From UK-Analyst.com: Wednesday 10th March 2010

As he announced that the Budget would be held on 24th March, the Prime Minister warned that the economic storm was not over, adding that he would not let the country down. Bit late for that, one suspects. The government also announced that the salaries of senior public officials, including judges and NHS managers, would be frozen in 2010/11. MP's, 52% of whom are proven thieves having abused their expenses system, are to get a 1.5% pay rise. Meanwhile in the productive part of the economy....Hopes of a strong recovery in global trade were raised as Chinese exports jumped by 46% in February, beating expectations. The FTSE 250 was livened up by bid speculation, but London sentiment as a whole was dampened by data showing a fall in UK industrial production in January. US markets rose on merger speculation in the financial sector. At the London close the Dow Jones was ahead by 8.32 points at 10,572.7 and the Nasdaq was up by 15.68 points at 2,356.36.

In London the FTSE 100 gained 38.27 points to reach 5,640.57; the FTSE 250 rose by 90.61 points to 9,865.29; the FTSE All-Share was 19.82 points higher at 2,882.08 but the FTSE AIM Index dropped 1.51 points to 688.07.

Brokers' Notes

Goldman Sachs upgraded its stance on waste management firm Shanks (SKS) from 'neutral' to 'buy' after the abandonment of talks between the firm and private equity firm Carlyle Group. The broker noted that, at 8.9 times earnings, Shanks trades at a discount to the wider utilities sector, which trades at 12.3 times earnings. It added that Shanks, with its focus on waste, is more exposed as 85% of its business comes from non-municipal sources and so is more sensitive to industrial production cycles. However, it expects a rebound in industrial activity in Britain and the Low Countries, which should help push strong earnings growth. Goldman also refused to rule out the possibility of further merger activity over the next twelve months. The shares rose by 6.3p to 108.5p.

Petrofac (PFC) was upgraded at RBS from 'hold' to 'buy' after its results on 8th March. The price target was increased from 1,025p to 1,230p, after the oil facilities firm increased net profit forecasts for 2010 by 8%. The broker expects a net profit of 378 million dollars in 2010, saying that the firm would be able to be selective over orders in the coming year given its strong order backlog, even as the engineering and construction market remains competitive due to aggressive order intake by Korean firms. Petrofac shares gained 47p to 1,162p.

Reports in the Financial Times suggesting that Barclays (BARC) is contemplating buying a US retail bank prompted Shore Capital to issue a note on the group. An acquisition would help rebalance the firm away from the Barclays Capital investment banking division, and move it towards its long-term goal of deriving one third of its revenue from that sector. Shore commented that recent acquisitions of US banks by UK ones "have had somewhat mixed success", notably the Household International/HSBC tie-up. However, it said it would be supportive of "the right deal at the right price", and potential targets were suggested, these being SunTrust, PNC Financial Trading and US Bancorp. The broker retained a stance of 'buy' on Barclays. The bank's shares barely moved, rising by 0.15p to 345.95p.

Arbuthnot Securities believes UK Coal (UKC) is looking at merging with a company that has a more reliable revenue stream, with Hargreaves Services (HSP) mentioned as a possibility. It said that the motivation for this move is "sound", and added that Hargreaves has already shown its ability to operate a deep coal mine effectively in its operation of the Maltby mine, bought from UK Coal in 2007. Arbuthnot cautioned that the deep mine operations would be in jeopardy if further delays occur, as this will "make it ... difficult to combat unit cost increases in a volume driven and highly operationally geared business". It added that the firm has no margin for error to meet its production expectations of 7.6-7.8 million, and that cash flow will continue to be a problem, given the planned capital expenditure of 40-45 million pounds. However, given "the right transaction", the firm could still be a "turnaround play" Arbuthnot said. The stance of 'buy' and 120p target were unchanged. The shares rose by 1.75p to 60.75p.

Blue-Chips

Insurer Standard Life (SL.) reported European Embedded Value (EEV) operating profit of 919 million pounds for 2009, down 2% on 2008, with pre-tax profit of 419 million pounds, after a pre-tax loss of 406 million pounds in 2008. Assets under management increased by 13% to 178 billion pounds, and net revenue was 17.435 billion pounds, after a net revenue deficit of 16.226 billion pounds a year earlier. Gross earned premiums remained steady at 3.562 billion pounds, from 3.564 billion pounds in 2008, while diluted operating earnings per share on an EEV basis were down 2% at 29.1p. Total dividends for 2009 were 12.24p per share, up 4% on 2008. The group plans to deliver a further 100 million pounds of efficiency savings by 2012, while 200 million pounds will be spent on marketing its corporate and retail offerings. Retaining its 'hold' stance, Shore Capital said the group needs to "generate more interest via its dividend strategy" in order to drive the shares forward. Standard Life shares gained 3.8p to 208p.

