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Tuesday
Nov042014

Tuesday's Stock Market Report featuring Imperial Tobacco, Persimmon, Unite, a boozy merger and Green Dragon Gas

The Markets

At the London close the Dow Jones had slipped by 42.77 points to 17,323.47 and the Nasdaq was down by 30.55 points at 4,138.73.

In London the FTSE 100 closed down by 34.00 points at 6,453.97 and the FTSE 250 fell by 59.04 points to 15,394.11. The FTSE All-Share slipped by 17.59 points to 3,458.54 while the FTSE AIM Index shrank by 4.88 points to 715.06.

Broker Notes

Investec maintained its positive stance on miner Anglo American (AAL) following a seminar by De Beers, saying that it believes the improved disclosure from the group will enable the market to better assess the diamond business. Most notable is the potential value of the trading side of the business, which the broker believes masks the true profitability of the group as a whole. Investec reiterated its “buy” recommendation on Anglo American and said it continues to believe De Beers could represent upwards of $20 billion dollars of value within the group. Anglo American finished up by 9.5p at 1,325p.

In a note on the oil E&P sector, broker Westhouse said the slide in the Brent oil price to $85 a barrel has exacerbated the substantial underperformance of the UK sector relative to the market in recent weeks. However, the broker suggested that this has thrown up some interesting opportunities for investors. First, it highlighted stocks that it believes are trading at deep discounts to core NAV and that have material catalysts in the next three to six months, namely Bowleven (BLVN), Circle Oil (COP), Genel Energy (GENL), Ithaca Energy (IAE), Lekoil (LEK) and Rockhopper Exploration (RKH) (all Buy rated) and Tullow Oil (TLW) (Add).

Second, Westhouse highlighted stocks that have what it referred to as solid valuation support but also offer significant optionality and as a result could become M&A prospects, namely Faroe Petroleum (FPM) and Sirius Petroleum (SRSP).

Value at the bottom of the barrel according to Westhouse

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Blue Chips

Cough causer Imperial Tobacco (IMT) said net revenue in its tobacco business fell by 6% to 6.58 billion pounds in the year to 30th September, which was below consensus forecasts of 6.97 billion pounds. Imperial has had to deal with declining volumes, weak economies and government tax increases which have put people off smoking, but has tackled this by cutting costs, including closing factories. The latter move has already resulted in more than 60 million pounds of annual savings and is expected to save 300 million pounds each year by 2018. The company also recently floated a portion of its logistics business, Logista, on the Spanish stock exchange, raising 395 million pounds, which it used to help pay down net debt by 11% to 8.1 billion pounds. Imperial Tobacco said it expected to raise its dividend by at least 10% for its new financial year (2014/15), following a 10% increase for the year just ended. Shares in the company finished up by 110p at 2,777p.

Persimmon (PSN), the UK’s largest housebuilder, has brushed off concerns over a possible housing market slowdown as a return to the “traditional seasonal pattern”, in its trading statement for the quarter ended 3rd November. Despite a raft of data suggesting that the housing market could be coming off the boil, the firm stressed that prices remain robust, that it was fully sold for 2014 and that it had seen a 12% increase in reserved forward sales to 696 million pounds for the period from 2015 onwards. “The stock looks well-placed to deliver higher returns and generate attractive levels of cash flow supported by good volume delivery and strong margins,” noted analysts at Citi. Persimmon shares finished down by 14p at 1,444p.

Scottish engineering group Weir (WEIR) plans to close five small manufacturing facilities, cut some jobs and consolidate other service centres next year in a bid to reduce its cost base by 35 million pounds. The group, which makes valves and pumps for the energy and mining industries, said orders at its oil and gas business grew by 40% against the prior year, but original equipment orders were significantly below peak levels. Total orders rose by 14% on a constant currency basis, helped by strength in its oil and gas business, and full-year expectations have been maintained. The company stressed that falling oil prices have not impacted activity levels so far and that its focus remains on oil and liquid-rich formations. Weir shares moved down by 76p to 2,165p.

In what the company referred to as “another magnificent year”, Primark owner Associated British Foods (ABF) reported total sales up 16% to 4.95 billion pounds for the 52 weeks to 13th September. Citing an increase in the number of Primark stores and the popularity of its autumn/winter and spring/summer ranges for the strong performance, the firm nevertheless warned that it saw “limited opportunity” to grow adjusted earnings per share in the new financial year, due to an expectation of falling prices for its sugar business on the back of the abolition of sugar quotas and increased competition. However, “With the strength of the group’s balance sheet and strong cash generation, we have every reason to be confident of further progress,” it added. Shares in AB Foods sweetened by 112p to 2,783p.

Cheap clothes offset cheap sugar at AB Foods

Mid Caps

Shares in student accommodation outfit Unite Group (UTG) closed up by 7.7p at 434p after the firm announced that 99% of its rooms are occupied for the 2014/15 academic year. Benefitting from a positive market for student letting the firm is on target to deliver like-for-like rental growth of at least 3% for the full year and expects to achieve its 4.5% EPS yield on NAV target a year ahead of expectations. On the development front, planning consent has been secured at Greetham Street, Portsmouth for 836 beds and further sites have been secured in Aberdeen and Liverpool for a combined 1,250 beds.

