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Johannesburg - The JSE on Monday morning focused on company results, with two of the biggest companies on the bourse - Sasol [JSE:SOL] and Telkom [JSE:TKG] - both announcing a sharp drop in profit.
Sasol’s share price lost 9% on a warning that full-year profit will fall as much as 30%, as the world’s biggest producer of fuel from coal is hurt by lower crude prices and an impairment of R11.5bn on its share of a shale gas asset in Canada because of a decline in natural gas prices.
READ: Sasol profit to drop 30% on R11.5bn charges, lower oil price
Telkom announced a drop of 27% in full-year profit, but the share price gained more than 9% as investors seemed to be satisfied with the success of the company’s turnaround plan which will be completed in the current financial year.
READ: Telkom records lower profits amid job cuts
SABMiller [JSE:SAB] was more than 2.54% lower at R936.99 on news that the Food and Allied Workers Union plans to appeal a decision to clear Anheuser-Busch InBev’s [JSE:ANB] takeover of fellow brewer SABMiller next week, citing concerns that participants in an employee share programme aren’t being fairly compensated. The union believes that participants must be paid the same as SABMiller shareholders.
As a result of the sharp drop in major share prices, the Industrial index was already 1.16% down by mid-morning on Monday, which in turn pulled the major indices lower. The All-share index was at that stage 0.73% softer at 53 864 points and the Top 40-index 0.87% down at 47 667 points.
The news that Standard & Poor's did not downgrade South Africa’s credit rating on Friday night has already been discounted by the market and investors are now focusing on the rating agency’s warning that a downgrade is still possible if the economy is not turned around soon.
The Financial index, which will be hurt by such a downgrade, was already 0.77% lower by mid-morning with FirstRand [JSE:FSR] 1.25% down at R45.03.
The Gold and Resources indices were however supported by the weaker dollar, which dropped to its lowest levels in nearly a month after US nonfarm payrolls showed the slowest job growth in more than five years, quashing expectations for a near-term US interest rate hike.
By mid-morning the Gold index was 0.63% higher but the Resources index had gained only 0.09%. The three biggest commodity shares, BHP Billiton [JSE:BIL], Anglo American [JSE:AGL] and Glencore [JSE:GLN], were however trading sharply higher in London, which also lifted local prices. BHP Billiton gained 3.17% to R190.89 and Anglo American 7.26% to R146.50. Glencore was 6.18% stronger at R31.36.
The rand also benefited also from the weaker dollar, trading R15.04 to the greenback at mid-morning. Traders said the stronger rand is mostly due to the weaker dollar, and not so much to the news that South Africa’s credit rating remains unchanged. The stronger rand also put pressure on the bigger industrial shares which are regarded as rand hedges.
Sasol’s share price was the busiest on the JSE in terms of value, and more than 2 million shares changed hands in early morning trade for R929m. At that stage the share price, which gained 24.7% over the previous 90 days, was already 9% softer at R441.00.
The company said the expected profit drop of between 10% and 30% was the result of the price of crude dropping more than 20% since June, and that of natural gas more than 12%.
Telkom, which gained 9.12% to trade at R65.47 at mid-morning, said the fall in its share price was mainly due to severance packages. The company offered 3 878 employees R2.2bn in severance and retirement packages during the year. Although net income was R2.25bn in the year to end-March compared with R3.1bn the previous year, operating revenue gained 14% to R37.3bn. Telkom will pay a dividend of R2.70 per share, up 10% on the previous year.
Investors also liked the news that Telkom pumped R757m into fibre-to-the-home (FTTH) broadband infrastructure in its financial year, an increase of 200% over the R252m it spent in the 2015 financial year.
The two other big telecommunications companies both traded lower. MTN [JSE:MTN], which lost 15% over the past 30 days, was 0.55% softer at R126.30. Vodacom [JSE:VOD] started off strong and set a new intraday 52-week high of R169.03 in early trade, but by mid-morning was 0.07% lower at R167.76, just below the 52-week high of R168.80.
Besides SABMiller, two of the other big industrial shares, British American Tobacco (BAT) [JSE:BTI] and Naspers [JSE:NPN], were also lower. BAT traded 1.06% softer at R928.00, and Naspers lost 0.26% to R2 289.99.
