Blue Index - UK Market and Share Analysis

[BlueIndex]

BUY BARCLAYS

Technicals

Shares in Barclays retraced sharply from the 20 day moving average area of 225p this morning, taking the stock to back to prices of a few days ago. This should be a cue for a new rebound in the sense that the stock has recently put in support in the 170p – 175p zone

Latest significant fundamentals

Barclays has raised $11.8bn from various Middle Eastern sources, effectively sidestepping the Government facility that it could have

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[BlueIndex]

BUY TUI TRAVEL

Technicals

Tui Travel shares fell back after German arm Tui AG failed to deliver on last month’s expected bid. However, the stock has found support above July intraday support at 166p, and while this is held, we would expect to see a rebound towards the 50 day moving average at 212p, given how oversold the stochastic indicator is below 20.

Latest significant fundamentals

23rd October: TUI Travel confirmed it is no longer in talks to merge TUIfly with Deutsche Lufthansa's Germanwings airline unit. 16th October: German company TUI AG, which owns a 51% stake in TUI Travel, said it has no current intention to make a full bid for the London listed travel giant.

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[BlueIndex]

BUY MARKS & SPENCER

Technicals

Marks & Sparks shares are breaking out of the recent 200p – 240p trading range, and while above the 20 day moving average at 223p, on an end of day close basis we expect an upside level of at least 272p, which is also the initial September resistance level

Latest significant fundamentals

Marks and Spencer reported a 34% fall in first half profits. Adjusted profit before tax for the 26 weeks ended 27 September fell to £297.8m from £451.8m a year ago, slightly better than expected, on sales up 0.8% at £4.2bn. “Trading throughout October has been volatile with recent events in the financial markets and their impact on the wider economy further weakening consumer sentiment,” said chairman Sir Stuart Rose.

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[96pills]

what happened today?

 

[BlueIndex]

Hi All, sorry it's been a while

BUY CAIRN ENERGY

Technicals

Shares in oil explorer Cairn Energy are lower today due to a cash call announcement, even though the stock bounced off the main October support line at 1,720p. Above this line on an end of day close basis, the upside for the stock should be as high as the February resistance zone above 2,100p

Latest significant fundamentals

Cairn Energy said today it was issuing new shares worth about £120 million, as independent oil companies flock to capital markets for refinancing. The UK listed oil and gas company said it intends to place up to 6,542,270 new ordinary shares - equivalent to 5% of its existing share capital. While the timing of the cash call could be better, Blue Index are confident the group will get the money it needs, and at that point Cairn will be in a strong position as regards further drilling and discovery. Additionally, key support above 1,700p has held thus far

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[BlueIndex]

Amen to Amec

In the current climate, I look at the results announcements in the morning, often with some trepidation, more often than not in a state of abject terror

How nice then this morning to read about a positive set of results from a company that will be very familiar to those who travel on our road and rail networks, where any associated engineering works are more often than not accompanied by a huge yellow sign saying ‘AMEC’

The very same Amec this morning reported a whopping 66% hike in full-year adjusted pre-tax profits to GBP210.3m, up from GBP126.5m, on revenues up 11% to GBP2.6bn. The order book now stands at GBP3bn at Dec. 31, up from GBP2.6bn last time, and the group expect that 2009 will be another year of improved performance.

That’s a results announcement that ticks every single box, and to ice that cake the group increased its dividend by 15% to 15.4 pence per share

For those familiar with the big yellow sign, and looking for somewhere safe to invest their cash for growth or build a long position, this group is definitely worth the once over

Apart from creating the odd traffic jam and delaying the occasional train, Amec is clearly tooled up for the job of delivering growth, profits and enticing prospects for traders and long term shareholders alike

 

[BlueIndex]

I have to say, by and large I haven't been too much of a fan of transport groups. I feel they are too exposed to fuel prices, and the intense competition and high running costs mean it takes relatively little change in the operating environment to hit margins

But I've taken a fresh look today at bus and rail operator Stagecoach Group (SGC), which in an exceptionally difficult trading environment has worked wonders. The group today reported a 9% rise in like-for-like revenues on a constant currency basis, and confirmed that its 2009 profit performance remains in line with management expectations. The group also confirmed that its financial position remains strong, with significant surplus cash and committed, unused bank facilities.

