Monday, November 18, 2013

Monday's Stock Market Report from UK-Analyst: featuring Merlin Entertainments, Capita, Diploma, Fastjet and Majestic Wine

From Monday 18th November 2013

The Markets

The average house price in London has fallen by 5% to 517,276 pounds according to new data from property website operator Rightmove. The figures should not cause too much alarm for home owners as this time of the year usually sees more people looking to sell rather than buy, putting prices under downwards pressure. The figures are at odds with recent data released by the Royal Institution of Chartered Surveyors, which showed that its house-price index rose to the highest in more than a decade in October. Miles Shipside, a Director at Rightmove, said, "Estate agents expect a more buoyant 2014 as they pick up early signs of an increase in buyer interest and demand. This side of Christmas could be the time for eager buyers to hunt out keen sellers and do a deal."

Meanwhile over in Asia, property prices in China were up in 69 of the 70 cities tracked by the Chinese government in October according to the National Bureau of Statistics. This increase has come despite cities such as Beijing, Shanghai and Shenzhen recently imposing property price cooling measures such as increasing the supply of affordable homes and raising down-payment rates for second home buyers. Dai Fang, an Analyst at Zheshang Securities Co, commented "On the one hand I can't see the possibility of policy being tightened further to curb prices while on the other hand demand continues to increase as homebuyers expect more price gains."


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At the London close the Dow Jones was up by 52.50 points at 16,014.20 and the Nasdaq was down by 2.08 points at 3,420.50.

In London the FTSE 100 closed up by 30.02 points at 6,723.46 and the FTSE 250 was up by 43.90 points at 15,290.48. The FTSE All-Share was up by 14.73 points at 3.575.49 while the FTSE AIM Index increased by 1.31 points to 809.69.

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Broker Notes

Cantor Fitzgerald stuck with its "sell" recommendation on retailer Mothercare (MTC) with a target price of 200p. The broker remains very bearish on the stock and cites a slow recovery in the UK business as well as a weak balance sheet as two of the reasons for its stance. Moreover, Cantor notes that Mothercare's shares are trading on a "very demanding" FY14 P/E multiple of 26 given the very competitive market in which the company operates. The shares were down by 7.25p at 400.75p.

Numis has downgraded its "buy" recommendation to a "hold" stance on theme park operator Merlin Entertainments (MERL), leaving its target price unchanged at 360p. The broker feels that many investors could now cash in on the 11% increase in share price since the IPO, creating downwards pressure on the share price. Furthermore, in the short-term at least, the broker feels there is a lack of positive catalysts on the horizon for the shares, which fell by 2.5p to 346p.

Blue Chips

Outsourcer Capita (CPI) revealed that its Chief Executive Paul Pindar is to step down after serving the group for 26 years and leading it since 1999. Pindar will be replaced Deputy Chief Executive Andy Parker from February 28th 2014. In a separate announcement the group claimed that it had enjoyed a strong sales performance this year-to-date, securing in the region of 2.9 billion pounds worth of work already, up from 1.7 billion pounds at the same time a year earlier. The shares were down by 6p at 977p.

Engineer Rolls-Royce (RR.) revealed that it has received a $5 billion (3.4 billion pounds) order from Etihad Airways for its Trent XWB engines. The national airline of the United Arab Emirates has ordered 24 A350-900 Regional, 16 A350-900 and 10 A350-1000 aircraft, all of which will be powered by Rolls Royce's Trent XWB Engine. The update comes after Investec upgraded its "neutral" stance to a "buy" recommendation earlier this month, increasing its target price from 1180p to 1,250p. The shares increased by 9p to 1,233p.

Fund manager Aberdeen Asset Management (ADN) is to acquire Scottish Widows Investment Partnership from Lloyds Banking Group in a deal worth around 500 million pounds. The acquisition would increase Aberdeen's assets under management more than 70% to just under 350 billion pounds, making Aberdeen the largest listed manager in Europe. Separately, the company confirmed that net revenue grew by 24% to 1,087.5 million pounds over the year ended 30th September, dragging underlying pre-tax profits up by 39% to 482.7 million pounds. Aberdeen attributed this improvement to growth in recurring management fees supplemented by increased performance fee income. The shares surged by 62.90p to 489.7p.


