Earning Release

While Telkom SA Ltd (NYSE:TKG) registered growth in revenues in FY 2009, margins declined due to increased Employee expenses, Selling General and Administrative (SG&A) expenses, Depreciation and Amortization (D&A) and finance costs as a percentage of sales in FY 2009. Although the Fixed-line segment remains the key revenue driver, driven by increased ARPL, increasing Fixed-to-Mobile migration and incrementing penetration level in the Mobile segment will result in subdued performance over the next two years. Hence, we reiterate our HOLD rating for the common stock. We will reassess the common stock rating for Telkom in our next update report. We expect to introduce a 6-12 month investment horizon to value Telkom in our next update report. Although we now expect a significant positive currency impact on the ADR over the medium term considering current price levels we downgrade our rating from a BUY to a HOLD for the ADR. We will reassess the ADR rating for Telkom in our next update report.

News

Thomson Reuters Corporation (NYSE:TRI) has announced a plan to unify its dual-listed company structure, indicating that unification will consolidate and improve the trading volumes of the company's shares. Post unification, Thomson Reuters shares will no longer be listed on the London Stock Exchange or NASDAQ. At current levels, we maintain our HOLD rating for the common stock. We will reassess our rating for the common stock after the company announces its 2Q 09 results. As we now anticipate a negative currency impact on the Canadian stock over the next 6-24 months we downgrade our rating for the Canadian stock from a BUY to a SELL although the current target price does not support a SELL rating. We will reassess the Canadian stock rating for the Thomson Reuters Canadian stock after the company announces its 2Q 09 results.

Thomson Reuters PLC (NASDAQ:TRIN) has announced a plan to unify its dual-listed company structure, indicating that unification will consolidate and improve the trading volumes of the company's shares. Post unification, Thomson Reuters shares will no longer be listed on the London Stock Exchange or NASDAQ. At current levels, we maintain our HOLD rating for the ADR. We will reassess our rating for the common stock after the company announces its 2Q 09 results. As we now expect a negative currency impact on the UK stock over the next 6-24 months, we downgrade our rating for the UK stock from a BUY to a HOLD although the current target price does not support a HOLD rating. We will reassess the rating for Thomson Reuters' UK common stock after the company announces its 2Q 09 results.

On 22 June 2009, Validus Holdings Ltd. (Validus) announced that it has delivered a revised amalgamation agreement to IPC Holdings Limited (NASDAQ:IPCR) which addresses the concerns outlined by IPC Holdings on 15 June 2009. Although Validus has agreed to the majority of the requirements, it has maintained that it will not be revising the economic terms of the offer as it believes it provides fair value for the IPC Holdings shares. On 16 June 2009, S&P had placed IPC Holdings BBB counterparty rating on creditwatch with negative implications. Based on Validus current offer we do not foresee a significant upside for the IPC Holdings NASDAQ common stock and although the current target price does not support a HOLD rating, we maintain our HOLD rating for the NASDAQ common stock. Based on our fundamental outlook and our continued anticipation of a negative currency impact on the European stock in the coming 6-12 months we maintain our HOLD rating for the European stock. We will reassess the European stock rating for IPC Holdings in our next update report.

On 23 June 2009, Mizuho Financial Group (NYSE:MFG) announced that it will issue ¥139.5 bn in Japanese yen denominated preferred securities in an effort to shore up its capital base, after weak financial market conditions eroded the value of its investments in other companies. Considering the worsening of the macroeconomic scenario in Japan and MFG's exposure to the US mortgage market, rising credit costs and further writedowns anticipated over our investment horizon, we maintain our SELL rating on the common stock. We will reassess our common stock rating for MFG in our next full update report. We expect to revert to a 6-24 month investment horizon in order to value the company in our next update report, as we now anticipate a significant negative currency impact on the ADR over the medium-to-long term. Therefore, we maintain our SELL rating. We will reassess our ADR (1 ADR = 2 common shares) rating for MFG in our next full update report.

