Monday's Market Report from UK-Analyst: featuring HSBC, Intertek and Arena Leisure
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From UK-Analyst.com: Monday 2nd August 2010
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download a preview of the magazine Britain's envoy to Pakistan was summoned to the foreign ministry, escalating a diplomatic dispute sparked by remarks from David Cameron that linked the Asian country to terrorism. Meanwhile, British manufacturing output continued to grow strongly in July, according to the latest purchasing managers' index, even though sentiment dipped marginally from June. Elsewhere, Asian stocks were mostly higher in spite of new data showing further signs of a slowdown in the growth of manufacturing activities for the month of July. The purchasing managers' indices in China, South Korea, and Taiwan were all at a multi-month low. At the London close the Dow Jones was up by 199.43 points at 10,665.37 and the Nasdaq was up by 42.79 points at 2,297.49. In London the FTSE 100 soared 122.95 points to 5,380.97; the FTSE 250 jumped 191.61 points to 10,140.33; the FTSE All-Share rallied 61.78 points to 2,777.14; and the FTSE AIM Index rose 3.43 points to 689.11. Brokers' Notes Edison investment research reported on the software testing and quality management services company SQS Software Quality (SQS). The group announced its largest ever Managed Services contract win, worth 15 million Euros (12 million pounds) over three and a half year. The research house commented that the software testing company has made "good" progress year-to-date in winning Managed Services business, growing the order book from 15 million Euros (12 million pounds) in May to 40 million Euros (33 million pounds). Edison believes that the increasing contribution from this business will "underpin growth and provide an increasing level of recurring revenues" for the firm. SQS shares finished flat at 184p. Arden Partners maintained its "buy" recommendation for the home credit business International Personal Finance (IPF) with an increased target price from 275p to 300p. The group announced that it has issued bonds under the company's previously announced euro medium-term note programme, which is part of the company's strategy to diversify its sources of funding and extend its debt maturity profile. The five year bonds were priced at 225 million Euros (186 million pounds) at a fixed coupon of 11.5%, and the proceeds will be used to pay down a portion of existing bank borrowings. The broker commented that, since it was already assuming elevated finance costs, the positive effects of the first half results and guidance outweigh the increased finance costs. Personal Finance shares climbed 9.6p to 252.3p. Read Tom Winnifrith's latest thoughts on the markets here Westhouse Securities reiterated its "buy" recommendation for the oil exploration company Petro Matad (MATD), maintaining its 200p target price, following the group's exploration update. The main point of the update is that electronic logging has been completed on DT-1 which confirms the earlier interpretation of the well. In particular, significant indications of oil have been found in six significant sandstone horizons with a total net pay of 12 metres. The broker commented that the results of the wire-line logging underpin its view that the "DT-1 has made a significant oil discovery." The shares slipped 12p to 132p. Arbuthnot reiterated its "buy" recommendation for the recruitment group Matchtech (MTEC) and 300p target price. The company has announced a significant contract extension with its largest client Xchanging and its client BAE Systems until December 2012 (from October 2010). The agreement extends the existing scope of work, and gives access to BAE Systems' technical and non-technical requirements for the UK through Xchanging. The broker commented that "clearly this is an extremely positive development, and gives a further degree of security over some of the earnings in the forecast period." Arbuthnot added that, compared to many in the recruitment sector, it remains confident that Matchtech has a more stable operating environment and better visibility; as such, it has a lower earnings risk. The shares finished 3.5p lower at 210p, despite the positive comment. Blue-Chips HSBC Holdings (HSBA) shares rallied 34p to 680p following Europe's biggest bank announcing strong financial performance. The group's Personal Financial Services and Commercial Banking businesses delivered significantly improved results, adding to another very strong performance in Global Banking and Markets. On a reported basis, pre-tax profits more than doubled to 11.1 billion dollars (7 billion pounds) compared with the first half of 2009, including the impact of movements on the fair value on its own debt relating to credit spreads. The bank's earnings came mostly from its businesses in European, Asian and emerging countries. Emerging markets, in particular, will continue to be a strong growth driver, as HSBC's wealth management business there is faring better than many rivals, the company added. Intertek (ITRK) shares jumped 97p to 1,674p after the customer products safety firm announced a "good" first half of the year with trading improving during the period. The company reported that revenue increased by 4.9% to 652.6 million pounds, at actual exchange rate, compared to the same period last year. Consequently, profit before tax was 97.3 million pounds, up 3.3% on last year. Commenting on this, the company said "environmental regulations, the expansion of renewable energy industries and consumers' concern over the health and safety of their products continue to drive good growth and offset some weaker markets." With the trading outlook improving, the group now expects to achieve 2010 organic revenue growth of mid single digits. Seymour Pierce commented that Intertek shares have performed strongly in recent months and the valuation gap between it and the company's peers have closed. Consequently, the broker retained its "hold" recommendation and 1,500p target price. Markets Move Fast. Keep up with GFT's Free Guide. Learn to Harness Market Volatility.
