Tuesday’s Stock Market report featuring Morrisons, ASOS, Debenhams and IDOX

The Markets

UK inflation fell to 0.5% in December according to new figures from the Office for National Statistics, the joint lowest reading since comparable records began. The drop surprised many analysts, with the consensus position ahead of the release being that inflation would drop to around 0.7%. The decline was driven by a fall in petrol prices in light of the plummeting cost of oil, which Danny Alexander, Chief Secretary to the Treasury, described as, “a giant tax cut for the economy, putting more money in the pockets of hard-pressed consumers”.

The rate has now fallen below the 1% threshold requiring Bank of England Governor Mark Carney to write to the Chancellor to explain what steps will be taken to bring inflation in line with the Bank’s 2% target. However, most analysts do not believe that there is a serious risk of deflation. The British Chamber of Commerce said that, “the main factor which counts for the low level of goods inflation, the fall in energy and goods prices, is positive as it boosts consumers’ disposable income and makes it easier for businesses to devote resources to investment”.

At the London close the Dow Jones had increased by 219.42 points to 17,860.26 and the Nasdaq was up by 73.55 points at 4,243.32.

In London the FTSE 100 closed up by 40.78 points at 6,542.20 and the FTSE 250 rose by 141.28 points to 16,084.28. The FTSE All Share decreased by 22.96 points to 3,523.04 while the FTSE AIM Index fell by 2.54 points to 701.38.

ADVERTISEMENT

Broker Notes

Professional recruitment outfit Michael Page International (MPI) has kept its “hold” rating and 426.5p target price from Shore Capital after the firm released a trading update showing that it increased Net Fee Income by 12.9% in the fourth quarter of 2014. The improvement was driven by strong American and Asian performances, but the broker feels that the firm is overpriced relative to its peers. The shares rose by 26p to 453.3p.

Westhouse Securities reiterated its “add” rating and 13.4p target price for exploration and production outfit Sound Oil (SOU) after the firm withdrew its previously announced offer for Antrim Energy following the recent decline in oil prices. The broker said that the move was expected and that existing projects in Italy should continue to be Sound’s focus through 2015. The shares fell by 0.25p to 10.125p.

Numis Securities has downgraded entertainment operator Cineworld (CINE) from an “add” to a “hold” in advance of the firm’s full year trading statement which will be released tomorrow morning. The broker believes that results will be broadly in line with expectations but that these are already priced into the stock after Cineworld shares grew by 36% over the last three months. Cineworld shares dropped by 10.6p to 405.4p.

Blue Chips.

Performance engineering outfit Meggitt (MGGT) has won a $31.7 million (21 million pound) contract from the US Marine Corps to provide indoor simulated marksmanship training. The five year deal covers the design, production and support of around 670 systems at facilities in the United States and elsewhere in the world. This follows from a similar contract the company won from the US Army last year. The shares rose by 2.5p to 521.5p.

Sales excluding fuel at supermarket chain Morrisons (MRW) were down by 1.3% over the six weeks ended 4th January, with like-for-like sales down by 3.1%. However, the number of transactions and average items per basket slowed down their negative trends and the firm served almost double the number of customers in its growing convenience store business. In line with rivals Tesco, Morrisons is to shut a number of stores this year, with 10 loss making sites marked for closure. Morrisons, perhaps unsurprisingly, also announced that CEO Dalton Phillips will step down after the firm presents its final results for the year to January and the board has begun the search for a suitable successor. Despite the numbers being the worst of the big supermarket groups, the market reacted positively to the update, with the shares rising by 7.9p to 184.4p.

ADVERTISEMENT

Mid Caps

Specialist building products distributor SIG (SHI) increased revenues for 2014 by 2.5% to 2.6 billion pounds despite the adverse impact of foreign impact translation. Like-for-like sales were up 3.7%, driven by 9.1% growth in the UK and Ireland. The board has said that it believes that underlying profits before tax will be marginally ahead of the consensus market estimate of 96.5 million pounds. The shares fell by 130p to 4,568p.

Department store chain Debenhams (DEB) recorded a strong performance over the Christmas period, with like-for-like sales up by 4.9% as online revenues rose by 28.9%. Stock levels are said to be under good control and the company achieved substantial improvements in full price sell through. Management are focused on building sustainable profit growth over the coming year. Debenhams shares dropped by 5.05p to 70p.

Self storage and related services firm Big Yellow Group (BYG) earned revenues of 21.6 million pounds over the three months ended 31st December, a 16% improvement over the same period of last year and one that was driven by the firm’s acquisition of 12 partnership stores that it did not previously fully own. These purchases also caused a small drop in average rents, but management are looking forward to high demand in the next six months. The shares grew by 4.5p to 602p.

Small Caps

Online fashion retailer ASOS (ASOS) recorded a 15% increase in sales during the six weeks to 9th January, relative to the same period of the prior year. However, the firm also said that gross margins had fallen by around 200 basis points from the comparative segment of 2013. Management added that improvements to its zonal pricing rollout plan were well underway and full year forecasts were maintained. The shares reversed more of the 58% losses seen in 2014, rising by 208p to 2,635p. Broker JP Morgan Cazenove has a 3,100p target price.

Bowling and entertainment centre operator Essenden (ESS) saw like-for-like sales for the year ended 28th December rise by 6.6% and its 4th consecutive year of growth over the Christmas trading period. The company expects that final adjusted profit before tax will be approximately 3.2 million pounds. Essenden also managed to successfully appeal against business rate fees of around 0.4 million pounds. The shares climbed by 2p to 69.5p.

Quarrying outfit Fox Marble (FOX) expects final reported sales for 2014 to be around €150,000, but has already confirmed orders of roughly €1.5 million for 2015. The firm managed to construct its factory facility under budget on site in Kosovo during 2014 and the company expects that additional production equipment will be required in order to meet demand this year. Shares in the company dropped by 0.75p to 18.75p.

Wireless technology outfit TCM Communications (TCM) said that revenues for the year ended 31st December were up by 21% and will be in the region of $294 million (194 million pounds). The improvement was driven by the rapid take up of the company’s platform as a service offerings and Oozi Cats, Chief Executive of Telit, said he was looking forward to robust growth in 2015. The shares fell by 4.25p to 228p.

Iodine producer Iofina (IOF) upped output by over 90% during 2014 to 327MT, despite lower than anticipated water volumes. Management believe that this will translate into an increase of around 35% on 2013’s revenues and believe that this growth can be maintained in 2015. This is despite ongoing fracking activities in areas adjacent to some of Iofina’s production facilities and legal challenges to its Montana permit. The shares grew by 1.75p to 33p.

Revenues for the year ended 31st October were up by 6% at specialist information firm IDOX (IDOX). The company made 61 million pounds in sales, on its way to a pre-tax profit of 7.6 million pounds, with the firm providing most of the electoral services for the Scottish Referendum during the year. Management said that recent public sector spending announcements were in line with expectations and that it expects 2015 to be a growth year despite the non-repetition of the Scottish vote. IDOX also increased the total dividend for the year by 7% to 0.75p per share. Broker N+1 Singer expects 8% EPS growth in 2015 and 10% growth in 2016. IDOX finished down by 0.625p at 38.375p.