Friday's Stock Market Report from UK-Analyst: featuring Connaught, BP and a new competition!
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From UK-Analyst.com: Friday 6th August 2010
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download a preview of the magazine The UK-Analyst Stock Market Report competition is back! To win a copy of Petromania by Daniel O'Sullivan simply identify the 5 year share price performance of the mystery FTSE 350 company identified below. To enter, e-mail your answer to richard.gill@t1ps.com by 8am on Monday morning. The winner will be announced in Monday's report. Petromania (RRP GBP20) is a tale of black gold, dark matter and paper barrels, covering the madness which hit the markets in summer 2008 when oil soared to almost $150 a barrel. The book proves that this oil-price blow out was a classic speculative bubble, but driven by the new modes of financial speculation.
Back to the markets, ministers are passing badly thought out regulation that has not been properly analysed, according to a report conducted by the regulatory policy committee. Meanwhile, manufacturing output continued to grow in June and finished the second quarter in line with last month's preliminary estimate for economic growth. The production in Britain's factories was 1.6% higher in the second quarter than in the first and 4.1% higher in June than a year earlier on the back of solid growth in mechanical power industries and car and boat production. Elsewhere, the US shed 131,000 workers in July, as weaker-than-expected private sector hiring cast doubt over the economy's ability to create jobs as it expands. At the London close the Dow Jones was down by 134.87 points at 10,540.11 and the Nasdaq was down by 31.06 points at 2,262. In London the FTSE 100 dropped 35.32 points to 5,330.46; the FTSE 250 fell 50.53 points to 10,115.60; the FTSE All-Share slipped 20.50 points to 2,750.71; and the FTSE AIM Index dipped 1.1 points to 697.48. Brokers' Notes Edison investment research reported on neuroscience research company Proximagen (PRX). The research house commented that the divestment of the psychiatric drug Sabcomeline to BrainCells, a private US Central nervous system-focused drug discovery and development company, means Proximagen has now partnered both of the clinical assets obtained through its acquisition of Minster Pharmaceuticals. This deal and the recent Collaboration Research and Development Agreement (CRADA) for Naluzotan - a drug used for the treatment of epilepsy - provide further evidence that the firm is carrying forward its strategy of funding clinical development through collaborations. Edison believes that, with 51 million pounds of cash, the group still has the means to continue building its pipeline through additional M&A transaction. The shares climbed 6.5p to 106.5p. Evolution Securities reiterated its "sell" recommendation for the mining company Antofagasta (ANTO) with an increased target price from 750p to 885p. The group is now seeing the effects of Los Pelambres expansion, as payable copper in concentrate production from that mine increased from 83,500 tonnes in the first quarter to 102,500 tonnes. In spite of this, the broker has slightly reduced its copper production estimates from 544,000 tonnes to 535,000 tonnes for the 2010 financial year. Evolution added that cash costs at Los Pelambres were lower than the previous quarter, helped along by reduced worldwide tolling and refining charges. However, these gains were largely offset by increased cash costs at both the El Tesoro and Michilla mines. After revisiting its copper price estimate, the brokerage house lifted its 2010 financial year estimates from 2.75 dollars (1.73 pounds) per pound to 3.00 dollars (1.89 pounds) per pound, which has resulted in its increased valuation and target price. Antofagasta shares rose 2p to 1,025p. Top small cap CEOs talk business Fox-Davies Research retained its "buy" recommendation for the mining company Randgold Resources (RRS) but with a decreased target price from 7,465p to 6,907p. The company reported a quarterly profit of 34.5 million dollars (21.8 million pounds), taking profits for the first half of 2010 to 53.1 million dollars (33.5 million pounds). The profit was boosted by the sale of Volta Resources and from the proceeds received for the Auction Rate Securities settlement. If it wasn't for this, profitability would have been down due to production problems at Loulo. This issues played a contributing role in reducing the broker's target price. Fox-Davies added that the main event in reducing the target price was the strengthening of the sterling, which it uses to convert the dollar target price to pounds. Randgold shares rose 15p to 5,410p. Arbuthnot reiterated its "strong buy" recommendation for BBA Aviation (BBA) and 250p target price. The British aircraft services company posted a 17% rise in first-half underlying