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

The country ground to a halt as 250,000 civil servants went on strike. Actually, it didn't, so there's 250,000 salaries we can save straight away - which would, incidentally, fit nicely with the CBI and IoD's plea for a balanced budget by 2016. The European Commission said it is planning a version of the IMF to bolster the shaky Eurozone, with Germany and France leading the way in a bid to further cement their control over the continent. London markets failed to hang on to early gains and ended the day flat, while a lack of news lay behind the lack of movement on Wall Street. At the London close the Dow Jones was down by 12.17 points at 10,554.03 and the Nasdaq was up by 3.56 points at 2,329.91.

In London the FTSE 100 rose by 6.96 points to 5,606.72; the FTSE 250 gained 11.67 points to reach 9,786.39; the FTSE All-Share advanced by 3.41 points at 2,864.47; and the FTSE AIM Index rose by 2.33 points to close at 689.78.

Brokers' Notes

Panmure Gordon said that it expects Spirax-Sarco Engineering (SPX) to continue to benefit from its self-improvement programme well into 2011. Although the broker lowered its revenue estimates by 10 million pounds and 16 million pounds for 2010 and 2011 respectively, it said that it may increase these due to "the pent-up nature of both maintenance and upgrade expenditures". Margin improvements are expected to improve due to volume recovery, further cost benefits, relocation of some manufacturing to China and the rapid growth in service fees. The 2009 10% dividend increase was called a "generous and confident gesture", given high capital expenditure and potential outflows for working capital. The target price was increased from 1,465p to 1,550p and the 'buy' stance was unchanged. The shares rose by 29p to 1,374p.

Seymour Pierce warned that it expects the market to react negatively to Home Retail Group's (HOME) fourth quarter results on 11th March, as they will "show marked deterioration from the third quarter". Sales at Argos are expected to be down 6% on a like-for-like (LFL) basis, due to a late spring/summer catalogue and poor weather, while those at Homebase forecast to be 4% lower on a LFL basis. Gross margins are expected to be down 250 basis points and 375 basis points respectively. Competition from food retailers is expected to increase, while the election and World Cup are forecast to create a more difficult trading environment. The broker kept a 'sell' stance, saying that there are better opportunities elsewhere in the sector.  The home retail share price rose by 8.3p to 267p.

Canaccord Adams upgraded its stance on lender International Personal Finance (IPF) from 'hold' to 'buy' and raised its target price from 240p to 270p, as confidence surveys indicate that consumers are becoming more confident. The poor winter weather, which makes it more difficult for the company's agents to collect payments, will be reflected in results for the first quarter of 2010. Early settlement rebates (ESRs) are likely to affect 2010 results, negating the benefits of increased pricing and the extension of loan terms in mid-2009. This move reduced weekly payments and the annual percentage rate fell as a result. Discussions in the Czech Republic, Hungary and Mexico with regard to lending caps will require IPF to introduce new products to ensure that they meet required standards. Improving prospects for impairments led the broker to upgrade earnings forecasts for 2010 and 2011 by 15% and 5% respectively. The shares fell by 5p to 223.2p.

Brewin Dolphin cautioned that it expects fee rate pressures from local authorities to weigh on Nestor Healthcare (NSR), although the ongoing substitution of residential care in favour of domiciliary care is expected to benefit the group. Six new contracts have been won recently, and further tenders for contracts are still outstanding. The broker noted that, "following the recent corporate activity in the sector", the group is now the "purest play on the domiciliary care and primary care markets" for UK investors. The stance remained at 'hold' with a 47p target. Nestor shares gained 3.25p to 50.25p.

Blue-Chips

Master Investor announced that only 10 stands were left unreserved for its show on 24th April at the Business Design Centre in Islington, with the number of tickets reserved by high-net worth investors running ahead of the figure of 2,500 for 2009. Speaker's at the event include Nigel Wray, Jim Mellon and feared short-seller Evil Knievil.

Petrofac (PFC) reported a 24% jump in pre-tax profit to 441 million dollars in 2009, as revenue increased by 9.7% to 3.65 billion dollars. Order intake soared to 7.3 billion dollars, up from 2.9 billion dollars in 2008, while the order backlog doubled to 8.1 billion dollars. Diluted earnings per share were up by a third to 103.19 cents, and the final dividend for the year was lifted by an impressive 40% to 25.1 cents per share. The firm said that it expects strong growth in 2010 and in the medium term, with the record order intake giving it good visibility for the year ahead. Westhouse Securities repeated its 'buy' stance , after what it called a "solid" set of results. Petrofac shares bubbled up by 45p to 1,117p.

