From UK-Analyst.com: Tuesday 27th July 2010

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Retail sales jumped ahead in July thanks to discounting, the World Cup and the warm weather, according to a leading survey of the high street. Supermarkets and clothes and shoe shops received the most business last month, as sales rose far more quickly than expected, the Confederation of British Industry employers' group reported. Elsewhere, most U.S. states are expecting to see tax revenues improve after a freefall from the recession, but a recovery remains uncertain and hinged on whether economic growth withstands the end of federal stimulus funds, a report by the National Conference of State Legislatures shows. Meanwhile, news that the Basel Committee, the group that lays down global rules for bank governance, was poised to ease some of its proposals to increase capital and liquidity rules, added to the improving sentiment toward the banking and financial sector. At the London close the Dow Jones was down by 10.37 points at 10,515.06 and the Nasdaq was down by 10.45 points at 2,285.98.

In London the FTSE 100 rose 14.55 points to 5,365.67; the FTSE 250 slipped 31.69 points to 10,106.43; the FTSE All-Share edged 3.08 points ahead to 2,765.62; and the FTSE AIM Index dipped 3.83 points to 684.23.

Brokers' Notes

GE&CR reiterated its "buy" recommendation and 32.5p target price for SkyWest Airlines* (SKYW) on the back of the airliner reporting a 1.61% increase in regular passengers carried for the year to 30th June. The company also announced a scheduled charter agreement with CITIC Pacific Mining. This is for services between Perth and Karratha and provides for anticipated revenue to the company of 10.4 million Australian dollars (6.1 million pounds) for the initial one year term, with a term extension option available. Its accordance with government transport policies has additionally helped the company gain an extension to its coastal network licence. Whilst a further potential risk to the firm is the proposed changes in the Australian resources sector tax regime, the research house does not believe the government would want to cause too much disruption to an industry which is critical to the country's economy. SkyWest shares ascended 1p to 18.75p.

Collins Stewart reiterated its "buy" recommendation for the corporate travel services company Hogg Robinson (HRG) with a raised target price from 42p to 50p. With its lower cost base, the broker believes the operating leverage in the business ought to drive an improvement in margins and double-digit growth in underlying operating profit. It also forecasts a more "normalised level" of free cash flow in the next three years and expects the company to resume dividend growth in the current year. The pension deficit, which has been a volatile figure in the last five year, currently account for around one third of the group's enterprise value; and a potential switch to the use of a lower Consumer Price Index inflation assumption, could reduce gross liabilities significantly, Collins added. The shares climbed 0.5p to 28.75p in response.

John Piper on the FTSE and DJIA

Arbuthnot downgraded its recommendation for Morgan Crucible (MGCR) from "buy" to "Neutral", with a 223p target price, after the industrial components manufacturer reached its target price. The broker commented that the manufacturer's shares have outperformed the market by 11% in the last month, which was selected to place the shares at a 10% discount to the average price to earning ratios of the industrial stocks in its coverage. Arbuthnot added that the company is due to report its interim results tomorrow, where attention will be focused on underlying recovery and the prospects for new British Army requirements for armour products from NP Aerospace. Morgan shares slipped 5.2p to 219.3p on the note.

Panmure Gordon maintained its "buy" recommendation for Royal & Sun Alliance (RSA), and 150p target price, ahead of the insurance group's first half results on 5th August. The broker is forecasting a headline operating result of 321 million pounds, down 18% on previous estimates, as a result of the abnormally large losses made by the firm. These "abnormal" losses of 80 million pounds relate to 'large and weather' losses which were encountered in the first quarter, whilst a separate press release identified a possible 30 million pounds net impact from the Chilean earthquake. Consequently, the Combined Operating Ratio (COR) is likely to have increased to 96.2% compared to the firm's 95% target. Nevertheless, the broker anticipates that it will be on track to achieve the target COR by 2010 year end, and expects dividends to increase by 6% to 3.07p. The shares moved 1.9p higher to 128.9p.

