From UK-Analyst.com: Thursday 25th February 2010

The Argies foreign minister made a formal request to the UN for Britain to enter talks over the Falklands; meanwhile, deafening silence was all that the UK got from Washington as scumbag Obama refused to back his closest ally. Bring back Ronald Reagan (okay he's dead but whatever) and for that matter Maggie too. Greece managed to anger Germany by suggesting its problems stemmed from the Nazi occupation during the war (note to Greece, don't make the Germans cross). Back in the UK, billionaire financier Jim Rogers said that the pound could collapse within weeks, calling it a "basket case" that puts Britain's recovery in serious danger. Wall Street retreated thanks to higher than expected jobless claims and ongoing worries over Greek debt, and London followed suit, giving up earlier small gains. At the London close the Dow Jones was down by 147.97 points at 10,226.19 and the Nasdaq was down by 28.84 points at 2,207.06.

In London the FTSE 100 fell by 64.69 points to 5,278.23; the FTSE 250 fell by 132.24 points to 9,226.94; the FTSE All-Share slipped 33.81 points lower to 2,968.61; and the FTSE AIM Index fell by 3.87 points to close at 663.15.

Brokers' Notes

Panmure Gordon published a note on ITV (ITV) which commented on improving trends in TV advertising, with indications of a 15% year-on-year increase in advertising in April. The first quarter of FY2010 saw a 5% year-on-year increase, a very good sign for ITV, which derives 75% of its revenue from advertising. The broker did warn however that some spending on ads might be "pulled forward" ahead of the General Election. It forecast a "near doubling" of earnings per share growth in FY 2010, although it added that the new management have yet to update the market on wider strategy plans, which might lead to additional costs. Finally, it said that ITV would be a net beneficiary of a Tory election win, given the noises made about BBC cuts. The broker retained its stance at 'hold' with a 48p target price. The shares lost 0.3p to 53.95p.

Seymour Pierce says that it will be looking for more information on the stronger than expected cash generation indicated by digital technology firm Pace (PIC) as it announces its results on 2nd March. Commentary from customers of the firm suggests that HD and, to a lesser extent, digital TV will be the main drivers, although the broker notes that it is still too early in 2010 for a full picture of demand to emerge. Pace is also expected to comment on issues of component availability, and on the splitting up of Motorola and the effects on the industry. The broker said that its 270p target price reflects its view of the firm as a "cash generative, industry-leading business that delivers on promises". The stance was unchanged at 'buy'. Pace shares tracked back 3.6p to 170.9p.

Singer Capital Markets said that fund inflows at investment manager Henderson Group (HGG) were "disappointing in the context of the peer group". The results contained no surprises, with group profit for 2009 down 8% at 73.7 million pounds, and an unchanged final dividend of 4.25p. Singer said this was "reassuring", but that rivals Aberdeen and Schroders had seen better inflows than the 1 billion pounds in the fourth quarter at Henderson. Aberdeen in particular was noted as offering "greater potential for improvements in cash flows and margins". The 'fair value' stance and 130p target for Henderson shares was left in place. The shares rose by 0.8p to 122.9p.

Brewin Dolphin resumed its coverage of Mears (MER), the support services firm, in the wake of its acquisition of Supporta, which the broker expects to be "modestly earnings enhancing" in FY 2010. Mears' focus on social housing will benefit the firm, as the British population ages, increasing the demand for such accommodation; the government is also committed to investing in new build social housing, giving good visibility. Around 85% of the firm's revenue comes from repair and maintenance, and this is a particularly stable area as funding comes either from tenants or from the government (where tenants are on benefit). Earnings growth of 14% is forecast for FY 2010 and the broker says that good growth is achievable after this point as well. It reiterated its 'buy' stance and 368p target. Mears share price fell by 0.5p to 262.75p.

Blue-Chips

State-owned leviathan RBS (RBS) reported an improved performance, with net losses of 3.6 billion pounds in calendar 2009, from losses of 24.3 billion pounds in 2008. Impairments almost doubled to 13.9 billion pounds, with income up 34% at 31.7 billion pounds. The basic loss per share stood at 6.3p, a mere fraction of the 146.2p loss per share in 2008. The investment bank arm swung into the black, providing a rare bright spot, with an operating profit of 5.7 billion pounds. As expected, the group announced that it would pay 1.3 billion pounds in bonuses, which it defended by saying that it needed to pay competitive rates. Chief executive Stephen Hester said that staff losses were "damaging but not destructive" and that the biggest challenge for 2010 would be attracting and retaining talented staff. Execution Noble said that the results indicate operational improvement and better revenue trends in core lending businesses. RBS shares rose 2.25p to 38.38p, good news for you and I who own 84% of this enterprise.

