Monday, November 25, 2013

Monday's Stock Market Report from UK-Analyst: featuring Thomas Cook, Petrofac, Cranswick, Nature Group and Hardide

From Monday 25th November 2013

The Markets

A new study by Deloitte predicts that the total amount spent on UK Christmas shopping will come in 1.4 billion pounds higher than last year, with online sales projected to grow particularly significantly. Deloitte cited rising consumer confidence and improving economic conditions as reasons for the expected increase in the overall spend by UK shoppers. The news will be well received by a retail sector which has struggled over recent years against a backdrop of a continued squeeze on disposable incomes and poor consumer confidence. Deloitte's head of UK retail Ian Geddes commented, "The consumer will be challenging retailers' ability to deliver a sofa at home in a specified time slot; transfer a party dress to their local store for same-day collection and drop off their Christmas DVDs at a convenient locker."

New data from manufacturers' organisation EEF suggests that UK manufacturing companies are exhibiting an increasing level of demand for finance as they look to capitalise on the improving economic conditions. According to the numbers, the share of firms with no need to borrow has fallen to 40%, its lowest level since the survey was launched in 2007. However, the data also revealed that credit costs have increased as a result of this increasing level of demand. Darrell Matthews, EEF North West director, said, "This comes at a crucial time as manufacturers increase their investment intentions and, as a result, more of them are seeking external finance to support these plans. "


At the London close the Dow Jones was up by 28.19 points at 16,092.96 and the Nasdaq was up by 4.34 points at 3,426.36.

In London the FTSE 100 closed up by 20.32 points at 6,694.62 and the FTSE 250 was up by 112.24 points at 15,299.92. The FTSE All-Share was up by 12.86 points at 3.562.23 while the FTSE AIM Index increased by 1.14 points to 818.55 .

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Broker Notes

Numis has upgraded its "hold" recommendation to an "add" stance on holiday operator Thomas Cook (TCG), increasing its target price from 150p to 175p. The broker believes that Thursday's preliminary results will lay out further cost-out savings of at least 100 million pounds, in addition to increased targets for new product initiatives. Numis refused to go hell for leather and increase its recommendation to a "buy" because it is mindful of the company's recent warning that winter trading has started slowly. The shares were up by 3.2p at 151.6p.

Goldman Sachs has upped its stance on miner Fresnillo (FRES) from "sell" to "hold", leaving its target price unchanged at 850p. The investment bank notes that the shares have fallen by nearly 20% over the last month and feels that now may be a good entry point for would-be investors. However, Goldman Sachs is not fully convinced on Fresnillo as an investment proposition as it still has a bearish views on gold and silver prices - key drivers of the miner's share price. The shares were down by 3p at 837.5p.

Jefferies increased its recommendation on budget airline easyJet (EZJ) to a "buy" stance with a target price of 1,620p. The broker is impressed with the potential for further cash returns and has confidence in the company's ability to maintain its strong competitive position. Jefferies also highlights the company's return on capital employed for the fiscal year, which at 17.4% was up from 11.3% in the previous year - a sign of good management focus on return in the eyes of analysts at Jefferies. The shares flew upwards by 29p to 1,434p.

Blue Chips

Oil and gas services group Petrofac (PFC) has been awarded an Engineering, Procurement and Construction contract by Oman Oil Refineries and Petroleum Industries Company. The contract has been secured by a 50/50 joint venture with Daelim Industrial Co and has a total value of $2.1 billion (1.3 billion pounds). Management argued that the contract award was testament to its knowledge of the energy industry in Oman - a territory in which Petrofac has been working since 1988. The shares increased by 21p to 1,212p.

In response to recent media speculation, engineering group Babcock (BAB) confirmed that it is in discussions in relation to the potential establishment of a joint venture with respect to Avincis, the helicopter operator. The move, according to Babcock, is in line with its strategy of international expansion as it looks to grow its presence overseas. Management was quick to stress however, that there is no guarantee that any deal will be finalised and said that it would update the market if there were further developments. The shares slipped by 41p to 1,284p.

