From UK-Analyst.com: Monday 1st March 2010

A survey of local councils indicates that job cuts of around 10%, or 25,000 workers, could be needed to help tackle the budget deficit. Communities Secretary John Denham said that cuts in spending could be made through efficiency savings and not from the loss of frontline jobs - so why hasn't this been done earlier? The EU ruled that a proposed Orange-T-Mobile merger could go ahead, provided steps were taken to protect the 3 network. London share prices rose on the back of increased commodity prices due to fears of higher copper prices after the Chilean earthquake, while Wall Street was up on M&A news and better than expected consumer spending data.

At the London close the Dow Jones was up by 79.36 points at 10,404.62 and the Nasdaq was ahead by 30.29 points at 2,268.55. In London the FTSE 100 rose by 51.42 points to 5,405.94; the FTSE 250 gained 135.44 points to 9,479.83; the FTSE All-Share was up by 27.82 points at 2,764.62; and the FTSE AIM Index rose by 5.43 points to close at 673.07.

Brokers' Notes

Charles Stanley said that a focus on Asia will be beneficial for recruitment firm Robert Walters (RWA)), in advance of the group's results on 4th March. In addition, the firm's focus on the finance, accounting and banking sectors, which proved problematic in 2008, will mean that its performance will have improved along with these sectors; having been the first to enter the recession, they will be among the first to leave it. The broker forecast a 25% fall in gross profit for 2009, down to 104 million pounds. It focussed on the average earnings throughout the cycle in order to reach its 329p price target, but added that there was a risk of a sell-off of the shares, similar to that seen after the release of results from rival recruiter Hays, as the market concentrates more on near-term setbacks. The 'buy' stance was left unchanged. The shares closed unchanged at 202p.

Insurer Aviva (AV.) is expected to report a drop of 7% in operating profit for 2009, says Panmure Gordon, to 3.11 billion pounds, with a total dividend for the year down by 30% to 23.1p. However, the strength of recovery in the balance sheet leads the broker to expect that the dividend could be higher than that expected by the market. Continuing uncertainty over the introduction and likely impact of the Solvency II legislation will hang over the shares, and it is possible that the implementation date could be set back to as late as October 2012. Panmure does not expect the impact to be as great as first suggested by the Association of British Insurers. Given the "ongoing potential of the business going forward", the broker says that a current PE of eight times earnings for 2010 is too low. It continued to rate the shares as 'buy', with a 526p target. Aviva shares fell by 15.1p to 375.2p.

Despite regarding Lloyds' (LLOY) results as "incrementally positive", Nomura remained negative on the group, due to "asset quality, funding and capital issues". As with RBS, it would regard any strengthening of the share price as a selling opportunity, as it does not regard the valuation of 0.95 times book value as "particularly attractive in a sector context".. After Lloyds raised the HBOS synergy targets to two billion pounds, Nomura added 2.5 billion pounds to its pre-tax profit forecast for 2010, bringing it to a loss of 2.4 billion pounds. It did this with some reluctance, adding that it now viewed its assumptions as optimistic. The stance remained at 'reduce' with a 53p target. Lloyds shares fell by 2.24p to 50.26p.

Astaire Securities initiated its coverage of IT firm Anite (AIE) with 'buy' stance and a 40p target. The firm provides customers with the means to address increasing data traffic. The collapse of rival BlueSky has improved the competitive environment for the firm, and the Travel division has now stabilised after two years of upheaval. The broker expects the first half of 2010 to represent the trough in earnings, with weak demand across all divisions finally ending. After disposing of non-core activities, the firm looks able to take advantage of its strength in the Wireless Testing market, and the opportunities thrown up by the shift to 4G technology. The shares rose by 0.75p to 33.25p.

Blue-Chips

HSBC (HSBA) reported pre-tax profits of 7.08 billion dollars for calendar 2009, slightly below expectations of 7.14 billion dollars, and down 23% on 2008. Underlying pre-tax profit, which excludes North American impairments, jumped by 56% to 13.3 billion dollars. Total operating income was down by 11% at 78.6 billion dollars, with diluted earnings per share 17% lower at 22p. The full year dividend per share dropped by 63% to 22p. HSBC's Global Banking & Markets division was the best performer, with pre-tax profits in the division tripling to 10.48 billion dollars. Michael Geoghegan, the chief executive, said he would donate up to 4 million pounds of his bonus to charity. The group, which did not receive any government money during the crisis, said that it expected a two-speed economic recovery, with emerging market GDP growing by up to 6% and the developed world struggling to reach 2%. HSBC shares fell by 37.6p to 682p.

