From UK-Analyst.com: Friday 20th August 2010

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Here on UK-Analyst this Friday we have another competition for you. For a chance of winning a copy of the Master Investor 2010 DVD, with speeches from master investors such as Nigel Wray, Mark Slater and secret millionaire Nick Leslau, identify the 5 year share price performance of the mystery FTSE 100 company identified below. Email your entry to richard.gill@t1ps.com by 8am on Friday.

Libya has been warned by the British government not to celebrate the first anniversary of the Lockerbie bomber's release, as US senators step up calls for information about the medical evidence used to justify his release. Meanwhile, Axel Weber, Bundesbank president, has put himself on a possible collision course with other European Central Bank policymakers by arguing publicly in favour of extending emergency help for euro-zone banks until at least next year. Elsewhere, the Japanese government has stepped up pressure on the Bank of Japan to take measures to try to stem the rise of the yen amid concern that the economic recovery is running out of steam. At the London close the Dow Jones was down by 84.54 points at 10,186.67 and the Nasdaq was down by 10.59 at points at 2,168.36.

In London the FTSE 100 fell 15.04 points to 5,196.25; the FTSE 250 dropped 72.34 points to 9,762.74; the FTSE All-Share slipped 10.22 points to 2,680.59; and the FTSE AIM Index finished 0.95 points lower at 687.71.

Brokers' Notes

Standard & Poor's maintained its "buy" recommendation and 505p target price for Aviva (AV.) following the insurance group's approach from RSA to buy its general insurance (GI) operation in the UK, Ireland and Canada for 5 billion pounds, which was subsequently rejected. The broker finds it hard to envisage RSA, which has a market capitalisation of 4.3 billion pounds, being both willing and able to make a sufficiently attractive cash offer. Furthermore, the proposed transaction looks to be economically irrational from shareholders' point of view. A better way to do it, in S&P's opinion, would be to pool the target businesses of both Aviva and RSA in a 'newco', which it believes offers at least the same synergy benefits as an acquisition. Aviva shares slipped 4.2p to 377.7p.

Evolution Securities downgraded its recommendation for the mining company Rio Tinto (RIO) from "buy" to "add" with a slightly reduced target price from 3,590p to 3,510p. The firm's earnings performance in the first half was dominated by iron ore which accounted for a massive 70% of net earnings. This reflects both the strength of iron ore prices and increasing production on one side of the equation and continuing depressed earnings from the aluminium division on the other. The sell-down of the US coal operations also reduced earnings. The other main story of the results was the marked improvement in the strength of the balance sheet, with net debt reduced from 39 billion dollars (25 billion pounds) a year ago to about 2 billion dollars (1.3 billion pounds) at the end of June. The broker expects net debt to fall further during the remainder of the year, notwithstanding an increase in capital expenditure. Rio shares finished 5.5p lower at 3,284.5p.

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Arbuthnot downgraded its recommendation for the electronic and computer company TT Electronics (TTG) from "buy" to "neutral" while increasing its target price to 133p. After a better than expected interim results, in terms of revenues, margins cash generation and the reinstatement of a dividend payment, the broker has once again increased its estimates since last doing so as recent as May. However, following a 15% surge in the share price yesterday, it is moving back its recommendation, albeit with a "buy for choice" flavour, based on expectations that management is finally upgrading the quality of the business. TT shares dipped 0.75p to 132.25p.

Panmure Gordon reiterated its "buy" recommendation for Lamprell (LAM) with a 290p target price, ahead of the oil and gas industry services provider's interim result next week. The broker expects the firm to report net income of approximately 19.8 million dollars (12.8 million pounds) which compares to 31.6 million dollars (20.4 million pounds) in the comparable period a year earlier. Nevertheless, Panmure believes that these numbers are relatively unimportant as the outlook is improving with the group winning three very significant life boat orders in the year to date. This should allow the firm to increase its order book from 633 million dollars (408 million pounds) to in excess of 880 million dollars (567 million pounds). The shares fell 10.1p to 263.9p.

