Sasfin : EasyJet reveals £34m windfall

MARKET COMMENTARY

LOCAL MARKET COMMENTARY

On the Johannesburg Stock Exchange, both the Top 40 index and the All Share index experienced a 0.3% increase, closing at 69,574 and 75,589 points, respectively. In corporate updates, ArcelorMittal South Africa has announced the closure of its long steel products business, leading to the potential reduction of up to 3,500 jobs, citing a sluggish economy as the reason. Additionally, Stefanutti Stocks has seen a rise in the value of its claim against Eskom, connected to the Kusile building project, from R1.14 billion to R1.614 billion. Looking ahead, South Africa-focused investors are anticipated to focus on October trade, budget, producer inflation, and private sector credit figures later in the week.

EUROPEAN MARKET COMMENTARY

European shares experienced a second consecutive session of decline on Tuesday, interrupting the strong gains seen in November. The pan-European STOXX 600 index dipped by 0.3%, influenced by comments from European Central Bank (ECB) policymakers that tempered expectations of interest rate cuts in the coming year. Joachim Nagel, the chief of Bundesbank, stated that the ECB might consider raising interest rates again if the inflation outlook worsened, emphasizing the need to avoid hastily easing policy following record-setting rate hikes. Additionally, a survey indicated a slight improvement in German consumer sentiment as the Christmas season approached, although the overall level remained low, signalling no clear signs of sustained economic recovery in Europe's largest economy.

US MARKET COMMENTARY

U.S. stocks closed with modest gains on Tuesday as investors digested conflicting statements from Federal Reserve officials. Fed Governor Christopher Waller expressed increasing confidence that the current policy rate is adequately restrictive and hinted at the possibility of future rate cuts if inflation continues to approach the Fed's 2% target. Despite this, financial markets have a nearly certain expectation, with a 98.9% likelihood according to CME's FedWatch tool, that the Federal Open Market Committee (FOMC) will maintain the Fed funds target rate at 5.25%-5.50% in its upcoming meeting. Meanwhile, the crucial holiday shopping season has kicked off strongly, with National Retail Federation survey data indicating that consumers plan to increase spending by around 5% compared to the previous year.

ASIA MARKET COMMENTARY

Asia-Pacific markets experienced a general decline, particularly in Hong Kong, as investors processed Australia's October inflation data. The weighted inflation rate for October in Australia slowed more than anticipated, registering at 4.9%, below the 5.2% expected by economists polled by Reuters. This figure also marked a decrease from the 5.6% recorded in September. The overall inflation rate stood at 4.8%, marking its lowest level since January 2022. The market reaction reflects the impact of these lower-than-expected inflation figures on investor sentiment in the region.

CURRENCY MARKET COMMENTARY

The South African rand remained stable on Tuesday, benefiting from the widespread belief among global investors that the U.S. Federal Reserve will refrain from raising interest rates further. In contrast, the U.S. dollar experienced a decline against major currencies, reaching a more than three-month low on Wednesday. The New Zealand dollar saw a notable surge after the country's central bank suggested the possibility of additional rate hikes. The Antipodean currencies, including the New Zealand dollar, gained momentum as the U.S. dollar weakened, with growing speculation that the Federal Reserve might initiate rate cuts in the early part of the next year.

COMMODITY MARKET COMMENTARY

Gold prices surged to nearly a seven-month high, driven by the prolonged decline in the U.S. dollar and bond yields. Market confidence grew that the Federal Reserve is likely to implement rate cuts in the first half of the upcoming year. Simultaneously, oil prices saw an increase due to a storm in the Black Sea region disrupting oil exports from Kazakhstan and Russia, leading to concerns about potential supply shortages. Investors are closely monitoring OPEC+'s crucial decision, which may involve deepening or extending output cuts. In South Africa, the government's Crop Estimates Committee (CEC) anticipates a 6% increase in maize harvest for the 2022/2023 season compared to the previous season, as reported on Tuesday.