Rio Tinto (RIO) shares surged ahead by 104.5p to 3,468.5p as it said it would acquire 15 million shares in Mongolian miner Ivanhoe Mines for 153.86 million pounds. The funds will be used by Ivanhoe to finance equipment for the Oyu Tolgoi copper-gold complex. Production is expected to commence in 2013, with a five-year target of 450,000 tonnes of copper and 330,000 ounces of gold per year. To be fair all mining shares jumped on the Chile news.

Aggreko (AGK) announced that it had won a contract to provide temporary power and temperature control for broadcast services at the 2010 Football World Cup. For an unspecified amount, Aggreko will provide broadcasting power in ten stadia as well as the International Broadcast Centre and FIFA headquarters. The shares rose by 59p to 1034p.

Shares in Prudential (PRU) were suspended as the insurer confirmed that it was nearing a deal with the notorious AIG to buy that firm's Asian assets. The shares were down 72.5p at 530p before suspension. Reports indicated that the cost would be around 35 billion dollars, which would be funded by the largest rights issue ever seen in the UK. Prudential will ask its shareholders for around 15 billion pounds, topping the 13.5 billion pounds raised by Lloyd's in November 2009. The US government, which owns 80% of AIG, said it would be willing to take a stake in Prudential as part of the deal. The acquisition would make Prudential the largest life insurance group in the region, with 31 million customers and profits in the region of 3 billion pounds. It already generates one third of profits and half its new business in Asia. Shore Capital said that the move would be "a huge strategic step forward" and it repeated its 'buy' stance.

Pearson (PSON), the publisher of pink paper The Financial Times, reported a 4% growth in sales at constant exchange rates to 5.6 billion pounds, up 2% if acquisitions were removed, for calendar 2009. Adjusted pre-tax profit was up by 13% at 761 million pounds, Basic earnings per share from continuing operations were up by 11% at 53.2p, with a 5% rise in the full-year dividend to 35.5p. Sales in the Education division were up 7% as it made "significant" gains in market share. Margins at the Financial Times and at Penguin Publishing remained stable. Panmure Gordon called the statement fairly subdued, and kept its 'hold' stance and 950p target. Pearson shares added 42.5p to 954.5p.

Tomkins (TOMK) moved back into profit in 2009, with a pre-tax profit of 38.4 million dollars, after sustaining a loss of 8.1 million dollars in 2008. The shares gained 12.2p to 204.8p. The firm warned that conditions remained challenging and that any recovery would occur in the second half of this year. Sales were down by a quarter at 4.18 billion dollars, and adjusted diluted earnings per share were down by 42% at 14.81 cents. Good news for investors came in the form of the final dividend per share, which more than tripled to 6.5 cents, bringing the full-year dividend to 10 cents, down 23% on 2008. Panmure Gordon praised the results, saying that the firm had "trimmed the low margin parts of its empire to good effect". It kept its 'buy' stance but put the target price, previously at 250p, under review.

Underwriter Amlin (AML) reported a leap of 300% in pre-tax profits for 2009 to 509.1 million pounds. Gross written premiums were up 50% at 1.54 billion pounds, with the combined underwriting ratio up from 72% to 76%. Earnings per share soared to 94.1p, up from 17.1p in 2008, and the full-year dividend was increased by 17.6% to 20p. Amlin commented that 2010 would be more challenging than 2009, and that it expected lower returns on investments in the coming year. KBC Peel Hunt said that the results showed that Amlin was the "class act of the sector". The shares rose by 9.8p to 404.6p.

Offshoring specialist Xchanging's (XCH) sales in 2009 were boosted by the impact of acquisitions, with revenue increasing by 35% to 750.4 million pounds, although pre-tax profit more than halved to 19.45 million pounds. The shares edged up by 2.5p to 186.5p. Diluted earnings per share plummeted 76% to 3.1p, but final dividend was upped by 10% to 2.75p. The firm, which counts BAE and Deutsche Bank among its customers, still sees contract delays among customers, meaning that most its 33 pipeline opportunities will be completed in the second half of 2010. Seymour Pierce said that Xchanging is "an attractive player in a consolidating market". It repeated its 'buy' stance and 250p target.

Ultra Electronics (ULE), which supplies components to the defence industry, reported a swing into profit for 2009, with pre-tax profit at 107.9 million pounds, up from a 2.9 million pound loss in 2008. Revenue expanded by 26% to 651 million pounds, and earnings per share were up 20% at 96.4p. A re-examination of defence priorities in the UK (or, defence cuts in plain English) and delays in the award of contracts caused year-end orders to fall to 762 million pounds from 783.5 million pounds in 2008.  A 20% increase in the dividend was recommended, to 31.2p. Ultra shares added 29p to 1355p.

