From UK-Analyst.com: Monday 8th February 2010

After only a delay of three days, the Labour Party moved to suspend the three MPs which face court action over alleged abuses of expenses. The move comes after news that the suspects attempted to use Parliamentary Privileges enshrined in the Bill of Rights to escape the long (if tardy) arm of the law. A report on UK dividend payments indicated that distributions to investors in 2009 were 15% lower than in 2008. Capita Registrars said that 56.9 billion pounds was paid out during the year, and predicted only 5% growth in dividends in 2010. Continued worries over the Greek national finances weighed on US stocks, although London regained some ground after its recent poor run and after a rebound in the US late on Friday night. At the London close the Dow Jones was up slightly by 0.31 points at 10,012.54 and the Nasdaq was up by 10.36 points  at 2,151.48.

In London the FTSE 100 rose by 31.41 points to 5,092.33; the FTSE 250 fell by 25.54 points to 9,010.37; the FTSE All-Share climbed by 12.64 points to 2,609.36; and the FTSE AIM Index fell by 1.7 points to close at 655.68.

Brokers' Notes

Shore Capital published a note on Tesco (TSCO) as news leaked that the Conservative Party may support the introduction of planning measures that would limit Tesco's room for expansion. A competition test relating to supermarkets would have the greatest impact on Tesco, as the largest of the big four supermarket chains, with over a 30% share of the multiple grocery market. The broker observed that any changes would "take considerable time to take effect". It also said that Tesco's shareholders may not be well-served by "over-investment in localities" and that a change in rules would force Tesco to concentrate more on existing assets. Restrictions on conventional store development may also force the supermarket giant to improve its on-line, convenience and non-food activities. Ultimately, Tesco could also seek to further its international efforts, which Shore called "material diversification that ... differentiates the investment proposition from its UK focused peers in a positive way". The 'buy' stance remained unchanged. Tesco shares inched up 3.35p to 414.1p.

Nomura is concerned that household goods giant Unilever (ULVR) may struggle to deliver margin progression in 2010. An increasingly competitive marketplace meant that the group chose not to take price increases in the fourth quarter of 2009 in order to maintain its position; going into 2010, the broker believes that Unilever "will not look to recover all input cost inflation". Raw material and packaging costs are also set to increase, with both good and packaging costs expected to be 2-3% higher. Finally, advertising and promotion (A&P) will increase significantly in 2010, as Unilever has decided that many of its category and geographic cells "are not yet at competitive levels of support", and increased A&P spending will be needed to support volume growth. EBIT margin for FY 2010 is expected to fall by 30 basis points, with underlying EBIT growth of 2%. The broker left its stance at 'reduce'. Unilever shares rose by 28p to 1,846p.

Recent falls in H&T Group's (HAT) share price were called "unwarranted" by Daniel Stewart, as the broker observed that the firm had delivered "outstanding profits growth" in recent years, with a store expansion plan since 2006 giving the firm 122 stores by the end of 2009, with a further 50 retail mall units. These openings have pushed profits from 4.7 million pounds in 2006 to an estimated 17.6 million pounds in 2009. Further improvements in profit are expected as the expanded store portfolio matures, with the broker referring to H&T as "extremely efficient [and] highly profitable". The stance was left at 'buy' with a 360p target. The shares fell by 4p to 263.5p.

Panmure Gordon reckons that security services provider G4S (GFS) is a good cyclical defensive stock, with organic growth expected to bottom out at 3-5%. It repeated its 'buy' stance and target price of 239p. A better-than-expected trading update from catering firm Compass could, in the broker's view, act as a catalyst for improved performance at G4S. A strong balance sheet will prove beneficial should the company decide to make any acquisitions, and a 3% dividend yield provides a further reason to invest. In addition, little downside risk is expected since dollars and euros account for around 66% of earnings. GFS's share price rose by 3.1p to 255.3p.