Booze merchants Greene King (GNK) have finally agreed to take over rival Spirit Pub Company (SPRT), in a deal valued at 773.6 million pounds. The acquisition will create the UK’s largest managed pubs operator, with the enlarged group having over 3,100 establishments around the country. Spirit shareholders are set to receive 8p per share in cash and 0.1322 new Greene King shares under the deal. Spirit, which de-merged from Punch Taverns only three years ago, recently rejected a rival bid from Irish drinks firm C&C Group. Shares in Greene King fell by 22p to 786.5p despite the firm suggesting that cost synergies of at least 30 million pounds per annum could be achieved as a larger group. Spirit shares did better, closing up by 1.5p at 108.5p.

Spirit investors say cheers to Greene King deal

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Small Caps

AIM listed voice and data telecommunications firm AdEPT Telecom (ADT) lived up to its name after revealing that its largest customer has renewed its contract for another three years, in a deal worth 2.2 million pounds. This is the third time that AdEPT’s un-named customer has renewed its contract and it will extend the relationship to nine years. Broker Northland forecasts adjusted pre-tax profits of 3.9 million pounds on revenues of 22.2 million pounds for the year to March 2015. The shares gained 5.5p, closing at 121p.

Not doing quite so well were shares in TT Electronics (TTG), which plunged by 50p to 112.5p after the global electronics company revealed that performance for 2014 is anticipated to be at the lower end of current market expectations. Despite revenues growing by 3% in the ten months to October, squeezed margins, shipping delays and disruption from delays in the firm’s “Operational Improvement Plan” have negatively affected the business. More significantly, performance is now expected be materially lower in 2015.

Recruitment services group Impellam (IPEL) has said “you’re hired” to Lorien Limited, buying the technology staffing business for an initial consideration of 22.3 million pounds in cash and 7.5 million pounds in Impellam shares. The firm announced a 15 million pound placing at 460p per share to part finance the deal and will also assume Lorien’s net debt of 14 million pounds. Lorien was founded in 1977 and is the largest independent specialist IT recruitment business in the UK, with offices in London, Leeds, Manchester and Edinburgh. For the 12 months to 31st January 2015 the business is expected to achieve an adjusted EBITDA of 8.7 million pounds on net fee income of 24 million pounds. Investors seemed to like the deal, with Impellam shares closing up by 11p at 471p.

Advanced Computer Software (ASW) grew pre-tax profits by 63% to 7.8 million pounds in the six months to August despite revenues rising by only 9% to 108.1 million. The numbers at the software and IT services group were driven by a contribution from the March 2013 acquisition of Computer Software Holdings and underlying organic growth of 5%. Current trading is said to be going well, with full year forecasts expected to be met. The shares, on which broker finnCap has a 150p target, slipped by 0.25p to 106.75p.

Shares in K3 Business Technology (KBT) inched up by 1p to 220p after the enterprise software developer revealed that it has been accredited with membership of Microsoft’s Global Independent Software Vendor programme. This makes the firm the first such Microsoft Dynamics AX partner for the fashion retail sector and one of only 25 companies globally to be included in the programme. K3 shares have now more than doubled from their nadir of 93p in March 2013.

Green Dragon Gas (GDG) has signed a 10-year offtake agreement with Shanxi Guohua Energy for the sale of coal bed methane gas from its Shizhuang South and North blocks, in Shanxi Province. This adds to the firm’s existing 20-year offtake agreement with PetroChina Huabei Oilfield. Prices will be agreed annually and deliveries are expected to start by May next year, with maximum deliveries of between 1.8–2.5 billion cubic feet (bcf) expected in 2015, rising to between 17.7 - 24.7 bcf in 2025. Green Dragon shares added 4.25p, closing at 515p.

Green Dragon Gas on fire with offtake deals

Monday
Nov032014

Monday's Stock Market report featuring WPP, Diageo, Betfair, Just Eat and Plastics Capital

The Markets

UK manufacturing performed more strongly than expected in October according to PMI survey data, with higher domestic demand helping to offset slack caused by a drop in export orders. The PMI index rose to 53.2 from its 17 month low of 51.5 in September, being well ahead of the Reuters consensus forecast of 51.2. Rob Wood, Chief UK Economist at Berenberg, said that “the risk to the UK from the eurozone is not the direct impact of weak exports, which Britain could easily ride out, but rather the potential for uncertainty to infect UK domestic demand as companies perhaps put off investments. The manufacturing PMI jump this month suggests those risks are not yet materialising”.

The US manufacturing sector has also beaten forecasts, with output indices rising from 56.6 in September to 59 in October. There was also positive news on the US employment index, which jumped from 54.6 to 55.5 in October, suggesting that there will be further good news in the official employment figures that will be released on Friday. Rob Carnell from ING said that, “the October manufacturing ISM survey for the US was very strong, coming in at 59.0, a rate historically consistent with a GDP rate of about 5%, though to put it into perspective, we don’t think the underlying rate of GDP growth is anything like that strong, though manufacturing is clearly doing better than the larger, service sector of the economy. Cheap energy is doubtless to thank for part of this outperformance”.

