Wednesday, November 13, 2013

Wednesday's Stock Market Report from UK-Analyst: featuring Tesco, SSE, esure, Corac and Planet Payment

From Wednesday 13th November 2013

The Markets

UK unemployment dropped to 7.6% over the three months ended September, the lowest rate in over three years. Data from the Office for National Statistics confirmed that the rate had fallen from 7.7% in the April-June quarter. However, the increase in employment is not going hand in hand with improving living standards, as average weekly earnings growth including bonuses picked up by only 0.7% in the three months to September compared with a year earlier, well below the current inflation level. Jeremy Cook, Chief Economist at currency brokers, World First, said, "This latest figure will hearten those who believe that the UK economy has now turned a corner. As it stands, the UK is the strongest economy in the G10 and it certainly has momentum."

Soon after the unemployment figures were released by the ONS, Governor of the Bank of England, Mark Carney, said that the UK's unemployment rate could fall much faster than previously expected because of the gathering momentum in the UK economy. The Bank of England now believes that unemployment could hit 7% late next year if interest rates stay unchanged, well before the original estimates of late 2015. However, Carney soothed fears of an impending interest rate rise by re-iterating that the 7% unemployment threshold is not an automatic trigger for increasing rates, rather a time to begin to consider a hike. Speaking after the Bank of England published its Quarterly Inflation Report, Mark Carney commented, "For the first time in a long time you don't have to be an optimist to see the glass is half full. The recovery has finally taken hold."

At the London close the Dow Jones was down by 56.29 points at 15,694.38 and the Nasdaq was up by 0.77 points at 3,366.00.

In London the FTSE 100 closed down by 96.79 points at 6,630.00 and the FTSE 250 was down by 189.24 points at 15,179.84. The FTSE All-Share was down by 48.04 points at 3.531.83 while the FTSE AIM Index slid by 4.51 points to 804.19.


Broker Notes

Westhouse Securities has upgraded its "neutral" recommendation to a "buy" stance on broadcaster BSkyB (BSY), leaving its target price unchanged at 985p. The broker believes the negative share price reaction to the news that BT has secured exclusive European football rights from 2015 has been overdone. Westhouse feels that the city is overlooking the underlying strength of Sky's content portfolio, cashflow, growth prospects and trading momentum. The shares were down by 35p at 805p.

HSBC has cut its "overweight" recommendation to a "neutral" stance on supermarket Tesco (TSCO), slashing its target price from 430p to 400p. The bank feels that the structural problems within the industry are becoming increasingly evident. To this end, HSBC is cautious on Tesco's plan of targeting a 5.2% operating margin against the backdrop of a contracting market. The shares slipped by 2.1p to 364.7p.

Canaccord Genuity stuck with its "sell" stance on ICAP (IAP) with a target price of 300p. The broker is nervous on the group's future performance in the short-term after recent comments from management have suggested problems ahead. These problems include the impact of the next phase of regulatory reform implementation, the ongoing US fiscal debate and uncertainty over customers' trading appetite as they continue to scale back their businesses in certain products. The shares inched up by 15.5p to 391.8p.

Blue Chips

Supermarket Sainsbury's (SBRY) revealed that pre-tax profits for the 28 weeks ended 28th September came in 7% ahead of last year at 400 million pounds, a result which was at the top end of analyst forecasts. Sainsbury's, which delivered a 1.4% increase in like-for-like sales over the period, praised the impact of the re-launch of some its own branded food products and also boasted about the increasing popularity of its online channel. The numbers contrast with Tesco's figures, which last week showed a 1.5% slide in first half UK trading profit. The shares increased by 11.9p to 410.7p.

Much maligned utility giant SSE (SSE) announced a 11.7% fall in adjusted pre-tax profits to 354 million pounds for the six months ended 30th September as its retail unit generated an operating loss of 89.4 million pounds. The firm, which has recently been widely criticised for upping energy prices, blamed this shortfall on higher wholesale gas, distribution, environmental and social costs. Nevertheless, the firm upped its dividend by 3.2% to 26p per share. In response to the update Deutsche Bank retained its "hold" recommendation and 1,400p target price. The shares slid by 6p to 1,399p.

