The Markets
One day after the European Central Bank (ECB) began its quantitative easing programme the pound hit a seven year high against the euro. The currency rose to €1.408, a level not seen since December 2007 and up by 37% since 2008’s low of €1.03. The ECB started its €60 billion government bond buying programme on Monday, with President Mario Draghi saying the bank would continue to buy into the second half of 2016.
Over in Asia, inflation in China hit 1.4% in February on a year-on-year basis, up from 0.8% in January. China’s statistical agency put the rise in the CPI down to price increases over the recent Chinese New Year holiday period. However, the Producer Price Index, which also considers wholesale and factory price inflation, showed deflation of 4.8%, increasing concerns over weakness in the economy. Last week the Chinese government said that it would be targetting inflation of 3% in the current year, at the same time setting a GDP growth target of 7%.
At the London close the Dow Jones was down by 246.22 points at 17,749.50 and the Nasdaq 100 was down by 66.45 points at 4,346.54.
In London the FTSE 100 sank by 173.63 points to 6,702.84 and the FTSE 250 fell by 244.58 to 16,922.49. The FTSE All-Share was down by 85.31 points at 3,624.77 and the FTSE AIM Index closed down by 4.95 points at 710.99.
Broker Notes
Westhouse updated on insurance and reinsurance business Jardine Lloyd Thompson (JLT). Commenting on the firm’s 2014 results, which were in line with downwardly revised expectations, the broker said that investors need patience and faith given the current reorganisation of the business. While Westhouse thinks that the company will deliver on its plans it thinks that investors could wait to buy the shares given the current rating of 17.3 times earnings for 2015. Oddly, the broker has a target price of 900p, which would suggest 8.4% downside, but has a “neutral” rating on the stock. The shares fell by 10p to 983p.
Shore Capital has issued a “buy” rating on drinks business Britvic (BVIC). This comes on the back of an investor meeting by company management which updated on the firm’s new strategy in the competitive UK soft drinks market and its international operations. The broker noted that the firm’s recent trading update re-iterated full year EBIT expectations of £164 – 173 million, helped by cost savings actions. With the shares currently trading on a forecast 2015 price earnings ratio of 16.6 times and yielding 3%, Shore Capital believes that Britvic has a strong investment case, based on strong earnings growth and a deleveraging balance sheet. The broker notes that the shares now trade at a “comfortable premium” to historic levels following a recent strong run but believes that any potential de-rating can be mitigated by earnings growth. Britvic shares fell by 16.5p to 746p.
Blue Chips
Tidjane Thiam, CEO of insurance giant Prudential (PRU) will step down from his role later this year to take up the job of CEO of Swiss banking giant Credit Suisse. Since Thiam started in his role in October 2009 Prudential shares have risen by 174%. The firm said that it has already identified a successor (rumoured to be Mike Wells, head of Prudential’s US operations) to be announced once regulatory approval processes have been completed. Prudential also announced that operating profits rose by 14% to £3.19 billion in 2014, with the dividend increased by 10% to 36.93p per share. The share price lost 51.5p, closing at 1,612p.
Advertising giant WPP (WPP) has bought a minority stake in FlowNetwork, a Swedish, over-the-top television service, which delivers its programmes via the internet and supplies the country’s regional newspapers with technology and content. WPP’s digital revenues were $6.9 billion in 2014, or 36% of total revenues, with the firm having a target of 40-45% digital revenues in the next five years. Yesterday the firm announced a 12% rise in pre-tax profits to £1.45 billion for 2014. WPP shares fell by 55p to 1,504p.
Mid Caps
Ocado (OCDO) revealed a 19.2% increase in gross sales to £271.1 million for the 12 weeks to 22nd February, boosted by commissions and fees from partner Morrisons. The online grocer also saw average orders per week rise by 18% to 183,000 in the period but average order sizes slip by 2.4% to £114.72. CEO Tim Steiner reckons that the business will, “…continue growing slightly ahead of the online grocery market.” But long time bear of Ocado, Clive Black of Shore Capital, commented, “such a rate of expansion from a seemingly immature and in vogue business is nothing to write home about and certainly not the stuff of premium stock multiples never mind stratospheric ones that Ocado enjoys.” Unsurprisingly, he maintained his “sell” stance. Ocado shares rose by 5.6p to 376.1p.