Insurer Prudential (PRU) said that it has accelerated its plans for a listing on the Hong Kong stock exchange, and now wants it to take effect before its mammoth 20 billion dollar rights issue. This will allow more Asian investors to take part in the fund-raising, which will help pay for the group's 35.5 billion dollar acquisition of AIG's Asian assets. Prudential's move has reportedly met with anger in Europe, as UK shareholders are excluded from sub-underwriting the issue, with a group of thirty banks signed up instead. Panmure Gordon advised caution, saying that management would have to execute "a textbook integration", and it lowered its target from 656p to 525p, keeping a 'hold' stance. Prudential shares finished down by 1p at 519p.

AstraZeneca (AZN) shares lost 46.5p to 2,949p as it announced that lung cancer treatment Recentin failed to meet the primary endpoint in a clinical study to compare it with rival treatment Avastin. The firm is continuing with another study to assess the impact of Recentin. At the same time, AstraZeneca re-confirmed its guidance for 2010, having last month raised its earnings per share forecast for this year from between 5.75 dollars and 6.15 dollars, to between 5.90 dollars to 6.30 dollars. Panmure Gordon said that it would retain its 'buy' stance and a 3,300p price target as Recentin is "a high-risk development".

Product quality and safety tester Intertek (ITRK) reported a rise of 23.2% in adjusted pre-tax profit in 2009 to 191.5 million pounds, with revenue up by 19% excluding acquisitions to 1.2 billion pounds. Adjusted diluted earnings per share were 21.5% higher at 81.5p, and the full-year dividend was 25.5p, up 22.6% on 2008. The adjusted operating profit margin increased by 50 basis points to 16.9%. Intertek said it is confident that growth will continue in 2010, with plenty of acquisition opportunities available. Seymour Pierce said that the firm would be driven forward by regulatory issues and environmental legislation, and it repeated its 'outperform' stance and 1,400p target. Intertek shares fell by 27p to 1,319p.

Royal Dutch Shell (RDSA) confirmed that it is in talks to buy Australian coal-seam firm Arrow Energy, in a deal worth approximately 1.98 billion pounds. Shell has already offered 2.64 pounds per share in a joint deal with PetroChina. Arrow would be left with its international business, and Shell believes that a successful deal would give it an edge in the race to convert coal-bed methane reserves into liquefied natural gas. Shell shares edged ahead by 13.5p to 1,886.5p.

Mid-Caps

Recruiter SThree (STHR) said that its current deal pipeline indicates an improvement across most markets, as it reported a year-on-year (YOY) decline of 27% in gross profit to 36 million pounds. At the end of February, the firm had 3,906 active contractors, down 22.4% on 2009. UK permanent placements were down 25.9% YOY, with non-UK permanent placements 15.8% lower on a YOY basis. Keeping an 'outperform' stance, Seymour Pierce said that it expects SThree's information-communications-technology contract business and international brands would "allow it to reach new cyclical highs before many of its peers". The 330p target price was left unchanged. SThree shares gained 13.1p to 323.1p.

Fenner (FENR), which makes industrial conveyor belts, said that business continued to improve in the final weeks of its first half. The shares rose by 2.1p to 195.6p. Trade was boosted by market share gains, the end of customer de-stocking and improvements in the underlying market. Net borrowings at the end of February were less than 170 million pounds, indicating strong first-half cash flow. Brewin Dolphin reiterated its 'conviction buy' and increased its target price from 235p to 251p, saying that the full benefits of the firm's 2006-2009 investment programme are yet to be seen.

2009 revenue at derivatives broker Tullett Prebon (TLPR) was down 9% at constant currencies at 947.7 million pounds, while operating profit was down by 11% at 170.8 million pounds as a result of reduced operating margins (down 0.6 basis points) and the fixed cost nature of the business. Adjusted basic earnings per share were up 4.4% at 49.2p, and the full year dividend was increased by 18% to 15p. The results were affected by the defection by a whole team of brokers to rival BGC. Tullett played down the impact of potential reforms to the broking business in the US, saying that there would still be a place for intermediaries in the market. Daniel Stewart said it would wait for a sustained recovery before taking a more positive stance on the broking sector. The shares fell by 16.9p to 307.8p.