At the London close the Dow Jones had slipped by 21.77 points to 17,368.75 and the Nasdaq was up by 12.94 points at 4,171.15.

In London the FTSE 100 closed down by 58.50 points at 6,487.97 and the FTSE 250 fell by 48.22 points to 15,453.15. The FTSE All-Share slipped by 27.33 points to 3,476.13 while the FTSE AIM Index shrank by 0.23 points to 719.94.

Broker Notes

WH Ireland has rated investment manager Man Group (EMG) as a “buy”, with the broker viewing the firm as a good candidate for investment in light of increasing market volatility, which has so far served as a spur to performance. WH Ireland believes that the stock remains undervalued despite recent improvements and that there is further upside to be generated from new asset inflows and performance fees given recent results. The shares slipped by 0.4p to 123.4p.

Insurance and financial services outfit Jardine Lloyd Thompson (JLT) has been rated as an “add” by Westhouse Securities ahead of the release of third quarter results on Tuesday.  The broker believes that the firm will outperform its peers, but the prevailing conditions of falling re-insurance conditions and margin pressures have stifled any expectation of improvements to full year forecasts. Recent news of investment into a US speciality vehicle will have a short term impact on profits, but long-term views are unchanged. The shares fell by 12.5p to 940p.

Beaufort Securities has rated advertising and public relations giant WPP (WPP) as a “buy” after the firm released 3rd quarter results showing strong revenue growth in constant currency terms, particularly from the Advertising & Media Investment Management division. The broker believes that despite the negative impact of forex movements on the company, it continues to perform better than its rivals. Beaufort also expects the business environment to improve in 2015. Shares in WPP rose by 15p to 1,233p.

Blue Chips

AstraZeneca (AZN) has bought the rights to Almirall’s respiratory franchise, giving the ownership of all drugs currently on the market and in development. A cash consideration of $875 million (547.9 million pounds) will be paid by AstraZeneca upon completion with additional conditional payments based on research and commercial milestones, with management saying that the arrangement will be earnings enhancing from 2016 and that the deal will contribute to the company’s return to growth. The shares fell by 23p to 4,520.5p.

Drinks giant Diageo (DGE) has reached terms with Casa Cuervo to buy global ownership and control of Tequila Don Julio, as well as agreeing early termination of Casa Cuervo’s production and distribution licence for Smirnoff vodka in Mexico. Diageo will sell Bushmills to Casa Cuervo as part of the deal and will receive a net payment of $408 million (255.5 million pounds) upon completion, which is expected to be in early 2015. These proceeds will be used to pay down existing debt. Diageo shares closed down by 24.5p at 1,813.5p.

Banking giant HSBC Holdings (HSBA) has set aside $1.8 billion (1.1 billion pounds) to cover potential fines and other liabilities resulting from the ongoing investigations into currency market manipulations. Earnings in the third quarter were 12% lower than in the 2013 and the company, like the banking industry as a whole, is facing upward pressure in costs in light of recent regulatory action. Roughly 10% of HSBC’s employees are now in the risk and compliance departments. The shares fell by 11.6p to 627.9p.

Mid Caps

Online gambling outfit Betfair (BET) recorded revenues of 119 million pounds for the three months ended 31st October, a 22% increase over the same period of the prior year. The numbers were driven by strong growth in the number of active users and favourable sports results. Betfair’s customer numbers rose by 30% in the quarter and management believe that the company’s product is well differentiated and are confident that full year results will meet expectations. The markets reacted positively to the news, sending the shares up by 43p to 1,253p.

Online & mobile takeaway marketplace Just Eat (JE.) recorded a 56% increase in total orders during the 3rd quarter of 2014 relative to the same period last year. The numbers were helped by weak comparatives, caused by last year’s UK heatwave having a negative effect on orders. The company has extended its operations in France and has begun to move into the Brazilian market via a joint venture with iFood, which management believes can be a leader in the market. Just Eat shares fell by 4.2p to 303.4p.

Year-to-date revenues at data centre operator Telecity Group (TCY) are 9.4% higher than in 2013 on a currency consistent basis, with EBITDA margins remain strong at 46.9%. Orders from new and existing customers remain good and full year fixed exchange rate revenues are on track to meet targets of 340-350 million pounds despite the impact of lost sublease revenues and the closure of Prospect House in London. The shares added 0.5p to 771p.

Small Caps

Niche plastics products manufacturer Plastics Capital (PLA) has conditionally agreed to acquire Flexipol, a manufacturer of high strength industrial packaging, for a maximum consideration of 10.64 million pounds. To help pay for the deal the firm has raised 5 million pounds in a placing at 98p per share, as well as organising a 5.4 million pound debt facility extension with Barclays. Based in Lancashire, Flexipol manufactures high strength industrial packaging, such as films and bags, for end-markets including food and animal feed packaging. In the financial year ended 1st November 2013 the business made a pre-tax profit of 1.1 million pounds, with Plastics Capital expecting the deal to be earnings enhancing in the first full financial year. The markets seemed to like the deal, with the shares ending the day 1p higher at 103.5p.