In particular Stagecoach reported strong growth in its bus businesses, and expects continuing strong performance through these difficult economic conditions. In light of this exceptional performance, I have decided to buy a ticket and climb on board, although I'm ready to hop off if it takes the wrong turn further down the road

 

[BlueIndex]

BUY FORTH PORTS

Technicals

Shares in port operator Forth Ports have broken above their 50-day moving average level of 801p over the past couple of sessions. On a technical level, there are clear indicators of potential upside all the way up to January & February resistance levels over 1,000p, provided the shares remain above the 50-day moving average

Latest significant fundamentals

Forth Ports Group reports pre-tax profits up 34% to £37m (2007 - £27.6m). Reported loss before tax - £30.7m (2007 - profit of £32.3m). The company says it has reported resilient and secure ports income, and with refinanced debt facilities this should provide a strong and stable base. Trading in February both at Tilbury and in Scotland has shown signs of improvement over last year. The full year dividend payment to shareholders will now be 28.6 pence a share, down from 47.7 pence in 2007. Blue Index see potential upside in Fort Ports on the basis of an improvement in the trading conditions, and while unpopular for existing holders, the dividend cut and other cost savings underscore our view. Added to this there is technical support, with the recent break over the 50-day moving average setting up a spike towards the initial resistance of 2009 above 1,000p

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[BlueIndex]

A Safer Property Play

With horror stories of plummeting property prices coupled with a recent round of rights issues in the real estate and property sector, in theory any sane trader or investor should avoid property stocks like the plague

But my attention was this morning drawn to property group Derwent London (DLN). While the results looked somewhat grim, (increased annual pre-tax losses of GBP606.5m up from GBP99.8m last time), the group net asset values are higher than consensus estimates, and the company has also increased the dividend, (great for long term holders). BUt perhaps more significantly, Derwent has a strong income stream and there are no issues in regard to borrowing or potential rights issues, unlike its sector rivals. Longer term visibility and the nature of revenue streams are reasonable, and the fact the group have increased the dividend by 8.9% really does underscore confidence going forward.

For those considering a first tentative step back into the property market, Derwent actually makes a lot of sense, and looks cheap into the bargain!

 

[BlueIndex]

BUY TESCO

Technicals

Shares in grocer Tesco have maintained their recent rebound from the post October 300p support zone after the latest broker upgrade. On a technical level, while the shares remain above the floor of the October ascending price channel at 320p, we expect the potential upside to be as high as the 5-month resistance line projection at 380p

Latest significant fundamentals

Morgan Stanley upgrades Tesco shares to equal-weight from underweight. It thinks Tesco's UK business may be beginning to demonstrate improved relative performance and says Tesco now trades on less than 12 times calendar and secure 2009 earnings. "We thus find it hard to argue that investors wanting to be defensively positioned still need to avoid Tesco," says the brokerage. But MS still thinks cash flow remains poor and the group's long-term international prospects are higher risk than many investors perceive. While supposedly defensive stocks have slipped up in the exceptional trading conditions, Blue Index view Tesco’s rating as very cheap with a solid price floor at 300p. The stock is seemingly so secure, that the supermarket should participate in any stock market rebound, with 380p the upside after the Morgan Stanley upgrade

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[BlueIndex]

French Disconnection
March 18th, 2009

I’ll certainly buy shares in defensive retail stocks at the moment, particularly the likes of Sainsbury (SBRY) and Tesco (TSCO), and even Marks & Spencer (MKS) as all offer defensive qualities on the grocery front. Tesco in particular was uplifted yesterday through a Morgan Stanley upgrade, and frankly it’s unthinkable the shares could even fall below 300p

Fashion retailers are a different kettle of fish though, and the trials and tribulations faced by the sector in the current climate were clearly demonstrated this morning by fashion retail chain French Connection (FCCN), which said it doesn’t expect to have recorded any sales growth in its current fiscal year, which started Feb 1. 2008 numbers were also disappointing, hit by a GBP11.9m impairment charge, with full year pre-tax losses of GBP17.4m from previous pre-tax profit of GBP3.1m last time. A redeeming feature perhaps was an improvement in sales, ahead slightly at GBP248m, up from GBP236m in 2007, and sensibly the group scrapped the final dividend. French Connection shares have recovered from a 30p low late last year, and are down to 52p this morning from last nights closing price of 56.25p. The group are opening a number of cheaper menswear stores and moving more into wholesale to combat the recession, but it remains to be seen whether this strategy will work.

