Monday’s Stock Market report featuring AO World, Shire, Unite Group and Sound Oil

The Markets

Goldman Sachs has predicted that the oil price could hit $40 (26.50 pounds) a barrel in the first half of this year, as the bank said it no longer believed that OPEC would agree to cut output in order to balance the market. The firm’s analysts commented that the levels of storage and tanker space available allow the industry to run at a surplus for longer than in the past, with it being possible to stockpile up to 1 million barrels a day over the next year. The bank commented that, “to keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer”. Brent Crude hit a fresh six year low of $48.54 (32.16 pounds) today.

The rate of growth in car sales in China fell from 13.9% in 2013 to 6.9% last year and the China Association of Automobile Manufacturers said that it expects 2015 will see a rise of around 7%. Other analysts are more pessimistic and expect further deceleration as the wider Chinese economy comes off the boil, following the slowest year of growth since the 1980s. There is also likely to be further tension between international manufacturers and local dealers, who claim that they are forced to buy more units than they can shift.

At the London close the Dow Jones had decreased by 51.78 points to 17,685.59 and the Nasdaq fell by 29.58 points to 4,183.69.

In London the FTSE 100 closed up by 0.28 points at 6,501.42 and the FTSE 250 dropped by 67.27 points to 15,943.69. The FTSE All-Share decreased by 2.40 points to 3,500.08 while the FTSE AIM Index rose by 0.50 points to 703.95.

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Broker Notes

Beaufort Securities issued a “sell” recommendation on Restaurant Group (RTN) despite the firm posting revenue growth of 9.6% for the 52 weeks to 28th December. The broker is unsure of the company’s prospects as the British public become more conscious of value and cost considerations in their leisure activities. Beaufort also views the current price to earnings ratio of 20.2 times as being towards the high end of reasonable valuation. The shares fell by 19p to 683p.

Automotive support company Nationwide Accident Repair Services (NARS) has been rated as a “buy” with a 100p target price by Westhouse Securities, which said that the firm’s 2014 revenue performance had exceeded its expectations. The broker has significantly upped it forecast pre-tax profits to around 5.26 million pounds and maintains its position that 2015 will see further improvements. The shares grew by 10p to 79p.

Online electrical retailer and logistics provider AO World (AO.) has kept its “hold” rating and 247p target price from Shore Capital. The broker commented that recent sales figures were very encouraging and largely in line with Shore’s expectations, but this success is largely reflected in the current share price. The broker believes that an upgrade may be possible in the near future as the market adapts to disappointing performances at other online retailers such as boohoo.com. The shares rose by 15.4p to 262.5p.

AO reasonably priced says broker

Blue Chips.

Pharmaceuticals outfit Shire (SHP) has agreed terms to acquire NPS Pharmaceuticals at a cash price of $46 (30.48 pounds), which values the deal at around $5.2 billion (3.45 billion pounds). Management say that NPS represents a good strategic fit and improves Shire’s position in the market for rare disease treatments as part of an innovative product portfolio. The deal will be funded via existing cash holdings as well as current and new debt facilities. The shares fell by 41p to 4,701p.

Shire ups rare disease dosage

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Mid Caps

Student housing specialist Unite Group (UTG) has acquired a development site in the centre of Coventry, subject to planning permission, where it intends to construct accommodation for roughly 280 students in time for the 2017/18 academic year. Total costs, including land, are expected to be around 13 million pounds and the firm says that budgeted returns are in line with its regional targets. Unite operates an adjacent complex which is said to have performed well since opening in 2007. The shares fell by 1.5p to 475.1p.

Householder Taylor Wimpey (TW.) reported that it finds the more balanced market conditions encouraging, saying that the lower rate of price growth in late 2014 should create a sustainable environment. Completions continue to rise, with total sales in 2014 of 12,454 being 6% higher than those in 2013. Average sales prices rose by 11% across the year from 210 thousand pounds to 234 thousand. The shares dropped by 1.5p to 124.2p.

Multinational drug manufacturer Hikma Pharmaceuticals (HIK) announced that a Delaware court has lifted the injunction that had been filed by Takeda Pharmaceuticals last October preventing Hikma from distributing its colchine 0.6mg capsules. The firm will now begin sales of its branded product and it is also working on developing a generic alternative. The shares rose by 97p to 2,380p.

Hikma pops capsule injunction

Small Caps

Software and technology services firm NetDimensions (NETD) said that revenues and invoiced sales for the year ended 31st December will be substantially ahead of the prior period, Management expect revenues to be roughly $22 million (14.6 million pounds), significantly above the market consensus of $20 million (13.25 million pounds). A reduced full year loss is also anticipated. The shares climbed by 6p to 82p.

Secure payment and call centre technology specialist Eckoh (ECK) has won a new four year contract with Transport for London to manage all of its incoming telephony needs. The deal supplements existing agreements and includes a full call routing solution across all branches and departments for the roughly 15 million calls that TfL receive each year. The shares rose by 1.25p to 45.5p.

Competition operator Best of the Best (BEST) recorded revenues of 3.75 million pounds over the six months ended 31st October, an 8.5% improvement on the same period of last year as online income climbed by 16.1% to 1.73 million pounds. Profits before tax increased to 0.36 million pounds and management were encouraged that the company was becoming less reliant on airport locations. The shares increased by 1.5p to 71.5p.

Italian hydrocarbon exploration outfit Sound Oil (SOU) produced 4.44MMscm from its onshore Rapagnano and Casa Tiberi gas fields during 2014, 97% more than the firm’s output during the prior year. The improvement was due to 2014 being the first full year of production at Rapagnano. The firm said revenues covered the costs of its Italian operations and that it had not been affected by the recent drop in oil prices. Sound Oil shares fell by 0.125p to 10.375p.

Speciality pharmaceutical firm Allergy Therapeutics (AGY) expects to report revenues of around 28.2 million pounds for the six months ended 31st December, a 4% improvement over the same period of the prior year. The growth has been driven by improved positioning in the firm’s key markets, despite being negatively impacted by the strengthening of sterling over the year. Shares in the company rose by 0.625p to 24.75p.

Fresh water provision and treatment technology outfit Modern Water (MWG) has said that its financial results for the year ending 31st December will be in line with expectations despite a troublesome period towards the end of the year for the monitoring division, with delayed orders causing the unit to fail to reach forecast sales. Full results for the year will be published in March. The shares ended the day flat at 20p.

Markets not fizzing for ModernWater