The Markets
According to the latest Labor Department statistics the US economy added 257,000 jobs in January, the 11th month in a row which has seen more than 200,000 positions created. The body also revised its figures upwards for the previous two months by an additional 147,000 jobs. While the pace of growth dropped in January an average of 336,000 jobs were created per month over the past quarter, up from 197,000 a year ago. However, the unemployment rate was marginally higher at 5.7%, up from 5.6%, as the number of people looking for work rose. Ian Shepherdson, chief economist at Pantheon Macroeconomics, commented, “Employment growth is astonishingly strong. It will have consequences for the Fed.”
Back home, the UK’s trade deficit was 2.9 billion pounds in December, taking the shortfall for 2014 as a whole to 34.8 billion pounds. According to figures from the Office for National statistics, this was the largest gap since 2010. Paul Hollingsworth, UK Economist at Capital Economics said that, “Whilst December’s trade data are not as bad as they first appear, the strong pound and weak demand from the eurozone are likely to prevent a material improvement in the external position in 2015.”
At the London close the Dow Jones had increased by 41.87 points to 17,926.75 and the Nasdaq was up by 9.97 points at 4,266.15.
In London the FTSE 100 closed down by 12.49 points at 6,853.44 but the FTSE 250 edged down by 9.36 points to 16,685.63. The FTSE All-Share slipped by 5.60 points to 3,681.48 while the FTSE AIM Index rose by 2.55 points to 700.46.
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Broker Notes
UBS reiterated its ‘buy stance on Vodafone (VOD) on the back of yesterday’s update from the telecoms giant, which showed organic service revenues in the three months to 31st December 2014 fell by just 0.4%. This came after 4.2% and 1.5% declines seen in the first and second quarters. The investment bank also retained its 265p target price for the stock, which remains one of its “preferred picks” in the telecoms sector. Analysts at UBS said they think Vodafone is on track to return to positive growth in Q4, and noted that underlying trends “are improving faster than the market expects”, partly due to the benefits of Project Spring investment that has led to improved network quality, better net adds and accelerated growth in data. They added that Vodafone’s valuation remains “cheap”, particularly given its 5% dividend yield. Vodafone shares moved up by 0.5p to 231.4p.
Ahead of the results of the Premier League rights auction, Charles Stanley said it expected the most likely outcome to be for Sky (SKY) to be awarded a lower number of games at a higher average cost per game, mainly due to “aggressive bidding” rival from BT (BT.A). However, the broker added that such an outcome should not deter Sky investors, just as long as the company wins a package or packages containing the more popular games with bigger teams at better times. In any case, “the importance of Premier League football rights to Sky’s business model is overestimated by investors,” according to the broker. Charles Stanley maintained its ‘accumulate’ rating on Sky after the company released interim results this week that were at the higher end of market expectations. Sky shares finished up by 5.5p at 965.5p.
Numis maintained a ‘hold’ rating for caterer Compass (CPG), despite the broker admitting that the company’s first-quarter performance was well ahead of its own expectations. Organic revenues grew by 5.7% at constant currency in three months ended 31st December 2014, ahead of the 4% growth rate that Numis had forecast and the 4.1% increase reported for the whole of last year. “Organic revenue growth has been driven by a continued strong performance in North America with Europe and Japan returning to growth earlier than we had expected,” noted the broker. “Fast growing and emerging [markets], where we were concerned about the downside risk from offshore and remote, reported double-digit first-quarter growth in emerging markets offsetting pressures elsewhere.” Compass shares closed the day down by 15p at 1,130p.
Blue Chips.