Bovis Homes (BVS) moved into profit in 2009 with a pre-tax profit of 4.8 million pounds, after suffering a loss of 78.7 million pounds in 2008. It said that it has started to buy land again as the housing market stabilises, and it also wrote back 11.6 million pounds' worth of provisions made against its land bank in the second half of 2009. Earnings per share stood at 2.8p, against a 49.1p loss per share in 2008. Bovis said that "modest price growth" began in the second half of 2009, although it remains cautious given the low levels of stock in the second-hand market, which has supported a faster rate of price growth than that in the new build sector. Arbuthnot Securities said that the firm's net cash position of 112 million pounds puts it in an enviable position "to be active in the land market". It kept its 'buy' stance. Bovis shares rose by 7.7p to 389p.

Small Caps, AIM and PLUS

Workplace clothing supplier Alexandra (AXD) announced plans for a fund-raising to allow it to take advantage of opportunities to increase its market share. No details were issued on the size of the capital raising. The firm also said that it is no longer in an Offer Period. Alexandra shares sank by 2p to 14p.

Shares in penny dreadful materials handling solutions firm SDI Group (SDIG) plunged by 2.125p to 3.625p as it warned that full-year results would be affected by delays to new projects. The company added that the signing of new business continued to be difficult as customers delayed making decisions on new orders. As a result, revenue from some projects will now be recognised in the next financial year, and SDI is reducing overhead costs to help offset this. In addition, "a major retail customer" of the firm has entered administration and has defaulted on payments on a completed project. SDI said it was "prudent" to write-off the outstanding balance owed by the firm. It added that although encouraged by its current pipeline, it does not expect to see a substantial improvement in market conditions in the next trading year.

Pantheon Resources (PANR) reported that work at its Tyler County site in Texas is unlikely to begin again until May. The postponement has been caused by the need for a precise type of drilling rig and this has led to a delay in securing a slot. Once it begins, drilling is expected to take 75 days on a 'trouble-free' basis.  The shares fell 2.75p to 28p.

Sticking with penny shares, speech recognition firm Telephonetics (TPH) said that it has signed an extension to its contact with Odeon-UCI cinemas for its automatic speech recognition product  MovieLINE. The firm will provide the product until 2015, beyond the previous expiry date of spring 2012. Variable service charges for the period to spring 2012 have been replaced with guaranteed fixed fees until 2015. Telephonetics shares gained 0.25p to 8.25p. 

Recycling containers group Straight (STT) announced that it has purchased Helesi, the maker of wheelie bins, for 1.65 million pounds. The shares rose by 1.5p to 96.5p. The firm has acquired assets, including moulds and presses, relating to the manufacture of Cyprus-based Helesi's most popular wheeled waste disposal units. In the six months to 30th June 2009, Helesi had revenue of 3.9 million pounds, with profit before finance charges of 0.27 million pounds. Astaire Securities repeated its 'buy' stance and 125p target, saying that an acquisition had been likely given the year end net cash level of 1.5 million pounds.

Max Petroleum (MXP) said that drilling has commenced at the KZN-1 exploration well at the North Kyzylzhar II East Block prospect in Kazakhstan. The well is the second of 12 exploration prospects which will be drilled over the next 18 months. A test well at the Borkyldakty prospect is scheduled to be drilled later this week. Fox-Davies Capital said that mean prospective resources for KZN-1 are around 20 million barrels of oil, with a chance for success of 40% and above. The shares closed unchanged at 20.5p.

Machine-to-machine communications firm Telit Communications (TCM) made a pre-tax loss of 2.9 million euros in 2009, having made a pre-tax profit of 1.2 million euros in 2008. Revenue climbed 10.7% to 63.8 million euros, with a 30% increase to 36 million euros in the second half of 2009. The diluted loss per share from continuing and discontinued operations was up 8.57% to 7.6 cents. Telit said it had gained market share during the period, and that it was well placed for 2010 given its investment in R&D in 2009 and the transfer of manufacturing facilities to China. Astaire Securities concurred, saying that previous design wins would boost the firm as the market expanded. The shares rose by 1p to 24.5p.

Biophysics firm Avacta (AVCT) said that its results would show continued growth, with both its Analytical and Animal Health divisions growing strongly. It added that revenues are expected to be significantly higher than last year. It has received substantial interest from its new flagship animal health product, Midas. Daniel Stewart repeated its 'buy' and 3p target for the firm. Avacta shares moved up by 0.05p to 1.875p.

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