The Markets
According to the Office for National Statistics (ONS) UK government finances showed a surplus of 8.8 billion pounds for January, the highest for seven years. The month usually has an excess due to seeing increased tax receipts from people submitting self assessment forms. Borrowing has now fallen to 74 billion pounds for the tax year to date, 6 billion lower than at the same time in 2014, with the government’s target for the full year being 91.3 billion.
Staying at home, UK retail sales fell by 0.3% in January compared to December, according to the ONS. However, on an annual basis sales grew by 5.4%, the 22nd consecutive month of year-on-year growth and the longest period of sustained growth since May 2008. Average store prices fell by 3.1% in January, the largest year-on-year fall since consistent records began in 1997, with the largest contributor being petrol stations, where prices fell by 15.1%, the largest year-on-year fall on record for the category.
At the London close the Dow Jones had risen by 14.30 points to 18,000.07 and the Nasdaq was up by 5.33 points at 4,417.19.
In London the FTSE 100 closed up by 26.30 points at 6,915.20 and the FTSE 250 rose by 72.76 points to 17,122.55. The FTSE All-Share gained 14.17 points to 3,724.45 while the FTSE AIM Index inched up by 1.71 points to 710.29.
Broker Notes
Shares in Serco (SRP) rallied by 11.5p to 211.9p on the back of an upgrade from “underperform” to “neutral” by Credit Suisse. The bank, which also hiked its target price for the shares from 142p to 208p, said that upgrade reflects “strong reported progress in the disposal process for non-core private sector business process outsourcing (BPO) assets”. However, despite taking a more optimistic view, Credit Suisse stressed that “uncertainties remain abundant” with the company still to announce the conclusion of its strategic review. It also said that the valuation still looks “relatively expensive” given the risks.
Amidst carnage in the oil sector, Westhouse Securities has highlighted Faroe Petroleum (FPM), Genel Energy (GENL) and Ithaca Energy (IAE) as its key picks in the sector. The firm believes that the market will remain over-supplied at least until the second quarter of this year and said it is unlikely that prices will return to 100 dollars a barrel any time soon. The broker recommended that investors build positions in stocks that are protected in the near term by hedging or those with a low cost base and/or healthy balance sheet.
Blue Chips.
Life insurer Standard Life (SL.) shrugged off a fall in annuity sales with a 19% rise in operating profits to 604 million pounds in 2014, boosted by a move into asset management. Changes to pensions following the March Budget in the UK caused a marked reduction in the firm’s annuities business, with margins in this segment falling by a massive 66%. In a bid to diversify its business, Standard Life sold its Canadian operations last year for 3.7 billion dollars (2.4 billion pounds) and also bought Ignis Asset Management for 390 million pounds. Shares in the company finished up by 12.6p at 419.6p.
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Mid Caps
Shares in Nostrum Oil & Gas (NOG) moved up by 20p to 603p after the Caspian basin based oil producer announced the results of an independent reserves audit of its licenses in north-western Kazakhstan. As at the end of December 2014 proved reserves stood at 192.2 million barrels of oil equivalent (mmboe), with proved and probable reserves at 571.1 mmboe. While the latter figure was down from 550 mmboe a year earlier this was due to production exceeding reserves growth. Last month the company confirmed that 2015 production guidance would be maintained at 45,000 barrels per day.
Essentra (ESNT), the supplier of specialist plastic, fibre and foam products, grew adjusted pre-tax profits by 11% to 133.4 million pounds in 2014 on the back of revenues growing by 8%. The company put the good results down to product innovation, more sizeable business wins, expansion in existing and new markets, supported by further cost reduction and efficiency programmes. Essentra also announced the total dividend would be upped by 19% to 18.3p per share and that it has bought Australian plastic product distributer, Specialty Plastics, for an undisclosed cash consideration. Earlier in the week analysts at Deutsche Bank put a “buy” stance and 935p target on the shares, which finished the day up by 78p at 963p.
Investment business 3i Infrastructure (3IN) saw its shares rise by 2.1p to 156.8p after it acquired a 45% interest in Oiltanking Terneuzen in the Netherlands and Oiltanking Ghent in Belgium. The deal is subject to certain approvals, including from the European Commission under the EU Merger Regulation. The Oiltanking companies provide storage and related services for refined oil products, chemicals and biofuels. 3i will pay €111 million for the deal, which follows on from the acquisition of a 45% stake in three Oiltanking storage terminals in Amsterdam, Malta and Singapore in 2007.
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Small Caps
Shares in Turbo Power Systems (TPS) surged by 0.34p to 0.58p after the high-speed electrical machines and power electronic systems provider announced it is implementing a strategic review and looking at a potential sale of the company. Financial advisors Lincoln International have been appointed to assist in the process. Turbo Power announced a 3% revenue rise to 4.29 million pounds for the three months to September and a 92% cut in operating losses to 60,000 pounds. However, it remains “critically dependent” on continuing financial support by 89.4% shareholder, the Brazilian energy company, Vale Solucoes em Energia.
At the other end of the market shares in London and Midlands focused housebuilder Mar City (MAR) plunged by 30.5p to 67.5p. The came after the firm announced that pre-tax profits for 2014 would be substantially below market expectations which were announced in a trading update published just over three weeks ago. This is a result of the wiping off of certain revaluations and lower profit recognition on two housing sites due to profits being aligned with their build and delivery status. Mar City will now be conducting a full assessment of its procedures regarding announcements and their verification.
Also falling were shares in Ecuador and Australia based copper and gold explorer SolGold (SOLG), which finished the day down by 0.7p at 3.375p. This came as the firm announced a loss of A$1.39 million for the six months to December, up from A$0.78 million in the comparative period. At the 85% owned Cascabel Project in Ecuador, SolGold’s main area of focus, the firm received results from three more holes on the Alpala target during the period and drilling on a tenth hole began last month. SolGold believes that the Alpala drilling area has a conceptual target size of at least 80 million tonnes at a grade of 2.5% copper equivalent. The firm raised 1 million pounds in December last year but broker Shore Capital, “would not be surprised if the company were to attempt a second round of fund-raising.”
UK Oil & Gas (UKOG) has upped it stake in the Markwells Wood licence to 100% after buying the 40% it did not already own from Magellan Petroleum for a nominal one pound. Markwells Wood, in the Weald basin, onshore UK, was discovered in 2011 and an extended well test programme from the end of 2011 to May 2012 produced 3,931 barrels of oil. The peak flow rate over a 24 hour period was approximately 100 barrels of oil per day. Shares in UK Oil & Gas rose by 0.01p to 0.55p.
Antimony development company Tri-Star Resources (TSTR) announced that 40% owned subsidiary Strategic & Precious Metals Processing has received the Provisional Environmental Permit from the Ministry of Environment and Climate Affairs for the Oman Antimony Roaster project. The enables the company to commence construction activities at the project, with the Permit being renewable annually during construction activities. The shares closed up by 0.02p at 0.19p.