Mercedes Boosts Cost-Cutting Efforts as Earnings Fall by Half

LOCAL MARKET COMMENTARY

On Friday, the Johannesburg Stock Exchange's Top 40 and All Share indices saw slight gains, rising 0.06% and 0.09% to close at 78,929 and 87,716 points, respectively. Investors are awaiting South Africa's Medium-Term Budget Policy Statement this week, looking for insights into the fiscal outlook and potential adjustments to the 2024/25 budget deficit. Later in the day, Reserve Bank Governor Lesetja Kganyago was set to discuss post-pandemic monetary policy at the IMF and World Bank's annual meeting.

EUROPEAN MARKET COMMENTARY

Europe's main stock index ended a volatile session flat on Friday, wrapping up a week of losses driven by disappointing earnings from companies like Mercedes-Benz, Valeo, and Electrolux, which weighed on investor confidence. However, optimism grew slightly as a survey indicated German business morale improved more than anticipated in October, hinting at potential economic stability by year-end. Investors are now focused on the upcoming release of third-quarter GDP data next week.

US MARKET COMMENTAR

The Nasdaq closed higher on Friday, lifted by gains in megacap stocks, as investors looked ahead to quarterly earnings from major Wall Street companies next week. Market caution persisted due to uncertainty surrounding the U.S. election, while stocks were also impacted by a sharp rise in yields as expectations for Fed rate cuts faded amid signs of economic strength. This week, beginning October 28, is pivotal for Wall Street, with earnings from tech giants like Alphabet, Apple, and Microsoft and the release of the October U.S. nonfarm payrolls report, all leading up to the November 5 presidential election.

ASIA MARKET COMMENTARY

Japanese stocks surged this morning as the yen dropped to a three-month low following a major electoral loss for Prime Minister Shigeru Ishiba's coalition, which lost its parliamentary majority, creating uncertainty around future policy and economic direction. The LDP and Komeito coalition won 215 of 465 seats, while opposition parties, including the Constitutional Democratic Party and the Democratic Party for the People, gained ground. Meanwhile, Hong Kong's Hang Seng index declined, and China's CSI 300 fell more sharply as China reported a 27.1% year-on-year drop in industrial profits for September, marking the worst decline since the pandemic.

CURRENCY MARKET COMMENTARY

South Africa's rand strengthened on Friday as local investors prepared for the upcoming mid-term budget announcement next week. The dollar index climbed on Friday, marking its fourth consecutive week of gains as recent data reinforced expectations for steady Federal Reserve interest rates. Investors are now focused on this week's key payrolls report for further economic insights.

COMMODITY MARKET COMMENTARY

Gold prices declined this morning as the U.S. dollar remained strong, with investors looking to upcoming U.S. economic data for clues on the Federal Reserve's future policy decisions. Oil prices also dropped by over $3 per barrel after Israel's recent retaliatory strike against Iran avoided targeting oil and nuclear facilities, leaving energy supplies unaffected and easing Middle East geopolitical tensions.

Dis-Chem Pharmacies Limited (DCP) -3.72%

For the six months ending 31 August 2024, the company reported a revenue increase of 9.6% to R19.6 billion, compared to R17.9 billion during the same period in 2023. Earnings per share rose by 15.6% to 67.4 cents, and headline earnings per share increased by 16.3% to 67.7 cents. Additionally, the dividend declared per share grew by 16.1%, reaching 26.98 cents.

Fortress Real Estate Investments Limited (FFB) -2.04

On 24 October 2024, the Company repurchased 277 274 Fortress B ordinary shares from shareholders at no cost.

Mercedes-Benz Group AG (MBG) -0.98%

Mercedes-Benz announced on Friday that it will intensify cost-cutting efforts after third-quarter earnings fell by half, impacted by weak demand and intense competition in China. The carmaker reduced its full-year profit margin target twice, aligning with other European automakers facing challenges in the slowing Chinese market. Union Investment, a major investor, urged Mercedes to adjust its strategy, noting reduced demand for luxury cars. The car division's adjusted return on sales dropped to 4.7%, its lowest since the pandemic, with earnings more than halved. A weaker Chinese economy hit sales of high-end models like the S-Class, while costs associated with upcoming model releases, such as the G-Class SUV, added pressure. Mercedes expects car sales to be slightly lower for 2024, with fourth-quarter sales in line with the third quarter.

HelloFresh SE (HFG) +20.09%

HelloFresh raised its lower-end guidance for adjusted core profit to €360 million for the year but lowered its full-year revenue growth outlook to between 1% and 1.7%, down from 2% to 8%. The revision reflects a strategic shift toward more efficient marketing, even with an expected weaker fourth quarter. Shares rose 16.3% after the announcement. HelloFresh, responding to investor concerns about its marketing effectiveness, plans to cut fourth-quarter marketing spend, resulting in a slight revenue dip. Preliminary third-quarter results showed a 1.9% revenue increase on a constant-currency basis to €1.83 billion, with AEBITDA rising to €72 million. Full results will be released on October 29.

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