Determine if a market is in trend or range (and what that
means) Click here to download your Guide. Hammerson (HMSO), the real estate investment trust, reported a first-half profit after the value of its properties grew. The group's adjusted profit before tax increased by 4.6 million pounds to 70.2 million pounds. However, reflecting the increased number of shares in issue following the 2009 rights issue, adjusted earnings per share reduced to 9.7 pence against 11.0 pence for the equivalent period last year. Commenting on the performance, the company said that although the markets have continued to recover from the recession over the first half of 2010, the "outlook remains uncertain." The shares advanced 10.3p to 398.7p. British Land Corporation (BLND) and Blackstone Group announced that Bluebutton Properties, their joint venture company, has signed an agreement for leases with UBS AG to develop a new 700,000 square feet building on the Broadgate Estate. The new building, 5 Broadgate, will be fully let to UBS at an initial headline rent of 54.50 pounds per square feet and the total development cost is expected to be 340 million pounds excluding land and interest costs. British Land shares rose 9.7p to 471.5p. Mid-Caps Atkins (ATK) shares climbed 31.5p to 745p after the engineering consultancy announced that it has entered into a merger agreement to acquire the engineering management services provider PBSH Corporation for 280 million dollars (178 million pounds). The consideration for the acquisition will be satisfied from the group's available cash resources and new credit facilities. Commenting on this, Atkins said that the merger represents an "important step in Atkins' multi-skill, multi-local strategy and further expands its geographic footprint." In a separate announcement, the company reported that it has begun the year with trading in the first quarter in line with its expectations as its financial position remains strong. Its diversified exposure to end markets continues to give the firm added resilience to market fluctuations as it remains well prepared for a period of tighter UK Government spending, the company commented. Brewin Dolphin expects the acquisition to be "well received." Tullett Prebon (TLPR) shares rallied 19.1p to 359.5p in spite of the interdealer broker posting a fall in half-year profits. The company reported a fall in both revenue and operating profit by 8% to 475.8 million pounds and 16% to 84.7 million pounds, respectively. The group said that the recent departure of some of its brokers to rival BGC Partners had contributed to a 7% fall in revenue, while its earnings had also been hit by adverse foreign exchange movements. "Although it continues to be difficult to forecast market activity", the company said, "It is likely that the unsettled financial market conditions will persist into the second half."
