From UK-Analyst.com: Monday 16th August 2010

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Nick Clegg, who has taken temporary charge of Downing Street with David Cameron on holiday, announced there is "light at the end of the tunnel" for the economy as he defended the Coalition Government’s cost-cutting measures. Meanwhile, the Chinese economy eclipsed the Japanese economy in size in the second quarter of 2010 after Japan posted poor economic growth figures for the period. The Japanese economy grew at an annualised, seasonally-adjusted pace of 0.4% in the three months ended June. That was much lower than the revised 4.4% growth rate recorded for the first quarter and well below the 2.3% expected by economists. At the London close the Dow Jones was down by 12.64 points at 10,290.51 and the Nasdaq was up by 8.69 points at 2,182.17.

In London the FTSE 100 finished 0.66 points above water at 5,276.10; the FTSE 250 dropped 8.08 points to 9,774.23; the FTSE All-Share dipped 4.17 points to 2,712.79; and the FTSE AIM Index fell 3.61 points to 683.66.

Brokers' Notes

Arbuthnot reiterated its "strong buy" recommendation and 18p target price for the marketing-focused software developing company Smartfocus (STF). This follows last week's report that IBM is to buy Smartfocus's peer Unica for 480 million dollars (308 million pounds), which is over four times Unica's forecasted revenues for the 2010 financial year. Arbuthnot added that Smartfocus, therefore, looks compelling value. Furthermore, with consolidation in the software sector continuing and the success of three acquisitions to date, the broker sees the opportunity for the group to benefit in due course. The shares rose 0.25p to 11.75p.

Brewin Dolphin reiterated its "conviction buy" recommendation for engineering and management consulting company Hyder Consulting (HYC), with an increased target price from 383p to 421p, following the recent M&A and increased interest in the sector. Despite a good recent run the broker believes the share price is being held back by comparisons with more UK centric peers who have much greater exposure to UK public sector capital spending cuts (less than 10% of Hyder’s profits is estimated to come from UK public sector work). Brewin sees scope for both organic and acquisitive upgrades to estimates, continuing recent momentum which has seen forecasts upgraded four times in the last 12 months. The shares eased back 4.25p to 344p.

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Evolution Securities retained its "reduce" recommendation for the financial advisory group Henderson (HGG) with a 125p target price. While the company's strategy of focusing on a low level of high margin flows has ensured that the revenue margin has been progressive for a number of years, this does leave the business more exposed to a reversal in sentiment towards investment products and the accompanying reversal in flows, the broke commented. The market volatility in the second quarter ended 30th June 2010 had a negative effect on the higher margin businesses of the company's peers and Evolution does not believe that the business can be immune to that slow down. The renewed volatility in recent days following further uncertainty over the macro conjuncture could limit the fund under management growth potential further through to the second half of 2010 as the firm lacks the quantum of positive momentum reported by those asset managers that are delivering significant inflows, the broker concluded. Henderson shares climbed 1.4p to 131.5p.

Singer Capital Markets reiterated its "buy" recommendation for the equipment rental group Ashtead (AHT), with an 185p target price, ahead of the company’s 2010 financial year first quarter results in September. The broker was very much encouraged with the group's 2010 full year result in June and now forecasts pre-tax profits of 7.4 million pounds for the first quarter, which is significantly above the current consensus of 2.3 million pounds. As indicated by increased Orderly Liquidation Values (OLVs), asset values at auction continue to recover and there is a strong indication that rental rates could bounce. Furthermore, confidence in the US economic recovery appears to be evaporating as several pieces of data have been less strong than forecast and this has prompted fears of a ‘double dip’. However, Singer remains sceptical that the US will return to recession and believes that what we are likely to see is a lower growth, slower paced recovery. Ashtead shares slipped 1.65p to 89.75p.

Blue-Chips

Cairn Energy (CNE), the oil and gas exploration company, has agreed to sell a maximum 51% stake of Cairn India to the metals and mining group Vedanta (VED) for an expected 8.48 billion dollars (5.4 billion pounds). Cairn India has a market capitalisation of 14 billion dollars (c.10 billion pounds) and is the fourth largest oil and gas company in India. "I am delighted to announce the proposed disposal of a significant shareholding in Cairn India in line with our objective of adding and realising value for shareholders," said Sir Bill Gammell, Cairn's chief executive. The firm added that it would also use the cash from the proposed sale for other exploration and drilling programmes. "Cairn Energy’s decision to sell the majority of its holding in Cairn India to Vedanta is a smart move," Evolution Securities said. The broker, thereby, moved its recommendation from "neutral" to "add" and raised its target rise from 417p to 542p. Cairn Energy shares rallied 24.9p to 493.2p while shares in Vedanta jumped 100p to 2,153p.

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Aviva (AV.) confirmed it had rejected an approach from rival RSA to acquire its general insurance businesses in the UK, Ireland and Canada for 5 billion pounds. The board of Aviva believes that the highest value to shareholders will be delivered by retaining these businesses within the group. Commenting on the proposal, Lord Sharman, Chairman of Aviva said: "Given the compelling strategic and financial benefits to Aviva shareholders of retaining the GI Business, its upside potential and the terms offered by RSA, the Board was unanimous in rejecting this proposal." Shares in Aviva dropped 9.5p to 377.9p.

Whitbread (WTB), the hospitality company, said it has secured longer term debt financing through the issue of private placement notes with an equivalent value of 102 million pounds. The proceeds will be used to repay drawings under existing shorter-dated bank facilities. Commenting on this, the group said that this placement is part of a process diversifying its sources of funding and lengthening the group's debt maturities. Whitbread shares slipped 10p to 1,371p.