Small Caps, AIM and PLUS

Energy conservation firm Kingspan (KGP) reported a fall in pre-tax profit for 2009 of 17% to 56.7 million euros, although basic earnings per share were up by 7% at 28.7 cents. Turnover was down 33% at 1.125 billion euros and no dividend for the year was declared, whereas a dividend of 8 cents per share had been paid out in 2008. The firm said that stability was beginning to return as global energy conservation initiatives began to gather pace. The shares moved ahead by 56p to 556p.

Technology manufacturer Senior (SNR) said that higher R&D and deprecation costs had affected revenue and pre-tax profit for 2009, down 4% to 540.1 million pounds and 3% at 49.6 million pounds respectively. Adjusted pre-tax profit was down 14% at 48 million pounds, with adjusted earnings per share falling by 16% to 8.91p. No change was reported in the dividend payment, at 2.6p. 2010 is now expected to be broadly in line with 2009, having previously said that it would be worse. Brewin Dolphin commented that the results showed that Senior was "a very well run business that can continue to prosper in coming years". It put the stance and target price under review, these having been at 'add' and 91p respectively. Senior shares pressed ahead by 6.75p to 85.25p.

Shares in e2v (E2V), the electronics group, dropped by 8p to 39.25p as it said that it was being affected by serious industrial strife at its facility in Grenoble.  The French on strike. Whatever next? Output was being materially affected, and the effect on turnover is expected to be in the region of 7 million pounds. The firm added that its restructuring, which included the closure of its Lincoln site and the transfer of operations to Chelmsford, was proceeding according to plan. Seymour Pierce kept its stance at 'buy', saying the shares offered good long term value.

Nexus Management* (NXS) announced a series of orders for its subsidiary, Resilience Technology. NASA has ordered additional firewalls for its computers, choosing Resilience for their superior reliability. The firm also received an order for 100 units from an unnamed North American telecoms provider. In addition, an unnamed Canadian retailer has selected the Resilience firewalls for its own systems; the product will be rolled out across a thousand stores. Finally, an unnamed Caribbean bank also ordered Resilience's security protection. No exact financial details were disclosed, but Nexus said that the deals would generate "several hundred thousand dollars of income in the current financial year and are expected to provide recurring maintenance income in future financial years". Nexus shares gained 0.09p to 0.47p.

Vane Minerals (VML) confirmed that the Wate breccia pipe in Arizona contained 695,000 pounds of eU308. The resource model was developed from twelve drill holes, six drilled by Vane and six from the previous lessee, Rocky Mountain Energy. Arbuthnot Securities said that Vane possessed "significant value which is not currently being seen in its share price" and that the news should help close this gap. The shares jumped by 0.625p to 5p.

Shares in intelligence gathering equipment firm Datong (DTE) dived by 6p to 45.5p after it said that delivery delays would result in a full-year loss, with revenue missing expectations by around 15%. The delays have been attributed to the requirement to follow a formal export control process. This has impacted on its 0.8 million pound order announced in July, with delivery on this order not expected before 31st March. Canaccord Adams reduced its price target from 60p to 50p until it could see more clarity on when the deals would close but kept its stance at buy.

Penny share compliance software firm Access Intelligence* (ACC) reported a 51.6% jump in turnover for the year to 30th November to 6 million pounds. The firm moved into the black with a pre-tax profit of 0.56 million pounds, from a loss in 2008 of 4.6 million pounds. Basic earnings per share of 0.38p were reported, from a loss in 2008 of 5.27p per share. Separately, the firm announced the acquisition of Cobent, a fellow provider of compliance software, for 5.2 million pounds. In 2009, Cobent's turnover was 1.5 million pounds, with EBITDA of 553,000 pounds. Astaire Securities praised the firm's "excellent recovery" and said that the acquisition would strengthen Access' position in its regulation-driven markets.  Access shares fell by 0.375p to 5.375p.

Biology services company Physiomics (PYC) announced its results for the six months to 31st December with showed a pre-tax loss of 113,000 pounds, against a small pre-tax profit of 1,000 pounds in 2008. Revenue slumped by 44% to 117,000 pounds, with a loss per share of 0.0158p reported, against 2008 earnings per share of 0.0007p. The company said the period had been quiet commercially, and although talks with "major players" in the pharma and biotech sector were continuing, these had become protracted.  The shares closed down by 0.06p at 0.32p.

 *This company is a corporate client of Rivington Street Holdings, the ultimate owner of this website. The t1ps Smaller Companies Growth Fund owns shares in Access Intelligence and Nexus Management. RSH owns Nexus shares.