Tuesday’s Stock Market report featuring Tesco, Aviva, Northgate, WYG and PCG Entertainment

The Markets

The UK construction industry slowed down in November as confidence in the industry dropped and order books expanded at their lowest rate since June 2013. The PMI index for the sector dropped from 61.4 in October to 59.4 last month, a fall that exceeded most analysts’ expectations. Building firms complained of rising materials prices and rapid increases in subcontractor fees, as ongoing skills shortages continue. Tim Moore, Senior Economist at Markit, also mentioned that, “some construction companies noted that uncertainties ahead of next year’s general election had weighed on business confidence and influenced clients’ willingness to commit to new projects.”

The Russian Government has warned that the country will fall into recession next year as the economic development ministry slashed forecasts from 1.2% growth to a 0.8% contraction, with household disposable incomes expected to drop by 2.8%. The movement is due to the nation’s exposure to oil industry fluctuations and sanctions from the US and EU. The finance industry has indicated that it may dig into reserve funds to fuel the economy over the coming year. Chris Weafer, Senior Partner at Moscow firm Macro Advisory, said that, “Russia is a non-investible country for all but the bravest of hedge fund investors right now, and will remain in this category until both the rouble and oil stabilise at minimum”.

At the London close the Dow Jones had increased by 62.42 points to 17,839.22 and the Nasdaq grew by 12.56 points to 4,300.37.

In London the FTSE 100 closed up 85.73 points at 6,742.1 and the FTSE 250 finished up by 113.18 points at 15,832.95. The FTSE All-Share had increased by 42.19 points to 3,601.13 while the FTSE AIM Index shrank by 1.96 points to 710.95.

Broker Notes

Troubled supermarket operator Tesco (TSCO) has retained its “hold” rating and 185p target price from Shore Capital. The broker approves of the majority of the recent board changes and particularly the implied renewal of focus on Tesco UK after CEO Dave Lewis appointed himself as temporary head of the division. However, Shore Capital wants to see stronger results before committing to any enhanced recommendation. The shares rose by 3.5p to 187.3p.

Westhousse Securities has shifted its position on conference organiser ITE Group (ITE) to “add” from “under review”. This came after preliminary results for the year ended 30th September showed that, while events in Russia and the Ukraine were having a negative impact on the company, performance elsewhere was more than taking up the slack. For example, recurring events in the rest of the world generated 5.9 million pounds more profit this year. Overall performance fell relative to last year due to what the broker characterised as a typical biennial cycle for the firm. ITE shares rose by 3p to 156.25p.

Fulcrum Utility Services (FCRM) has been rated as a “buy” by Cenkos after the firm showed significant progress in its most recent interim results, with strong revenue growth and a streamlined cost base that the broker believes will allow Fulcrum to deliver consistent profits at current turnover levels. Key contracts have been retained and major new clients brought onboard, which gives Cenkos confidence in the company’s future performance. The shares rose by 0.13p to 7.5p.

Broker says last results a turning point for Fulcrum

Blue Chips.

Insurance and financial services outfit Aviva (AV.) has agreed to purchase Friends Life Group (FLG), in a deal that values the latter firm at 5.6 billion pounds. The move creates the largest player in the UK insurance industry. Under the terms of the deal, Friends Life shareholders will own 26% of the combined group, receiving 0.74 new Aviva shares for each Friends Life share. Aviva estimates that synergies will save around 225 million pounds by the end of 2017. Shares in the Aviva rose by 0.6p to 500p, while those in Friends Life increased by 8.9p to 375.1p.

Aviva buys Friends

Mid Caps

Developer St. Modwen Properties (SMP) has said that profits before taxation for the year ended 30th November will be at the top end of market expectations after the company saw improvements in regional markets and an uplift in property valuations. The firm continues to seek new opportunities and activity in the commercial sector accelerated over the year with St, Modwen committed to a number of major developments across the UK. The shares climbed upwards by 7.9p to 391.1p.

Builders merchant and DIY outfit Grafton Group (GFTU) has completed the acquisition of Crescent Building Supplies, a general merchanting business with three sites in London and one in Berkshire. Crescent had revenues of 10.5 million pounds in the year ended 31st March and will be treated by Grafton as a bolt-on acquisition that will improve the firm’s coverage in the South of England. No financial details of the transaction were released. The shares ended the day flat at 640p.

Vehicle rental firm Northgate (NTG) reported profits before tax of 47..8 million pounds for the six months ended 31st October, a 70% increase over the same period last year as fleet sizes increased and UK utilisation rates edged upwards. Net debt rose by 15% to 379 million pounds, which funded the company’s expansion programmes in the UK and Spain. The interim dividend has been increased to 4.3p from 3.2p in the previous year. The shares rose by 45.1p to 532.5p.

Van rental results accelerate

Small Caps

Oil & gas industry support services provider KBC Advanced Technologies (KBC) has won a two year contract worth more than $48.6 million pounds (30.93 million pounds) that expands on its existing relationship with an un-named South American oil & gas firm. Under the new deal, KBC will provide operational and management support ahead of a planned refurbishment. The award was welcomed by KBC’s management as the firm’s third largest ever deal. The shares rose by 5p to 88p.

Electronic components manufacturer Dewhurst (DWHT) has recovered from 2013’s disappointing results to deliver revenues of 46.6 million pounds and profits before taxation of 4.8 million pounds, more than double those in the prior year and a contributing factor for the company achieving record earnings levels. The improved results were driven by a strong UK performance and the first full year contribution from the firm ‘s Australian subsidiary Dual Engraving. The shares grew by 12.5p to 410p.

Environmental consultancy firm WYG (WYG) narrowed its pre-tax loss to 0.4 million pounds during the six months ended 30th September, despite revenues dropping to 63.2 million pounds from 63.9 million during the same period of the prior year due to the EU budget hiatus. UK income grew by 13% and the company signed new contracts in the EEA, Middle East and North Africa as part of its geographical diversification programme The shares rose by 1.5p to 105.5p.

Online video firm Forbidden Technologies (FBT) said that the broadcast television industry is moving to the Cloud more slowly than it had anticipated, meaning that sales in the second half of 2014 will not meet expectations and will be roughly in line with those seen in the first half. The company had said that its sales pipeline and the launch of new software would lead to improved performance, but demand has not been as high as had been hoped. The shares fell by 3.5p to 16p.

Voucher and gift card specialist Park Group (PKG) saw a reduced pre-tax loss of 2.4 million pounds in the six months ended 30th September, which the firm views as strongly positive given that it makes all of its annual profits in the Christmas period. Management are confident that Park will meet full year expectations as UK consumer confidence improves. The shares rose by 1.875p to 58.375p.

Chinese online gambling outfit PCG Entertainment is looking to raise around 3.2 million pounds of new equity on the UK markets and join AIM on Thursday this week. The company is expected to be valued at around 60 million pounds on the first day of dealings. PCG holds four gaming licences in China and CEO Nick Bryant, a former SKY commercial director, said that the company has, “identified opportunities to distribute new broadcast events, games and promotions in the Chinese market which we plan to implement over the next 18 months”.

PCG to ask UK investors to take a punt on Chinese gaming