Thursday, November 21, 2013

Thursday's Stock Market Report from UK-Analyst: featuring Mothercare, SABMiller, QinetiQ, Plant Impact and M&C Saatchi

From Thursday 21st November 2013


The Markets

UK factory orders have this month grown to the strongest level since March 1995 according to new data from the Confederation of British Industry (CBI). The CBI survey's total order book balance rose to +11 this month from -4 in October, well above an expected rise to 0. A breakdown of the figures reveals that the rise was boosted by an increase in demand for cars on the back of improved domestic confidence. Stephen Gifford, the CBI's Director of Economics, commented, "This new evidence shows encouraging signs of a broadening and deepening recovery. Manufacturers finally seem to be feeling the benefit of growing confidence and spending within the UK and globally."

Meanwhile on the continent, business activity in the Eurozone surprisingly softened in November, weighed down by a struggling French economy. Markit's Eurozone Services Purchasing Managers' Index fell to 50.9 in November from 51.6 last month. The reading, which still represented a growth in activity, was below the majority of analyst estimates. Chris Williamson, Chief Economist at survey compiler Markit, said, "Output outside France and Germany did rise for the fourth month in a row, suggesting the region is returning to growth - but the concern is that the rate of increase we saw in November did slide to the weakest we've seen in those four months."

At the London close the Dow Jones was up by 91.44 points at 15,992.26 and the Nasdaq was up by 22.31 points at 3,389.48.

In London the FTSE 100 closed up by 5.82 points to 6,686.90 and the FTSE 250 was down by 26.91 points at 15,151.84. The FTSE All-Share was up by 1.47 points at 3.553.84 while the FTSE AIM Index increased by 2.13 points to 813.38.

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Broker Notes

Canaccord Genuity stuck with its "buy" recommendation on asset manager Close Brothers Group (CBG), increasing its target price from 1,320p to 1,430p. The broker was impressed with the company's recent update which was exactly in line with its own expectations and showed progress across the firm's banking, securities and asset management operations. Moreover, Canaccord urged would-be investors to take the plunge before the group's half-year results are announced for the year ended 31st January as it believes the announcement could be a positive catalyst for the shares. The shares increased by 24p to 1,269p.

N+1 Singer stuck with its "buy" recommendation on retailer Mothercare (MTC), sticking with its target price of 450p. The broker sees scope for sales and margins to trend better over the next 12 months and was also impressed by the improved underlying like-for-like performance over the first half of the financial year. These factors, coupled with the decision to close certain loss-making stores in the UK, has convinced the broker to stick with its "buy" recommendation. The shares fell by 13.5p to 400.75p.

Panmure Gordon initiated coverage on imaging specialist Kromek (KMK) with a "buy" recommendation and 92p target price. Panmure feels that Kromek is in a good position to capitalise on its a range of highly differentiated, branded end-user and OEM products for medical imaging, nuclear detection and security applications. The broker is especially encouraged as these sectors are projected to grow significantly over the short-medium term .The shares were down by 4p to 72p.

Equity research house GECR has initiated coverage on cable manufacturer Volex* (VLX) with a "buy" recommendation and target price of 304p. Analyst Emanuil Halicioglu argues that Volex has the potential to grow significantly given the size of its addressable market, the high barriers to entry and the opportunity for major revenue and margin growth. The initiation report also focuses on the new management team, which GECR argues has the ability and experience to turn the fortunes of the company around. The shares were up by 7.75p to 108.25p.

Blue Chips

Johnson Matthey (JMAT), the chemicals group, announced a 31% increase in revenues to 6.4 billion pounds for the 6 months ended 30th September while underlying pre-tax profits were up by 13% at 213 million pounds. Management explained that the main driver of the improvement was a good performance from its Emerging Control Technologies division which benefitted from increased demand in Europe for heavy duty diesel vehicle catalysts ahead of the new European legislation which comes into effect at the start of 2014. The shares swelled by 116p to 3,210p.

Brewer SABMiller (SAB) saw pre-tax profits grow by 7% to $2.43 billion (1.5 billion pounds) over the 6 months ended 30th September as the company continued to expand in emerging markets. The Peroni brand owner also attributed its success to an increase in its "premium propositions" as it looks to appeal to a wider range of drinkers and occasions. Separately, the group said it would be expanding the distribution of Pilsner Urquell tank beer in the UK, after a strong trial performance in the UK over the summer. The update did not convince broker Liberum Capital, which retained its "sell" stance on the back of the announcement. The shares slipped by 19.5p to 3,215p.