Thomas Cook (TCG) announced the acquisition of Think W3 and its subsidiary Essential Travel for an undisclosed amount. Essential is an online provider of products including travel insurance, airport parking and airport hotels. It was established to supply travel insurance solutions and now spans more than 70 websites. As at 31st March 2009 it had gross assets of 2.5 million pounds. Thomas Cook shares rose by 1.8p to 240p.

Sales revenue at Tullow Oil (TLW) fell by 16% in 2009, to 582 million pounds, while pre-tax profit nose-dived by 93% to 20 million pounds. Lower production volumes and commodity prices were to blame for the falls, although Tullow expects a fresh wave of drilling, of up to 30 wells, to deliver major production growth from the end of 2010. Earnings per share were down by 94% to 1.9p, but the final dividend per share was unchanged at 4p. Production on a working interest basis was 12% lower at 58,300 barrels of oil equivalent per day, and the realised oil price was down 25% at 60 dollars per barrel. Westhouse Securities said that Tullow had demonstrated its ability to unlock potential in Africa. It kept its stance on the shares as a 'buy'. Tullow fell 8p to 1,273p.

Scottish & Southern (SSE) announced that it has bought the ATLAS fibre telecoms network, which spans six business parks across Scotland, for an undisclosed amount. The group added that it plans to invest one million pounds in the development and integration of the network. The shares edged up by 2p to 1,141p.

Mid-Caps

Shares in broker Tullet Prebon (TLPR) leapt by 75.7p to 385.8p as it confirmed it was in discussions about a potential offer for the company. Press reports indicated that colonial bank Macquarie and also Bank of China have taken an interest in the group.

Engineer Melrose (MRO) reported a jump in pre-tax profits for 2009 to 82 million pounds, from 23.5 million pounds in 2008. Revenue was up by 45% to 1.298 billion pounds, while 'as reported' earnings per share almost tripled from 4.1p in 2008 to 11p in 2009, although the dilution effect of the FKI acquisition meant that diluted earnings per share only rose by 3% to 16.6p. Net debt (at constant currencies) has halved since the acquisition of FKI in July 2008 to 237 million pounds. The firm said that sales were beginning to increase and order books were "reviving". Melrose shares revived by 13p to 206.1p.

Interserve (IRV), the building and maintenance firm, saw pre-tax profit rise by 11.6% in 2009 to 89.2 million pounds, as revenue increased 5.9% to 1.906 billion pounds. The shares added 17p to reach 224.3p. Basic earnings per share jumped 26.2% to 54.9p, and the full-year dividend was increased by 2.9% to 17.5p per share. The group said that it had benefited from good opportunities internationally and strong revenue visibility, although 2010 was predicted to be a challenging year. Separately, the firm announced that it has won contracts in the UK and the Middle East worth over 200 million pounds. These include a significant support services contract with the UAE armed forces, three construction contracts in Qatar worth more than 90 million pounds and the finalisation of a major, 70 million pounds project to design and construct storm-water tunnels in Preston. Panmure Gordon kept its 'buy' stance and 280p target, saying it remains positive on the stock given the firm's exposure to "essential infrastructure related spend".

Electrical component maker Laird (LRD) cut its dividend for 2009 by 40% to 6p as underlying profit from continuing operations slumped by 56% to 26.5 million pounds, and pre-tax profit plummeted by 82% to 4.6 million pounds. The basic loss per share from continuing operations was 0.8p, from earnings per share of 7p in 2008. Laird said that direct labour costs fell by 30%, with total overheads down by around 48 million pounds. The firm added that 2010 has seen the continuation of improvements in underlying profits and operating margins that had begun in the second half of 2009. The shares lost 12.3p to 129.7p.