On 23 June 2009, Agrium Inc (NYSE:AGU) announced it has received the backing of the majority of CF Industries Holdings Inc.'s (CF Industries) shareholders for its cash and stock acquisition proposal. We view this development in a positive light as the potential combined entity will command a significant market share with encouraging profit margins through synergetic benefits. Therefore, even though the target price does not support a BUY rating at current price levels, we upgrade our 6-12 month rating for the NYSE common stock from HOLD to a BUY. We will reassess our target price and rating in our next update report. Given our fundamental outlook we upgrade our Canadian stock rating from a HOLD to a BUY, despite our forecast of a negative currency impact on the Canadian stock in the medium term. We will reassess our target price and rating in our next update report.

New Valuations

Nabors Industries Ltd (NYSE:NBR) We expect worldwide drilling activity will decline y-o-y in FY 2009 as tighter credit markets and lower commodity prices impact global Exploration and Procurement (E&P) spending. The rig count in the US has fallen from its peak of 2,031 at the end of August 2008 to close at 928 on 08 May 2009 (source: Baker Hughes). We expect hydrocarbon prices will remain depressed in the medium term and believe that the rig count and day rates could fall further. We have assumed that the number of stacked rigs will increase industry wide in FY 2009. Consequently, this decline in drilling activity and fall in day rates will depress Nabors operating revenue growth and margins in FY 2009. In FY 2010, we expect Nabors operating revenues will increase y-o-y driven by higher average day rates from a relatively strong order backlog, due to a recovery in hydrocarbon prices as a revival in the global economy spurs demand for the company's services. Hence, we believe the NYSE common stock is undervalued at current price levels.

Pohang Iron and Steel Co. (NYSE:PKX) The worldwide economic downturn has hit the construction and automotive sectors particularly hard, leading to a sharp fall in demand for steel which has outpaced production cutbacks put in place by major steel producers. As a result, Posco has had to agree to cuts of around 20% y-o-y in contract steel prices for FY 2009. We expect steel prices to remain low through FY 2009, reflecting the ongoing impact of the downturn. However, some of the impact of weaker steel demand has been passed on to suppliers of raw materials. Therefore, we also expect prices for commodities such as iron ore and coking coal to fall, supporting margins for steel producers. Over the longer term, we remain optimistic about Posco's low-cost structure and strong balance sheet, as well as Management's expansion plans and backward-integration efforts. As a result, we maintain our positive fundamental outlook.

Westpac Banking Corporation (NYSE:WBK) The Australian economy grew by 0.3% in 4Q 08 (versus 1.8% in 3Q 08 and 2.8% in 2Q 08). The Reserve Bank of Australia (RBA) anticipates a fall of 0.5% in GDP during FY 2009, to be followed by growth of 2.25% in FY 2010. The commodities-heavy Australian economy has been hard-hit by the worldwide economic slump, especially weakness in the construction and automotive sectors. The International Monetary Fund (IMF) takes a bleaker view, forecasting a contraction of 1.4% in FY 2009 and a rise of just 0.6% in FY 2010. Reflecting these forecasts, we expect demand for credit to decline over our investment horizon. However, considering the bank's efforts to grow its branch network, as well as Management's expectation of growth in housing loans from FY 2010 (which account for most of the bank’s lending) and benefits from the St. George merger, we expect Westpac to achieve sustained loan growth over the medium-to-long term. Meanwhile, inflation eased to 2.5% in 1Q 09 (3.7% in 4Q 08 and 5.0% in 3Q 08), well within the RBA’s target rate of 2%-3%. However, we expect RBA to continue to ease monetary policy in order to stimulate the economy. As a result of this, as well as the impact of the economic downturn, we expect NIM to remain under pressure through the near-to-medium term. In addition, the bank is likely to face growth in non-performing assets and defaults, driving up provisions in FY 2009.

Yahoo! Inc(NASDAQ:YHOO) With the current global economic turmoil, advertisers are looking at cutting advertising budgets. Formats such as Search are gaining popularity as they offer a higher level of traceability in terms of results and are more economical when compared to Display advertising. With Yahoo! Inc. (Yahoo) generating approximately 25% of its revenues from Display advertising, we expect the company's near-to-medium term growth to be materially impacted by this phenomenon.

General Electric Company (NYSE:GE) With its strong and highly diversified business portfolio, both in terms of product and regional diversity, General Electric Company (GE) is well positioned to sustain the current economic weakness by offsetting the risks the company is currently expereince at GE Capital Services (GECS), the company's financial service business.

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