PLUS RETAIL ROADSHOW 2010 Keller Group (KLR) shares also moved higher, by 24p to 573p, despite the ground engineering specialist announcing a fall in profits. In its interim results, the group said pre-tax profit slumped to 11.3 million pounds, in the six months to 30th June, from 41 million pounds in the same period a year earlier. Revenue fell by 10% to 496.9 million pounds as the construction market continued to deteriorate. Following the loss in the first quarter, as a result of severe weather impacting its US and European businesses, the second quarter saw a significant improvement in the firm's results. The group added that it continued its "unbroken record of increasing the dividend every year since the flotation in 1994." Small Caps, AIM and PLUS DDD Group (DDD), the 3D software and content company, announced that trading is in line with the board's expectations as the group continues to benefit from strong demand for 3D systems and content. In a trading update, the firm reported that, in the first half of 2010, more than a million units of the TriDef 2D to 3D conversion solution were shipped by licensees in the TV and PC markets. This compares with less than 100,000 units shipped up to the end of 2009. DDD expects to report revenue of 723,000 pounds, on a like for like dollar bases and after conversion, which is, more-or-less, unchanged from the same period in 2009. The company added that it expects to "secure further licensing contracts in the second half as technical evaluations and commercial discussions come to fruition." Edison investment research reported that it is "maintaining a break-even earning per share estimate for the 2010 financial year, though an increase in expenses, following the June placing, may result in a small loss for the year." DDD shares finished flat at 22p. Globo (GBO) shares jumped 1.25p to 10.5p after the IT solutions provider announced its "strong" financial position, which was ahead of the board's expectations. In a trading update, the group reported that revenues for the six months ended 30th June 2010 increased by 50% to 12.53 million Euros (10.41 million pounds) on the first half of 2009. Pre-tax profits, the firm said, were also "substantially" higher than the same period last year. This reflects the businesses successful expansion into the international mobile market which contributed 1.1 million Euros (0.9 million pounds) to revenues, representing 8.8% of the group total for the period. Globe believes that its progress will "continue through the second half of the year."Encouraged by this, Daniel Stewart reiterated its "buy" recommendation and 45p target price.
Gold set to head higher - will it be $1,500 or
$3,000 Ariana Resources (AAU) shares rose 0.25p to 2.5p subsequent to the gold miner announcing that the drilling results from the Banu and Derya veins at its Red Rabbit project in Turkey "confirmed the integrity" of the resource at the Kiziltepe prospect. The firm said that apart from a flawless 'hit rate' with the 26 holes intersecting mineralised quartz vein in every hole, the gold and silver grades encountered were robust and demonstrated economic potential. Ariana added that "this discovery…justifies further drilling in this area this season." Elementis (ELM) shares moved 3p higher to 80.5p after the speciality chemicals company announced a "considerable improvement in the group's performance. For the six months to the end of June, the company posted a pre-tax profit of 46.2 million dollars (29.23 million pounds), compared with 3.2 million dollars (2.03 million pounds) last year. Revenue rose by 38% to 358 million dollars (226.76 million pounds) after adjusting for currency and acquisitions, driven mainly by improved volumes and margins and by market share gains. Commenting on this, the company said that "these results, combined with our strength in emerging markets and a robust order book give us confidence in our ability to make further progress as we head into the second half of the year." Brewin Dolphin commented that "the group remains attractively valued in light of its current earnings momentum and medium term potential." It expects to retain its "conviction buy" and increase its price target (from 90p) once it has finalised its forecast revisions.
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The horse racing operator Arena Leisure
(ARE)
revealed a rise in half-year earnings after seeing signs
of a recovery in corporate hospitality spending. The
group, which owns seven venues, said its average
attendance was up by 3% to 1,498 people as underlying
profits for the six months to 30th June lifted by 25% to
2 million pounds. Hospitality attendance increased by
13%. The company is expected to stage 353 fixtures across
this year - accounting for about 25% of all UK racing -
but the size of next year's schedule is still uncertain
due to the impact of a sharp fall in the horseracing
betting levy. Commenting on this, the Arena said that the
likely profit impact of the reduction in levy funding is
200,000 pounds for this year and 800,000 pounds for 2011.
Arena rose 2.5p to 34.5p.
Ford Eagle (PLUS:FEGP), a specialist advisory and investment firm, joined the PLUS-quoted market, with a valuation of 1.65 million pounds. The company now intends to operate two distinct, but related divisions: advisory and investments. Initially, the company will operate its advisory division but once the group has raised sufficient funds, the investment division will also become operational.
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