From UK-Analyst.com: Tuesday 2nd February 2010

It seems that even the supreme head of the Church is not immune from criticism, as Pope Benedict XVI came under fire for comments made regarding the Harriet Harperson's equality legislation. Former International Development Secretary Clare Short piled more woes on the government as she said that the cabinet was 'leaned on' before Tony Bliar's illegal war in Iraq began began. Meanwhile the useless Tories promised to set up a new state bank (don't we own enough already) to invest in fighting global warming?  Er.. have they not read about climategate, glaciergate, amazongate, etc on the playing fields of Eton?  In the US, the Institute for Supply Management index jumped from 54.9 to 58.4, the highest level since August 2004, and far higher than expectations. The news pushed the US markets higher, with London following suit after a slow morning. At the London close the Dow Jones was up by 69.37 points at 10,254.9 and the Nasdaq was up by 10.3 points at 2,181.5.

In London the FTSE 100 advanced by 35.9 points to 5,283.31; the FTSE 250 gained 168.66 points to reach 9,480.77; the FTSE All-Share climbed 22.01 points to 2,711.05; and the FTSE AIM Index rose by 8.17 points to close at 675.7.

Brokers' Notes

Seymour Pierce published a note on HMV (HMV) as the firm's offer for Mama Group went unconditional. The broker said that the transaction was "a good diversification" for the company, with opportunities to achieve synergies in areas such as ticketing. In addition, a new classic rock concert, High Voltage, is expected to generate income of 1 million pounds, and better results from existing venues will also provide between 1 and 1.5 million pounds in additional profits. Apart from the transaction, Seymour Pierce expects Waterstones to improve in 2010/11 after its "disappointing results". The 'buy' stance was left unchanged. HMV shares rose by 0.75p to 80p.

Shore Capital commented on Arriva's (ARI) potential merger with French transport firm Keolis, saying that a merger appears unlikely, as any possible earnings upside or synergies appear to be limited. Further, it opined that further moves into Europe "may spook some investors given the poor returns to date". A merger would also be dependant on the equity rating being in Arriva's favour, which is doubtful given the strength of the Keolis balance sheet. Arriva would also acquire SNCF, the French transport company, as a significant shareholder, which would add "further complications". Shore left its 'hold' stance unaltered. The shares rose by 4.7p to 494.7p.

Citigroup said that it was pleasantly surprised by Ryanair's (RYA) third quarter results, and the broker thinks that the no-frills airline may beat full-year expectations. It said that, "given the very easy comparison on a year ago, where average ticket price declined by 23.5%", Ryanair could be expected to exceed guidance for full year to March income guidance of 275 million euros. In addition, the airline's share price has risen by only 6% over the past year, compared with 21% for easyJet and 48% for the sector as a whole. The broker kept its 'buy' stance and target price of 402p unchanged. The shares dropped by 5p to 353p.

After a profits alert on 1st February, GE&CR's note on Blavod Extreme Spirits* (BES) highlighted the expectation that performance would improve as the promotions on rival brands come to an end. A conservative credit policy has helped the firm to avoid exposure to failures such as First Quench, although this has had the effect of limiting sales in both the UK and export markets. New products are planned for spring, and moderate price increases will have a positive impact on margins. The research house reduced its profit forecast to break-even, in line with the company's expectations, and lowered the revenue forecast from 8.6 million pounds to 8 million pounds. The profit forecast for 2010 was reduced to 0.25 million pounds from 0.4 million pounds but it still sees the risks as "very much on the upside". Despite the results, the stance remained at 'buy'. Blavod shares rose by 0.125p to 4p.

Blue-Chips

Cable & Wireless (CW.) set a date for its demerger and said that it would pay a dividend of 9.5p this year and a similar amount next year. The group also commented that it is on track to meet expected targets in both businesses, with the international legacy business, Cable & Wireless Communications, making underlying profits in the region of 880 to 900 million dollars, and the UK-focussed Cable & Wireless Worldwide will make 430 million pounds. As a final step in its financing package, Cable & Wireless Communications has agreed a 500 million dollar medium term loan facility and launched a 500 million dollar bond offer. Future corporate costs are expected to be 25 million pounds (C&W Communications 15 million pounds, C&W Worldwide 10 million pounds), a saving of 3 million pounds on 2009/10 central costs. Trading in C&W Communications shares will start on 22nd March and in C&W Worldwide on 26th March. The shares added 2.9p to 146.2p.

Rio Tinto (RIO) announced that it has completed the sale of its Alcan packaging business for 1.95 billion pounds to Australian firm Amcor. The sale is part of the firm's effort to lower its debt burden which it acquired as a result of the purchase of Canadian aluminium producer Alcan in 2007, just in time for the economic downturn. Rio Tinto said the sale was a "significant step in the recapitalisation of our balance sheet". The shares gained 118p to 3,301p.