pre-tax profit. The broker commented that, excluding pensions curtailment credit gains, the groups interim results were in line with its estimates. It added that, not only is the early-cycle Flight Support division clearly intact, there were also signs of activity picking up in the later-cycle Aftermarket Services & Systems division. As a result, Arbuthnot increased its earning per share estimated by 6% for December 2010. The shares finished 0.4p higher at 202p. Blue-Chips BP (BP.) shares climbed 1.95p to 425.35p after the oil giant announced the completion of a cement plug at the top of its Macondo well in the Gulf of Mexico, sealing off the source of millions of gallons of oil dumped into the sea after an April drilling-rig explosion. Cementing the top of the well completes the so-called static kill. The next stage for the company is to finish drilling a relief well that will intercept with the bottom of Macondo to inject cement. The bottom plug is needed to ensure there is no leakage inside the 13,000-foot-long well bore beneath the seafloor, National Incident Commander Thad Allen said. Royal Bank of Scotland (RBS), which is 83% state-owned, swung into profit for the first time since 2007 as bad-loan provisions dropped. Net income was 9 million pounds in the first six months of the year, compared with a loss of 1.04 billion pounds a year earlier, the Edinburgh-based bank said in a statement. The bank set aside 5.16 billion pounds in the first six months of the year to cover souring loans, compared with 7.52 billion pounds a year earlier. Furthermore, net interest income rose to 7.22 billion pounds, up by 5% on the same period last year. While cautious over the near-term economic backdrop, the group remains confident of its ability to deliver against its 2009-2013 Strategic Plan, and anticipates good medium-term prospects for the business. The shares finished 0.9p lower at 51.1p despite the positive news. 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. Old Mutual (OML) shares rose 0.8p to 124.4p following the Anglo-South African financial conglomerate delivering an improved performance. In its interims, the company reported increased IFRS operating profit of 735 million pounds in the first six months of 2010, up by 43% a year earlier. The improvement was driven in part by cost cuts as the group took out 42 million pounds in expenses out of a total target of 100 million pounds. The company also benefited from a pick up in revenues, with sales climbing 28% to 814 million pounds. "We are confident about the outlook for the full year although market uncertainties remain," Old Mutual chief executive Julian Roberts said in a statement. Separately, the firm said it had agreed to sell its U.S. life business to hedge fund Harbinger Capital Partners for 350 million dollars (220 million pounds). It put the U.S. life business up for sale in February as part of an effort to simplify its sprawling structure. On the back of this disposal, Shore Capital reiterated its "hold" recommendation, believing that "a number of other UK life companies offer better exposure to either the UK or worldwide life markets." Mid-Caps Logica (LOG) shares jumped 6.7p to 116.1p subsequent to the British IT services provider announcing improved orders. In a trading update, the group reported increased orders by 2% to 2.1 billion pounds, in the six months ended 30th June 2010, with continued strength in outsourcing orders. Despite this, revenue fell by 1% to 1.9 billion pounds and adjusted operating profit declined by 2% to 125 million pounds. This was not helped by the 1% fall in public sector revenue, which Logica blames on elections in a number of countries including Sweden and the Netherlands. Nevertheless, the company expects "revenues and adjusted operating margin for the full year will be at a similar level to 2009." Given the groups current valuation, Panmure Gordon sees the firm as an "acquisition target for public sector-hungry offshore players." As a result, the broker retained its "buy" recommendation while increasing its target price from 160p to 163p. Catlin (CGL) shares slipped 18p to 370p on news the insurance group's first half profit tumbled by 64%. In a report, the company said pre-tax profit declined to 86 million dollars (54 million pounds) in the six months to 30th June from a year earlier. The firm, which insures property against natural disasters, terrorism and accidental damage, has been hurt this year by 140 million dollars (88 million pounds) of losses from February's earthquake in Chile and 40 million dollars (25 million pounds) of claims related to the Deepwater Horizon rig explosion in the Gulf Mexico. Despite this, the firm is increasing its dividend as it expects to benefit from higher premium rates. Shore Capital reiterated its "hold" recommendation, highlighting its concerns over the group's potential exposure to recession related claims.