Blue-Chips

Cobham (COB) shares after the defence products group won a contract worth up to 18 million dollars (12 million pounds) to provide breathing kits for the US Air Force. The kits provide critical parts to the Air Logistics Centre for overhauling crew breathing regulators bringing them to like-new condition, the firm commented. "This contract will facilitate a smooth, continuous supply of parts to ensure the U.S. Air Force maintains a high level of mission capable aircraft," said Kelly Coffield, president of Cobham Life Support. Cobham finished 0.5p lower at 210p.

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Mid-Caps

Stobart (STOB), the trucking group reinventing itself as a broader transport operator, announced its first half earnings would be significantly ahead of a year ago as its road logistics division offset uncertainty in its rail business. The company reported that the first-half performance was in line with expectations and would exceed interim results last year, when it made profits of 11 million pounds from revenues of 218.2 million pounds. "We expect continued growth in the second half as new contracts start to deliver, while we recognise the economic environment remains challenging," said Andrew Tinkler, chief executive. Given the disappointing readings from the rail division, Arbuthnot reiterated its "neutral" recommendation at the 150p target price. Stobart shares finished 0.1p lower at 141.9p.

Mitchells & Butlers (MAB) announced the proposed disposal of 333 Non-Core Pubs for a cash consideration of 373 million pounds to Stonegate Pub Company, a company controlled by TDR Capital. Commenting on this, Mitchells said that the disposal is in line with the group's strategy to withdraw from the lower price, drinks-led market and the late night high street bars and venues. "The cash resources released by the sale programme will allow the company to accelerate its growth into the informal eating out market," chairman john Lovering added. Encouraged by this, Panmure Gordon strongly re-iterated it "buy" recommendation and 380p target price. Its shares moved 2p lower to 293.8p on the news.

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South Korea's national oil company KNOC made its 1,800 pence per share offer for Dana Petroleum (DNX) hostile, taking it directly to the oil explorer's shareholders without the backing of Dana's board. Talks between the two parties ended earlier this month, with Dana saying the price undervalued its issued share capital although its largest shareholder, Schroders, called on the company to recommend the bid. Dana shares rose 103p to 1,798p, as traders looked reluctant to place bets that a counterbid priced above KNOC's offer would emerge. Considering the high level of acceptances the firm has already received, WestHouse Securities believes it is extremely unlikely that the deal will not now go forward.

Small Caps, AIM and PLUS

NBNK (NBNK) Investments, a newly formed company set up by two London financial-sector heavyweights to buy U.K. banking assets, has raised 50 million pounds from an initial public offering. Peter Levene, chairman of Lloyd's of London, the insurance market, will be chairman of the company while City guru David Walker, who recently led a corporate governance review of the banking sector, will hold a non-executive role. In a statement, Levene said NBNK "will now establish a dialogue with a number of sellers of assets which would fit our acquisition profile." The firm will initially focus on the retail banking and small-and-medium enterprise sectors; however, over time, it intends to expand into retail wealth management. The shares finished flat at 105p.

Japan Residential Investment (JRIC) shares rallied 3.75p to 47.5p on news the residential property investor's loss for the period decreased. For the six months ended 31st May 2010, the company's loss for the period decreased by 7.6% to 9.7 million pounds compared to the same period one year prior. In spite of this, the combination of lower gross rental income and increased property operating expenses resulted in net rental income of 6.7 million pounds, a decline of 8.5% versus the same period one year prior. The firm added that it is confident in its ability to maintain occupancy and generate substantial levels of operating income.

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Cyprotex (CRX) shares jumped 0.375p to 5p following the pharmaceutical company announcing the launch of its new in vitro toxicology service, branded Cyprotex. Supporting the new service is an additional 90 square metres of laboratory space at the firm's Macclesfield, UK facility housing the latest technology in multi-parametric automated fluorescent imaging and cellular analysis.

Edenville Energy (EDL), the resource exploration and development company, has acquired the majority interest in multiple licences covering the Namwele, Mkomolo and Muze coal deposits of the Rukwa Coalfield in southern Tanzania. The group acquired an initial 70% interest in 2 Prospecting Licences, covering a total of 232.94 squared kilometres, and 66 Primary Mining Licences. In addition, the group has acquired a 100% interest in a Prospecting Licence – Reconnaissance covering an area of 98.95 squared kilometres. The cost for these properties is 75,000 dollars (48,309 pounds). Edenville shares finished 0.01p higher at 0.76p.

