The UK-Analyst Stock Market report for Tuesday 6th July 2010: featuring Morrisons, Ocado and Persimmon
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From UK-Analyst.com: Tuesday 6th July 2010
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t1ps.com The government announced emergency legislation to cap redundancy pay-outs for more than half a million civil servants as part of moves to eliminate the budget deficit. Francis Maude, the Cabinet Office Minister, said the legislation would be introduced "as soon as possible" to limit compulsory redundancy terms to 12 months' pay and voluntary departures to 15 months' salary. Meanwhile, the U.K economy continued to grow in the second quarter of this year, according to a survey by the British Chambers of Commence. However, it warned that serious concerns over sustained recovery remained, with the service sector presenting the biggest worry. At the London close the Dow Jones was up by 107.25 points at 9,793.73 and the Nasdaq was up by 25.91 at 2,117.7. In London the FTSE 100 closed up by 141.47 points to 4965; the FTSE 250 was up by 199.74 points to 9501.09; the FTSE All-Share was up by 69.42 points at 2569.27; and the FTSE AIM Index was up 6.09 points to close at 656.13. Brokers' Notes Evolution Securities issued a "BUY" recommendation for Booker Group (BOK), with a target price of 50p. Commenting on its favoured pick in the UK sector, the research house said the company continues to reap the benefits of share gains across its markets. In particular through the catering channel where the group continues to leverage the relative strength in its balance sheet to drive share gains. Furthermore, India provides a compelling side story that could deliver very meaningful growth over the medium term, added Evolution. The shares edged forward by 0.8p to 41p. Collins Stewart upgraded its recommendation for Morrisons (MRW) from "HOLD" to "BUY", with a target price of 300p. The research house views the "cheap" valuation of the supermarket chain to be unjustified given the earnings growth potential. It also expects that new CEO Dalton Philips will outline his strategic plan for the business, which it believes will demonstrate momentum of the business. Regarding the balance sheet, the group is strong with gearing at only 15% with cash inflows forecasted over the next three years. Morrisons shares increased by 7.9p to 275p.
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Report! Click here and find out how VectorVest values companies in your portfolio. Daniel Stewart issued a "HOLD" recommendation for RM Group (RM.), the infrastructure supplier to UK education, with a target price of 164p per share. This comes after the research house reviewed the group's outlook given the major re-evaluation of Building Schools for the Future (BSF) projects announced by the government on 5th July. It was announced that the BSF initiative to rebuild or refurbish 3,300 U.K. secondary schools has been terminated. Consequently, Daniel expects contracts to be "scaled back" by 121 million pounds to 384 million pounds. The shares fell by 2p to 160p. Edison Investment Research commented that Nighthawk Energy* (HAWK), the producer and developer of hydrocarbons, is entering a "very interesting phase" in its development, which could result in the crystallisation of substantial value relating to its core Jolly Ranch project. This reflects the recent decision by the company, along with the operator RFP, to potentially offer a majority interest and the operatorship for sale. Assuming the disposal of a 75% stake in Jolly Ranch, the proceeds net to the group are likely, in Edison's view, to comfortably exceed the current market capitalisation of 76 million pounds. Nighthawk shares rose by 3.25p to 26p. Blue-Chips Ocado, the online food retailer, set an unusually wide price range for its flotation, reflecting disagreements among analysts over how to value a company that has yet to make a profit. The company, which sells Waitrose food online, gave itself an indicative valuation of 0.8 billion pounds to 1.1 billion pounds. From the floatation, Ocado hopes to raise around 200 million pounds to build a second depot for fulfilling customer orders.
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download a preview of the magazine Tullow Oil (TLW) shares gained 42p to 1,083p after the firm said that it expects Uganda to imminently resolve a long-running dispute that will allow the UK's largest oil explorer to begin development of the African country's oil fields. Tullow's deal, to buy the Ugandan assets of Heritage Oil, has been held up after the Ugandan government insisted that Heritage must pay 243 million pounds in capital gains tax on the "super profits." Ian Springett, finance director, told the Financial Times that the company had been invited to the Ugandan ministry, which it expects will resolve the current issue. Meanwhile, the company reported that it has made discoveries in eight out of its 11 exploration wells to date this year. Mid-Caps Persimmon (PSN) shares climbed up by 21.7p to 370.2p on news that the house builder saw legal completions increase by 16% to 4,657 homes year-on-year, with the average selling price rising by 8% to 168,500 pounds in the first half ended 30th June 2010. The company said that since May the group has experienced a "slow down" in private sale reservations, which it attributes to the uncertainty created prior to the Government budget. Although Persimmon is continuing to invest in new site openings, the firm remains cautious in its investment decisions until mortgage availability improves. Arbuthnot Securities reiterated its "BUY" recommendation, and 515p target price, believing that the firm is "best placed to deal with current market uncertainty." Spirax-Sarco Engineering (SPX) shares powered ahead by 88p to 1,446p after the British maker of pumps and boilers forecasted higher sales and improved margins. The group said that trading conditions continue to be positive and sales for the first half-year were ahead by 8% at constant currency, including a 2% contribution from acquisitions. Adjusted operating profit margins were reported to show a strong improvement as Spirax expects it to be above 19% for the first half of 2010. The company commented that it has benefited from operational gearing from the increase in sales, last year's cost reduction measures, small exchange gains and a favourable product mix. Furthermore, regarding the future outlook, the pumps maker added that capital investment for this year is expected to be at a high level.