Annual results from oil explorer Cairn Energy (CNE) showed a loss of $559.1 million for 2014 as the firm booked in $208 million worth of unsuccessful exploration costs. Highlights of the year included new discoveries in Senegal, with three firm and three optional exploration and appraisal wells expected to be drilled there in 2015. However, Cairn remains at conflict with the Indian tax authorities over its 10% holding in Cairn India, which has been frozen following the introduction of retrospective tax legislation. Cairn ended the year with net cash of $869 million (£576 million) against a current market cap of £1.14 billion. The shares fell by 14.7p to 183.4p.
esure (ESUR) saw pre-tax profits fall by 13% to £103.3 million in 2014 after being hit by tough market conditions and costs associated with the acquisition of comparison website Gocompare. Gross written premiums at the general insurance products provider fell by 3.4% to £517.8 million in the year and Additional Services revenue was down slightly at £103 million. The firm’s combined operating ratio, which measures claims and expenses as a share of premiums, worsened, rising by 2.2 percentage points to 91.9% and the firm expects this trend to continue into 2015. The total dividend for the year was up by 6.3% at 16.8p per share but the firm actually cut its final dividend by 12%. Investors did not like the news, sending the shares down by 21.3p to 211.3p.
Small Caps
Professional health coaching business Totally (TLY) is to work with The British Lung Foundation to undertake a clinical health coaching programme focused on reducing readmissions to hospital and promoting self care for people diagnosed with Chronic Obstructive Pulmonary Disease (COPD). Subsidiary Totally Health will work with a maximum of 20 patients diagnosed with COPD per month, over a 12 month period, to help avoid readmission to hospital and to assist patients with better managing their own conditions. Over the one year contract revenues of £65,000 are expected. The shares were flat at 0.25p.
Also winning a contract was bus maker Optare (OPE) which has received an order worth £7.3 million from Stagecoach UK Bus for its new Euro 6 Optare Solos. The deal is expected to be completed by the end of 2015 and adds to five fully electric vehicles to be delivered this month. Optare shares surged by 0.07p to 0.24p, with the deal amounting to 13% of revenues made in the whole of the last financial year.
Goals Soccer Centres (GOAL), the five a side football pitch operator, grew underlying pre-tax profits by 10% to £10.6 million in 2014. Boosting the numbers were a 2% rise in like-for-like sales and the acquisition of a new site in Newcastle. Goals opened an additional site In Manchester in February and is building a centre in Doncaster, on schedule for opening in April. Over in the US, like-for-like sales were up 13%, with headline terms agreed on two new sites in Los Angeles. The dividend was increased by 8% to 2p per share. Shares in Goals slipped by 7p to 226.5p, with broker Northland commenting, “the rating looks up to date with events in our view.”
An update from business recovery and property services consultancy Begbies Traynor (BEG) reported that trading in the third quarter, to January, was in line with expectations. Trading in the insolvency division was said to be broadly consistent the first half despite corporate insolvencies in the UK continuing to fall year-on-year. Begbies completed the acquisition of the Eddisons property consultancy in December and trading since then is said to be in line with expectations. Begbies Traynor shares slipped by 0.625p to 46.875p.
Shares in Strat Aero (AERO) fell by 1.875p to 9.625p after the aerospace services company announced the raising of £660,000 at a price of 9p per share, a discount of 22% to yesterday’s closing price of 11.5p. The money will be used to drive the firm’s expansion in the Unmanned Aerial Vehicle sector, helping to secure and develop a number of contracts and relationships. Last month the company announced the signing of a Memorandum of Understanding with 4D Tech Solutions Inc, a engineering services provider, to pursue and deliver contracts with the US Government and international agencies. Broker Beaufort Securities has a 16p target and a “speculative buy” stance on the shares.
International focussed financial services business STM Group (STM) grew revenues by 19% to £15.9 million in 2014, with pre-tax profits soaring by 635% to £1.7 million. The firm, which specialises in the administration of assets for international clients in relation to retirement, estate & succession planning and wealth structuring, benefitted from a 36% rise in revenues from its Pensions business and significant operational gearing. While the company does not currently pay a dividend it is hoping to re-introduce a progressive policy as resources allow. The shares soared by 4.5p to 30.5p.