Also making an acquisition was materials researcher Haydale Graphene Industries (HAYD) which has bought polymer specialist EPL Composite Solutions for a consideration of 1.38 million pounds. The deal is payable in cash and new ordinary shares and will be part funded by a new 0.5 million pound facility arranged with the Silicon Valley Bank. Management believe that the acquisition is highly synergistic with Haydale’s existing development portfolio and is a major step to capitalising on the firm’s intellectual property. The shares fell by 3.25p to 59p.

Recruitment software provider World Careers Network (WOR) recorded sales of 8.5 million pounds for the year ended 31st July, an increase of 18% over the prior year as the company won a number of new clients and recorded the first full year of revenues from clients won during 2013. Profits before taxation rose by 34% to 2.4 million pounds and the board will request an extension on its authority to buy back shares at the next general meeting. The shares surged by 35p to 225p.

Ecommerce and procurement solutions firm Cloudbuy (CBUY) has signed a contract with a global financial institution to provide a branded, multiplatform ecommerce marketplace to customers in Hong Kong. The deal was initially planned to be populated by 3,000 existing customers of the client, but this has since been expanded to 8,500. Management view the deal as a major step to hitting long-term revenue targets. Cloudbuy shares rose by 2p to 40p.

Holiday, travel and logistics operator Dart Group (DTG) has had its application to appeal rejected by the Supreme Court, with the court rejecting the firm’s argument that technical failure represented an “extraordinary” situation for the purposes of customer compensation under EU regulation. As a result of this decision, Dart will be making a provision of 17 million pounds to cover potential historic claims and believes that additional costs of 3-5 million pounds per annum may arise in future as a result of this change. The shares plunged by 31.5p to 229.5p.

Thursday
Oct302014

Thursday's Stock Market report featuring Barclays, Gulf Keystone, BT, Afren and IQE

The Markets

The US economy grew at an annualised rate of 3.5% in the 3rd quarter according to fresh data from the Commerce Department. This exceeds the consensus view of economic forecasters who had predicted GDP to rise by 3% during the period. The USA was boosted by a significant improvement in new exports and increased government spending, whilst unemployment has also continued to fall. The Federal Reserve viewed these positive economic developments as sufficient cause to announce the end of its stimulus scheme yesterday evening. Ben Brettell, Senior Economist at Hargreaves Lansdown stockbrokers, said that “today’s number represents a return to a healthy-looking trend. The most recent IMF forecasts suggest the US economy will grow 3.1% next year and 3.0% in 2016, and these could be revised further upwards in the coming months”.

Spain also looks to be settling into a pattern of forward momentum as the country posted it’s fifth consecutive quarter of growth. GDP rose by 0.5% between July and September, slightly slower the preceding three months but the year-on-year rate of 1.6% is the highest annual rate the country has seen since 2008. Spain is not yet out of the woods, with unemployment still above 24% and credit remains limited, but Martin van Vliet, an Economist from ING, said that “the nature of Spain’s economic recovery has clearly changed in recent quarters. For a long time, net exports were the only source of growth, but now that financial conditions have sharply improved and the labour market is turning around, domestic demand is taking over the growth baton”.

At the London close the Dow Jones had increased by 157.31 points to 17,131.62 and the Nasdaq had shrunk by 1.64 points to 4,088.91.

In London the FTSE 100 closed up by 9.68 points at 6,463.55 and the FTSE 250 rose by 64.18 points to 15,298.32. The FTSE All-Share increased by 6.39 points to 3,458.91 while the FTSE AIM Index shrank by 0.61 points to 714.58.

Broker Notes

Insurer and asset manager Aviva (AV) has been rated as a “sell” by Shore Capital with a target price of 517p despite positive news in its interim management statement today. Aviva is continuing to make progress in cash generation and has experienced good new business growth in the European market during 2014 to date. However, the broker has a negative stance as it believes the pace of growth will disappoint more bullish investors. Aviva also continues to trade at a premium relative to Shore’s valuation. The shares rose by 1p to 518p.

Westhouse Securities remains “neutral” on private investor favourite Gulf Keystone Petroleum (GKP) despite the firm’s announcement that its development plan for the Akri-Bijeel development plan has been approved. The broker had already priced this development into its analysis, but says that it remains a positive for the Gulf Keystone investment case. Gulf Keystone also said it is in constructive discussions with the Government of Kurdistan, which triggered a rise in the share price yesterday. The shares grew by 2p to 65.75p.

Mine operator Diamondcorp (DCP) has a “hold” rating from Northland Capital after the company announced that development was proceeding on schedule at the firm’s Lace facility in South Africa despite strike action. The Association of Mineworkers and Construction Union is continuing to strike and the schedule may slip if this persists, but underground construction and drilling works remain on track. The broker supports Diamondcorp’s current hard stance on the union’s demand for additional, paid shop stewards. The shares dropped by 0.25p to 6.75p.

Mining strikes mean broker on fence over prospects

Blue Chips.