Tawa (TAW), the insurance service provider and run-off investor, has entered into a share purchase agreement to acquire 94.3% of the issued shares of Island Capital, and its wholly-owned UK subsidiary, Island Capita for an initial consideration of 7.4 million dollars (4.8 million pounds). There is also a deferred consideration element to the deal that is dependent on the future financial performance of the company, which is expected to exceed 15 million dollars (10 million pounds). The acquisition will give the business access to expertise in credit and political risk insurance, the firm added. Tawa shares finished flat at 62.5p.

1pm (OPM) shares tumbled 0.01p to 0.04p on news the asset-finance debt facilities provider to small and medium sized enterprises swung to a loss for the year ended 31st May 2010 after a big jump in write-offs for bad debts. After breaking even in 2009, the company reported a pre-tax loss of 0.4 million pounds as turnover fell by 2% to 1.3 million pounds. Bad debts increased to 349,843 pounds compared to 82,200 pounds a year earlier. Commenting on this, chairman Mike Johnson said: "The challenge remains accessing funds to support portfolio growth and to that extent we are in constructive discussions with a number of funders."

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Argo (ARGO) shares rose 0.5p to 13p subsequent to the emerging markets fund manager announcing a steady, profitable performance across all its funds during the first six months of the year. For the period ended 30th June 2010 the group generated revenues of 5.6 million dollars (3.6 million pounds), up by 3.4% from the same period a year earlier, whereas pre-tax profits was down by 40% to 1.2 million dollars (0.8 million pounds). Assets under management decreased during the period by 8.3% to 403.1 million dollars (259.8 million pounds). "We are confident that Argo is well-positioned to take advantage of the record levels of recent inflows into emerging markets and that the company will continue to produce positive results," Kyriakos Rialas, Argo's chief executive, said.

PLUS-quoted company Aquarius Media (AQMP), which conducts its business through its trading subsidiary, Full Portion Media, announced it was unable to achieve its revenue targets for the full year ended 31st March 2010. This was due in part to the current economic crisis which led to many clients facing a greater degree of uncertainty and being less willing to commit funds to advertising campaigns without a guaranteed outcome, the group said. Loss before tax for the period amounted to 422,080 pounds, down from the 1.5 million pounds loss suffered a year earlier. "The directors consider that the results of the group going forward are dependent upon the strategy of the group moving forward, which has not yet been finalised," the firm commented.

We expect a busy week on the news-flow front from the mid-caps next week. Pub owner Punch Taverns (PUB) and housebuilder Persimmon (PSN) are due to update the market on trading next week with sports betting company Paddy Power (PAP) due to announce interim results on Wednesday. Later on in the week investors will be looking for a positive update from the residential property services company Rightmove (RMV), which have seen shares, more or less, gone up since the start of 2010 as the housing market continues to recover.

Amongst the blue-chips, oil and gas explorer Tullow Oil (TLW) will be providing interim results on Wednesday, with shares expected to carry on climbing after recently signing a joint oil and gas exploration agreement with Centric Energy Corporation. To date shares have shot up by 300p to 1,300p since July. What investors will be looking for however is how the steps to cut government borrowing, such as increased taxes and public spending cuts, will hit government consultant Serco Group (SRP). Another blue-chip reporting next week is mining company BHP Billiton (BLT), which is expected to deliver greater profits and earnings, largely driven by rising demand in emerging markets such as India and China.

Amongst the small-caps we look forward to interim results from both the pharmaceutical company Lombard Medical Technologies (LMT) and the powered access equipment rental group Lavendon (LVD) on Monday and Friday, respectively, and final results from the mobile banking and payments technology solutions company Monitise (MONI) on Wednesday. Monitise shares have recently gone up on news it plans to continue growing by entering new emerging markets, and that fiscal 2010 revenue is expected to have more than doubled on the year.