Centrica (CNA) reported that profit on a continuing basis for calendar 2009 rose by 15% to 1.104 billion pounds, helping lift the shares by 5.6p to 277.7p. Revenue increased slightly to 21.96 billion pounds and the full-year dividend was increased by 4.9% to 12.8p. Adjusted basic earnings per share remained flat at 21.7p. The firm said that the outlook for 2010 was positive and that trading was in line with expectations. Centrica also announced that it has signed an agreement to acquire equity interests in gas blocks offshore Trinidad for 380 million dollars, its first liquefied natural gas position. Ambrian Capital said that the firm remains one of its favourite plays in the sector, and it kept its 'buy' stance and 317p target unchanged.

Insurer RSA (RSA) announced a smaller than expected fall in pre-tax profit for 2009, as it dropped by 27% to 554 million pounds. Net written premiums were down 1% at constant currency at 6.7 billion pounds, and diluted earnings per share were down 28% at 12.1p. Investment income was down 11% in 2009, at 523 million pounds, and is expected to be in the region of 540 million pounds for 2010. The final dividend was increased by 7% to 5.33p. Shore Capital said that the results were "an excellent operating performance", and it repeated its 'buy' stance. RSA shares fell by 2.1p to 129.7p.

Outsourcing firm Capita (CPI) increased its full-year dividend for 2009 by 17% to 16.8p per share, as underlying pre-tax profit for the year rose by 13% to 258.1 million pounds, below forecasts of 321 million pounds. The shares lost 31.5p to 712.5p. Underlying earnings per share were up by 17% to 38.75p, with revenues increasing by 10% to 2.687 billion pounds. The firm said it is enjoying "a healthy flow of new business opportunities" and that the strong forward visibility of revenues puts it in a strong position for 2010. Seymour Pierce said that the high levels of organic growth are reflected in the share price and that "there is little room for upside". The broker retained its 'hold' stance and 720p target.

British American Tobacco (BATS) increased its pre-tax profit for 2009 by 11% to 4.08 billion pounds, although this performance was at the lower end of expectations. Revenue performance was better, up 17% to 14.208 billion pounds, with adjusted diluted earnings per share up by 19% at 153p. The dividend for the year was raised by 19% to 99.5p. British American's four brands achieved good overall growth, and the group said that its geographic spread will help it to maintain sustainable growth. The results were a drag on the share price, taking it back by 51.5p to 2,179.5p.

Mid-Caps

Bingo and gaming group Rank (RNK) reported that new venues helped to increase revenue by 3.4% in 2009 to 540 million pounds, with pre-tax profit up by 28% at 49.2 million pounds. The shares gained 3.9p to 98.05p. Adjusted earnings per share were up 21.9% to 8.9p, with a dividend of 1.35p reinstated. In the eight weeks to 21st February, like-for-like revenue was up 5%, although the cold weather in January deterred customers from visiting the Mecca bingo halls, which reported a like-for-like fall in revenue of 3%. The group said that stabilisation in its businesses give it confidence in the outlook for 2010. Daniel Stewart remained unimpressed, noting the continued weak performance in the Bingo division. It retained its 'sell' stance and 75p price target.

GKN (GKN), the automotive and aerospace engineer said that sales were down 3% at 4.2 billion pounds, and pre-tax profit halved to 83 million pounds for calendar 2009. Earnings per share plummeted by 65% to 5.5p, and no dividend would be paid for 2009. The group intends to pay an interim dividend in 2010. A strong performance in Aerospace and restructuring improvements were offset by declines in Automotive, Powder Metallurgy and OffHighway sales. The firm said that a cloud of uncertainty continues to hang over demand in the second half of 2010. Arbuthnot Securities repeated its 'buy' stance and 150p target, saying that underlying cash generation remains strong. The shares rose by 5.4p to 109p.

Profits at recruitment firm Hays (HAS) nose-dived by 70% to 30.4 million pounds in the half year to 31st December, excluding the 27 million pound OFT fine currently under appeal. Including the fine, the figure was 3.4 million pounds, down an impressive 97%. Like-for-like turnover was down by 5% to 1.29 billion pounds as a result of the withdrawal of the staff hire concession. Net fees were down 35% like-for-like at 264.8 million pounds. Limited signs of recovery were seen in the private sector, but trends continue to weaken in the public sector as the long-awaited bonfire of public spending approaches. Basic earnings per share were down 73% to 1.38p and the dividend remained unchanged at 1.85p. Panmure Gordon stuck with its 'hold' stance and 110p target, saying that it remains nervous of the firm's exposure to the bloated public sector. Hays shares fell back 9.1p to 104.2p.

Bodycote (BOY), the engineering firm, reported a slump in pre-tax profit for 2009 to 3.7 million pounds, from 67.6 million pounds in 2008, as revenue declined to 435.4 million pounds from 551.8 million pounds a year earlier. A loss per share of 27p was recorded, after earnings of 48.2p in 2008. The final dividend of 5.35p remains unchanged. Bodycote cautioned that it does not expect the aerospace, defence and energy markets to recover until later in 2010, although the automotive and general industrial markets have begun to recover. Arbuthnot Securities said that it expects a recovery in earnings driven mainly by the cost reduction programme. The shares lost 7.3p to 178p.