Until we see firm evidence of progress, I see an opportunity to go short of the shares down to 42p. See you tomorrow, I’m off to Primark

 

[BlueIndex]

Positively Prudential
March 19th, 2009

I like many thought insurers would avoid the worst of the credit crunch excesses, having largely perceived the UK life and insurance industry as conservative and cautious operators. So the shockingly poor results that hit Aviva (AV.) shares so badly (the old Norwich Union remember) , and similar bleatings from Friends Provident (FP.) has badly shaken up my seemingly misplaced perception of the industry

Bu my faith was somewhat restored this morning, when the Man from the Pru, (in this case CEO Mark Tucker) stuck his head above the parapet and announced Prudential (PRU) full year numbers. While the Pru reported full year net losses of GBP1.34bn (European Embedded Value or EEV) against a net profit of GBP2.96bn in 2007, annual operating profits, (which don’t factor in short-term investment returns) were ahead 17% to GBP2.96bn and ahead of the consensus expectations of GBP2.56bn. This is very good, and has led to a general thumbs up from the City. Tucker (who will be replaced by current CFO Tidjane Thiam in October) said the results represented a ‘very strong absolute and relative performance in quite exceptional circumstances’, and the groups capital position remained strong, with a capital surplus of GBP1.7bn, up from GBP1.2bn at end-September.

I do wonder whether Aviva will recover some ground on the back of this, after all, the two companies are operationally similar, and hold a similar position as long-established British insurance brands with hitherto good names

But it took the Man from the Pru to put the shine back into the insurance sector, and although the shares are ahead 9% or so already this morning, they still look good value at these levels for a medium term long play. I’m in!

 

[BlueIndex]

Rip-Roaring Regus
March 20th, 2009

Office outsourcing. Not a particularly glamourous business, but according to some numbers released by office outsourcing group Regus (RGU) this morning, it’s certainly a highly profitable one. I can see that in a recession, companies looking to cut costs will look at the service provided by the likes of Regus as a bit of a no-brainer, but even so a 10.9% hike in annual pre-tax profits to GBP149.2m , and a 24.9% hike in revenues to GBP1,077.2m is no mean achievement in the middle of a particularly vicious recession.

CEO Mark Dixon made a point of saying he is not at all complacent about the outlook, and while the group are currently seeing revenues translating into a ’softening in occupancy and price KPI’s’, they are confident in their position to meet the challenging market conditions ahead. Added to this they have just appointed 3 new directors to the board. The market has already demonstrated strong approval this morning, Regus shares are already ahead 18% to nearly 60p.

I see some good defensive qualities here, and looking at the way the shares have fallen over the past few years against a backdrop of a solid business performance, the group are actually looking rather cheap at 60p

 

[BlueIndex]

Trust the Daily Mail
March 23rd, 2009

One of the moral conundrums of the stock market is the issue of ‘cost cutting’. In almost every case, when a company tells you it is to ‘cut costs’, this invariably means is that hard working employees are to be given their marching orders, (with appropriate redundancy payments etc of course) to remove these onerous fixed costs from the bottom line. And the moment this announcement is made, of course the share price shoots up and traders make money off the back of people losing their jobs

So depending on your moral stance here, Daily Mail and General Trust (DMGT) are ahead nearly 2% after the group this morning said it will exceed targeted revenues and cost initiatives of GBP100m. Current expectations are for DMGT’s full year results to come in line with the market consensus, subject to the group having little visibility on Associated Newspapers’ advertising revenues. As a result of the poor visibility and revenue picture, further substantial cost reductions are being made, and around 1,000 people are set to lose their jobs, double the level envisaged at the time of the results in November 2008.

Traditionally, H1 profits for DMGT have been lower than H2, and this year the H2 weighting will be particularly pronounced, due to timing issues, although from then on following dividend payments and the post redundancy costs, a steady reduction in net debt is expected thereafter. From a trading standpoint, DMGT now looks oversold, and the impact of cost cutting and other measures provides some upside.

Of course one could also take the view that buying the shares directly puts more money back into the business in the longer term…. :|

 

[BlueIndex]

No Severn Up for Now
March 24th, 2009

As a solid defensive stock during a recession, you’d be hard pushed to find a more suitable candidate than Severn Trent (SVT). And looking at the chart for the last year, we see a steady fall and a minor recovery in the share price since the start of 2009

But a trading update from the group this morning confirmed there were no changes to business performance or outlook since the update on 27 January, leaving us to wonder how much upside there would be on the shares for the foreseable future. The group reported reduced consumption as consumers look to cut expenditure amid a difficult economic climate, which they expect will have a £20m to £25m impact on revenues in 2008/09. This will be offset by targeted and expected cost savings of £30m over the next two years.

The update certainly demonstrates Severn Trent’s limited exposure to recessionary conditions, but as I mentioned earlier, it also highlights little likely upside in the shares for the immediate future. Longer term as consumers are under less pressure to save money then a ‘Severn Up’ case for a long play will materialise. But for now I think a 3-4 week short is the order of the day here, running a stop loss of 1095p and shorting down to 950p. Bottoms Up!