BP (BP.) shares fell by 23.4p to 571.2p after it reported underlying replacement cost profit for the fourth quarter of 2009 of 4.38 billion dollars, up 70% from 2008, but below expectations of 4.7 billion dollars. Weaker oil and gas prices, and pressure on refining margins, caused full-year replacement cost profit to fall 45% to 13.96 billion dollars. Total revenue rose 20% to 73.64 billion dollars, while earnings per share increased 31% to 18.38p. The quarterly dividend was maintained at 14 cents, with the sterling equivalent at 8.679p per share, down 12% on 2008. BP said that its reserve replacement ratio was 129%, the 17th consecutive year that this figure has exceeded 100%. 2010 forecast oil and gas output is expected to be down slightly on 2009 levels, as 2009 saw few interruptions to production. A "slow and gradual" recovery is expected in the US and Europe, while the gas market is forecast to be volatile. The pressure on refining margins is expected to remain. With a poorer outlook for 2010 and restructuring expected to continue, Panmure Gordon continued to rate BP as 'sell' with a 412p target.

Imperial Tobacco (IMT) announced a good start to the year, with increasing market share in the expanding markets of Africa, the Middle East and Asia Pacific. Its Davidoff brand has grown market share in all of its top five markets, with the West and JPS brands also performing well. Prices were increased in the UK, France and Spain. Imperial's market share declined in the UK, USA and Germany, with each of these markets reporting declining volumes. The share price rose by 40p to 2,042p.

Mid-Caps

ARM Holdings (ARM) reported a 10% fall in year-on-year revenues to 85.2 million pounds for the fourth quarter of 2009, which compares favourably with an industry fall of 15%. The firm said that a growing demand for smartphones helped ARM to stay ahead of its rivals. Pre-tax profit was down 13% to 20.1 million pounds. Favourable exchange helped a 2% rise in full-year revenues to 305 million pounds, while full-year profits were down 25% at 47.3 million pounds. ARM, rumoured to be the supplier for Apple's new 'must-have', the iPad, shipped 1.3 billion chips in the last three months of 2009, a record for a quarter. The full year dividend was increased by 10% to 2.42p. Arbuthnot Securities said that the firm has done extremely well in a difficult year and 2010 is expected to be "somewhat better, setting the stage for even better performance". No change was made to the broker's 'neutral' stance. ARM shares rose by 11.4p to 201.2p. Technical analysis guru Zak Mir made ARM his chart of the week as a hot buy share tip just last Friday. For more big TA calls click HERE

Babcock International (BAB), the engineering support services group, said that its order book remains stable at around 6 billion pounds and cash generation since 1st October has remained healthy, allowing it to continue paying down debt. The shares rose by 31.5p to 592p. It said that it saw long term growth potential in all its markets, with significant growth opportunities available in the UK and overseas. Excellent margin performance was seen in the Marine division, and all key contracts in the Defence business are performing well and in line with performance targets. The firm's Nuclear arm has witnessed more downbeat trading as the civil decommissioning market has remained subdued, but the power generation support market remained strong. Shore Capital said that it remains positive on the group's prospects, with a recovery in business performance over the next two years. The broker repeated its 'buy' stance.

Waste group Shanks (SKS) share price slipped by 2.8p to 124.1p as it said that results would be slightly below targets due to the freezing weather, but that underlying trading remains satisfactory. Bid talks are continuing regarding the approach made in December by private equity group Carlyle. Uncertainty over the offer has caused the firm to proceed more cautiously with the sale of its PFI businesses. Over 7 million pounds of cost savings have been achieved, with a full target of 10 million pounds. Year end net debt is also expected to be below expectations. Shanks added that trading conditions for the waste industry remain tough.

Pre-tax profit for the nine months to 31st December at Dairy Crest (DCG) is expected to be ahead of forecasts after a strong performance in the last three months of 2009, the company said. Sales for the nine months fell by 1% on 2008 due to lower sales of commodity ingredients and milk to non-major retail customers. Sales of its five key brands rose by 10% in the first nine months of the year, supported by high levels of television advertising and promotions. Milk sales to supermarkets have increased, with a contract with Sainsbury's renewed. Sales volumes for fresh milk in the first week of January were up 17%. Internet arm milk&more has continued to experience good momentum, with 180,000 customers registered to use the service. The group said that it plans to invest 75 million pounds in the Dairies division over the next three years to improve infrastructure and efficiency. RBS upgraded the firm from 'hold' to 'buy', and increased its target price from 405p to 430p, saying that the strong trading and encouraging outlook were "reassuring". The shares rose by 3.9p to 341.6p.

