Focus on Tito Mboweni's National Budget Review set to dwarf economic data this week

Focus on Tito Mboweni's National Budget Review set to dwarf economic data this week

CAPE TOWN – With all attention set to be fixated on Finance Minister Tito Mboweni’s 2020 National Budget Review on Wednesday, most economic data due this week is more than likely to play second fiddle.

Without a doubt, the Minister is expected to provide some solutions with regard to the issues of the turnaround of state-owned enterprises and job losses. The Minister’s tweet about taxing churches is one not to ignore as the government looks to expand its tax base to boost revenue. A potential VAT hike has also been mooted by market watchers.


What to expect this week:

FNB ANALYSTS: This week’s data releases commence with the December SA Reserve Bank leading indicator on Tuesday. Much of next week’s attention will be fixated on the 2020 National Budget Review on Wednesday. The January release of the producer price index (PPI) is due out on Thursday. The week then closes with January releases of private sector credit and the trade balance on Friday.

In line with weak economic fundamentals, the Reserve Bank’s leading indicator has contracted on a year-on-year basis for 13 consecutive months, most recently falling by 0.9 percent year on year in November. We expect another negative print in the December release, which will likely be indicative of the load-shedding quandary.

The producer price index (PPI) for final manufactured goods displayed a marked deceleration in second quarter of 2019 amid ailing domestic demand and well-contained fuel prices. However, we expect a much more meaningful acceleration in the January 2020 release, from the 3.4 percent year-on-year uptick we saw in December, largely due to base effects from January 2019 when the petrol subcomponents were subdued.

Private sector credit extension growth has been moderating since November last year to just 6.1 percent year on year in December. We expect credit extension to slow further in January 2020 as the deterioration in consumer finances adversely impacts the ability to take on further credit.

After registering five consecutive monthly trade surpluses, we anticipate that the trade balance will register a deficit in the January 2020 release. While we anticipate this trade deficit to be sizeable, relatively buoyant gold and platinum group metal prices supporting nominal export sales will likely cushion the magnitude of the decline.

FNB analysts: Mamello Matikinca-Ngwenya, Jarred Sullivan, Matlhodi Matsei, Siphamandla Mkhwanazi and Geoff Nölting.

INVESTEC ECONOMIST KAMILA KAPLAN: The Budget this week is expected to show a consolidated deficit of 6.1 percent of gross domestic product (GDP) for the 2019/20 fiscal year, compared with the 5.9 percent deficit forecast in the 2019 Medium-term Budget Policy Statement (MTBPS). The wider deficit is reflective of weaker than expected GDP outcome, with a contraction in the third quarter of 2019 and possibly in the fourth quarter as well. As such, tax revenue collections are expected to be much weaker than envisaged in the MTBPS.

Of less relevance will be the monthly government finance statistics for January given that the Budget will be released a few days earlier. Nevertheless, the January figures could reflect the main budget deficit of about R55bn for that month, based on the advance indications derived from the provisional financing figures. The month of January is typically a weak month for tax collections as it is not a provisional tax payment month.

PPI inflation for January is forecast to have accelerated markedly to 4.1 percent year on year from 3.4 percent year on year previously. Private sector credit extension for January is forecast to show growth of 6 percent year on year compared to 6.1 percent year on year in December, mainly on slower growth in household credit extension.

Stocks scheduled for release results:

Sasol (Full-Year Results): As per management, headline earnings per share are expected to fall between 69 percent and 79 percent year on year. Core headline earnings per share are expected to decrease by between 53 percent and 63 percent year on year.

Mondi (Full-Year Results): In a November trading update, management estimated that the impact of the planned mill maintenance shuts was approximately €150 million on underlying earnings before interest, tax, depreciation and amortisation (Ebitda) for the 2019 financial year.

Shoprite (Interim Results): While consensus expects earnings to fall by 13 percent year on year, a recent trading update showed sales rose 7 percent year on year, ahead of full-year market expectations, but slowed down from the first quarter of 2019.

Wilson Bayly Holmes-Ovcon (Interim Results): In a recent trading statement, management guided for headline earnings per share to increase between 175 percent and 195 percent year on year, tracking well ahead of full-year expectations.

Anheuser-Busch (AB) InBev (Full-Year Results): Consensus is looking for an earnings recovery of 27.6 percent year on year from a decline of 14.9 percent in the 2018 financial year. Organic growth is expected to be driven by robust pricing and improved sales mix.

British American Tobacco (Full-Year Results): Consensus expects a marginal improvement in earnings of 1.7 percent year on year on lower cigarette volumes. Group revenue is anticipated to improve by 5.5 percent year on year.

AECI (Full-Year Results): According to a recent trading statement, headline earnings per share are forecast to expand between 7 percent and 12 percent year on year. Earnings per share will be 25 percent to 35 percent higher due to proceeds from the sale of the group’s 50 percent shareholding in Crest Chemicals and proceeds from the sale of a property.

Imperial Logistics (Interim Results): Headline earnings per share from continuing operations will be between 8 percent and 12 percent higher year on year. The increase in line with growth in operating profit, which benefited from the rationalisation process undertaken in the 2019 financial year and non-recurrence of certain once-off trading costs in the prior period.

Liberty Holdings (Full-Year Results): For the 2019 financial year, normalised headline earnings per share are expected to increase by between 40 percent and 50 percent year on year.

Santam (Full-Year Results): During 10M19, the conventional insurance business reported an underwriting margin well above the midpoint of the target range of 4 percent to 8 percent and acceptable growth in gross written premium was achieved.

Massmart (Full-Year Results): The company is expected to report a headline loss per share of between 746.4 cents and 836.6 cents. Sales grew 3 percent to R93.7 billion, with comparable stores growth of 1.5 percent and internal sales inflation of 2.5 percent.

African Rainbow Minerals (Interim Results): As per management, headline earnings per share are expected to fall between 2.1 percent and 4.3 percent year on year. Bloomberg consensus is looking for a contraction of 15.2 percent year on year for the full year.

Northam Platinum (Full-Year Results): For the 2019 financial year, production from its own operations increased 19.6 percent year on year and sales volumes rose by 11.9 percent year on year. Revenue is expected to increase by between 54 percent and 58 percent year on year and operating profit is expected to surge by between 190 percent and 210 percent.

New Frontier Properties, Premier Fishing and Brands, Cafca and Efficient Group will host AGMs next week. Huge Group, DataTec and Finbond Group will host GMs next week.