GE&CR published a note on PetroLatina Energy* (PELE), rating the firm as a 'speculative buy' with a 123.4p target price. The firm's 2009 eight well drill programme is entering its final stages, and this undertaking has been boosted by having its operating licence extended for the economic life of the fields and by a large investment from Tribeca.  In GE&CR's view, this gives the company "a sound base" upon which to move forward. The current annualised rate of revenue generation is 10 million dollars, but increased production from its assets in Colombia and Guatemala and its expanding pipeline will combine with rising oil prices to increase this considerably. Some risk is contained within the company, given its focus on Colombia, in addition to "the inherent risks of the oil and gas sector",  but the research house viewed the upside potential as "significant". The shares fell by 3.75p to 55.75p.

Blue-Chips

Randgold Resources (RRS) shares rose by 266p to 4,475p after the company raised its annual dividend by 30% to 17 cents per share as profits in the three months to 31st December jumped by 316% to 38.7 million pounds. Gold sales increased by 78% to 139.2 million pounds as the average gold price rose by 15% to 1,012 dollars per ounce. Gold production in 2009 rose 14% to 488,255 ounces, helped by a strong performance in the fourth quarter from the firm's production site in Mali. Randgold added that it has brought forward its date for first production at its recently-acquired Kibali project in the Democratic Republic of Congo to January 2014. Arbuthnot Securities retained its 'buy' stance, saying that the shares would continue to move towards its 5,000p target price as further growth and reserves come into play.

Xstrata (XTA) reported that it would begin paying dividends again, at 8 cents per share, saying that it has greater confidence in the financial outlook and in its near and medium term prospects. Net profits in 2009 fell to 661 million dollars, from 3.66 billion in 2008 after one-off charges almost doubled to 2.1 billion dollars. Revenue fell by 16% to 23.5 billion dollars, with underlying earnings down 41% at 2.7 billion dollars. Diluted earnings per share fell to 25 cents, down from 209 cents in 2008. The firm said that, with 8 billion dollars' worth of construction already underway and nine billion dollars more set to be approved in 2010, it is well placed to benefit from significant volume growth in Asia and other industrialising economies. Xstrata shares gained 36.8p to 986.8p.

Anglo American (AAL) said that it would subscribe in full to its entitlement to the rights offer announced by its Anglo Platinum subsidiary. The move will cost the firm, which owns 79.72% of Anglo Platinum 1.3 billion dollars, and Anglo American will also underwrite the minority proportion of the rights offer. The sale is expected to raise 1.3 billion dollars and will give Anglo Platinum a more balanced capital structure, allowing it to carry out cost and productivity improvements to its portfolio. Ambrian Capital said that it believes Anglo American's exposure to platinum is overvalued, and it kept its 'hold' target of 2,900p. The shares rose by 55.5p to 2,329.5p.

Royal Bank of Scotland (RBS) announced the completion of the legal demerger process of ABN AMRO, the bank it acquired in 2007 for 70 billion euros. The ABN businesses acquired by the Dutch state were separated from the RBS acquired businesses on 6th February. RBS shares fell by 0.21p to 32.06p.

Mid-Caps

St Modwen Properties (SMP) reported that pre-tax losses for the year to 30th November 2009 were 119.4 million pounds, up from 73.1 million pounds in the previous year. The shares rose 1.8p to 188.3p. Revenue in the period fell by 22% to 133.7 million pounds. Net rental income increased slightly, from 25.7 million pounds in 2008 to 26.1 million pounds. The loss per share was 59.7p, up 37% from 2008, while the full-year net asset value fell from 251p to 200p. The firm said that prospects for the property market remained uncertain, with continued pressure on rents and property levels. However, it added that it is confident that 2010 would see a return to profit and net asset value growth.

Oil and gas engineer Lamprell (LAM) announced that it has been awarded a contract from an unnamed Indian oil and gas provider. Worth 39.4 million dollars, the deal will see Lamprell design and construct two offshore well head platforms, while its consortium partner Swiber Offshore Construction will transport and install the rigs. Lamprell's part of the contract is expected to be completed by December 2010. Lamprell shares fell by 4p to 187.1p.