Banking giant Barclays (BARC) increased its statutory pre-tax profits for the nine months ended 30th September by 31% to 3.7 billion pounds despite a 5% drop in revenues from the same period of the prior year as operating expenses and credit impairments were significantly reduced. Non-core business assets performed better than in the prior period, with losses falling by 33% to 648 million pounds. However, Barclays provisioned another 170 million pounds for PPI compensation payments, along with 500 million pounds for ongoing investigations into potential currency market manipulation. The shares rose by 2.05p to 222.55p.

Oil & gas operator Royal Dutch Shell (RDSA) beat forecasts in the third quarter, with quarterly core earnings up by 31% to $5.8 billion (3.63 billion pounds) over the same period of 2013. Profits fell from those in the prior three months due to a drop in production and declining oil prices, but management has reiterated its commitment to cost management and targeted developments. Shell also increased its third quarter dividend by 4% to 47 cents per share. The shares dropped by 8p to 2,227.5p.

Telecoms operator BT (BT.) increased pre-tax profits by 13% to 690 million pounds in the second quarter as its BT Sport division benefited from the firm’s costly acquisition of Premier League broadcasting rights. Overall revenues were down by 2% as highly volatile transit income was substantially lower than in the comparable period. Management increased the interim dividend by 15% to 3.9p. The shares fell by 7.6p to 367.9p.

Broadband cable and football rights lays groundwork for BT profit growth

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Mid Caps

Oil & gas exploration and production firm Afren (AFR) is considering re-stating its historic accounts after the recent revelation and independent review of unauthorised payments. Production at the firm’s wells was 35.5% lower in the 3rd quarter than it was in the same period of last year, with Afren outputting an average of 31,147 barrels of oil per day. Following the departure of compromised management and staff, the firm is focusing on improving operational performance and developing promising new assets. The shares fell by 14.55p to 78.7p.

Mineral extraction company Kazakhmys (KAZ) said plans to split off less profitable assets were proceeding well and should be completed soon. The plans to hive off elements of the business have received regulatory approval and were approved by shareholders in August. Rising production costs and falling ore grades at some existing sites have lead to falling output in certain product categories over the last quarter, but overall levels of ore extraction were flat. The shares dropped by 4.2p to 222.8p.

Transport operator National Express (NEX) has won and renewed a number of major Middle Eastern and European contracts since 31st July. Also boosted by performance and cost improvements, profits before taxation for the third quarter were 15% higher than last year. Management remain confident that the firm is on track to meet full year targets and has announced new investment plans, including the purchase of 250 buses for the UK market. The shares rose by 11p to 246.2p.

National Express picks up new passenger contracts

Small Caps

Revenues at computer hardware supplier Northamber (NAR) fell by 18.9% to 62 million pounds for the year ended 30th June as the firm returned to focus its operations on the more profitable areas of the business. This can be seen in the loss before tax, which only increased from 1.04 million pounds last year to 1.15 million in 2014 despite the loss of almost 15 million pounds in top line income. Management feel that performance improved in the latter portion of the year and expect that to continue. The shares climbed by 1p to 36p.

Housing support services provider CareTech (CTH) performed in line with expectations for the year ended 30th September. as plans implemented in past periods began to bear fruit and overall occupancy rates continued to increase. Renegotiated deals with local authorities have lead to minor improvements in commercial terms and the recent acquisition of training firm EQL is expected to provide synergies over the coming years. Full results will be released in December. The shares grew by 2.5p to 228.5p.

Semiconductor specialist IQE (IQE) has signed a contract worth around $1.1 million (0.69 million pounds) over the next 12 months to supply infrared materials to a leading microchip manufacturer, representing the single largest order of indium antimonide products in the firm’s history. Management say the scale of the contract is testament to the high quality of IQE’s offerings. The shares ended the day flat at 16.25p.

Farming and timber firm Obtala Resources (OBT) has agreed terms for the purchase of a 72.7% stake in a Lesothan department store operator for a cash consideration of $0.8 million (0.5 million pounds) and the taking on of $0.6 million (0.38 million pounds) of outstanding debts. The deal includes five retail sites within Lesotho that generated revenues of $10.5 million (6.57 million pounds) in the last financial year. Management view the purchase as adding distribution channels for existing products. The shares rose by 0.375p to 9.125p.

Defense industry group Cohort (CHRT) announced that its subsidiary MASS has won a contract to provide electronic warfare support services for two years to an unspecified export customer for 9 million pounds. MASS will provide manpower and design services over the duration of the deal and management believe that this win cements the firm’s reputation as the UK’s leading independent electronic warfare specialist. The share price increased by 5.5p to 242.5p.

Cohort hunts down 9 million pound electronic warfare deal

Wednesday
Oct292014

Wednesday's Stock Market report featuring BG Group, Next, Tullet Prebon, Plexus and Tangiers Petroleum

The Markets

There are fewer UK households where no adults are working than at any point in the last 18 years, according to figures from the Office for National Statistics. Just below 16% of households with at least one adult of working age were workless in the second quarter, a 140 basis point drop from the same period of the prior year and the fourth consecutive annual decline. Geraint Jones, Director of Lancaster University’s Work Foundation said that, “as with other labour market statistics in recent months, the headline figures indicate a favourable trajectory [and] a continued reduction in the number of workless households would obviously be desirable”, but raised fears around the increase in part-time work and self-employment.