Small Caps, AIM and PLUS

Shares in promotional products firm 4imprint (FOUR) pushed ahead by 30p to 150p as it announced that pre-tax profit for 2009 was down by 47% to 2.67 million pounds, although group revenue edged up 1% to 169.09 million pounds. Diluted earnings per share were 35% lower at 8.79p, but the final dividend of 8.5p was 6.25% higher than the previous year. Efficiency measures, including a 9% headcount reduction, an improving competitive position and improving US conditions drove an improvement in the fourth quarter. Panmure Gordon said that the results represent a turning point for the firm, and it upgraded its stance from 'hold' to 'buy' and increased its target price from 148p to 191p.

Tanzanian miner Shanta Gold (SHG) said that it has identified new targets at the Chunya site and also extended the mineralised strike excavations. The firm added that the new extensions are expected to have a positive impact on the resource potential and the economics of the planned project. Shanta shares soared 6.25p to 17.25p.

Island Oil & Gas (IOG) shares jumped by 1.875p to 8p on news that San Leon Energy has agreed to buy the firm in an all-stock deal worth 13.74 million pounds, or 10.11p per share. Island shareholders will receive one San Leon share for every 2.3 Island shares.

Cable TV and broadband company Virgin Media (VMED) said that fourth quarter revenue in 2009 was up by 3.3% at 980 million pounds, with consumer cable revenue up 6.1% at 640.1 million pounds. Average revenue per user was ahead by 5.8% at 44.81 pounds, while the churn rate (customers who leave the service) was similar to 2008 at 1.2% and close to historic lows. The loss from continuing operations before tax halved to 94.4 million pounds, but the loss per share from continuing operations jumped 61% to 29p. The dividend remained unchanged at 2.6p. 63,000 new cable broadband subscribers were added, with 12,500 new non-cable subscribers, bringing the total above 4.1 million. Daniel Stewart observed that Virgin is ahead of its forecasts for cable subscribers; the broker had predicted 3.874 million by March 2010, and the firm now has 3.838 million. Virgin shares rose by 62p to 1050p.

Sinclair Pharma (SPH) moved into the red, reporting a pre-exceptionals EBITDA loss of 2.4 million pounds in the half year to 31st December, against a profit of 2.2 million pounds in 2008. Total revenues were down by a third at 11 million pounds, due to a 5.1 million pound fall in one-off licence fee income in the period. The loss per share before exceptional items was 3.4p, from earnings per share in 2008 of 0.4p. Cost reductions secured an annualised 1.5 million pounds of savings. The shares fell by 1p to 30p.

Shares in Red Rock Resources* (RRR) rose by 0.1p to 1.83p as the firm reported that trading in shares of Jupiter Mines, an associate company in which Red Rock has a 25.1% stake, has been halted pending an announcement about a "significant transaction".

Thor Mining (THR) announced that it is acquiring a 51% the Dundas gold project in Western Australia for 100,000 Australian dollars. The move is the first step in Thor's exploration strategy, which sees the firm targeting economically favourable gold prospects rather than base metal projects. The shares thundered ahead by 0.125p to 1.125p.

Coastal Energy (CEO) issued an update on the Thai prospects Songkhla B-02 and A-04, saying that B-02 had reached a depth of 3,375 metres, encountering 12 feet of net pay. However, the findings were not substantial to justify further standalone development and so the B well is to be abandoned. Work at A-04 is now complete and is producing 3,000 barrels of oil per day. Coastal shares drifted down 25.5p to 253.5p.

Shares in audiovisual firm Avesco (AVS) dropped 5p to 42.5p on news that Taya Investment Corporation does not intend to make a bid for the firm. No other offers have been received and so the firm's offer period has now ended.

Print management firm Communisis (CMS) said that pre-tax profit for calendar 2009 plunged 79% to 2.597 million pounds, as revenues dropped 26% to 190.18 million pounds. Diluted earnings per share from continuing operations fell by 63% to 2.25p and the dividend was slashed by 48% to 2.495p. The firm's new chief executive, Andy Blundell, said that he wants the firm to diversify away from the financial services sector and become involved in replacement technologies for traditional products such as cheques. The firm said it expects higher levels of marketing activity in 2010 despite difficult trading conditions. Panmure Gordon said it expects long-term improvement and, although it did not change its 'hold' stance, it increased its target from 13.5p to 16.2p. The shares fell 1.25p to 13.5p.

*Red Rock is a corporate client of RSH the ultimate owner of this website. RSH owns Red Rock shares as does the SF t1ps Smaller Companies Gold Fund which is managed by another RSH subsidiary. For more details on the gold fund email goldfund@t1ps.com