Monday’s Stock Market report featuring Lloyds, HSBC, Quindell, UBM and Bovis Homes

The Markets

As the banks gear up to announce annual results it was revealed that the UK government has sold more shares in Lloyds Banking Group. The latest sale saw Treasury owned subsidiary UK Financial Investments, which manages the government’s bank investments, sell around 678 million shares, raising over 500 million pounds. This takes the government’s stake below 24%, from a peak of 41% after it ploughed in cash to keep Lloyds afloat during the 2008 financial crisis. Chancellor George Osborne said, “This is further progress in returning Lloyds Banking Group to private ownership, reducing our national debt and getting taxpayers’ money back.” Lloyds reports full year results on Friday.

According to a survey by the Confederation of British Industry retail sales fell in February on a year-on-year basis. The survey of 138 firms, including 62 retailers, showed that both volume of retail sales and orders failed to meet growth expectations in the month. 30% of respondents reported that sales volumes were up on a year ago, while 29% said they were down, giving a balance of +1%, significantly below expectations for a balance of +42%. However, retailers expect sales volumes to grow next month, with 44% expecting them to rise and 17% to fall. Rain Newton-Smith, CBI Director of Economics, commented, “After a strong start to the year, retailers were disappointed by the unexpected halt in sales growth”. She added, “Looking ahead, the outlook for the retail sector is fairly positive, with the boost to household incomes from falling inflation likely to support spending.”

At the London close the Dow Jones had fallen by 34.25 points to 18,106.19 and the Nasdaq was down by 1.55 points at 4,441.51.

In London the FTSE 100 closed down by 11.09 points at 6,912.16 but the FTSE 250 rose by 45.53 points to 17,167.98. The FTSE All-Share inched up by 0.40 points to 3,724.85 while the FTSE AIM Index closed up by 1.35 points at 712.55.

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Big Four Banks Reporting Imminently

The major UK banks all report results over the next two weeks. This guide takes an in-depth look at how to trade on and around results day – a period during which share price moves can be particularly attractive.

It also looks at the highest and lowest price targets for each of the banks over the last 2 months, their 5 year historical performance and how their US counterparts fared in January. If you are looking to trade or invest in UK Banks, this guide is a must.

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Broker Notes

Beaufort Securities believes that the uncertainty surrounding the UK utility sector has opened up a buying opportunity in Severn Trent (SVT) for investors seeking yield. “As long as any changes in Government policies towards the sector in the months following May’s General Election do not undermine the company’s ability to maintain its earnings trend and dividend policy,” argued the broker, “the shares represent an attractive long term investment.” Beaufort slapped a price target of 2,225p and a “buy” rating on Severn Trent, shares in which finished up by 8p at 2,057p.

Westhouse Securities said it is encouraged by the progress being made in refocusing UBM (UBM) on the events space, and expects further refocusing (including an acceleration of the process of pruning smaller/less profitable events). The broker believes that the company is now committed to divesting PR Newswire in the medium term, for a possible value of 450 million pounds. US dollar exposure should also prove helpful during the current year, added the broker. Westhouse said it will use the upcoming results as an opportunity to review its “add” recommendation given that the shares have surpassed its fair value target of 537p. UBM shares closed up by 1p at 551.5p.

Blue Chips

Shares in banking giant HSBC Holdings (HSBA) tumbled by 28p to 577.2p after it reported a 17% fall in profit to 18.7 billion dollars (12.2 billion pounds) for 2014, in what it described as a “challenging period”. The drop in profits was largely due to 2.4 billion dollars in fines and customer compensation costs, mostly in relation to fines in connection with traders’ attempted manipulation of foreign exchange rates and compensation for the mis-selling of payment protection insurance. The bank also revealed that its return on equity fell from 9.2% to 7.3% while its operating expenses rose by 6.1%. CEO Stuart Gulliver admitted that allegations its Swiss business had helped customers to dodge taxes had brought “shame” on the bank.

Associated British Foods (ABF) reiterated its annual earnings expectations, with growth at Primark and progress at its grocery, ingredients and agriculture businesses helping to offset continued weakness in its sugar operation. The firm said that it expects Primark’s half-year (to 28th February) sales to rise by 16% on a constant currency basis, up from 15% reported for the first 16 weeks of the period. As previously indicated, it also said adjusted operating profit for the first half is expected to be lower than last year’s 497 million pounds. However, adjusted EPS is still forecast to be in line with last year, largely benefiting from a lower tax rate. ABF shares finished up by 22p at 3,058p.

Shares in distribution and outsourcing firm Bunzl (BNZL) closed at a record high after the firm reported a better than expected 11% rise in annual profit, to 387.8 million pounds, for 2014. The company, which distributes products such as carrier bags and food packaging, said it expected further growth in 2015, both in its existing business and from acquisitions. CEO Michael Roney said the company has traditionally derived about two thirds of growth from acquisitions, adding that the pipeline now “is as good as I’ve ever seen it”. Shares in Bunzl moved up by 22p to 1,950p.

Copper miner Antofagasta (ANTO) cut its production cost forecast for 2015 by 6.6% due to lower oil prices and a weaker Chilean peso against the US dollar. The miner said it expects its net cash cost for 2015 to be 140 cents per pound of copper, about 10 cents per pound lower than it previously thought and in line with 2014. The near 50% fall in oil prices since June last year has benefited copper miners, for whom energy accounts for about a fifth of total production costs. Shares in Antofagasta fell by 21p to 732.5p.

