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JSE gets fillip on talks about BAT deal

Oct 21 2016 13:58
David van Rooyen

Johannesburg - Negotiations to create the world’s largest listed tobacco company by net turnover and operating profit were the big news on the JSE on Friday morning.

British American Tobacco (BAT) [JSE:BTI], the second-biggest company on the JSE in terms of market capitalisation with a market value of more than R1.6trn, gained more than 4% in early trade on news that it has offered to buy US tobacco company Reynolds American in a $47bn deal.

This helped to push the Industrial index on the JSE 0.92% higher, with positive results for the rest of the market. By mid-morning the All-share index was 0.86% higher at 51 861 points, while the Top 40 index had gained 0.97% to 45 303 points.

The Resources index was 1.42% higher on the news that two of the three biggest commodity companies, Anglo American [JSE:AGL] and Glencore [JSE:GLN], have concluded transactions that will enable substantial reduction of their large debts. Both traded at new 52-week highs.

The big dual-listed shares on the JSE, which are also rand hedges as they earn most of their income abroad, were supported by a weaker rand which lost 1.5% at R14.03 to the dollar by mid-morning.

The dollar hit the highest level to the euro since March after the European Central Bank left its ultra-loose policy unchanged on Thursday, but kept the door open to more stimulus in December. The dollar is also supported by hardening expectations of a rise in US interest rates in December.

By mid-morning BAT was the busiest share on the JSE in terms of value, with shares worth more than R735m sold. In earlier trade the stock was more than 4% firmer at R857.23, but at mid-morning was 3.65% higher at R847.85. At that stage it was also more than 2.37% higher on the London Stock Exchange. Before Friday’s trade it was 8% lower over the past 30 days.

BAT already has a 42% stake in Reynolds and offered to buy the remaining 52% for $47bn, in a deal that would bring together Newport, Kent and Pall Mall cigarettes in the world's biggest listed tobacco company.

The British group said its offer valued Reynolds’ shares at $56.50, of which $24.13 would be in cash and $32.37 would be in BAT shares, representing a premium of 20% over the closing price of Reynolds stock on Thursday.

Reinet [JSE:REI], the investment company in the Rupert stable whose portfolio consists mainly of BAT shares, traded 3.49% higher at R29.39. Remgro [JSE:REM] was 0.54% firmer at R222.62, but Richemont [JSE:CFR] lost 0.55% to R91.99.

Naspers [JSE:NPN] continued its recovery of the past few days and traded 1.67% higher at R2 398.49. Sasol [JSE:SOL] was 1.05% stronger at R396.44.

MTN’s [JSE:MTN] woes continued as Nigerian authorities claim the group may have illegally moved more than the previously claimed $14bn out of Nigeria. MTN has denied the claims, but the share price is already 9.8% lower over the past month. It lost 0.73% on Friday to trade at R106.71.

Anglo American traded at another 52-week high on Friday morning, after it gained 3.03% to R184.40. That means the share price gained 36.30% over the past 30 days and a massive 175.8% for the year to date.

It was reported on Friday morning that Anglo is close to concluding a deal to sell its metallurgical coal interests in Australia, which will help ease the group’s big debt load. Government also approved the transaction in which its subsidiary, Anglo American Platinum (Amplats) [JSE:AMS], will sell its Rustenburg mines to Sibanye for more than R4.8bn.

Glencore was 1.49% stronger on a new 52-week high of R40.93. The group advanced efforts to cut its debt mountain on Thursday, agreeing to sell its Australian coal haulage business GRail for A$1.14bn ($874m). The transaction takes Glencore’s asset sales this year to $4.7bn, putting it on track to cut net debt to between $16.5bn and $17.5bn this year.

Platinum and gold shares were however lower as the stronger dollar led to a further drop in platinum and gold prices. Impala Platinum [JSE:IMP], which is more than 19% lower over the past month, at mid-morning was 1.87% softer at R52.25 after earlier falling more than 3% to R52.25. Amplats was however only 0.18% lower at R330.41.

The Financial index on the JSE was 0.51% higher in response to a rally in banking shares on the European markets, helped by solid results from US banks. Deutsche Bank also rose 3.8% on reports that sovereign wealth funds from Qatar and Abu Dhabi and a Chinese investor could buy a 25% stake in the lender.

FirstRand [JHSE:FSR] was 0.66% higher at R45.93 but Standard Bank [JSE:SBK] lost 0.19% to R138.79. Old Mutual [JSE:OML] gained 0.68% to R34.05.

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