The UK-Analyst Stock Market Report for Friday 9th July 2010: featuring Moneysupermarket.com, BT Group and Michael Page
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From UK-Analyst.com: Friday 9th July 2010
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t1ps.com Britain's trade deficit in May reached its widest level since before the collapse of Lehman Brothers in September 2008, underlying fears that the U.K. will not be able to export its way back to economic health. The Financial Times said that the trade data added to worries over the pace of the U.K. economic recovery, while falling price pressures made it more likely that the Bank of England would keep interest rates at their current ultra low levels for longer. Elsewhere, South Korea's central bank has unexpectedly raised interest rates for the first time since the onset of the global financial crisis. The Bank of Korea increased the rate from a record low of 2% to 2.25%. At the London close the Dow Jones was up by 12.34 points at 10,151.33 and the Nasdaq was up by 7.74 at 2,183.14. In London the FTSE 100 moved up by 27.49 points to 5,132.94; the FTSE 250 climbed 26.61 points to 9,745.79; the FTSE All-Share advanced 13.48 points at 2652.65; and the FTSE AIM Index rose by 4.72 points to close at 668.99. Brokers' Notes Evolution Securities reiterated its "BUY" recommendation and 170p target price for recruitment agency Hays (HAS). The broker reported that, in its trading update, the group demonstrated a broadening and accelerating recovery in the fourth quarter of the 2010 financial year. The firm, which operates in 28 countries, reported that net fees for the three months ending 30th June grew by 14% (8% on a like-for-like basis) compared to the previous quarter. Concerns over the U.K. public sector should also begin to diminish as the exposure to the shrinking back office and construction segment is only 8% of net fees, the broker added. Hays shares moved up by 1.5p to 96.65p. Panmure Gordon reiterated its "BUY" recommendation, and 25p target price, for JJB Sports (JJB) following yesterday's investor day where management hosted a store tour of its newly refurbished 11,000 square feet Slough store. Since refurbishment, the store has experienced sales uplifts of 9%, relative to the portfolio average, and a cash gross margin increase of 17%. Panmure also understands that the cost of the refurbishment was significantly less than the average amount previously indicated. Additionally, Panmure expects online ordering for collection in store to become available as a service by the autumn, which should also help to drive the top line. The shares edged forward by 0.25p to 14.25p. Get your free copy of "The Way to Trade" Singer Capital Markets issued a "BUY" recommendation for Dunelm (DNLM), with a 440p target price, ahead of the home-ware retailer's pre-close trading update for the year ending 3rd July 2010. Given tough competition and consumer caution around the election and the budget, the research house forecasted a moderation in like-for-likes sales. Singer continues to see "significant" headroom for UK expansion going forward and view this expansion potential as a key differentiator between Dunelm and many of its retail peers. The firm, which currently has 92 superstores, believes there is scope to expand the chain to at least 200 superstores. With a well invested and scalable infrastructure, the business has all the key buildings blocks in place to accelerate growth, the broker concluded. Singer shares increased by 9.3p to 352.8p. Ambrian Capital maintained its "BUY" recommendation and 232p target price for Kalahari Minerals (KAH). The research house said that, for the mining and exploration company, upcoming share drivers fall into two broad categories. The first category is fundamental progress on Rossing South, which has been confirmed as the highest grade granite-hosted uranium deposit in Namibia. The second category is potential "game changers" through development, such as a joint venture with Rio Tinto, or a merger & acquisition. In both cases, Ambrian sees significant shareholder uplift; and thus remains very positive on the group's shares, which is currently at an 8% discount to its investment in Extract Resources. The shares moved up by 1.5p to 165p. Blue-Chips The infrastructure software supplier Autonomy (AU.) shares dropped by 25p to 1,875p despite Dassault Systemes extending its Original Equipment Manufacturer (OEM) license agreement to deliver Autonomy's advanced conceptual search capabilities. Dassault Systemes, the 3D and Product Lifecycle Management (PLM) company, has a customer base of 115,000 in 80 customers.
