From UK-Analyst.com: Monday 5th July 2010

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Martin Weale, director of the National Institute of Economic and Social Research, was appointed as an external member of the Bank of England's rate-setting Monetary Policy Committee (MPC), replacing Kate Barket. His appointment by the chancellor, George Osborne, marks the first time the MPC has consisted of only men since its creation in 1997. Thank god Harriet Harperson is now on the opposition benches where her nonsensical promotion of female candidates over those more able male applicants can do no harm! Elsewhere, the Purchasing Managers Index (PMI) showed Britain's services sector to have expanded in June at the slowest rate in 10 months amid growing nervousness about the impact of government spending cuts on economic activity. Meanwhile, trading was cautious and thinner than normal as Wall Street closed for the Independence holiday. At the London close the Dow Jones and Nasdaq were unchanged at 9686.48 and 2091.79, respectively

In London the FTSE 100 was down by 14.56 points to 4823.53; the FTSE 250 was up 24.96 points to 9301.35; the FTSE All-Share was down by 5.34 points at 2499.85; and the FTSE AIM Index was down by 3.43 points to close at 649.83.

Brokers' Notes

Evolution Securities downgraded its recommendation for the specialist property based business Workspace Group (WKP) from "ADD" to "NEUTRAL" and maintained its 23p target price. While the research house recognised the potential earnings growth of Workspace, it does not believe that the share price is compelling enough against other operationally geared companies. Furthermore, Evolution does not believe the valuation to be attractive relative to other UK Real Estate Investment Trusts (REITs), many of which, it believes, to be lower risk. Nevertheless, Workspace shares moved up by 0.5p to 21.5p.

Fox-Davies Capital retained its "BUY" recommendation for the mining company Minera IRL* (MIRL) but with an increased target price from 94p to 128p. This comes after the broker reviewed its commodity and currency forecasts, with higher expected gold prices having the uplifting effect. Fox-Davies said it is also aware that the original base gold price for the Corihuarmi ore reserves was at 600 dollars per ounce (395 pounds per ounce), which is a lot less than its calculated 800 dollars per ounce (527 pounds per ounce). However, Fox-Davies believes that, should its gold price forecast be realised, there will be the opportunity to bring a large amount of low grade material into the ore reserves. Minera shares edged forward by 1p to 59p

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Arden Partners maintained its "SELL" recommendation for the business services group Mouchel (MCHL). Following its recent profit warning, investors have focused more on the downside risk, Arden commented. The business services group may struggle in the short-term to convince investors that margins and demand will not be damaged by growing budgetary constraints in local authorities. In short, adverse sentiment is likely to exert a negative influence on Mouchel's share for a while longer, the research house said. Arden added that Mouchel could do with a cash injection as it forecasted no final dividend. Mouchel shares fell by 3.25p to 130.75p.

Collins Stewart issued a “BUY” recommendation for the mortgage provider Paragon (PAG), with a 210p target price. The research house said that Paragon shares are trading at prices not seen since before August 2009 and yet its financial position is robust and improving. The mortgage provider’s results for both the 2009 financial year and first half of 2010 have exceeded expectations, Collins reports, with arrears falling and free cash increasing. In its view this is a favourable moment for Paragon’s management to start a buy back programme. The shares moved up by 2.3p to 119.9p

Blue-Chips

Shares in Rio Tinto (RIO) dropped by 52p to 2,882.5p on news it has finished the divestment of its Alcan Packaging business with the completion of sales of its two assets. Medical Flexibles has been acquired by Amcor for 66 million dollars (43 million pounds) and Alcan Beauty Packaging has been acquired by Sun European Partners LLP for an undisclosed sum. The Medical Flexibles transaction, which comprises four North American plants, recently received US Department of Justice approval.

BP (BP.) shares gained 13.5p to 335.5p following media reports suggesting that the oil giant is seeking investment from Middle Eastern sovereign wealth funds. Meanwhile, BP announced an update of developments in the response to the MC252 oil well incident is the Gulf of Mexico. To date, the total volume of oil collected or flared by the containment systems is approximately 585,400 barrels. The oil giant said that operations to skim oil from the surface of the water were temporarily placed on hold for approximately three days because of the effects of Hurricane Alex. These operations have recovered, in total, approximately 673,497 barrels of oily liquid. A total of 275 controlled burns have been carried out to date, removing an estimated 238,000 barrels of oil from the sea's surface. Furthermore, almost 95,000 claims have been submitted and more than 47,000 payments have been made, totalling almost 147 million dollars (97 million pounds). The cost of the response, to date, amounts to approximately 3.12 billion dollars (2.06 billion pounds).