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Theory? Shares in home shopping group N Brown (BWNG) fell by 11.8p to 243.1p on the back of posting a slowdown in underlying sales growth. Total group revenue increased by 1.1% with sales 0.1% ahead on a like-for-like basis in the 18 weeks ended 3rd July 2010. Trading since the general election has been subdued, the company said, as customers assess the likely impact on their personal situation of the coalition government's new policies. The firm added that its business development plans, together with the "continuing strong financial position", give the board confidence in the future outlook for the group. Brewin Dolphin sees the recent acquisition of fashion website Figleaves for 11.5 million pounds last month to be an "excellent" move; and thereby reiterated its "BUY" recommendation and 310p target price. Shares in PartyGaming (PRTY) increased by 10.7p to 231.5p after the gambling group said it expects a 28% rise in second quarter revenue, year-on-year, boosted by acquisitions and strong growth in its casino business. The company said it is trading in line with its expectations despite the adverse impact of the World Cup being greater than expected on Poker. PartyGaming remains "committed to playing an active role in consolidation", the firm added, and is "confident about future prospects". Shore Capital reiterated its "SELL" recommendation, highlighting its significant exposure to the under pressure poker market. Small Caps, AIM and PLUS Shares in learning software supplier NetDimensions (NETD) soared by 3p to 24.5p as the firm confirmed that revenues increased in line with market expectations in the six months to 30th June 2010, up by 11% to 3.38 million dollars. The company had net cash of 6.3 million dollars at the period end (equal to 16.7p per share), down by 0.5 million dollars a year earlier, partly due to the acquisition of the EKP (Enterprise Knowledge Platform) business from the company's UK partner, as announced in April. Broker Arden has a 51p target and a "buy" stance on the shares. Shares in Shanta Gold (SHG) fell by 2p to 17.5p despite the Tanzania focused explorer revealing the results of a Feasibility Study on the Chunya gold project. The study supports a 360,000 tonnes per annum plant which could produce an average of 28,400 ounces of gold per annum over an eleven year production life. Construction is estimated to take one year and the project has an internal rate of return of 39% and when discounted at 7% a net present value (NPV) of 37.5 million dollars at a base case gold price of 1,100 dollars. The capital cost is estimated at 23.2 million dollars, with a payback period of two years. The company said it has been investigating various avenues of financing for the project, which are expected to be finalised in due course. Avacta (AVCT), the biophysics company which provides technologies and services to the pharmaceutical and diagnostics markets, announced that it has raised 1.38 million pounds at 1p per share. Avacta said that the cash will be used to take the company from its current position, towards its near term goal of being a profitable business providing products and services to support the life sciences sector. Along with the deal the company has issued 4,925,000 new shares in part payment of certain placing fees. This is the first fundraising completed for a client by newly launched stock broker XCAP Securities. Avacta shares fell by 0.15p to 1.025p. The biggest gainer on AIM was Leo Insurance Services (LEO), shares in which rocketed by 1.375p to 2.875p as the firm announced the disposal of its principal asset, a 50% interest in Grafton Insurance Services, to Safeland, a company controlled by directors Larry Lipman and Errol Lipman, for GBP90,000.Grafton is a brokerage specialising in property insurance, where the main asset continues to be its long term contract with Safeland. Industrial services group Cape (CIU) revealed that it has signed an 18 million dollar deal for thermal insulation services on a petrochemical project in Abu Dhabi in the United Arab Emirates. This comes just days after the firm revealed the establishment of a joint venture with the State Oil Company of Azerbaijan in order to jointly pursue opportunities to develop the country's oil and gas sector. Cape shares advanced by 8.5p to 232.5p.
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ALTERNATIVE! Brady (BRY), the supplier of trading, risk management and settlement solutions for commodities, revealedthe signing of a contract with farming co-operative InVivo Group to support its grain trading and risk activity. No financial deals were announced and Brady shares added 2p to 58p. * The company is a corporate client of Rivington Street Holdings, the ultimate owner of this website.
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