The number of new mortgages approved by lenders fell in September according to the latest data from the Bank of England, lending further evidence to the view that the UK property market is beginning to cool. The number of approvals for the month was 61,267, almost 3,000 fewer than in August and the lowest level of lending since July last year. Howard Archer, Chief UK Economist at IHS Global Insight, said the fact “that mortgage approvals are still falling and in September were 19.9% below their January peak levels – after lenders have now likely got to grips with the new mortgage regulations - points to an underlying moderation in housing market activity”.

At the London close the Dow Jones had decreased by 13.11 points to 16,992.64 and the Nasdaq had shrunk by 20.86 points to 4,085.76.

In London the FTSE 100 closed up by 51.70 points at 6,453.87 and the FTSE 250 rose by 110.79 points to 15,234.14. The FTSE All-Share increased by 27.11 points to 3,452.52 while the FTSE AIM Index grew by 2.87 points to 715.19.

Broker Notes

Financial services firm Standard Life (SL.) has been handed a “hold” rating by Shore Capital, with the broker expressing cautious optimism following the firm’s recent interim management statement. This showed positive AuM development and good proceeds from the recent disposal of the company’s Canadian operations. However, when the firm’s 73p per share special dividend is excluded, Shore believes that Standard Life’s valuation is “firmly in the mix” amongst quoted asset manager peers such as Prudential and Legal & General. The shares fell by 1.8p to 383.5p.

Standard Chartered (STAN) has been downgraded to either a “neutral” or “hold” by brokers at Nomura, Charles Stanley and JP Morgan Cazenove after the firm’s profits fell by 16% in the third quarter. The financial services outfit intends to cut another $400 million (248 million pounds) of costs in 2015, as it moves away from business areas that management view as non-core and as it re-allocates capital. The brokers have concerns about continuing revenue headwinds and asset quality. Standard Chartered shares dropped by 6.3p to 992.1p.

Beaufort Securities rates oil and gas producer BG Group (BG.) as a “buy” despite the firm posting results for the first nine months of 2014 showing a 26% drop in operating profits. These were caused by difficulties in Kazakhstan and the rising cost of new development assets. The broker believes that these problems are temporary and that the company is continuing to move forwards with new facilities that will lead to material improvements in the overall business. Rival brokers at Deutsche Bank and Jefferies concur on Beaufort’s “buy” stance. The shares grew by 18.5p to 1,044.5p.

Brokers think BG criticism is a load of hot air

Blue Chips.

Chemical specialist Johnson Matthey (JMAT) has agreed to buy the Clariant AG battery materials business for $75 million (46.5 pounds), with the deal including a manufacturing facility and an R&D plant in Germany. The transaction is expected to complete in early 2015 and will grant Johnson Matthey use of a number of patents relating to energy storage technologies. The firm expects the acquisition to break even in the 2015/16 financial year. The shares rose by 15p to 2,883p.

Miner Antofagasta (ANTO) saw reduced copper output of 5% in the third quarter of 2014 as throughput of concentrates dropped at two key sites, with gold output also declining due to planned maintenance activity. While molybdenium production grew by almost 50% as ore grades improved, this was insufficient to outweigh falls in other minerals. The group’s profits will be adversely affected by an increase in Chilean corporate taxes at the end of September. Antofagasta finished the day up by 3.5p at 704p.

Sales at high street fashion outfit Next (NXT) increased by 8.8% over the year to date, as directory revenues rose 13.7% despite disappointing sales in August and September caused by warmer than expected weather in the UK and Europe. This volatility has lead the firm to moderate it’s full year expectations to a 6-8% improvement over last year rather than the 7-10% growth that had previously been forecast. The shares declined by 20p to 6,415p.

Next hope to move on after disappointing weather dampened sales

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Mid Caps

Transport operator Stagecoach (SGC) has maintained profitability levels and has stuck to existing earnings forecasts. Revenues from UK rail services and London buses grew rapidly, expanding by 7.4% and 14.5% respectively for the 24 weeks ended 12th October. While other operations have grown more slowly, the trend is positive and the firm expects to comfortably meet expectations for the year ending 30th April. The shares rose by 1p to 391.5p.

Diversified minerals group Vedanta Resources (VED) announced that its subsidiary Sesa Sterlite’s revenues for the three months ended 30th September were 8% higher than the same period of the prior year due to increased copper and zinc output from its mines in India. Oil & gas output was negatively impacted by maintenance work, but has now returned to normal levels. Management continue to expect marginal improvements in full year results. The shares grew by 24p to 838.5p.

Financial services provider Tullet Prebon (TLPR) has noted that Noel Cryan, a former employee of the firm, is facing criminal charges in connection with the Serious Fraud Office’s investigation in to LIBOR manipulation. The company is cooperating with the FCA and all other relevant government offices regarding their enquires. Mr Cryan is the firm’s first former employee to face sanctions and is charged with conspiracy to defraud between February and December 2013. Despite the news the shares climbed by 8.4p to 282.9p.