Car dealer Inchcape (INCH) said that profit before tax and exceptionals in 2009 fell by less than expected, by 18% to 155.1 million pounds. Sales on a like-for-like, constant currency basis were down 14.6% at 5.6 billion pounds. No dividend was recommended, although earnings per share were up by a fifth at 2.3p. Inchcape said that it expects continued market momentum in Hong Kong and Australia in 2010, but weaker conditions are still forecast in the UK, Greece, Singapore, Eastern Europe and Russia. Panmure Gordon raised its target price from 32p to 34p, saying that there is still scope for recovery in the firm's business. The stance remained at 'buy'. Inchcape shares fell back by 1.49p to 28.04p.

Small Caps, AIM and PLUS

Shares in Aminex (AEX), the oil exploration firm, fell 1p to 14p after an announcement that results from the Likonde-1 well in Tanzania are expected in late March. Further work planned for 2010 includes the reprocessing of the seismic dataset and interpreting the new drill results.

Tanfield (TAN), the vehicle emissions firm, announced that it has received a conditional offer for its electric vehicles business from its US partner, Smith Electric Vehicles, of 37 million pounds in cash, equivalent to 50p per share. Tanfield has given Smith a four month exclusivity period for "clarification and negotiation". Arbuthnot Securities observed that a split had been under consideration for some time, given the lack of synergies in the business. Tanfield shares soared by 13.5p to 42p on the news.

Neuropharm (NPH) said that it is considering voluntary liquidation amid ongoing uncertainty as to whether an offer would be made for the firm. It has been in discussions since 3rd November but has not yet received an indicative offer. The shares jumped by 2p to 11p. Bonkers.

Engel East Europe (EEE) said that it is unable to meet its obligations to employees and service groups, as its financial condition remains "weak". It said that it has approached Israeli building firm Azorim with a request for financial support, but no agreement has yet been reached. Engel added that a group of investors is examining the possibility of investing in Engel Resources and Development Limited, which owns 100% of the company's immediate parent, Engel General Developers Limited. The investors are in the process of performing a due diligence exercise on ERD and its subsidiaries. If an investment is made, the company expects that the investors will provide financial support to the whole group, including Engel East Europe. The shares slumped by 1p to 2.125p.

Technology after-sales support firm Regenersis (RGS) reported a 37% fall in pre-tax profit for the six months to 31st December, although group revenue increased by 16% to 57 million pounds. The shares slipped 5.5p to 49p. Earnings per share more than halved to 1.98p, and no dividend was recommended, as the group said that conservation of cash for strategic development remains the priority. Like-for-like repair and return volumes increased by 9%, including 19% growth in the number of mobile phones serviced and 36% growth in notebooks and related equipment.

Norseman Gold* (NGL) revised its production target for the year down to 65,000 ounces, from the previous level of 75-80,000 ounces. Drilling at the Bullen project in Australia has indicated fewer resources than expected, with smaller than anticipated areas of high grade ore accessed. Full production is unlikely to restart at the site before June. The shares dropped by 7.25p to 38.5p.

Textiles firm Dawsons (DWSN) reported that its pension liabilities trebled to 19.3 million pounds in 2009. The company blamed lower corporate bond yields and increased estimates for life expectancy. Pre-tax profits halved to 575,000 pounds, and revenue was down 14% to 72.88 million pounds. Earnings per share from continuing operations were 0.1p, a quarter of that for 2008. The firm said that the increase in pension liabilities is likely to prevent it making any new acquisitions. Dawsons shares eased by 0.25p to 2p.

Shares in Avanti Communications* (AVN) dived by 82p to 375p on BB chatter that there will be a delay in the launch of its first satellite.The word from those in the know is that this is cobblers and a statement to that effect plus news of material contract wins is imminent. We smell burned bear fingers.

Media specialist Cheerful Scout (CLS) reported a pre-tax loss of 21,789 pounds in the six months to 31st December, after pre-tax profits of 18,109 pounds in 2008. Revenue fell 17% to 0.73 million pounds and the loss per share was 0.156p, from earnings of 0.1848p in 2008. The firm said that a new Events division would help broaden its offering in the coming year. Seymour Pierce expects the company to break even during the current financial year, and it retained its 'hold' stance. The shares jumped by 1p to 7.75p.

Tom Winnifrith says: the company I planned to tip is so boring I fell asleep writing the share tip. It will now be published tomorrow (Thursday) if I can stay awake only on t1ps.com. To catch this red hot snooze of a stock click HERE

* The T1ps Smaller Companies Gold Fund owns shares in Norseman and The SF Growth Fund owns shares in Avanti Communications.