PLUS RETAIL ROADSHOW 2010 PartyGaming (PRTY), the Internet gambling company planning to acquire Bwin Interactive Entertainment, posted a first-half profit as casino games and sports betting sales rose. Net income was 19.7 million Euros (16.4 million pounds), compared with a loss of 46.5 million Euros (38.6 million pounds) in the same period a year earlier, the Gibraltar-based company reported. Helped by the increase in Casino sales by 23% to 76.4 million Euros (63.6 million pounds), revenue rose 30% to 181.2 million Euros (150.4 million pounds). Sports betting revenue also climbed 89% to 10.2 million Euros (8.5 million pounds) as soccer World Cup wagering helped compensate for a drop in poker sales as players were distracted by the tournament. The group added that it remains confident about its prospects for the rest of the year. The shares finished 0.1p ahead at 288.5p. Connaught (CNT), the public-housing maintenance company, crashed by 13.5p to 15.5p after saying a review showed the group will record a full-year "material loss" on earnings before interest, tax and amortization. The EBITA loss will include one-time items, and at a so- called adjusted EBITA level for the year ended 31st August, the company "will be no better than break-even." It also said it expects making provisions for future losses on current contracts for the 2010 fiscal year and will also make "significant write downs" on the carrying value of assets as of 31st August 2009. Chairman Roy Gardner added that the company will continue to seek refinancing. Infamous bear raider Evil Knievil has been a perennial shorter of Connaught. Only last week he told subscribers to t1ps.com that "I sold Connaught at 30p yesterday (the worst bargain executed on the LSE all day yesterday). I think this company is effectively worthless since once goodwill and other capitalisations are stripped out I consider liabilities exceed assets by perhaps GBP75 million." For access to Evil's diaries, which are exclusive to t1ps.com, click here. Small Caps, AIM and PLUS Impellam (IPEL) shares surged 31.5p to 128p after the staffing and outsourcing services group announced interim results in-line with expectations. The company reported increased turnover by 8.7% to 544.4 million pounds in the half year ended 2nd July 2010 while gross profit increased to 88.5 million pounds, up by 7.7% in June 2009. This was helped by the increase in fees from permanent placements by 14.3% to 9 million pounds and a fall in operating cost by 6.9% to 76 million pounds. Commenting on this, Impellam Chairman Cheryl Jones said, "The group has maintained priority on key drivers of our plan which include leveraging our brands, further improving our process and technology environments, investing in service innovation and refining our growth strategy". The Weather Lottery (TWL) has launched its on-line sports betting brand FC Betz.com as the new Championship football season gets underway. The new website offers betting opportunities on a wide range of sporting events including Australian Rules Football, Gaelic Athletic Association (GAA) sports and darts. The company has already signed deals with four Football League clubs to become their online gaming partner and will also run club lotteries through a new FC Lotto brand. It added that it continues to negotiate similar partnership gaming and lottery contracts with other leading football clubs. The shares rose 0.125p to 1.75p. Vectura (VEC) shares jumped 6.5p to 55p following the pharmaceutical company announcing that it has signed a worldwide non-exclusive agreement with GlaxoSmithKline. Under the agreement, GlaxoSmithKline will license some of Vectura's dry powder drug formulation patents in relation to its respiratory product pipeline. Vectura is expected to receive up to 20 million pounds in up-front and milestone payments. In addition, it will earn royalties capped at certain levels of sales of these products. The maximum annual royalties payable to the group under this license agreement will be 13 million pounds.