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download a preview of the magazine BT Group (BT.A) shares rose by 4p to 140p subsequent to reaching agreement with the Communication Workers Union (CWU) on a new pay package for team members. Having failed to reach agreement on a one or two year deal, the two sides have instead agreed on an unprecedented thirty nine month deal that will take both sides through until March 2013. The agreement will see team members receive pensionable pay rises worth 3% each financial year from April 2010, which is 2% less than previously requested. This derisory package, which has been agreed by the union's executive, will now be recommended to union members. Mid-Caps Greports of greater permanent recruitment activity pushed Michael Page (MPI) shares up by 7.6p to 393.4p. The recruitment agency reported a strong performance in the second quarter, with gross profit of 111.5 million pounds, up 14% sequentially on the first quarter of 2010 and 33% higher than the second quarter of 2009. Page has benefited from diversifying the group internationally, with over 70% of its gross profit derived from areas outside of the UK and over 40% of its free earners in the faster developing recruitment markets. Still, the firm said it has experienced job flow improvements in virtually all markets, including the UK, while also acknowledging that business confidence and economic activity may be threatened by fiscal consolidation. Seymour Pierce said that the update marked a return to more normal levels of business, moving its recommendation from "SELL" to "BUY" as well as raising its target price from 350p to 375p. Bodycote (BOY) shares jumped up by 26.9p to 217.6p as the UK engineering company said it continues to see a steady and broad based improvement in demand. Consequently, revenue for the group for the six months to 30th June 2010 is expected to be 8% above the same period last year. Looking ahead, sales in the second half are expected to be impacted by the usual seasonal pattern of customer requirements, and are therefore likely to be lower than in the first half. Against this backdrop, the firm added, if current levels of demand are sustained, and allowing for normal seasonal differences, headline operating profits for the year will be "significantly" above forecasts. Evolution Securities also expects a significant increase in operating profits as the research house reiterated its "BUY" recommendation, with increased target price from 275p to 286p.
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Report! Click here and find out how VectorVest values companies in your portfolio. SIG (SHI), which sells insulation and other construction materials, announced its underlying pre-tax profit will be "above market expectations" despite a 4 percent drop in its sterling-denominated sales to 1.29 billion pounds. The company said sales had recovered in May and June after a cold weather-induced downturn in the first quarter. Notwithstanding the sales development in its main businesses in the second quarter, SIG's management remain cautious about prospects for the remainder of the year. Panmure Gordon commented that the recent stabilisation of trading should help sentiment towards the shares improve; and thus retained its "BUY" recommendation and 105p target price. The shares rose by 2.4p to 106.9p. British price comparison website Moneysupermarket.com (MONY) expects a small fall in first-half underlying earnings as investment and tough travel markets offset revenue growth in money and insurance products. The group said earnings before interest, tax, deprecation and amortisation (EBITDA) were likely to be about 18 million pounds for the six months to 30th June, down from 18.6 million in the same period last year. This was due in part to higher spending on advertising and product development, which the group said was yielding benefits, with gross profit margins up by an undisclosed amount and profitability improving throughout the period. Revenues rose by 5% to 71.5 million pounds. Moneysupermarket shares fell by 1.25p to 67.85p. Small Caps, AIM and PLUS Sinosoft Technology (SFT) slumped by 2p to 5.375p after the software producer closed certain foreign exchange contracts which have, in aggregate, resulted in a net loss of 3.8 million dollars (2.5 million pounds). As a consequence, the company expects to report a loss for the first half of 2010. In addition, the group's cash and cash equivalents at 30th June 2010 will be materially below the expected 14.9 million dollars (9.8 million pounds), the firm stated. Tanfield (TAN) shares fell by 6.75p to 30.5p after the engineering firm extended the exclusivity period for its electric vehicle interests by a further 60 days. This follows from the 37 million pounds cash offer from Smith Electric Vehicles US (SEVUS) in March 2010 for its Smith Electric Vehicles business. The group added that it continues to see strong interest in the electric vehicle concept within the U.S.