Pharmaceuticals giant GlaxoSmithKline (GSK) revealed positive overall survival results from a phase III study of dabrafenib (Tafinlar) and trametinib (Mekinist) combination, both of which are targeted at metastatic melanoma. The safety profile was consistent with the profile observed to date for the combination, and no new safety concerns were observed. According to GSK, “These final overall survival results from COMBI-d, the second phase III study to show positive survival results for the combination compared to BRAF inhibitor monotherapy, further reinforce the scientific rationale for combining MEK and BRAF inhibitors and underscore the potential of the combination of dabrafenib and trametinib in the treatment of BRAF V600 mutation-positive metastatic melanoma.” Completion of this study is a post-marketing requirement for the FDA’s Accelerated Approval for the combination in the US. Shares in the firm, which announced yesterday that it was considering spinning off its HIV medicines subsidiary, closed up by 17p at 1,517.5p.
Shares in Capita (CPI) moved up by 15p to 1,158p after the firm announced it has been chosen by the NHS to provide support services such as IT, back-office finance and HR services worth up to 5 billion pounds to a number of clinical commissioning groups. Capita, which already runs other services for the British government such as the Ministry of Defence pension scheme and police radio systems, said its selection was “testament to Capita’s experience in the health sector and wider public sector.”
Mid Caps
Shares in Poundland (PLND) surged by 55.2p to 413p after the discount retailer announced the potential acquisition of 1% cheaper rival 99p Stores. The conditional agreement is for an enterprise value of 55 million pounds, with a 47.5 million cash element to be funded via an equity placing. 99p Stores has 251 locations in the UK and made sales of 370.4 million in the year to 1st February. The acquisition is conditional on the approval of the Competition & Markets Authority, with the review process expected to take at least two months. Should the deal go through Poundland expects it to be earnings enhancing once the two businesses are integrated.
Investors were not sweet on Tate & Lyle (TATE), sending the shares down by 91p to 573.5p after the sugar firm announced yet another profits warning, its third in a year. While the Speciality Food Ingredients business performed in line with expectations in the final quarter of 2014, the Bulk Ingredients division saw lower US sweetener volumes, weakening EU sugar prices and a sharp deterioration in ethanol margins. As a result the Splenda maker flagged that profits for the full financial year will be modestly below the range stated in September 2014 of between 230 to 245 million pounds. The shares have lost 28% of their value over the past 12 months and with a 560p target price broker Liberum Capital thinks they have further to fall.
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Small Caps
Shares in Clean Air Power (CAP) surged by 0.9p to 2.65p after the compression-ignited natural gas engine systems firm announced it has received a Certificate of Conformity from the United States Environmental Protection Agency (EPA) for its US Genesis EDGE Dual-Fuel product. This confirms that the company’s Dual-Fuel engine meets EPA emissions requirements and is valid in all US states apart from California, where a separate application has been submitted to the relevant authorities. Clean Air Power is now working to complete the commercial development and finalise logistical preparations ahead of commercial launch.
Not doing quite so well were shares in Powerhouse Energy (PHE), which slumped by 0.35p to 1.32p. This was after the alternative energy firm announced that it will focus its efforts on constructing its PHE G-3 UHT gasification system in Australia and will immediately cease its plans for the reconstruction of the Eiting plant in Munich. Management and all current operations are being relocated from Switzerland and Munich to Brisbane and future sales of the PHE G3 UHT system will focus on growing demand in the Australian, Asian and US markets.
In a brief statement pollsters YouGov (YOU) confirmed that trading in the six months to January was in line with expectations. The firm added that YouGov Profiles, a new media planning and audience segmentation tool for brands and their agencies, was launched in the UK in November, generating extensive media coverage and a positive response in the marketplace. YouGov shares fell by 1p to 115.25p, but with analysts at Numis Securities having a 142p target will there be upside to be had before the UK general election?
Private punters’ favourite Solo Oil (SOLO) revealed that the operator of the Kiliwani North gas field, Aminex, has advised its partners that the newly constructed gas export pipeline from the Songo Songo processing plant to the KN-1 gas well has been completed to within approximately 20 metres from the KN-1 production well-head. Solo recently signed an agreement with Aminex for the first 6.5% interest in the Kiliwani North Development Licence, with an option to purchase an additional 6.5% interest. The KN-1 well, when connected to the export pipeline, is expected to produce at least 20 million cubic feet per day.