Mid Caps

Housebuilder Bovis Homes (BVS) grew pre-tax profits by 69% to 133.5 million pounds in 2014, on the back of revenues up by 46% at 809.4 million pounds. Results were driven by a 29% rise in the number of legal completions to 3,635 and an 11% rise in the average sales price to 216,600 pounds. Bovis increased the total dividend for the year by 159% to 35p per share and had net cash on the balance sheet of 5.2 million pounds at the year end. Trading in the current year is said to be robust, with 2,336 cumulative sales achieved as at 20th February for 2015 legal completion, up from 1,875 at the same point last year. Shares in Bovis, upon which broker Shore Capital has a 990p target, closed up by 3.5p at 951p.

Ground engineering specialist Keller Group (KLR) has been awarded a contract in connection with the construction of the Koralm railway line between Graz and Klagenfurt, in southern Austria. The work comprises jet grouting, bored piling and anchor works as part of the soil preparation works above and beneath ground for the construction of a major tunnel project on this key railway line in Austria. The deal is worth €31.2 million to Keller, with the project starting in the second quarter of 2015 and scheduled to run for around two years. Keller shares slipped by 2p to 955p.

Also on the contract front, infrastructure group Balfour Beatty (BBY) announced that its joint venture, Gammon Construction, has won a HK$3.2 billion (270 million pound) contract to build a major residential development in Hong Kong. The project includes constructing seven residential towers, as well as retail and recreational facilities. Upon completion, scheduled for 2018, the development will provide around 900 residential apartments. Gammon will also build a public transport interchange and five footbridges. Balfour shares gained 4.4p, closing at 248.1p.

Small Caps

Shares in Rosslyn Data Technologies (RDT) rose by 1.25p to 17.5p after the big data technology company announced a major new partnership deal in the US higher education sector. Subsidiary Rosslyn Analytics has signed an agreement with E&I Cooperative Services, a provider of supply chain advisory services to the US’s higher education sector, to provide cloud-based spend analytics services to its 3,000 members in the US. While no value was put on the deal Rosslyn said that it is multi-year, revenue generating from the start and has significant upside potential as the platform is adopted across this E&I user base. This follows on from a five-year, $1 million contract from the State University System of Florida to provide cloud analytics to its 12 member organisations, which Rosslyn announced in January.

Supply chain firm Wincanton (WIN) has seen kitchen and joinery specialist, Magnet, renew its national home delivery and transport contract with the business. The long-term renewal sees the continuation of Wincanton’s two man home delivery and transportation service from Magnet’s North East manufacturing plant in Darlington to Magnet’s UK wide customers via strategic distribution sites, handling almost 40,000 deliveries of kitchen furniture, appliances and internal joinery products a year. Broker Numis put a target price of 200p on the shares earlier in the month. Wincanton finished up by 2.62p at 170.5p.

Quindell (QPP) saw its shares surge by 20p to 96p after announcing that it has extended Slater & Gordon’s exclusivity period relating to the possible disposal of its professional services division. Investors were particularly interested to note that indicative terms being discussed would imply a significant premium to the firm’s market capitalisation of around 330 million pounds as at the close of play on Friday. To read short seller Simon Cawkwell’s latest musings on Quindell CLICK HERE.

Not doing so well were shares in oil explorer Tower Resources (TRP), which fell by 0.19p to 0.24p. This came after the firm revealed that the Badada-1 well in Kenya will be plugged and abandoned as a dry hole. The well, in which Tower has a 15% stake, has been drilled to a total depth of 3,500 metres over 46 days and under the expected budget of $25.8 million. Although the well failed to find commercial hydrocarbons, minor gas shows and traces of heavier gas molecules indicate the presence of a thermogenic (heat producing) source rock. Analysts at SP Angel commented, “Today’s disclosure that the Badada-1 well is a dry hole is disappointing, but given that shows were encountered, it is more likely to be a localised issue, rather than a regional one, and hence doesn’t kill the prospectivity of the licence block.”

Specialist merchant bank MXC Capital (MXCP) has bought Calyx Managed Services from investment firm Better Capital (BCAP) for a total consideration of 9 million pounds. Based in Manchester, Calyx provides a broad portfolio of ICT services to clients across the country. For 2014 management accounts show the business made a normalised EBITDA of 400,000 pounds and MXC believes the business is capable of generating cash from the point of acquisition. The investment adds to MXC’s existing portfolio of technology businesses which includes stakes in Castleton Technology, 365Agile Limited and Eagle Eye Solutions Group. Share in MXC added 0.3p, closing at 2.75p.

Nature Group (NGR) has agreed to sell its waste water collection and storage vessel, the M/V Crystalwater, for 1.8 million pounds. The provider of port reception facilities and waste treatment services said that completion is subject to a final technical inspection at the place of delivery, which is expected to take place at the end of the month. Nature has also agreed a new facility agreement for its Oil & Gas division with Nordea Bank in Norway to finance the construction of new Sludge Treatment Units and Compact Treatment Units, which will then be leased to the group before being deployed to customers. The shares moved up by 3p to 15.25p.