Mid Caps

IT system designer for the energy and chemicals sectors Aveva (AVV) recorded an 11% increase in revenues to 108.5 million pounds for the 6 months ended 30th September, while pre-tax profits grew by 6% to 27.3 million pounds. Management partly attributed the improvement to a pickup in activity within the oil and gas market and good progress made in the Asia Pacific region. The update comes after broker Numis downgraded its "buy" recommendation to an "add" stance at the start of this month. The shares plunged by 201p to 2,365p.

Engineering and construction firm Kentz Corporation (KENZ) claimed that it remains on track to report double digit profit growth for 2013 as it has recently benefitted from new contracts and strong order intake. The firm - which boasted that it received $1.8 billion (1.12 billion pounds) worth of orders over the year so far - said that it had been awarded a raft of new deals in the Middle East, Russia and the Americas. Looking ahead, the company went on to say that it is also confident on its prospects for next year with 60% of orders for 2014 already under contract. The shares grew by 9p to 548p.

Technical product supplier Diploma (DPLM) announced a 10% increase in revenues generated over the year ended 30th September, while adjusted pre-tax profits inched up by 3% to 54.3 million pounds over the period in question. The company - which supplies products to the life sciences and heavy machinery sectors - said that it has made significant investments across the board this year as it looks to set the foundations for further growth. In response to the update Numis cut its "add" stance to a "hold" recommendation. The shares crept upwards by 0.5p to 658p.

Small Caps

Healthcare company Ultrasis (ULT) confirmed that its newly acquired Screenetics subsidiary has secured three contracts worth around 2 million pounds. The contracts relate to the provision of 9,500 flu vaccinations, health screenings as part of a salary sacrifice scheme to a large public sector body and employee screening to a large UK corporate company. Looking ahead, the company hinted that there are many other opportunities in the pipeline which would help the company to exceed its current expectations for next year. The shares grew by 0.1p to 1.18p.

Telecoms services provider Synety (SNTY) has been awarded a US telecoms licence which will permit the firm to provide national and international telecoms services to US businesses and residents, allowing it to offer its CloudCall service in the US. Management were quick to praise the deal, explaining that some US companies which could realistically become clients have home customer bases that are up to ten times the size of their UK bases. The shares swelled by 19.5p to 189p.

Provexis (PXS), the food technology company, confirmed that it knew of no reason for the recent surge in its share price. The shares rose from 0.75p at the end of October to a high of 2.085p on Friday. The company - which recently saw its Science in Sport business demerged - has also recently boasted that the re-structuring of the group has "resulted in a substantial increase in shareholder value." The shares plummeted by 0.4p to 1.525p on the back of the announcement.

African airline Fastjet (FJET) confirmed that it carried a total of 33,778 passengers in Tanzania in October, with the planes 70% full on average after a 14% increase in capacity. FastJet also revealed that ancillary revenues, which includes income from baggage fees, ticket changes and in-flight sales, now accounts for 10% of total revenues, up from 7% last October. Fastjet went on to say that it will be announcing its next international route shortly. The shares flew downwards by 0.35p to 2.58p.

China New Energy (CNEL), the engineering and technology services provider, announced it has won contracts in Hungary to develop two biorefinery projects in deals worth a combined 60 million pounds over a four year period. China New Energy will supply its pre-treatment, fermentation, distillation and dehydration technology to the refineries which will be converting corn feedstock into ethanol. The shares rocketed by 2.275p to 4.75p.

Booze merchant Majestic Wines (MJW) posted a 4.2% increase in pre-tax profits to 9.5 million pounds for the 6 months ended 30th September as total sales inched up by 3.3% to 130.2 million pounds. Majestic Wines has benefited from a slight increase in average spend per transaction and has also capitalised on improving consumer confidence by increasing the price of wine across many brands. The shares increased by 8.5p to 556p.


Congratulations to David Horne, whose caption (below) has been voted the funniest and has won the UK-Analyst Friday competition. Watch out for another contest at the end of the week.

"Look Gordon, we found 10 kilos you didn't sell!"

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