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HB Markets Breakfast Today including Booker Group, Jubilee Platinum and Associated British Foods


The Markets

Market opening: Markets could open higher today. FTSE 100 futures were 8 points up at 7:00 am.

New York: Wall Street rallied as investors cheered better than expected housing starts data and jobless claims dropping to a five-year low. Gains were tempered by a decline in financial stocks, with Bank of America falling 4.2% and Citigroup down 2.9% after earnings missed estimates. The S&P 500 rose 0.6%.

Asia: A slew of positive economic data from China, led by stronger than expected GDP growth of 7.9% in Q4 propelled equities. The Nikkei closed 2.9% higher on expectations that Bank of Japan would enact bold monetary policy measures next week, which would exert further downward pressure on the yen. The Hang Seng was trading 0.95% up at 7:00 am.

Continental Europe: Equities closed higher on upbeat US jobs data. Rally in retail stocks offset losses in the mining sector. AB Foods and Carrefour rose 5.5% and 3.3%, respectively. France’s CAC 40 gained 1% and Germany’s DAX advanced 0.6%.

Today’s news

Chinese economy rebounds in Q4; rise in industrial output and retail sales

China’s GDP expanded 7.9% y-o-y in Q4 2012, rebounding from seven straight quarters of a slowdown, the National Bureau of Statistics said today. However, growth for the full year was lower at 7.8%, the weakest year of economic expansion since 1999. Separately, industrial output rose 10.3% y-o-y in December, while retail sales increased 15.2% y-o-y vis-à-vis the estimate of 14.9%. Fixed-asset investment grew 20.6% in 2012.

BOJ may pledge open-ended asset purchases

Bank of Japan would consider purchasing government bonds and other assets open-endedly until inflation reaches 2%, sources close to the central bank said. The bank is also mulling removal of its 0.1% floor on short-term interest rates.

Company News

Aberdeen Asset Management (LIN:ADN)

Yesterday, Aberdeen Asset Management announced its interim management statement for the quarter ended 31st December 2012. Assets under management (AuM) as of 31st December 2012 stood at £193.4bn, 3% higher than at 30th September. Gross new business wins totalled £10.8bn, up from £9bn in the previous quarter, while outflows increased to £9.7bn from £9bn. Consequently, net inflows stood at £1.1bn. Net flows for the quarter added around £30m of annualised fee income. The management said flows into equity products were strong, particularly for the Asia Pacific products. Net inflows into emerging market equities also continued to grow, at a higher rate than the company can handle, and hence Aberdeen is looking to slow it down to ensure that the performance is not compromised. Net inflows into the emerging market debt funds rose to £0.8bn. AuM in emerging market debt funds increased to £6.5bn compared to £5.5bn on 30th September 2012. In fixed income, all of the company’s key strategies were ahead of their respective three-year benchmarks. The management said that while 2013 has begun on a positive note for global stock markets, uncertainty still persists with further periods of volatility likely in the coming months. CEO Martin Gilbert said the company’s overall performance continues to be strong.

Our view: Aberdeen Asset Management reported a strong quarter with 3% growth in AuM as well as net inflows of £1.1bn, despite challenging market conditions. The company’s performance was boosted by strong gain in the equities business. Higher margin pooled funds investing in equities and bonds attracted more flows whilst lower margin segregated portfolios saw funds outflow. This is likely to have a positive impact on Aberdeen’s profitability. The renewed interest for equity offerings, especially those focused on Asia pacific and emerging markets augurs well for the company. With the US economy in recovery phase and the Eurozone showing signs of stability, we see a gradual pick up in investor’s risk appetite. Considering Aberdeen’s wide range of investment products, coupled with its global asset gathering capability, and emerging market focused strategy, we believe the company is well positioned to achieve further organic growth. We remain Buyers of the stock.

Associated British Foods (LON:ABF)

Associated British Foods issued an interim management statement for the 16 weeks ended 5th January 2013 yesterday. Total revenues increased 10%, bolstered by a 12% increase in sugar sales and a 25% jump in retail revenues. Agriculture revenues rose 3%, driven by higher UK feed sales and AB Vista, while grocery and ingredient revenues remained flat. UK sugar revenues were ahead of the previous year’s with higher sales volumes and marginally higher sugar prices. However, sugar production for the current year is estimated to be 1.13 million tonnes, down from last year’s 1.32 million tonnes. For the current year, profit from sugar is expected to be lower than last year owing to lower production, higher beet cost and a weaker currency. Underpinning the surge in retail growth was strong sales at Primark, which rose 25% y-o-y, surpassing expectations. This was due to strong like-for-like growth, a significant increase in selling space and superior sales densities in the new stores. During the period, the company opened 14 new Primark stores with retail selling space increasing 0.7 million sq ft since the financial year end. The company expects to add a further 200,000 sq ft of space in 2013. Operating profit margin for the period was higher than in the previous year, owing to lower cotton prices and better trading performance. The management said that the year to date trading was ahead of its expectations. The full year performance at AB Sugar is anticipated to be lower than last year but this would be more than offset by growth at Primark and a recovery in Grocery. The stock advanced 3.2% yesterday.