LOCAL MARKETS

The Bidvest Group Limited (BVT) -9.94%

During the first four months of the financial year (FY24), which ended on October 31, 2023, the Group's performance was subdued, and it was highlighted at the Annual General Meeting (AGM) on November 28, 2023. Bidvest Chief Executive Mpumi Madisa noted that the actual volume and margin drop, especially in consumer-facing activities, exceeded expectations. Revenue growth slowed due to contracting durable consumer spend, volume reduction in certain sectors, and increased price competitiveness. However, the business services operations showed resilience, with healthy demand in travel and hospitality. The trading and distribution operations, including Branded Products, Commercial Products, and Automotive divisions, faced pressure, with the Automotive result significantly weaker. Working capital absorbed due to normal business seasonality, and while returns moderated, they remained healthy. The Group successfully raised R1.4 billion in the domestic bond market in October 2023, and several mergers and acquisitions, totaling R3.5 billion, were concluded. Discussions on private sector participation in Freight and other potential opportunities are ongoing.

Nampak Limited(NPK) -3.78%

Nampak is in the final stages of preparing its audited annual results for the year ending September 30, 2023 (FY23). The company anticipates a significant difference of at least 20% in the financial results compared to the prior year (FY22). Due to a share consolidation and rights offer, the weighted average number of shares has been restated. The expected changes in headline loss per share (HLPS) and loss per share (LPS) for FY23 are substantial, influenced by higher impairment losses, increased forex losses primarily from operations in Nigeria, and elevated net finance costs, including once-off refinancing advisory costs. The audited annual results are scheduled for release on or around Monday, December 4, 2023, and the information provided in this statement is pending review by external auditors.

Stefanutti Stocks Holdings Limited (SSK) -2.44%

The unaudited financial results for the periods ending on August 31, 2023, and August 31, 2022, reveal the following changes (R'000): Contract revenue from continuing operations increased by 16%, reaching R3,335,007, compared to R2,870,570 in the previous period. Operating profit before investment income for continuing operations rose by 27%, reaching R68,751, compared to R54,029. However, there was a loss for the period in continuing operations, amounting to R5,722, showing an 83% improvement from the loss of R33,503 in the prior period. Profit for the period in discontinued operations decreased significantly by 91%, from R42,752 to R3,701. The total operations reflected a loss of R2,021, compared to a profit of R9,249, resulting in a 122% decline. Earnings per share for total operations were -1.21 cents, a 122% decrease from 5.53 cents, while headline earnings per share showed a 10% improvement, reducing from -25.02 cents to -22.41 cents.

INTERNATIONAL MARKETS

EasyJet (EZJ) +4.00%

EasyJet has reinstated its dividend for the first time since the COVID crisis and reported an annual profit for the 12 months ending September 30. The airline disclosed a headline profit before tax of £455 million, marking a £633 million improvement from the previous year and the first positive figure since the onset of the pandemic in 2020. This achievement was attributed to record profitability in the second half of the financial year, boosted by increased passenger numbers and higher spending on extras per seat, which helped offset the impact of rising fuel costs. EasyJet remains optimistic about the current year, despite acknowledging that the Israel-Hamas conflict will continue to impact immediate earnings. Currently, 4% of its flying program is grounded due to the suspension of flights to Israel and Jordan. The company announced a final dividend of 4.5p per share, equivalent to a £34 million payout.

Barclays (BARC) -0.06%

Barclays, the banking giant, has announced plans to reduce its workforce, although the exact number of roles affected has not been confirmed. The decision is part of a broader initiative to "simplify and reshape the business." The move has been criticized by the Union Unite, which labeled it as "disgraceful." This announcement follows Barclays reporting better-than-expected quarterly pre-tax profits of £1.9 billion from July to September. The move aligns with a trend in the financial sector, with several firms streamlining their staff numbers in recent months. Notably, last week, Lloyds, the largest high street chain in the country, was reported to be considering cutting 2,500 roles as part of a restructuring effort.

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