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[BlueIndex]

Super Sainsbury
March 25th, 2009

Sainsbury (SBRY) is another defensive play, that can be relied on to produce the right numbers, recession or no recession. After all we all need to eat! Many brokers have come out in support of rivals Tesco (TSCO) and Morrisons (MRW) after both supermarket groups announced cracking numbers ahead of expectations just a few weeks ago.

And after the stock overhang issues last year, I reckon buying Sainsbury shares at current levels, (325p as I write) is a bit of a no brainer for medium and long term holders. The group beat market forecasts this morning, with a 6.2% rise in Q4 comparable sales, bolstered by ongoing consumer demand for its ‘basics’ range of groceries during the economic downturn. Market expectations were for a 5.5% rise, so nice one Sainsbury, but interestingly the increase in business came from shoppers migrating from upmarket grocers Marks & Spencer (MKS) and Waitrose because of high prices. The group said it expects the current economic environment to ‘remain challenging’, but was upbeat about its prospects for the new financial year. After profit taking this morning, there could be some opportunities to go long at sub 325p levels, something which is certainly on my shopping list!

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[BlueIndex]

Lethal & General
March 25th, 2009

Insurance, like banking is a pretty scary sector to be around at the moment, especially with worries over capital surplus and credit default reserves

So the giant dumping of Legal & General (LGEN) shares this morning comes as little surprise after the insurer reported annual losses of GBP973m on a European Embedded Value, or EEV, basis, against net profits of GBP1.15bn in 2007. If the operating profit performance (taking out investment losses and writedowns) is looked at in isolation, the numbers actually improved to GBP870m, up 2.6% from GBP848m in 2007. But so much of the insurers cash formerly came from investment and risk, which has now come back to inflict a nasty bite on the backside. And to add insult to injury, (albeit a sensible move to retain cash), L&G also cut its final dividend to 2.05p a share, from 4.10p. Going forward the group insists its company’s capital surplus is ’strong and resilient to further stress scenarios’, but after the battering the likes of Aviva (AV.) and Friends Provident (FP.) have taken after announcing their results, we have a falling knife scenario for L&G at the present.

The sensible way to take advantage of this is to short the shares with a 30-day target down to 32p. I reckon they could fall even further, possibly to sub 25p in the longer term. This stock and sector is a shorters dream at the moment, but beware the volatility!

Blue Index :|

 

[WallStreetHero]

excellent thread, nice tips

 

[BlueIndex]

Thanks suhaib

Next to Go
March 26th, 2009

I said earlier this week that the core food retailers such as Sainsbury (SBRY) and Tesco (TSCO) were a bit of a no-brainer as safe defensive plays for the current climate and market. Other retailers, particularly fashion retailers were much more vulnerable

So the trading statement this morning from Next (NXT) merely serves to confirm my view that fashion retailers, particularly those trading on a high rating are now looking extremely vulnerable. Next reported a 14% fall in annual pre-tax profits to GBP428.8m, on revenues down 1.7% to GBP3.27bn, albeit they were in-line with consensus expectations. Next cites lacklustre consumer demand for clothing and houseware goods, and warns of further sales falls and declining margins in the year ahead, and major challenges from the weak pound and the faltering economy. There you have it. With the best will in the world, unless there is a major recovery this year, the retailer will struggle

Next kept the full year dividend at 55p, a decision it may live to regret, and says it is well placed to weather the storm and expects to achieve a profit in the current year in line with market expectations. But at nearly 1300p given the warnings over sales falls and declining margins for 2009, the shares for me are a clear sell down to 1170p in the short term and probably lower beyond that

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[BlueIndex]

Man thats Good
March 26th, 2009

Given that many investors recoil in horror at the very thought of financial stocks and the recent track record, a closer look at hedge fund group Man (EMG) is a relatively pleasant experience

Man Group announced today it had launched a new business in light of investor concerns over risk management and transparency in the industry after the Madoff scandal. The new business will better deal with these issues without affecting the management of existing mandates. From a company with an excellent track record pre-Madoff, that looks very good to me

Also in a pre-close trading statement, Man reported a 43% fall in annual pre-tax, pre-exceptional profits of $1.2bn, while funds under management also fell 36% to $47.7bn. These figures contain the Madoff hit and reflect the tough trading environment, but by declaring a final dividend of $24.8 per share, (meaning the full-year payout is unchanged) and then considering the previous track record, I believe the shares offer a lot of upside in the short and longer term. The group said it had decided on the payout to ‘reflect the group’s confidence in the future’. In my book thats a buy, with an initial 30-day target price of 247.5p, and higher beyond that

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