Fellow engineer Rolls Royce (RR.) has been awarded a $215 million (133 million pounds) contract to produce and support its LiftSystems technology for the F-35 Lightning aircraft. The technology in question allows the F-35 Lightning aircraft to perform short take-offs and vertical landings and has already been implemented on 42 planes. The update comes after broker Investec earlier this month upgraded its "add" recommendation to a "buy" stance on the company, increasing its target price from 1,180p to 1,250p. The shares remained flat at 1,238p.


Mid Caps

Defence and aerospace group Chemring (CHG) revealed plans to sell some of its businesses which do not form part of its longer-term strategy, in a move which is expected to result in an improved financial performance for the company. For the year ended 31st October, the company said its performance was in line with expectations with revenues down by 24% to 185 million pounds in a reflection of the squeezed defence budget over in the US. The shares climbed by 18.6p to 213p.

India-focused energy group Essar Energy (ESSR) reported a 7% decline in first half EBITDA as a weakening rupee offset improving margins at the company's core Vadinar refinery. This currency fluctuation also helped to increase the group's loss before tax over the 6 months ended 30th September by 76% to $498.8 million (309 million pounds). Despite this deterioration, the company said it was in a prime position to capitalise on the growing energy needs in India. The shares fell by 13.25p to 87.35p.

Pork supplier Cranswick (CWK) reported a 15% increase in revenues to 483.5 million pounds for the 6 months ended 30th September, bringing pre-tax profits up by 16% to a meaty 26.1 million pounds. The group - whose products are used in Sainsbury's 'Taste The Difference' range as well as Tesco's 'Finest' offering - attributed its success to a growth in sales, the commissioning of the new pastry facility, along with the strategic development of the company's pig breeding and rearing activities. The shares swelled by 66p to 1,166p.

Small Caps

Internet software provider Geong International (GNG) said that it expects to report revenues of approximately 4.1 million pounds and an unspecified loss for the six months ended 30th September 2013, in figures which are in line with expectations. Looking ahead, the China-focused company said that it should benefit from a Chinese economy which is now expected to achieve annual target growth despite concerns expressed earlier in the year. The shares dropped by 2.75p to 6.125p.

Offshore waste specialist Nature Group (NGR) warned that full-year profits are now likely to come in below expectations because of higher than anticipated costs incurred in relation to its Rotterdam operations, as well as delays to the rebuilding of a plant in Gibraltar. On a positive note, the company said that its international expansion plans were going well after developing its operations in Oman and establishing a base in Houston, USA. The shares plunged by 8p to 27.25p.

Amino Technologies (AMO), the specialist in internet-powered television, admitted that revenues for the year ended 30th November would likely come in below expectations because of reduced demand from a specific customer and stronger demand for its lower priced, lower specification products. Despite these struggles, Amino pledged to increase its dividend by 15% to 3.45p. The update prompted broker Northland Capital to downgrade its "buy" recommendation to a "hold" stance, cutting its target price from 110p to 100p. The shares slid by 6.25p to 89.25p.

Entertainment marketing group Reach4Entertainment (R4E) said that trading over the four months ended 31st October was in line with expectations, with management now confident that full-year expectations will be achieved for 2013. The company explained that growing synergies between its London-based and New York-based events marketing businesses are now beginning to feed through to overall results. The shares inched upwards by 0.25p to 4.5p.

Hardide (HDD), specialists in surface coating technology, revealed that revenues fell by 17% to 2.4 million pounds over the year ended 30th September, while gross profits plunged by 29% to 1.5 million pounds. Hardide attributed the deterioration to the sudden inventory adjustment by one major customer. The company - which swung into a pre-tax loss position of 0.9 million pounds, down on the 0.3 million pounds profit it made in the previous year - did however say that its efforts to diversify its operations make it confident on its future prospects. The shares dipped by 0.2p to 0.93p.

Marine technology company AquaBounty Technologies (ABTX) boasted that Environment Canada has approved the company's AquAdvantage Salmon egg cultivating product, finding the product not to be harmful to the environment or human health when produced in contained facilities. Although the news is a good development for the company, management were quick to stress that its eggs and fish will not be available for sale until they are approved by the relevant national regulatory bodies. The shares increased by 3p to 42.5p.


Congratulations to Mark Stanger whose caption has been voted the funniest and has won the UK-Analyst Friday competition. Watch out for another contest at the end of the week.

"I was only in favour when I thought it was Lloyds Pharmacy... "


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