Tullet Prebon dealing with SFO as old employee in the dock over LIBOR fixing

Small Caps

Shares in Tangiers Petroleum (TPET) rocketed by 0.33p to 0.78p, but management claimed that they are not aware of any reason for such a change. Stewart Dalby of Oilbarrel.com commented that the rise is most likely due to major new shareholders from the firm’s September fundraising increase their positions.

Also in the oil and gas industry, explorer Forum Energy (FEP) confirmed that it recorded revenues of $6.1 million (3.78 million pounds) for the first nine months of 2014, a 79% increase over the levels achieved in the comparable period of 2013. The increased income was largely due to the start of the second phase of production at the firm’s Galoc oil field off the coast of the Philippines. The shares rose by 4p to 33p.

Business to business communications specialist Artilium (ARTA) made a pre-tax profit of 18,000 pounds over the year ended 30th June, a welcome return to the black after last year’s 0.4 million pound loss. This came as the firm improved its market position and increased the scale of its projects. However, the company’s United Telecom segment struggled as the Belgian market became increasingly aggressive and the major market players cut pricing. The shares closed flat at 6.12p.

Medical devices manufacturer Tissue Regenix (TRX) reported an increased loss of 3.7 million pounds before tax for the six months ended 31st July after the firm’s commercial launch in US markets drove up administrative fees and development expenditures. However, the company reports that interest is beginning to build in its products and a number of new clinical trials have been cleared to start in the US and UK. The shares dropped by 2p to 22.75p.

Mobility solutions provider Crimson Tide (TIDE) has won a three year contract with Macdet Hygiene Services to provide its mpro5 system to 70 field users. The deal is worth around 75,000 pounds in contracted margin revenue for the duration and follows on from a 116,000 pound contract with a major retail chain that Crimson Tide signed a fortnight ago. The company’s revenues in the first half of 2014 were 0.6 million pounds. Crimson Tide closed the day up by 0.05p at 1.58p.

Oil & gas engineering firm Plexus Holdings (POS) hit record revenues of 27 million pounds in the year to June as it won new and repeat custom for its high pressure and high temperature applications. Profits before taxation grew by 25.9% to 5.38 million pounds, ahead of market expectations despite increased depreciation and amortisation fees. Management are concerned that recent oil price volatility could affect future prospects, but is confident that demand for energy will increase in the medium and long-term, and that producers will continue to take advantage of the safety offered by Plexus’ products. The shares grew by 13.875p to 250.875p.

Plexus believes patented pipes can withstand oil price pressure.

Tuesday
Oct282014

Tuesday's Stock Market Report featuring Stratex, BP, NMC Health, Fitbug and Utilitywise 

The Markets

House prices in England and Wales fell by 0.2% in September according to fresh data from the Land Registry, with the annual rate of inflation also declining, to 7.2% from 8.4% in August. This is the first time since May 2013 that the year-on-year rate has fallen. The largest regional decline was in Yorkshire & Humberside where the cost of a home dropped by 2.2%. In contrast, a separate survey by the Registers of Scotland showed that the average house price in Scotland in the second quarter of 2014 was 170,190 pounds, up by 5.2% year-on-year. Howard Archer, Chief UK Economist at IHS Global Insight, said that “house prices and activity have at least temporarily come off the boil”.

The Sveriges Riksbank has cut Swedish interest rates to 0% in a bid to raise inflation in the Scandinavian state. The executive board of the central bank cut the rate from 0.25%, despite relatively strong growth and economic activity. Rates will remain at this level until prices begin to pick up. With interest rates at their lower limit, the bank would have to look to unconventional measures to stimulate demand further, but analysts such as Knut Hallberg from Swedbank believe the central bank will be hesitant to issue cheap loans or engage in private asset purchases while the credit market functions well.

At the London close the Dow Jones had increased by 63.05 points to 16,880.99 and the Nasdaq had grown by 33.25 points to 4,079.26.

In London the FTSE 100 closed up 38.71 points at 6,402.17 and the FTSE 250 rose by 82.96 points to 15,123.35. The FTSE All-Share increased by 20.14 points to 3,425.41 while the FTSE AIM Index grew by 5.56 points to 712.32.

Broker Notes

Cantor Fitzgerald has reiterated its “buy” rating on minerals explorer Hummingbird Resources (HUM) after the firm announced high grade test results from its Yanfolila drilling programme. The broker believes that the remainder of 2014 is a key period for the firm, but that Hummingbird will be able to begin construction in Q1 2015 and is unlikely to be affected by the Ebola outbreak in the same way as some other African mining firms. The shares rose by 2.5p to 42p.

Financial services outfit Lloyd’s Banking Group (LLOY) has kept its “buy” rating from Shore Capital after the bank posted underlying profits of 2.15 billion pounds for the 3rd quarter, well in excess of the broker’s 2 billion pound forecast. The company has announced additional cost saving measures which include the closing of 150 branches and the loss of 9,000 jobs. The broker views the results as positive, but remains concerned with the wider UK recovery and its potential effect on the business. Lloyds shares declined by 1.84p to 73.5p.

