Sasfin : American Airlines shares jump on hikes in revenue and profit outlook

MARKET COMMENTARY

LOCAL MARKET COMMENTARY

On the Johannesburg Stock Exchange yesterday, the Top-40 index closed 0.14% higher, while the broader All-Share index ended up 0.13% to close at 78,627 points. On the data front, investors will digest the U.S. consumer price index data today, which showed inflation cooled in December. In sector news, the Alternative Energy sector gained 3.06% while the Construction and Materials sector added 2.88%. In company news, Hammerson and Bytes led gains, adding 3.74% and 3,71% respectively. On the other end of the scale, Thungela lost 5.47% by the close of play.

EUROPEAN MARKET COMMENTARY

European markets closed at their highest level since April 2022 yesterday, despite a choppy afternoon. The pan-European Stoxx 600 index closed 0.7% higher, with most sectors and major bourses in positive territory. Retail stocks led the gains, up nearly 2%, while Chemicals and Healthcare stocks were both down around 0.1%. Looking at companies, shares of Ubisoft plunged more than 21% in early trade after the company cut its revenue guidance. Swiss computer peripherals company Logitech sank more than 14% after missing quarterly earnings expectations and cutting its sales outlook.

US MARKET COMMENTARY

US stocks closed higher yesterday after December's consumer price report showed inflation cooled for the month, raising hopes the Federal Reserve can again slow interest rate hikes. December's CPI report showed a 0.1% dip in prices from November, but prices were still 6.5% higher than the prior year. Big banks including JPMorgan, Bank of America, Citigroup and Wells Fargo are set to report quarterly earnings today. In company news, Bed Bath & Beyond jumped more than 60% yesterday as meme stocks remain a focus of investors looking to short this week.

ASIA MARKET COMMENTARY

Asia-Pacific shares traded mostly higher today, after the U.S. consumer price index showed inflation cooled in December, raising investors' hopes that the Federal Reserve can return to slower interest rate hikes. In data news, Inflation in China accelerated 1.8% in December compared with a year ago as food prices rose, data showed. Looking at companies, shares of Uniqlo-owner Fast Retailing dropped 6.68% a day after announcing it will raise wages by 40%.

COMMODITY MARKET COMMENTARY

Gold prices edged higher this morning and were on track for a fourth weekly gain, supported by a weaker dollar and expectations of slower interest rate hikes by the U.S. Federal Reserve. Meanwhile, oil prices slipped in early trade today but were on track for gains of more than 6% for the week on solid signs of demand growth in top crude oil importer China and expectations of less aggressive interest rate hikes in the United States. Oil prices have also been buoyed by a slide in the dollar to a nearly nine-month low after data showed U.S. inflation fell for the first time in 2-1/2 years.

CURRENCY MARKET COMMENTARY

The rand rose yesterday, as data showed that U.S consumer prices surprisingly fell for the first time in more than 2-1/2 years in December. However, the rand traded at R16.75 against the dollar by the close, 1.05% firmer. Meanwhile the U.S. dollar swayed today, flirting with seven-month lows after a sharp dive overnight as data showed U.S. inflation was slowing, boosting hopes of the Federal Reserve taking its foot off an aggressive interest rate hike policy. The euro and sterling were both slightly up the dollar this morning.

LOCAL COMPANIES

PPC (PPC) +5.7%

The sustainability of South Africa's cement and concrete industry is being threatened by multiple challenges. These include economic decline, cheap imports, rising input costs and the crisis in the construction industry caused by the activities of the construction mafia and lack of major projects. The latter has been exacerbated by the planned massive expenditure by government on infrastructure to kick-start the economy post the Covid-19 pandemic largely failing to materialise, placing about 35 000 local jobs and billions of investments in the cement industry's value chain in jeopardy. For starters, local cement production capacity is about 20 million tons, but the industry is currently producing only 12 million tons, while more than a million tons of cement imports enters the South African market each year. The challenges facing the industry have led to engagements between it and the International Trade Administration Commission of South Africa (Itac) and Department of Trade, Industry and Competition to take positive action to prioritise its local cement industry. PPC say they are well placed to supply any increase in demand as the roll out of the South African government's infrastructure development plans gain momentum while, at the same time, it has a strong financial position and the right focus to weather the current economic cycle. However, the industry remains cautious about the outlook for the building industry due to the impact of higher lending rates on the private sector and economic growth, adding that government's focus will more than likely be on economic rather than social infrastructure.