Exchange operator London Stock Exchange (LSE) announced revenue growth of 44% for the 6 month period ended 30th September, boosted by the impact of recently acquired LCH.Clearnet. As a result, adjusted operating profit was up by 6% to 229.9 million pounds. Management attributed the underlying improvements to strong performances from the fixed income business, the resurgent IPO market and further growth in the FTSE from both the organic business and the new fixed income indices business. The shares plunged by 50p to 1,555p.


Mid Caps

Polymer technology specialist Fenner (FENR) reported a 23.4% fall in pre-tax profits to 67.9 million pounds for the year ended 31st August as revenues slipped by 1.2% to 820.6 million pounds. The conveyor belt manufacturer stressed that it was pleased with this performance against the backdrop of difficult trading conditions and was quick to remind investors that the numbers were the second highest ever achieved by the group after 2012's record numbers. As a result of its positive outlook, management is increasing its dividend to 11.25p a share from 10.5p. The shares climbed by 42.7p to 450p.

Insurer esure (ESUR) claimed that it was on track to meet 2013 expectations, reporting a 4.8% increase in gross written premiums over the 9 months ended 30th September. esure was also quick to stress that the damage caused by last month's St. Jude's Day storm was within the normal range of anticipated weather for the fourth quarter. Since the IPO earlier this year, the consensus on the shares has been neutral on the whole, with the likes of Canaccord Genuity, Berenberg Bank and Exane BNP Paribas all maintaining their hold stances in recent months. The shares increased by 11p to 224p.

Fellow insurer Partnership Assurance Group (PA.) also said it was on track to meet full year expectations despite the challenging sales environment it has had to contend with. The firm revealed Q3 retirement new business sales were up 5% to 283 million pounds in a declining market but warned that it does not expect to see growth in year-on-year retirement sales in Q4 given that sales in the final quarter of 2012 benefitted materially from regulatory change. The shares plunged by 87.1p to 325p.

Small Caps

Mining group Herencia Resources (HER) announced that it has secured a 2.48 million pounds funding deal that brings in a new investor which should help the company make progress on its Picachos and Paguanta projects in Chile. The deal has been struck with Hong Kong-based Shining Capital Management which has agreed to acquire 400 million new Herencia shares at 0.62p each - a 25% premium to yesterday's closing price. The shares jumped by 0.07p to 0.56p.

African oil and gas company BowLeven (BLVN) announced that it has conditionally agreed to sell 11.8 million pounds worth of shares at 45 pence a share, lower than yesterday's closing price of 52.8p per share. The decision to raise the funds comes amid delays at a proposed fertilizer-plant project in Cameroon, which it plans to provide with gas. Looking ahead, management said that it is currently in discussions with a range of potential financial providers and with a number of specific parties regarding potential farmouts. The shares were down by 10.5p at 42.25p.

Engineer Corac Group (CRA) announced a further order from BP Trinidad & Tobago to complete the design and engineering phase of the project to develop a compact gas compressor for deployment on an offshore production platform. This particular order is worth around $1.4 million (0.9 million pounds) and brings the total value secured on this project to date to $2 million (1.25 million pounds). The update comes after broker SP Angel retained its "buy" recommendation last week. The shares swelled by 0.25p to 11.75p.

Tyman (TYMN), supplier of door and window components, announced that trading since the beginning of July has been in line with expectations. Tyman was quick to praise its performance in the US, where revenues and the order book have continued to grow across the summer months and into the autumn. Tyman went on to concede that activity in the Canadian market remains behind 2012 levels but did say that the rate of decline has eased over the summer months. The shares were down by 6.5p at 228p.

Surveillance company Petards Group (PEG) announced that it has been awarded a contract worth over 7 million pounds by the Ministry of Defence for the supply and support of secure radio equipment for the RAF. The deal, which will be delivered over the next 15 months, includes a contract to provide maintenance and support over a ten year period until November 2023, with the option to extend that support contract by a further five years. The shares surged by 7.75p to 19.25p.

Payment processor Planet Payment (PPT) confirmed that it is in line to meet full-year guidance after the third quarter saw a continuation of positive trends seen earlier in the year. Net revenue in the three months to the end of September rose by 6.1% to $10.5 million (6.6 million pounds ) from $9.9 million (6.2 million pounds) in the corresponding period of 2012. Looking ahead, the company said it is in an ideal position to capitalise on a shift from cash to electronic payments, particularly in emerging markets. The shares fell by 1.95p to 160.55p.


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