Tuesday's Stock Market Report from UK-Analyst: featuring Xstrata, Taylor Wimpey
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From UK-Analyst.com: Tuesday 3rd August 2010
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download a preview of the magazine Britain’s union movement is drawing up plans for an anti-cuts rally in London next March that they hope could draw hundreds of thousands of protesters on to the streets of the capital, the Financial Times has learned. Elsewhere, US consumer spending and incomes were unexpectedly flat in June while personal savings were the highest in a year, implying an anaemic economic recovery for the remainder of this year, announced the Commerce Department. Meanwhile, after a sizzling run for risky assets on Monday, investors are flocking to haven bonds and the yen as stocks and commodities struggle to overcome lingering doubts about the global economic recovery. At the London close the Dow Jones was down by 20.59 points at 10,653.79 and the Nasdaq was down by 6.28 points at 2,289.08. In London the FTSE 100 fell 10.88 points to 5,386.23; the FTSE 250 dropped 31.19 points to 10,129.98; the FTSE All-Share slipped 5.69 points to 2,778.50; and the FTSE AIM Index rose 1.6 points to 691.21. Brokers' Notes Edison investment research reported on the gold exploration company Ariana Resources (AAU). The group announced the results of a 26 reverse circulation drill programme over two veins at Kiziltepe, which is part of its flagship Red Rabbit project. The holes totalled 1,853m in aggregate length and, without exception, all intersected gold mineralisation. As a result of this drilling, the research house estimates that the firm will be able to promote 14,975 ounces of gold in the Derya vein and 5,434 ounces from the Banu vein. As such, the Edison estimates that 20% of Ariana’s market capitalisation will have been added to the value of its shares following these drilling results. The shares climbed 0.375p to 2.875p. Finn Cap initiated coverage of the clothing retailer French Connection (FCCN) with a "buy" recommendation and 60p target price. The broker commented that the key to the group's prospects and share price lies in its net cash balance, which accounts for over 70% of the market capitalisation. This, it says, provides the company with the financial strength to ride out trading difficulties for many years. It should, therefore, be around when a full-blown economic recovery finally arrives, whenever that is. Meanwhile, even though the business has failed to breakeven in recent years, Finn Cap expects French Connection to bounce back into profit this year after getting rid of loss-making stores and, indeed, businesses. Furthermore, the firm's low price to earning ratio makes the shares "undervalued" relative to its peers. The shares finished 0.25p lower at 48.75p. Big trades and strong opinions - pure Evil Evolution Securities reiterated its "buy" recommendation for the biomaterials company AorTech International (AOR) while increasing its target price from 220p to 235p. Elast-Eon and ECSil - versatile and durable bio-stable polymers - continue to allow the company to sign deals for use in various implantable medical devices. While the 2010 financial year operating results were a touch below the broker's expectations, the broker is, nevertheless, not concerned by this. The key to the stock remains the firm’s ability to move up the value chain, supplementing revenues from existing contracts that just supply bulk polymer. Evolution continues to see the 2011 financial year as the first year for "meaningfully registering such sales", which could lead to the 2012 financial year being the group's first profitable year. AorTech shares finished flat at 165p. Brewin Dolphin retained its "conviction buy" recommendation for the chemicals company Elementis (ELM) while increasing its target price from 90p to 105p. The group reported an "excellent" set of interims yesterday, comfortably exceeding expectations. Volumes improved in all key markets and regions, reflecting the more favourable economic backdrop and market share gains. The broker upgraded its forecasts for the 2010 financial year to reflect the outperformance in the first half and a positive start to the third quarter. Nevertheless, Brewin added that it is mindful of wider concerns over global economic recovery but believes that its upgraded forecasts remain "cautiously positioned." Elementis shares rose 1.25p to 81.75p. Blue-Chips Fresnillo (FRES) announced a "very strong" first half of the year, lifting its shares 12p to 1,070p. The precious metals group reported increased adjusted revenues and profit by 49.4% to 636.3 million dollars (401.1 million pounds) and by 88.8% to 258.9 million dollars (163.1 million pounds), respectively, compared with the corresponding period last year. The significant increases were primarily driven by three factors: increases in silver and gold prices, the start up of the Soledad-Dipolos gold mine and the solid operating performance at all Fresnillo mines. Considering these results, management remains confident of delivering another year of "robust operational performance", and expects to deliver strong financial results for the remainder of the year. Markets Move Fast. Keep up with GFT's Free Guide. Learn to Harness Market Volatility.
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means) Click here to download your Guide. Diversified miner Xstrata (XTA) reported a strong first-half financial performance, characterised by robust cost performance, volume growth in most key commodities and positive momentum in developing its industry-leading pipeline of organic growth projects. Operating profit more than doubled to 3.2 billion dollars (2 billion pounds) and EBITDA rose by 67% to 4.5 billion dollars (2.8 billion pounds), compared to the first half of 2009, as demand from China grew rapidly and the US economy continued its recovery. This reflected a robust operational performance and markedly stronger commodity markets, the company commented. In the medium term, the group remains "very confident in the buoyant outlook for Xstrata's commodities". Xstrata shares finished 3p lower at 1,072p. Mid-Caps Taylor Wimpey (TW.) shares rallied 2.58 points to 31.1p as the housing development company performed strongly in the first half of the year. Group revenue for the first half of 2010 was 1,219.3 million pounds, up 8% to the corresponding period in 2009, posting a profit of 7.5 million pounds as opposed to a 681.9 million loss in 2009. The first half result includes a positive contribution, before allocation of appropriate overhead, of 39.9 million pounds relating to utilisation of inventory net realisable value write downs. Taylor commented that, despite the wider economic uncertainty, it believes that it is well protected and positioned against potential downside scenarios. Shore Capital maintained its "hold" recommendation for the group, preferring its peer Berkeley Group, which it says has a "strong balance sheet and a favorable geographical skew in London and the South East." GKN (GKN) shares climbed 7.5p to 144.1p as the British airplane parts maker swung to a first-half profit. The company posted a pre-tax profit of 175 million pounds for the six months to the end of June, compared to a 6 million pounds loss in the same period a year earlier. Sales rose 25% to 2.7 billion pounds. These results reflect the significant volume improvements in automotive markets relative to the weak first half of 2009, continued good performance in Aerospace, and an improving trend in land systems markets. They also include the impact of the final stages of the group's restructuring programme. Commenting on this, the firm said that "the outlook for our major markets is mainly positive although some uncertainty remains, particularly around macro-economic conditions." Arbuthnot believes that "the underlying cash generation of the business remains strong", and thereby reiterated its "buy" recommendation and 160p target price.