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gain from higher gold prices Caza Oil & Gas (CAZA) shares edged back by 0.87p to 6.38p after failing to strike gas at its latest well in Texas. Its post-drill evaluation on the Matthys-McMilland Gas Unit #2 well on the Wharton West Wilcox, which was drilled to a total depth of 15,000 feet, showed "poor reservoir characteristics". Nevertheless, Caza is continuing to pursue further investigative work concerning the Wilcox sands. Seeing Machines (SEE) shares edged forward by 0.25p to 2.875p on news that a new production license for the company's faceAPI software suite - used for finding and tracking the movement of faces and facial features - has been acquired by Di-O-Matic. This is the first face-API production license the vision based systems developer has sold into the computer graphics (CG) animation sector, which has been licensed to empower Maskarad, a new family of CG animation tools. Di-O-Matic president Laurent M. Abecassis commented that this technology will allow the firm to offer its customers a "new unique solution for animating CG characters like never before."
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ALTERNATIVE! Accident Exchange Group (ACE) shares moved up by 2p to 11.5p subsequent to announcing that it is in construction talks with Convertible Loan Note (CLN) holders over a restructuring. The motor accident manager said that the senior lender and holder of around 40% of the CLNs has indicated that it is willing to consider converting its CLN interest into an equity interest as part of a restructuring. In view of these discussions, the company said, it has received assurances from the holders of over 90% in value of the CLNs that the interest payment on the CLNs due to be paid on 8th July 2010 may be deferred. Additionally, the group is also in discussions with a number of asset backed lenders with a view to increasing available vehicle funding facilities post-refinancing. Shore Capital retained its "SELL" recommendation as the research house continues to have doubts about viability of the group's operating model and working capital management. Brammer (BRAM) shares climbed up by 13p to 153p after the supplier of mechanical parts said second-quarter results were substantially ahead of the first quarter. In the second quarter, group sales per working day on a constant currency basis rose 14 percent to 1.9 million pounds per working day compared to the same period in 2009. This compares to the first quarter where group sales per working day stood at 1.8 million pounds. Also, gross profit margins continue to be maintained at similar levels to last year. The company concluded that it is confident it will "continue to be able to grow at a rate substantially in excess of the market." The Week Ahead We expect a busy week on the news-flow front from the small-caps next week. Property investor Invista Foundation Property Trust (IFD) is due to update the market on Monday, with closed-ended investor Twelve Estates (OTE) and home reversion plan investor Sovereign Reversions (SVN) both due to report finals on Wednesday. Later on in the week investors will be looking for a positive update from restaurant operator Clapham House Group (CPH).
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WatsHot.com Amongst the mid-caps, the home delivery pizza firm Domino’s Pizza* (DOM) will be announcing interim results on Monday, with the World Cup expected to have increased pizza sales as football followers spend their time in front of the T.V. What investors will be looking for however is evidence of continued economic recovery in financial services firms Ashmore Group (ASHM) and the London Stock Exchange (LSE) since the International Monetary Fund warned on the risk of a slowdown in growth in the UK. Another financial services firm reporting next week is BlueBay Asset Management, shares in which have dropped despite the company recording increased assets under management by 7.9% to 25 billion pounds for the third quarter to 31st March 2010. Amongst the blue-chips we look forward to an interim management statement from credit services firm Experian (EXPN) on Thursday and a trading update from Rio Tinto (RIO) a day earlier. Rio’s shares have been steadily rising since it finished the divestment of its Alcan Packaging business on the 5th July and received favourable news on the planned Australian mining tax. * The T1ps Smaller Companies Growth Fund, which is managed by a subsidiary of Rivington Street Holdings, the ultimate owner of UK-Analyst, owns shares in Domino's Pizza.
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