Mid-Caps

Allscripts-Misys Healthcare Solutions, the provider of clinical software, information and connectivity solutions for physicians, announced that it has commenced an underwritten public offering of 25 million shares of its common stock on behalf of certain wholly-owned subsidiaries of Misys (MSY), the group's majority stockholder. The shares are being sold by Misys to reduce its equity stake in Allscripts pursuant to the Framework Agreement between Misys and Allscripts in connection with Allscripts' pending merger with Eclipsys Corporation. The offering includes an option for the underwriters to purchase up to 3.75 million additional shares from the selling stockholders to cover over-allotments, if any. Misys shares rose 9.6p to 266p.

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Recruitment firm Michael Page (MPI) announced a strong performance in the first half of 2010. The company, which finds jobs for people in financial, accounting and legal services, reported pre-tax profit was up by 42% to 61.4 million pounds for the six months to 30th June 2010 compared with last year. Revenue also rose by 8% to 393.5 million pounds. This was driven largely by greater permanent recruitment activity as confidence levels improved, leading to higher rates of job churn. Furthermore, in the UK, continental Europe and North America, the group experienced improvements in job flow in virtually all markets. "While we are now entering the seasonally quieter holiday period, we have seen a continuation of these trends in the group's performance during July," chief executive Steve Ingham added. Believing that the shares do not offer good value relative to peers, Seymour Pierce reiterated its "hold" recommendation and 375p target price. Shares in Michael Page dropped 5p to 368p, an outcome which the company's CEO described as 'unusual'.

Hunting (HTG) shares rallied 37p to 561.5p after the energy services group announced the acquisition of Innova-Extel, the supplier of harsh environment electronics technology to the energy industry, for 125 million dollars (80 million pounds). The acquisition will add a significant element to Hunting's well construction portfolio and is expected to be earnings enhancing in 2010. Commenting on the acquisition, Dennis Proctor Chief Executive of Hunting said, "Innova-Extel adds a very important part to our technology strength for high temperature, high pressure applications." He added, "Combined with the growth of directional and horizontal drilling and our existing product offering, this acquisition will further strengthen our position in complex drilling environments."

Small Caps, AIM and PLUS

Celtic (CCP) shares eased back 1.5p to 44p as trading conditions continue to be extremely difficult for the Scottish football club. The company reported a decline in turnover by 15% to 61.72 million pounds for the full year ended 30th June 2010 compared to the previous period. This was predominantly the effect of participation in UEFA Europa League rather than UEFA Champions League but also due to a lower level of season ticket sales, reduced merchandising revenues from one kit launch rather than two, and a drop in domestic media income following the demise of Setanta. Consequently, the group experienced a loss before taxation of 2.13 million pounds, against a profit of 2 million pounds the year before. Commenting on this, chairman Dr John Reid said, "One great feature of football, and this great Club, is that each new season provides an opportunity to put past failures behind us, to learn from them and restore our place as Scottish champions."

Central China Gold (GGG) shares soared 2.25p to 6.875p after the updated Joint Ore Reserves Committee (JORC) reported increased mineral resources at the West Australian gold project, Bullabulling, by approximately 450% to 1.98 million ounces of gold.  The company added that the new mineral resource estimate has been restricted predominantly to mineralisation within the Bullabulling Trend, which extends over approximately 6 kilometres strike and where gold mineralisation exhibits excellent lateral and vertical continuity, and is open in all directions.

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CBG Group* (CB.) shares tumbled 6p to 32.5p after the Manchester based insurance broker and financial services specialist announced that it will most likely fail to meet current market expectations for the full year. In a trading update in advance of the company's half year result ended 30th 2010, the firm said the trading environment has remained challenging and is expected to remain so during the rest of 2010. Management actions, which have already reduced operating costs, have helped to offset pressure on revenues and increased the broking profit margin. This will continue, the firm added, and may result in further cost savings but is not likely to be sufficient to achieve the current market expectations for the full year.

Australian coking coal producer Caledon Resources (CDN), which had received several takeover approaches, announced it was no longer in an offer period, sending its shares down 3.75p to 44.25p. The company said it had received "a number of unsolicited and indicative enquiries from third parties in respect of possible alternative transactions" since its largest shareholder Polo Resources withdrew its offer. One of these enquiries related to an indicative offer for the business at 68 pence per share, then valuing the company at about 153 million pounds, which it had rejected.

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PLUS-quoted conglomerate Rivington Street Holdings* (PLUS:RIVP) announced that its subsidiary Rivington Street Corporate Finance is acquiring PLUS advisor Bridge Hall Corporate Finance for an undisclosed fee. Central London based Bridge Hall has three clients and four PLUS initial public offerings (IPOs) in the pipeline and comes with a clean balance sheet. This transaction will increase Rivington's PLUS-quoted client base to 26 with a pipeline of 10 IPOs for the autumn. Commenting on this, chief executive officer Peter Greensmith said: "Rivington started this year as the second largest adviser on PLUS and we are focused on building on this position. We have been the most proactive PLUS adviser throughout 2010 and are aiming to end the year as the market's largest adviser."

Another PLUS-quoted company reporting was Arsenal Holdings (PLUS:AFC). The group announced that Arsene Wenger, the manger of its subsidiary Arsenal Football Club, has signed a three year extension to his current contract taking his tenure at the club to June 2014. Wenger has steered Arsenal to seven major trophies over the last 14 years, including the 2003/2004 Premier League title without losing a single game. In each of his 13 full seasons at Arsenal, the club has qualified for the UEFA Champions League. Commenting on his contract extension, the Frenchman said, "I love to win and I love football - I can combine the two and that is what keeps me hungry."

* CBG Group is a corporate client of Rivington Street Holdings, the ultimate owner of this website.