Blue-Chips

BP (BP.) announced that Tony Hayward is to step down as group chief executive with effect from 1st October 2010. He will be succeeded as of that date by fellow executive director Robert Dudley. In a separate announcement, the company said that for the second quarter it has made a pre-tax loss of 32.2 billion dollars (20.8 billion pounds) related to the Gulf of Mexico oil spill. This includes the 20 billion dollars (12.9 billion pounds) escrow compensation fund previously announced. The group will also tell analysts that it plans to sell assets for up to 30 billion dollars (19.3 billion pounds) over the next 18 months, primarily in the upstream business. On the basis that "the shares have assumed worse news than today's announcement," Evolution Securities reiterated its "buy" recommendation and 580p target price. BP shares eased back 10.95p to 406p.

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AstraZeneca (AZN) shares climbed 63p to 3,189p after the U.S. Food and Drug Administration (FDA) said that the drug maker's anti-clotting drug Brilinta is approvable if it undertakes a study to its effectiveness in Americans. This comes after the group announced that it had submitted a New Drug Application to the FDA, for the reduction of major adverse cardiac events in patients with acute coronary syndrome. The new study would be designed to establish the drug's long-term benefit after earlier testing in North America fell short of results seen elsewhere. Anticipating a "positive endorsement" by the advisory committee on Wednesday, Panmure Gordon reiterated its "buy" recommendation and 3,600 target price.

Tullow Oil (TLW) shares rose 34p to 1,273p subsequent to the oil and gas explorer announcing that Tullow Uganda, a subsidiary of the group, has completed the acquisition of a 50% interest in Blocks 1 and 3A in Uganda from Heritage Oil and Gas. The total consideration is 1.35 billion dollars (0.87 billion pounds) and includes an additional contractual settlement amount of 100 million dollars (64 million pounds). The firm now plans to enter into transactions with CNOOC and Total to farm down two thirds of its interests in Blocks 1, 2 and 3A in the Lake Albert Rift Basin. This will result in a unified partnership to accelerate development of the basin and "turn Uganda into a significant oil producing nation", the firm added. Encouraged by this, WestHouse Securities retained its "buy" recommendation for Tullow.

Mid-Caps

Croda International (CRDA) shares jumped 99p to 1,272p following the chemicals supplier announcing "another very impressive performance." The group's results for the six month period to 30th June 2010 showed increased sales by 27.6% to 516.1 million pounds, reflecting strong performances in both the Consumer Care and Industrial Specialities divisions and continued growth in all its main markets. Interest costs fell as a result of lower borrowings and this, allied to the operating results, took continuing pre-tax profits for the firm to 96.2 million pounds, up on the 46.3 million pounds achieved in 2009.  Regarding the future prospects, the company said that it remains "confident" of making further profit progress throughout the rest of the year.

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Provident Financial (PFG) shares tumbled 61.5p to 821p as the financial services group reported that the negative employment market has pushed demand for home credit down. Despite this the firm has reported half-year results ahead of the prior year and in line with management's expectations. Pre-tax profit was ahead of the prior year at 54 million pounds, up by 1.7%. This was on the back of absorbing 7.0 million pounds of additional interest costs attributable to the increase in the group's funding rates. Furthermore, the company reported that its funding and liquidity positions "remain strong" as the company holds its interim dividend at 25.4p. Commenting on the performance, Provident added that it is mindful of the potential for unemployment to increase as a result of the government's fiscal austerity programme. As a result of missing Arden Partners expectations, the broker reiterated its "sell" recommendation and 800p target price.

Tomkins (TOMK) shares climbed a further 16.5p to 324p after the engineering and manufacturing group announced that it has agreed to be acquired by the consortium comprising Onex and Canada Pension Plan Investment board. Under the terms of the acquisition, Tomkins will receive 325p per share, valuing the company at 2.89 billion pounds. Commenting on this, the consortium believes that it can "build value over a long investment horizon."

Small Caps, AIM and PLUS

Dealings in shares of DP Poland (DPP), the Polish master franchisee for U.S-based Domino's Pizza, are expected to start tomorrow, 28th July 2010. The company has raised 6.5 million pounds through a placing to commence the roll out of over 50 Domino's Pizza stores over the next four to five years, which will be predominantly based in Warsaw.

