changes of 0.8% over the six months. Nevertheless, foreign exchange gains contributed 2.7% to revenue growth, and the acquisition of Today accounted for 2.0% of growth. Volumes in the canned fruit and vegetable categories remained under pressure due to weak consumer demand, high raw material and packaging costs, and a competitive environment. On the international front, revenue grew by 13.2%, with strong international selling prices and the benefit of a weakening Rand offsetting a 10.4% decline in volumes. In the prior period, increased production volumes were necessary to meet higher global demand resulting from the failure of the Greek peach crop in 2021. The weakening Rand against trading currencies contributed R92.0 million to international revenue. The Group's operating profit increased by 43.2% to R345.8 million, accompanied by an improved operating profit margin of 220 basis points to 9.2%. Load shedding continued to impact production output and costs, with the Group investing in backup generators to mitigate the effects. Diesel costs for generator operation amounted to R37.8 million for the six-month period. Regional operating profit increased by 54.2% to R272.9 million, and the operating margin expanded to 8.9%. The international segment's operating profit recovered from R21.3 million to R72.9 million, with the operating margin reaching the targeted level of 10.4%. Earnings before interest, tax, depreciation, and amortization (EBITDA) increased by 34.3% to R482.0 million, accompanied by a strengthened EBITDA margin of 230 basis points to 12.8%. The Group's interest expense increased by R9.6 million to R46.2 million, reflecting the rise in the prime lending rate over the past year. Headline earnings increased by 37.1% to R216.8 million, while earnings per share, headline earnings per share, and diluted headline earnings per share all saw similar increases of 37.0%, 37.7%, and 37.5% respectively. Net working capital increased by 13.7% to R2,239 million, primarily due to higher inventory levels and extended debtor days resulting from strong sales in the final month of the period.

NVIDIA (NVDA) -0.5%

Nvidia's first-quarter earnings for fiscal 2024 exceeded expectations, driving shares up by 26% in extended trading. The company reported an adjusted EPS of $1.09, surpassing the anticipated 92 cents, and revenue of $7.19 billion, higher than the expected $6.52 billion. Nvidia also projected sales of approximately $11 billion for the current quarter, over 50% more than the Wall Street estimate of $7.15 billion. The data center group's sales reached $4.28 billion, a 14% annual increase compared to the expected $3.9 billion. Demand for Nvidia's GPU chips from cloud vendors and major consumer internet companies contributed to this performance. However, the gaming division, responsible for PC graphics card sales, experienced a 38% drop in revenue to $2.24 billion, which the company attributed to a slower macroeconomic environment and the rollout of its latest gaming GPUs. Nvidia's automotive division, focused on self-driving car development, saw a substantial year-over-year growth of 114%, but sales for the quarter remained modest at under $300 million. The net income for the quarter was $2.04 billion, or 82 cents per share, compared to $1.62 billion, or 64 cents, in the same period last year. Nvidia's overall sales decreased by 13% from $8.29 billion a year ago.

KOHL’S (KSS) +7.5%

Kohl's, the struggling retailer, experienced a surge in shares on Wednesday after reporting an unexpected profit and reaffirming its full-year guidance in its pursuit of a turnaround. The company reiterated its outlook for the year, expecting net sales to decline between 2% and 4%, which includes a 1% impact from having an extra week of sales. It also projected earnings per share in the range of $2.10 to $2.70, excluding one-time charges. Surpassing expectations, Kohl's reported earnings per share of 13 cents, while a loss of 42 cents was anticipated. Revenue amounted to $3.36 billion, slightly exceeding the expected $3.34 billion. In the fiscal first quarter, net sales for Kohl's decreased by 3.3% to $3.36 billion, compared to $3.47 billion in the same period last year. Comparable sales dropped 4.3% in the quarter, aligning closely with the estimated 4.5% decline projected by Wall Street analysts. Net income for the company was $14 million, or 13 cents per share, in comparison to $14 million, or 11 cents per share, in the previous year.

Do you prefer a full in-depth report you can read offline? Click here to download the full report.