Private equity-owned New Look confirmed that it would re-list on the stock market, and would raise 650 million pounds that would be used to pay down debts. A flotation is expected to value the company at around 1.7 billion pounds. Turnover last year was 1.3 billion pounds, with EBITDA of 218 million pounds. The firm has more than 1,000 stores, with 601 in Britain. This will be the second attempt at a listing, with a planned flotation in 2007 cancelled after investors shied away from the 1.8 billion pound valuation.

Small Caps, AIM and PLUS

Shares in infrastructure design consultant Hyder Consulting (HYC) jumped by 27p to 227.5p after it said that full-year revenue and operating profit would be slightly ahead of expectations. Redundancy and other costs absorbed approximately 3 million pounds, but the order book remains strong, even after a slight reduction in the second half of the year due to a fall in work in Dubai. Arbuthnot Securities restated its 'buy' stance and 290p target price, as Hyder's low level of gearing provides scope to "accommodate trading conditions worsening beyond [Arbuthnot's] expectations".

Specialist car distributor Autologic (ALG) said that, although it remains cautious about prospects for 2010, profit before tax and exceptionals for the year to 31st December would be "materially better than current market expectations" thanks to stronger than expected UK trading in the second half. The government scrappage scheme ('cash for clunkers') provided a boost for the firm, with around 280,000 new registrations in 2009, mostly falling in the second half. Demand in 2010 is expected to fall away as the scheme ends in February. Autologic shares rose by 1.5p to 25.5p.

Cosalt (CSLT), the safety specialist for the oil industry, reported that full year revenue to 1st November was 107.83 million pounds, up 2.6% while pre-tax profit fell 24% to 5.49 million pounds, knocking earnings per share back 45% to 4.2p. The firm said that pension scheme issues were being addressed and that annualised cost savings of 3 million pounds have been achieved, with further action being taken in 2010. The share price fell by 1.13p to 8.75p.

IT services firm Maxima Holdings (MXM) said that it sees signs of recovery across many parts of its business, as trading continues to be in line with expectations. The shares pushed ahead by 9p to 82.5p. However, revenue for the six months to 30th November fell by 7% to 26.25 million pounds. The proportion of revenue from recurring operations improved, rising from 54% to 60%. Exceptional charges of 1.3 million pounds, due to redundancy and reorganisation costs, pushed the company into a pre-tax loss of 0.6 million pounds, down from a profit of 1.34 million pounds in 2008. The interim dividend was reduced from 2p to 1p. Maxima commented that enquiries, pipeline and order intake are steadily improving, and contributions from new sales hires are beginning to have an impact. Nevertheless, Astaire Securities said that the firm is still "a work in progress".

Environmental Recycling Technologies (ENRT), which licenses a moulding system to third parties and was formerly known as 3DM and which has been censured twice by the LSE for telling packs of lies to investors via RNS statements, announced that it has settled a series of disputes with the former chief executive of the group's Central Asian operations. The full details were not disclosed but the firm said that it will be payable in cash and shares over a period of three years. Provision has been made in its 2009 interim report for the cash element. Shares in this useless enterprise - which tries to silence critics by using lawyers letters - rose by 0.25p to 2.375p.

IT group Xploite (XPT) reported a fall in total turnover for the year to 31st October of 42% to 27.8 million pounds, but profit after tax rose from 1.5 million pounds in 2008 to 4.4 million pounds. Adjusted earnings per share rose by 26% to 16.22p. After the year end, the firm returned 9.5 million pounds to shareholders following the sale of ANIX, which had realised the firm a profit of 6.3 million pounds. Following the sale of Anix, the remaining trading business, Storage Fusion, reported a loss for the year of 0.4 million pounds. 15 new agreements, including six new resellers, were achieved in the fourth quarter of 2009, as a result of a revised sales and marketing strategy. Xploite shares remained unchanged at 36p.

Self-storage firm Lok'n'Store (LOK) said that trading in the first half of the financial year was encouraging, particularly during the usually quiet winter quarter. The shares gained 2p to 87.5p. Occupancy since 31st July was down 0.5%, while occupancy to 31st January rose 10.2% year-on-year. Average prices per square foot for self-storage rose 2.8% since 31st July, compared to 0.1% last year. The firm said that the benefits of last year's cost cutting are continuing to be felt. Arbuthnot Securities commented that margins at the firm would continue to benefit from the "increasing maturity" of its sites in Harlow and Northampton Central.

PLUS-quoted Scancell Holdings (SCLP), the developer of therapeutic cancer vaccines, said that it had made an application to the Gene Therapy Advisory Committee to conduct a Phase I trial on its SCIB1 vaccine. The drug is designed for the treatment of melanoma, and is expected to prove more effective than current cancer vaccines. The shares stayed unchanged at 52.5p.

* Blavod is a corporate client of Rivington Street Holdings, the ultimate owner of this website; the T1ps Smaller Companies Growth Fund owns shares in Blavod.