BSS Group (BTSM), which provides a wide range of services to the commercial and industrial sectors, said that it has acquired UGS from family shareholders for 1.5 million pounds. The shares added 1.9p to 266.9p. UGS is a drainage supplier which has a network of ten branches. In the 12 months to 31st December 2009, it had revenue of 36.4 million pounds and made a loss of 40,000 pounds. BSS said that the acquisition required "some repositioning" and so would be earnings neutral in the year to March 2011. Panmure Gordon said that the acquisition is "exactly the sort of deal that BSS do well", adding that it fits well with the firm's strategy. The broker retained its 'buy' stance and price target of 340p.

Small Caps, AIM and PLUS

BATM Advanced Communications (BVC), the supplier of broadband data and telecoms systems, said that profits in the year to 31st December fell by 21% to 18.5 million dollars, while revenues increased slightly from 134.5 million dollars to 135.4 million dollars. The shares fell 8.75p to 45p. Earnings per share fell by 17.4% to 5.11 cents, but despite the fall the dividend jwas increased by 95.6% to 1.35p. BATM said that it began the year with a healthy pipeline and is cautiously optimistic for the coming year. Shore Capital said that it expects strong operating cost management to continue and healthy cash generation to be evident, while the long term outlook remains positive.

Healthcare real estate developer CareCapital (CARE) reported that it has disposed of 14 primary care properties for 23.5 million pounds. The net cash proceeds of the deal, after repayment of senior debt, will amount to approximately 4.4 million pounds, which will then be used to repay the majority of the company's short term funding. CareCapital has also entered into an agreement with Primary Health Properties that provides for the disposal of other primary healthcare properties in its development pipeline. Daniel Stewart said the sale represents "a very significant strengthening of the group's balance sheet" that, when combined with the political consensus about shielding the (bloated) NHS from spending cuts, means that the firm "should enjoy a strong re-rating". The shares soared 1.5p to 4.13p.

Security firm Petards Group (PEG) said that its pre-tax profit for 2009 would be above market expectations, with revenues for the full year rated towards the second half with margins also coming in above expectations. Net debt at the end of December was 0.8 million pounds, down from 1.8 million pounds as at 30th June. Working capital is expected to increase over the course of 2010. Petards shares jumped by 0.12p to 0.55p.

Alliance Pharma* (APH) has conditionally agreed to purchase Cambridge Laboratories for between 14.3 - 16.4 million pounds plus the value of inventory. The deal includes 18 prescription products across a range of therapeutic areas. Alliance will raise 7.5 million pounds through a share placing at 26p, Lloyds will provide an additional 4 million pound loan and has increased the existing 5 million pound working capital facility to 6 million pounds. The shares rose by 4p to 30.25p.

Commercial property firm Adalta Real* (ADA) jumped by 0.5p to 3.75p after it said that it had received higher numbers and higher values of instructions for sales, acquisitions and lettings from customers than previously expected. The firm also said that it is working closely with "a major retail company" providing land and property acquisitions services, mainly in the south of England. More opportunities are expected to arise in 2010.

Education supplier RM Group (RM.) said that trading in the first quarter of 2010 has been in line with expectations, although it warned that the seasonal nature of its business meant that this indicator is not reliable for the year as a whole. RM shares gained 3p to 175.75p. A number of contract wins have been achieved across the firm's three divisions, with meetings with US policymakers reinforcing RM's view that the US represents a significant opportunity. The British Pre-Budget Report was also positive for the firm, with the government signalling its intention to continue to spray money at the education system. Shore Capital called the business development "encouraging", saying that the firm looks well-placed to deliver growth even as the education sector sees significant change over the coming years. The broker kept its 'buy' stance.

Revenues at technology firm Globo (GBO) exceeded market expectations, increasing in the year to 31st December 2009 to 23.4 million euros. Operating cash flows during the year jumped by 295% to 8.1 million euros, while net borrowings remained in line with 2008. This level was higher than expected, due to slow settlement by the Greek government (no surprises) of invoices with a total value of 5.5 million euros; the firm said that it expects to receive "substantially all" of this amount during the first half of the current year. Daniel Stewart left its 'buy' target of 45p unchanged, saying that it expects Globo's CitronGO! product to remain the driver of growth in 2010, after it signed a large contract with an Asian mobile network operator. The shares rose by 0.5p to 11.75p.

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