PLUS RETAIL ROADSHOW 2010 Meggitt (MGGT) shares slipped 13.7p to 294.6p on news the British aerospace parts supplier announced a fall in revenues. In its interim, the company reported declined revenues by 6% to 549.7 million pounds, compared to the previous year, with the decline spread across civil, military and other markets. Consequently, profit before tax also fell by 34% to 66.3 million pounds. In spite of this, the group expects a "continuing recovery" in the second half in both its civil Original Equipment and Aftermarket businesses, which it believes will drive year-on-year revenue growth. ITV (ITV) has agreed a pay-television deal with Sky to launch high definition versions of its digital channels as a subscription service on the Sky platform. ITV2 HD, ITV3 HD, and ITV4 HD will launch as part of Sky+HD's subscription package of channels in autumn 2010. In a separate announcement, interim results ended 30th June saw revenues rise by 8% to 987 million pounds as net advertising revenue rose 18%. Cost-cutting meant ITV moved from a pre-tax loss of 105 million pounds to a profit of 97 million pounds. Adam Crozier, the new chief executive of ITV, added he would make the commercial broadcaster "fit for purpose" and promised far-reaching changes that would see up to half of its revenues come from outside TV advertising in five years time. Panmure Gordon commented that "the five year 'transformation plan' does not look striking at face value," and thereby reiterated its "hold" recommendation and 48p target price. The shares dipped 1.95p to 51.6p. Small Caps, AIM and PLUS Stratic Energy (SE.) shares surged 3p to 9.125p following the oil and gas company reaching an agreement for the proposed sale of the company to EnQuest, an oil and gas production and development company. Under the terms of the agreement, each Stratic common share will be exchanged for 0.089626 EnQuest ordinary shares, valuing each Stratic share at 0.17 Canadian dollars (0.10 pounds). The total transaction value is approximately 135 million Canadian dollars (83 million pounds). The board of Stratic has unanimously determined that the arrangement is in the best interest for the company. Summit Corporation (SUMM) shares slumped 1.625p after the UK drug discovery company received notification from one of its partners, BioMarin Pharmaceuticals, of its intention to discontinue development of BMN-195 - a non-Seglin small molecule that is used for the treatment of Duchenne Muscular Dystrophy (DMD). Summit remains committed to working in DMD and believes the use of an appropriate formulation of this compound can continue its development into a viable medicine.
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Prospect Independent Resources (IRG) shares tumbled 13p to 75.5p after the oil and gas exploration company announced a disappointing drilling outcome. The Oryx-1 exploration well, on the Ksar Hadada Permit in Tunisia, has been plugged and abandoned after log analysis indicated there was "no significant oil saturation in the reservoirs." The well reached its total depth at 1140 metres. The graphic brand management services provider Imagelinx (ILI) posted a first half pre-tax loss of 286,000 pounds compared with a profit of 487,000 pounds in the same period in 2009. This comes in spite of the group reporting increased revenues by 8.1% to 6.1 million pounds as opposed to the previous period. The main feature of the results is the increased cost of sales by 16% to 3.7 million pounds compared to the second half of last year. The additional expenditure, including the establishment of the Cincinnati studio, and additional staff in some locations was incurred to urgently strengthen service levels. Imagelinx added the process of offsetting these costs will be completed in August 2010 and, as a result, a "significantly improved performance in the second half of the year is expected." The shares slipped 0.375p to 2.125p.
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Report! Click here and find out how VectorVest values companies in your portfolio. Devro (DVO) shares climbed 9.25p to 214.75p as the collagen products manufacturer announced "strong growth" across the majority of its geographic markets. In its interim results for the six months ended 30th June 2010, the company reported increased sales revenue by 10.6% to 116.1 million pounds, compared to the same period last year, with volume increases particularly strong in the UK, US, Russia and Japan. Consequently, pre-tax profits, pre-exceptional items, were up by 86% to 17.1 million pounds. These results are on the back of continued growth in global markets for collagen casings, driven primarily by economic expansion and increased meat consumption in emerging markets. The continuing high cost and reduced availability of gut casing is also increasing the demand for collagen casings through increased substitution. The board expects the "good performance" to continue for the rest of the year. Cadogan Petroleum (CAD), the oil and gas exploration company reported the commencement of commercial production from the Zagoryanske3 well in Ukraine. The Zagoryanske3 well was drilled to a total depth of 5,110 metres in 2009. Following the results of tests on the Upper Visean V-18 zone announced in May 2010, the construction of production facilities and a pipeline to tie the well into a sales point has now been completed. Production commenced on 1st August 2010 as planned, on budget and on schedule. This is the first occasion that the V-18 horizon has proved commercial in the Zagoryanske license. Based on analysis undertaken by the Ukrainian State Geological Exploration Institute, the well is expected to average around 1.2 million standard cubic feet per day gas and 120 billion barrels per day condensate. Cadogan shares rose 0.5p to 17p.
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