Friday’s Stock Market report featuring TSB, IMI, Rotork, Fitbug and Pipehawk

The Markets

Germany has avoided a triple dip recession according to the latest figures from Destatis which showed that the Eurozone’s largest economy grew by 0.1% between July and September. The currency union as a whole achieved GDP growth of 0.2% for the period. France, Spain and Greece also managed to exceed expectations. News from elsewhere was less positive as Italy shrank by 0.1%, officially re-entering recession. Carsten Brzeski, an Economist at ING, said that “almost all the glamour of the second German Wirtschaftswunder seems to be gone. Chances are high that after the release of the eurozone data, today’s data mark the first time the German economy underperformed the rest of the eurozone in two consecutive quarters since the doomy days of the crisis in late 2008 and early 2009.”

The second quarter of 2014 was the most profitable period for UK companies since late 1998 according to new figures from the Office for National Statistics, with non-oil and non-financial firms recording an average net rate of return of 11.6% during the quarter. If the oil sector is included then returns fell slightly from the first quarter. Analysts hope that this development will lead to improvements elsewhere in the economy, with Howard Archer, Chief UK Economist at IHS Global Insight, commenting that, “generally improved corporate profitability is supportive to employment. It may also encourage companies to lift pay, which is important for sustainable healthy consumer spending”.

At the London close the Dow Jones had decreased by 12.32 points to 17,640.47 and the Nasdaq had grown by 8.21 points to 4,221.70.

In London the FTSE 100 closed up 18.92 points at 6,654.37 and the FTSE 250 rose by 12.23 points to 15,644.12. The FTSE All-Share increased by 8.76 points to 3,555.51 while the FTSE AIM Index shrank by 2.12 points to 716.45.

Broker Notes

Shore Capital has rated TSB Banking Group (TSB) as a “buy” in its initiation report and given the firm a target price of 272p. This is despite concerns that the current distribution infrastructure and cost base are excessive for the company’s current customer base and balance sheet. However, the broker believes that TSB can take advantage of a supportive regulatory backdrop and a focused management structure to take market share from the current major players. The shares fell by 5.1p to 265.9p.

Investec has reiterated its “sell” rating on miner Lonmin (LMI) despite the company outperforming its expectations, due to weak commodities prices. The broker believes that if conditions do not improve, then Lonmin will be forced to cut costs further and that any such moves will be fiercely resisted by unions and the South African government. Investec has recommended a target price of 133p. The shares dropped by 0.4p to 180.7p.

Tullow Oil (TLW) has been upgraded to “buy” from “add” by Westhouse Securities despite recent exploration disappointments and concerns over the fall in the oil price. The broker remains broadly positive, complimenting Tullow’s strong asset base and saying that it could support top tier production and cash flow growth over the next few years. While the target price has taken a hit and been reduced to 770p, Westhouse has upgraded its rating on the basis of strong upside opportunities. The shares declined by 0.2p to 463.8p.

Brokers pumped up for Tullow Oil

Blue Chips.

Engineering outfit IMI (IMI) has agreed to buy Bopp & Reuther Holding GmbH for an enterprise value of €152.6 million (121.2 million pounds) to enhance the capabilities of IMI’s critical engineering division, particularly in Emerging Markets. Management believe that the purchase will be earnings accretive from 2015. IMI also reported a 6% drop in revenues for the four months to 31st October, with the firm citing difficult currency conditions as the main cause for the decline. The shares climbed by 17p to 1,256p.

Mobile power and climate systems specialist Aggreko (AGK) traded in line with management expectations in the third quarter as underlying revenues rose by 6% but were outweighed by the negative effects of currency movements. The company recorded a good performance in American markets with revenues up 15%, but sales in Asia, the Pacific and Australia declined by 15%. Overall, the markets welcomed the news, with the shares up by 52p at 1,594p.

Aggreko charges underlying revenues in negative conditions

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Mid Caps

Year-to-date orders at industrial equipment engineer Rotork (ROR) were 3.2% higher than last year as at 13th November. This came as third quarter revenues dropped by 1% due to the timing of deliveries and the loss of certain orders to the tightened trade sanctions on Russian firms. Rotork expects good results in the fourth quarter, which is normally the most productive period for the company. The shares fell by 99p to 2,401p.

Electronics distributer Premier Farnell (PFL) has warned that full year operating margins will be lower than previously expected as trading conditions in European and Asian markets have weakened, and the company’s product mix has shifted. Margins declined by 50 basis points during the quarter to 2nd November, but management are confident that significant progress towards recovery will be made in the fourth quarter. The shares ended the day down by 15.8p at 164.1p.

Hospitality chain The Restaurant Group (RTN) increased sales by 10.3% for the 45 weeks to 9th November following a major expansion programme, with like-for-like revenues up by 3% from a year ago. Twenty four new sites have opened in 2014 and another additional 16 will begin trading by the end of the year. Management continue to expect good full year results for the Frankie & Benny’s owner, but have warned that growth has fallen since the end of August and cost pressures have increased. Shares in the company dropped by 30.5p to 654p.

Restaurant Group expands, but revenue growth checked

Small Caps

Online health services outfit Fitbug (FITB) has arranged for its Kiqplan product to appear on Samsung Electronics’ Digital Health platform, including four current applications and one that will exclusively developed for Samsung customers. Management have not released any financial details regarding the deal, but have said that they believe the arrangement will help build awareness of Fitbug’s products and expand the user base. The shares rose by 2.33p to 8.18p, having traded at just 0.4p just four weeks ago.

Digital music and entertainment firm Immedia Group (IME) has signed a two year contract with Telefonica UK to provide music, equipment and maintenance services to 467 O2 stores across the country. Financial terms have not been revealed, but producing links and exclusive content for O2 will also be part of the arrangement and Immedia will be involved in the mobile network’s strategic marketing campaigns. The share price increased by 3.125p to 19.75p.

Biotechnology services outfit Cyprotex (CRX) has experienced unforeseen delays in its development work and reduced sales from recently acquired firms that means that revenues will not meet previous expectations. The company believes that full year revenues will now be in the region of 11.7 million pounds with EBITDA only very slightly above zero. Cyprotex still believes that revenues will be more than 20% higher than in 2013. The shares fell by 6p to 40p, with CEO Dr. Anthony Baxter buying 11,000 shares at this price after the warning.

Exploration and development operation Horizonte Minerals (HZM) has made substantial progress since completing the pre-feasability study for its Araguaia nickel project, having been placed on a fast track programme by the regional government and having filled its environmental impact study with the Brazilian Government. The firm expects to receive a preliminary licence in the first half of 2015. The shares rose by 0.375p to 3.875p.

Ground probing radar specialist PipeHawk (PIP) saw turnover for the year ended 30th June drop by 0.1 million pounds to 5.1 million pounds, but income from its joint venture project SUMO grew significantly. The group loss before tax was 0.52 million pounds as the firm increased expenditures on sales and manufacturing capacity. Management are disappointed with the results, but remain optimistic regarding future performance. The shares fell by 0.75p to 3.5p.

Pipehawk finds profits lower than expected