Engineer Rolls Royce (RR.) confirmed that it has secured a $138 million (85.6 million pounds) contract from Petrobras to supply advanced maintenance and repair services to support fifteen Rolls-Royce RB211-G62 industrial gas turbine power generation units. The platforms in question generated around 25% of Brazil's entire oil output, producing approximately 500,000 barrels of oil per day. The shares fell by 7p to 1,232p.


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Mid Caps

Defence and aerospace company QinetiQ (QQ.) today soothed investor fears by claiming that there would be no negative earnings surprises for the year to the end of March 2014. The news will come as a relief to investors who were fearing the worst given the declining US military spend and other global cut backs. For the 6 months ended 30th September, the company reported pre-tax profits of 52.3 million pounds, down on the 85.8 million pounds it reported the year before in a result which was not as bad as some were expecting. The shares inched upwards by 14.3p to 211p.

Construction group Galliford Try (GFRD) has been appointed to build the Forbury Place project in Reading by client M&G Real Estate and Bell Hammer in a 38 million pounds contract. The project includes the construction of 185,000 sq ft of Category A office space in the first of two new office complexes on the site. The update comes a day after Barclays Capital initiated coverage on the company with an "Equal Weight" stance and a 1,200p target price. The shares crept upwards by 1p to 1,075p.

Intermediate Capital Group (ICP) reported pre-tax profits of 155.3 million pounds for the first 6 months ended 30th September, well up on the 39.6 million pounds it generated last year as recycled profit from reserves fed through to overall results. The asset manager and finance provider went on to say that the longer term global credit space offers significant opportunity to broaden its product range as it looks to remain well positioned to provide flexible financing to mid-market companies. The shares slipped by 15.6p to 445p.

Small Caps

Plant science company Plant Impact (PIM) revealed that results were "materially behind current market expectations" in relation to the 16 month period ended 31st July following adverse conditions in Europe. On a brighter note the company did stress that the financial performance over the three months ended 31st October was much improved as a result of new products the company has released in certain markets in the southern hemisphere. The shares plunged by 4.25p to 14.13p.

Pakistan-focused coal producer Oracle Coalfields (OCRP) revealed that it has secured a second Chinese partner which will work with it to unleash the potential of its Thar lignite deposit in Pakistan. The agreement with SECPO Electric Power Construction will see a new 600 mega-watt electricity plant in Sindh Province built as well as the provision of both debt and equity finance. The shares grew by 0.63p to 2.6p.

Marketing group Porta Communications (PTCM) claimed that trading over October was "extremely buoyant" as the company boasted of numerous new business wins. The group's PR division, Newgate Communications, particularly benefitted as it won new clients and worked on a number of IPOs over the period. Looking ahead, Porta went on to say that it is extremely confident that the group will continue to experience strong growth in 2014. The shares increased by 1.25p to 15.25p.

Credit management software providers Intercede Group (IGP) reported a 32% increase in revenues for the 6 months ended 30th September, swinging the company into a pre-tax profit position of 256,000 pounds, well up on the 185,000 pounds loss which was generated in the prior year period. The improvement was driven by 6 new revenue generating contracts which were secured over the period - a performance which management said represented one of its strongest ever six month trading periods. The shares were up by 15.5p to 154.5p.

In response to current media speculation, media group M&C Saatchi (SAA) confirmed that it is in discussions with Publicis Groupe, in relation to subsidiary Walker Media, which may involve the sale of a significant part of that business. However, the company was keen to stress that there can be no certainty that an agreement will be reached and that a further announcement will be made in due course. The shares edged upwards by 1.75p to 325.25p.

Power generation plant operator OPG Power Ventures (OPG) saw pre-tax profits grow from 2.51 million pounds to 7.64 million pounds for the 6 month period ended 30th September. The India-focused company attributed the improvement to the early commissioning of an 80 megawatt power plant in Chennai, the third site the company has opened in the area. The results could have been even better if it were not for the adverse foreign exchange movements for the rupee against the US dollar. The shares powered forwards by 6.75p to 65.5p.


* Volex is a corporate client of a subsidiary of Rivington Street Holdings, the ultimate owner of UK-Analyst

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