Our view: AB Foods reported a positive interim statement with total revenue growth of 10% and higher operating margins. The performance was driven by strong trading at Primark, which saw sales growth of 25% y-o-y. The management expects further improvements in adjusted operating profit for the full year, with improvements heavily weighted towards the first half. The sugar segment also witnessed a strong performance thanks to robust sales volumes and higher selling prices. While other retailers have struggled due to lower footfalls and subdued consumer spending, AB Foods is on an expansion drive with 14 new stores opened in the quarter, and 200,000 sq ft of further space to be added in the financial year. The space additions at Primark are expected to accelerate growth going forward as store footfalls pick up. The lower forecast for the sugar division is expected to be offset by rapid growth in the retail business. The streamlining of the grocery operations should also pay off. We believe the stock has the potential for further price upswing and thus maintain a Buy rating.

Booker Group (LON:BOK)

Yesterday, Booker Group released a trading update for the 16 week period to 4th January 2013. Total sales (excluding Makro) increased 3.1% both on a y-o-y and on a like-for-like (LFL) basis. Sales excluding tobacco were up 4.2% y-o-y and 4.1% on a LFL basis. Tobacco sales rose 1.3% y-o-y on a LFL basis. Booker Wholesale, the cash and cash division, saw a good performance with increased customers and sales matching expectations. Fresh departments continued to perform well, with fruit and vegetable sales rising 30% y-o-y. Booker Direct, and Ritter Courivaud showed good results. Classic, the on-trade wholesaler, is expanding to become a national wholesaler, rolling out additional five branches. Makro’s performance in the last quarter continued to be challenging, but in line with company’s expectations. Expansion in India is ongoing with the opening of its third and fourth branches in Mumbai scheduled for spring 2013. The management said that the outlook for full year profits remain in line with expectations.

Our view: Booker Group reported a good set of numbers in its trading update, with LFL sales (excluding Makro) increasing 3.1% y-o-y. Growth in the non-tobacco segment saw an improvement even as the downturn in the sector has led to tightening of consumer spending. The Booker Wholesale division has seen a continued good performance while Classic, the on-trade wholesaler, is in expansion phase. Expansion in India is also expected to boost revenues going forward and reduce dependence on the UK essential foods market. The company is confident of successfully integrating Makro to build a strong UK wholesale business arm, extracting synergies in purchase, supply chain management, marketing and customer services. The partnership with Makro would allow the company to provide a wide range of foods and non foods offerings via the internet, and build its delivery and cash and carry systems. The company is on track to meet full year profit expectations. Taking into account these positives, we remain Buyers of the stock.

Jubilee Platinum (LON:JLP)

Yesterday, Jubilee Platinum announced an update pertaining to its proposed transaction with Platinum Australia Ltd. Further to the cautionary announcement on 14th December 2012, the parties have agreed to extend the binding and exclusive terms of the Heads of Agreement to 28th January 2013. As per the proposed transaction, Jubilee would secure the terms of a funding package to restore operations at the Phokothaba Mine, currently under care and maintenance by Platinum Australia. Jubilee has secured indicative terms sheets for the project financing structure from financial institutions and aims to complete the funding structure within the extension period.

Our view: Jubilee Platinum has made further progress towards concluding its transaction with Platinum Australia, thus taking it closer to accomplishing its mine-to-metals strategy. The targeted enlarged group would include the combination of shallow and at-surface mining and exploration assets along with a fully functioning shallow mining operation and smelters, underpinned by the Tjate exploration asset. Also, the company’s recent issue of equity under the Standby Equity Distribution Agreement (SEDA) – ensures the company is sufficiently funded as it seeks to bring the project into production by H1 2013. Only last week, Jubilee’s Power Alt subsidiary achieved its targeted sales of 5.1 megawatts of generated power into the South African national electricity grid. As a result, its contract value was increased to around £4m per year, acting as a profitable offset to the company’s increasing power costs in South Africa. The company’s flagship Tjate platinum project has an attributable resource of 44 million ounces (6PGE+Au), for which the company has concluded exploration drilling and submitted a mining application. We remain optimistic that Jubilee Platinum would embark on a sustained growth trajectory, and thus maintain a Speculative Buy on the stock.

Economic News

US housing starts

Housing starts in the US surged at a seasonally adjusted annual rate of 12.1% to 954,000 units in December, the Commerce Department said yesterday. The reading for November was revised downwards to 851,000 from 861,000 reported initially. Housing starts came in well ahead of market’s expectation of 890,000. Single-family home construction, the largest segment of the market, climbed 8.1% to a 616,000 units. On an annual basis, housing starts jumped 28.1% in 2012 from the previous year, the biggest annual gain since 1983.

US initial jobless claims

The number of Americans filing for their first initial claims for unemployment benefits fell by 37,000 to a seasonally adjusted 335,000 in the week ended 12th January, the lowest level since 19th January 2008, the Labor Department said yesterday. Economists had forecasted a reading of 368,000. Last week’s figure was revised upwards to 372,000 from the previous reading of 371,000. The four-week moving average of jobless claims dropped to 359,250 from 366,000.


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