Northland Capital has stuck to its “buy” position on Stratex International (STI), but cut its target price from 9.3p to 7.7p. Northland believes that the firm is on the brink of moving from being a developer to a producer, with the first shipment of gold from Stratex’s Altintepe site expected by the end of March next year. While this is good news, the broker has reviewed its valuations of some of the company’s other assets which has caused the drop in valuation. The shares fell by 0.02p to 2.05p.

Stratex remains gold standard for broker, as first production nears

Blue Chips

Banking giant Standard Chartered (STAN) faced subdued conditions in the three months ended 30th September, but modestly improved operating income to $4.5 billion (2.8 billion pounds) as the company’s retail and institutional businesses gathered steam. Profits before tax were $300 million (186 million pounds) lower than in 2013 at $1.5 billion (0.93 billion pounds) due to impairments and higher administrative costs. The shares fell by 96.6p to 998.4p.

Oil and gas behemoth BP (BP) saw profits before taxation for the third quarter almost halve, them falling from $5.1 billion in the second quarter to $2.6 billion in the three months to 30th September. This came as revenues from its Russian operations declined following the application of sanctions by Western governments. Nevertheless, the dividend was raised by 5.3% to 10 cents a share. Broker Liberum has a “hold” stance and 485p target on BP shares, which closed the day up by 6.75p at 437p.

BP playing Russian roulette, as Rosneft sanctions drag down profits

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Mid Caps

Aqueous polymer manufacturer Syntomer (SYNT) has suffered a 3% decline in sales volumes since July, missing expectations that positive demand seen in the first half could be maintained through the 3rd quarter. Cash margins remain good and there is some positive growth in the Asia/Rest of the World sector but operating profits are below 2013 for the nine months to 30th September. Syntomer now believes that full year results will not satisfy current consensus estimates. The shares fell by 13.4p to 199.4p.

Software developer and distributor Micro Focus International (MCRO) has received clearance from the German and Austrian competition authorities for its 729 million pound proposed merger with enterprise software business Attachmate. However, the deal is still restricted by the Hart-Scott-Rodino waiting period required by US Federal Law - the only remaining merger control condition remaining. Management of Micro Focus no longer believe that this restriction will be lifted in line with the current merger timetable so have postponed the planned return of value record date to 24th November. Microfocus shares declined by 14p to 978.5p.

Middle Eastern healthcare operator NMC Health (NMC) made revenues of $161.2 million (99.9 million pounds) for the three months ended 30th September, an improvement of 18.1% over the same period of 2013 as occupancy levels rose by 1260 basis points to 72.8% despite capacity increases. The firm opened two new facilities during the quarter and expects them to be fully operational by the end of 2014. The shares rose by 13p to 494.9p.

NMC posts a clean bill of health

Small Caps

Recruitment specialist Nakama (NAK) surged forwards in the six months to September, with revenues growing by 29% to 11.1 million pounds due to strong demand in the UK and throughout the Asia Pacific region. The company made a pre-tax profit of 0.22 million pounds for the period, after losing 25,000 pounds in the comparable period. Management were upbeat on the firm’s prospects, saying that “there is an increasing feeling of confidence in the digital recruitment market at the moment”. The shares climbed by 0.55p to 3.875p.

African farming firm Agriterra (AGTA) remains focused on beef and maize operations in Mozambique, while reviewing its cocoa development in Sierra Leone in light of the West African Ebola outbreak. Revenues dropped by 23.6% to $13.8 million (8.5 million pounds) for the year ended 31st May as political instabilities led to difficulties in the transport and sale of the company’s maize products. Agriterra also fully divested itself of legacy oil assets during the period. The shares grew by 0.1p to 0.97p.

Personalised medicine provider Epistem Holdings (EHP) has submitted regulatory documents to the Indian Authorities that would allow the company to import and sell its Tuberculosis diagnostic test within the country. Management expect approval in early 2015 and are carrying out additional evaluations in Africa and South America. The company has accelerated other development programmes but saw losses deepen to 2.3 million pounds for the year ended 30th June. The shares ended the day flat at 287.5p.

Independent stockbroker Share (SHRE) faced reduced trading activity in the 3rd quarter as the UK market cooled, reducing dealing commissions by 4% relative to the same period of 2013. While conditions have improved in the current period, investor appetite remains lower than in the prior period, due to lower impact from IPOs and the changes to UK pension regulation. Share shares shed 0.75p to 39p.

Management of latest private investor hero stock Fitbug (FITB) were forced to comment on the booming share price following the firm’s deal with Target and Sainsbury’s last week. The consumer healthcare technology business said it knew of no reason for the share price rise other than these deals and that it continues to trade in line with expectations. Shares in Fitbug closed the day up by 2.33p at 6.23p, having traded as low as 0.375p at the start of the month.

Energy market service provider Utilitywise (UTW) continued its expansion into Continental Europe during the year ended 31st July with the acquisition of Icon Communications Centres. Profits before tax rose by 76% to 13 million pounds in the year as revenues rose by 93%, with Utilitywise winning major new partners including the British Chamber of Commerce. Investors warmed to the firm increasing its dividend by 54% to 4p per share, sending the shares up by 15p to 298p.

Utilitywise charging ahead following European acquisition