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Bailed out lender Lloyds Banking Group (LLOY) said it has agreed to sell its private equity unit to buyout firm Coller Capital, bringing disposal proceeds in the past year to 750 million pounds. Under the deal, the 40 private equity investments held in Lloyds' Bank of Scotland Integrated Finance (BOSIF) unit would be transferred to a new joint venture called Cavendish Square Partners. The new joint venture will be majority owned (approximately 70%) by Coller, with Lloyds owning a stake of 30%. The total cash consideration for Coller Capital's majority stake is 332 million pounds, valuing the entire portfolio at 480 million pounds. The bank added that the sale on the group's accounts is not expected to be material. Nevertheless, broker Shore Capital remained cautious reflecting its concerns over the UK recovery; and thereby issued a "HOLD" recommendation. Lloyd's shares edged forward by 0.3p to 55p.

Mid-Caps

St. Modwen Properties (SMP) shares moved up by 2.1p to 174.2p as the real estate developer swung to a first-half pre-tax profit. For the six months ended 31st May 2010, the company posted a pre-tax profit of 26.7 million pounds compared with a loss of 98.3 million pounds in the same period in 2009. This result was underpinned by an increase in net rental income received of 1.8% and 6.1% compared with the first half and second half of 2009, respectively. Revenue also climbed up by 35% to 58.3 million pounds, while net asset value (NAV) rose by 6.8% to 214p per share since the year-end. Since the turn of the year, real estate investor appetite has been gradually returning and the increasing level of house building activity has begun to work its way into improving demand for residential land. St. Mowden, which scrapped its interim dividend last year, resumed the payout with an interim dividend of 1p per share.

BSS Group (BTSM) shares leaped forward by 12p to 428.2p on news that builders' merchant Travis Perkins has agreed to buy the company in a 557.6 million pounds deal. The offer, made up of cash and shares, values each BSS share at 435.8p, a 4.7% premium on Friday's closing price of 146.2p. Travis Perkins Chairman Robert Walker commented that there is a "strong strategic rationale for the acquisition". Meanwhile, Reuters analysts' have suggested that a rival bidder might emerge, with France's Saint Gobain tipped as a possibility.

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Genus (GNS) shares declined by 4.5p to 729p after it released a pre-close trading update for the six months to 30th June 2010. The animal genetics company said trading, in the final two months of the financial year, has been in line with the board's expectations. As a result, the group remains on course to deliver an improved underlying performance in the second half of the year. There has also been a benefit from exchange rate movements on the reported results. On valuation grounds, Brewin Dolphin maintained its "REDUCE" recommendation and 653p target price.

Small Caps, AIM and PLUS

Thor Mining (THR) shares edged forward by 0.125p to 0.88p on the back of receiving the remaining assays from the initial calcrete sampling at the Dundas gold project in Western Australia. The results revealed additional anomalies with new drilling targets, the greatest concentration of high gold values encountered to date and a further substantial increase in the part of the project area offering potential drill targets.

Elektron (EKT) shares increased by 2p to 22p after the component distributor announced that pre-tax profits for the half year to 31st July 2010 are expected to be significantly ahead of previous expectations. The order book remains strong and the board believes that the group will also perform better than management's previous expectations for the full financial year. However, Elektron continues to be cautions about the second half due to global economic events.

Sagnetia Group (SAG) shares gained 4.5p to 39.5p after the international technology consultancy said that profits will substantially ahead of market expectations for the half year to 30th June - with profit before tax for the period being ahead of the current market forecast for the year as a whole. This significant turnaround in performance, compared to the loss reported in the first half of 2009, is due to the restructuring undertaken in the second half of the last year and strong trading in the first half of 2010. Consequently, Arbuthnot issued a "STRONG BUY" recommendation based on its 70p target price.

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Dods Group (DODS) shares edged forward by 1.25p to 11.5p following confirmation that it has received approaches from a number of unnamed third parties. The publishing and media group said shareholders should be aware that there is "no certainty at this stage."

XP Power (XPP) shares rose by 48p to 626p after driving a significant improvement in performance. In its interim management statement for the quarter ended 30th June 2010 the control components group announced growth in revenue by 35%, year-on-year, with gains across all market sectors in North America, Europe and Asia. Furthermore, revenues for the first six months was up by 23% compared to the same period a year earlier. The rate of growth in revenue should accelerate in the second half as "existing programs ramp up and further new customer programmes enter production", the company said. Researcher Edison upgraded its estimates to reflect the stronger then expected revenue growth; with earnings forecasts boosted by 8.5% and 6% in the 2010 and 2011 financial year, respectively.

In a trading update, T Clarke (CTO) reported that it continued to trade in line with expectations and its forward order book has strengthened, standing at 220 million pounds, up by 29% the year before. The engineer also maintained its positive cash flow position and has no borrowings. Furthermore, the board continues to be confident in the long term resilience of the business as it focuses on existing relationships with clients and contractors whose developments and projects are "not affected by current government spending plans", the group said. Arbuthnot maintained its "BUY" recommendation, and 190p target price, following issuing an "in line with expectations" update. The shares increased by 8.5p to 135.75p.

*The SF t1ps Gold Fund, which is managed by a subsidiary of Rivington Street Holdings, the ultimate owner of UK-Analyst, owns shares in Minera IRL.