Pure Circle (PURE), the natural food ingredients manufacturer, warned that full year profits will be below levels seen in 2009. In a trading update, the Malaysia based group, which supplies sweeteners made from the extracts of leaves from the stevia plant, expects to report sales for the 2010 financial year ended 30th June 2010 in line with those of the 2009 year. Despite this, profits have been held back by its increased investment in production overhead, sales and marketing, coupled with the fact that the company is running under capacity. In a separate statement, the firm announced the signing of a Memorandum of Understanding with British Sugar group for the creation of The Natural Sweetness Company. Going forward, the company believes that it is well positioned to secure a major share of this growth market.

Yesterday, exclusively to readers of t1ps.com, bear raider Evil Knievil berated the firm, issuing a "sell" recommendation. Suscribers who followed his advice to short were well in the money, shares in the company plunging by 64.5p to 209.5p.

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Mountfield (MOGP) shares rallied 0.875p to 4.125p on news it has been appointed by the property group Onslow as preferred building contractor for the U.K. winter sports resort SnOasis. SnOasis is a 350 acre, 300 million pounds destination resort in Great Blackenham, Suffolk. The development, which is one of the largest construction projects in Europe, is expected to have a 30 month build programme.

Islamic Bank of Britain (IBB) shares plunged 1.25p to 2p subsequent to the bank raising 20 million pounds through a proposed placing of new ordinary shares. The net proceeds of the placing will be used to provide the company with sufficient regulatory capital to manage and grow its business. It aims to turn to profit by growing "secured financing, through its home purchase plan." Separately, in a trading update, the firm reported a pre and post-tax loss for the year ended 31st December 2009 of 9.5 million pounds, compared to a loss of 5.9 million pounds in 2008. The widening loss, the firm said, resulted from a difficult and challenging market in which the impact of the U.K. recession on the housing market, unemployment, disposable incomes and market yields adversely affected the company's revenues.

Shares in Media Square (MSQ) jumped 2.75p to 13.25p after the marketing company announced a profitable start to 2010. In the first four months of the financial year, the group reported a cumulative headline operating profit in excess of 400,000 pounds, compared to a loss of 1.3 million pounds in the same period in 2009. The improvement is attributable to the closure or sales of loss making agencies and the reduction of costs at an agency and group level, as well as a modest increase in client spending. Nevertheless, the firm remains cautious about trading conditions for the remainder of the year with consumer and corporate confidence fragile, and uncertainties around future public sector advertising spend.

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Fantasy war games group Games Workshop (GAW) saw sluggish sales in the year but still managed to lift profits. In its preliminary results for the full year to 30th May 2010, the company saw revenues relatively unchanged at 126.5 million pounds, whereas pre-tax profits more than doubled to 16.1 million pounds. This was as a result of the implementation of cost-cutting measures, such as the staff pay freeze. Even though the company opened 27 new stores during the year, the growth from these was not able to offset the decline in existing stores, the group added. Games Workshop is proposing a dividend of 25p having not paid one last year. The shares moved 35p higher to 440p.

Cosalt (CSLT) shares climbed 0.375p to 5.125p on news the safety equipment provider for the marine markets, has formed a joint venture with the Danish engineering Company APRO. The joint venture company, which was previously owned by APRO, has been renamed Cosalt Wind Energy. It is expected to be well placed to offer engineering, safety and inspection services to the major offshore wind energy projects now being established in the UK. Cosalt has acquired 80% of Cosalt Wind Energy from APRO for an initial consideration of 200,000 pounds plus a deferred consideration of up to 430,000 pounds depending upon the trading performance. Evolution Securities commented that recent results show "management actions and lower financing charges are stabilising earnings." Attracted by its valuation, the broker issued a "buy" recommendation with a 10p target price.

* The company is a corporate client of Rivington Street Holdings, the ultimate owner of this website; the T1ps Smaller Companies Growth Fund owns shares in Skywest.