Steinhoff (SNH) -5.7%

Steinhoff's European discount retailer Pepco says its revenue surged by about a quarter over the key festive period, with record trading days across its brands, as it benefited from its ongoing store rollout, its status as a discount retailer in tough economic conditions, as well as a healthy stock position. Pepco, the owner of the discount Pepco and Dealz brands in mainland Europe and Poundland in the UK, said in an update on Thursday group revenue rose 27% in constant-currency terms to €1,65 billion (R30.1 billion) in the quarter to end December from a year prior, rising 24% on an actual basis, which includes currency effects. Pepco added 105 new stores during the quarter, bringing its total to 4 066, and it operates in 19 territories, including the UK, Italy, Greece and across eastern and central Europe. Steinhoff holds more than three quarters of Pepco, which accounts for about half of its revenue.

INTERNATIONAL COMPANIES

Porsche (P911) +2.0%

Porsche managed to increase its global deliveries last year by 2.6% despite worldwide supply chain issues that crippled other carmakers as well as sales of its first all-electric car. The German sports car manufacturer said yesterday it delivered 309,884 vehicles to customers last year, up from 301,915 vehicles in 2021. Leading Porsche's slight rise in sales last year was a 13% increase in overseas and emerging markets, followed by an uptick of 5.8% in Europe. Its sales in North America were flat, and deliveries declined about 2% in China. Porsche's U.S. sales were essentially level for the year, increasing by just 40 units to 70,065 vehicles. The largest rise in sales was a 22.5% increase in the Cayenne crossover. Most other models experienced notable declines, including a roughly 23% drop in sales of Porsche's all-electric Taycan to 7,271 units. The carmaker said the decline in Taycan sales, including a 16% drop globally, was "due to supply chain bottlenecks and limited component availability."

American Airlines (AAL) +9.7%

American Airlines shares surged yesterday after the carrier hiked its revenue and profit estimates for the fourth quarter thanks to strong demand and high fares. American Airlines stock gained nearly 10%, its highest closing price since June and far outpacing other airlines' shares, which also rallied. American Airlines was the day's biggest gainer in the S&P 500 and said it estimates revenue rose as much as 17% over the same period in 2019, up from a previous forecast of an 11% to 13% increase compared with the period three years earlier, before the Covid pandemic. American Airlines said revenue per seat mile likely climbed 24% above the 2019 quarter, higher than its prior forecast of 18% to 20%. The company expects to report adjusted earnings per share of between $1.12 and $1.17, up from its previous estimate of between 50 cents and 70 cents.

Logitech (LOGN) -16.8%

Logitech yesterday reported lower earnings and sales between October and December and cut its sales outlook, sending its shares down by almost a fifth in opening trade. The company cited a difficult economic backdrop and supply chain uncertainties linked to China's COVID-19 outbreak for numbers that CEO Bracken Darrell described as disappointing. Preliminary third quarter GAAP operating income fell around 35% year on year to between $171 million and $176 million. Sales were down 22% to between $1.26 billion and $1.27 billion. The company said it now expected year to March sales to fall between 13% and 15% on a constant currency basis, compared with an earlier outlook for a drop of 4 to 8%.In its last fiscal year, COVID restrictions drove Logitech to its highest ever second-quarter sales on the back of strong demand for home office products and computer gaming devices. But since then it has faced a slowdown as many lockdowns have been lifted while consumers have become more downbeat and components and transport costs have risen, eating into profit margins.

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