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gain from higher gold prices Umeco (UMC) shares rallied 17.5p to 413p subsequent to the supply chain management services company announcing an extension to its commercial relationship with Rolls-Royce. Under the new contract, Umeco will provide supply chain services to the Rolls-Royce North American operations in which it is expected to generate annual revenues in excess of 20 million dollars (13 million pounds). In addition, it has been agreed with Rolls-Royce that the existing major supply chain contract in the UK will be extended by two years and will therefore now run to 31st December 2017. Brewin Dolphin said, "we do not expect a significant impact on this year or next year's forecast as the contract starts to ramp up through the 2011 calendar year." Consequently, the broker retained its "add" recommendation and 458p target price. Sabien Technology (SNT), the manufacturer and supplier of M2G, a boiler energy efficiency technology, announced that it has been awarded a contract by a UK facility management company for the installation of its M2G technology. The project is to install M2G in approximately 86 buildings which will include libraries, art centres, residential care homes, offices and museums within an English County Council's corporate estate. The company added that the "installation of M2G will have an immediate effect on the Council's energy bill and CO2 emissions." Sabien shares moved 1.25p higher to 45p. Investment company Brainspark (BSP) increased its stake in B'Parks & Leisure (formerly Mediapolis investments) from 33.25% to 55.34. B'Parks & Leisure has a 69.94% equity interest in Mediapolis which is the owner of a site in northern Italy with plans for the development of a theme park. The development cost is estimated at 220 million Euros (202 million pounds). Under the agreement, the company has acquired a total of 145,400 shares, for a total consideration of 3.6 million shares of 2.5 pence in Brainspark and 1.2 million Euros (1 million pounds) in cash. Furthermore, the group stated that B'Parks & Leisure has commenced discussions with a number of nominated advisers on AIM Italia with a view to an initial public offering later in the year. Brainspark shares finished flat at 103.5p. PLUS-quoted company Eden Research (PLUS:EDE) announced that Lachlan Kenya, the crop protection and pest management company, has recently won funding of up to 0.70 million dollars (0.44 million pounds) from the African Enterprise Challenge Fund for its new initiative. Lachlan's project utilises Eden's portfolio of low-risk products for disease and insect control as part of the Madea Group's backpack programme to improve the food productivity in rural areas. Eden Research licensed its products and technology to Lachlan group in 2009 for the whole East African region and registration work is already underway in Kenya. Lachlan added that it will also provide matching funding of 1.67 million dollars (1.05 million pounds) for the project. The Week AheadWe expect a busy week on the news-flow front from the mid-caps next week. Engineering company Balfour Beatty (BBY) and baker Greggs (GRG) are due to provide the market on interims next week with legacy development and deployment software company Micro Focus International (MCRO) due to release interim management statements on Wednesday. On the same day package holiday company Thomas Cook (TCG) will also be providing an interim management statement, with shares expected to improve following the volcanic disruption late-April.
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companies Amongst the small-caps investors will be looking for a positive update from specialist holidays operator Holiday Break (HBR), which is expected to show a recovery in its Adventure Travel and Camping divisions following the ash-cloud disruption. Investors will also be looking at how the steps to cut government borrowing, such as higher taxes and public spending cuts, will hit consumer demand at retail carpet and floor covering company United Carpets (UCG). Another small-cap firm reporting next week is real estate investment trust Alpha Pyrenees (ALPH), shares in which are expected to show signs of an improvement following negative feedback towards the interim management statement in May. Amongst the blue-chips we look forward to interim management statements from both life insurance company Standard Life (SL.) and financial services group Prudential (PRU) on Wednesday and Thursday, respectively. Standard Life shares have shot up since beginning of July and are anticipated to carry on rising as the group is expected to report slightly higher first-half earnings and interim dividends.
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