Wednesday’s Stock Market report featuring Kier, Sainsbury’s, Moneysupermarket, Samuel Heath and Conviviality Retail

The Markets

The Office for National Statistics has said that average wage growth in the UK exceeded inflation for the first time in five years in September, as non-bonus wages grew by 1.3%. Unemployment also fell by 155,000 during the 3rd quarter of the year, reducing the total to below 1.96 million. Howard Archer, Chief UK Economist at IHS Global Insight, said that while this would be a relief to consumers, the development was, “more to do with low inflation than markedly improving earnings. However, earnings growth did take a much-needed decent step in the right direction in September”.

The Bank of England has said that UK interest rates may be held at their current level until late next year as inflation is expected to drop below 1% in early 2015. Low commodity prices and sluggish global growth have caused a shift in the Bank’s forecasts from the more bullish position that they had taken recently, with the BoE’s report stating that, “the near-term profile for inflation was markedly different from that in August, with inflation likely to remain close to 1% over the next 12 months”.

At the London close the Dow Jones had decreased by 17.45 points to 17,597.45 and the Nasdaq had grown by 2.75 points to 4,189.90.

In London the FTSE 100 closed down by 16.36 points at 6,611.04 and the FTSE 250 fell by 26.42 points to 15,604.27. The FTSE All-Share increased by 8.19 points to 3,535.34 while the FTSE AIM Index shrank by 3.15 points to 718.25.

Broker Notes

Wireless communications outfit Anite (AIE) has been rated as a “buy” with a target price of 120p by Northland Capital. This comes after the firm published an encouraging trading update for the first half of its financial year, reporting revenue and adjusted operating profit ahead of last year. The broker was pleased that Anite maintained its first quarter momentum, but remains worried about effects of the euro’s weakness on the company’s Network Testing division. The shares rose by 1.5p to 85.5p.

Shore Capital has put its target price for house builder Barratt Developments (BDEV) under review after the company’s interim management statement showed sales reverting to “normal” levels more quickly than those of its peers. However, the broker maintains its “buy” rating on the stock for the time being. Barratt reported that it is on track to deliver its target of 15,000 completions for 2015 but did not provide any new information regarding pricing or margins. The shares grew by 1.1p to 426.1p.

Westhouse Securities has reiterated its “buy” rating on construction and engineering firm Kier Group (KIE) after the company confirmed that it is on track to meet full year expectations despite widespread problems throughout the contracting industry. The broker believes that the firm’s conservative approach has limited its exposure to such issues, with Kier reporting that orders in the period since 1st July were up from last year. The shares fell by 30p to 1,457p.

Broker thinks Kier can build on position

Blue Chips.

Tullow Oil (TLW) will cut back on exploration activities in light of the declining oil price and low success rates from recent offshore drilling programmes, reducing its budget for such activity to $300 million (188 million pounds) for 2015. The Irish oil firm will focus its programme in East Africa, particularly in Kenya, and reduce expenditure for its ongoing campaign in Norway. Tullow also reported that its financial performance for the year to date is in line with expectations, with full year pre-tax operating cash flow before working capital expected to be in the region of $1.7 billion. The shares grew by 10.6p to 492.8p.

Utilities giant SSE (SSE) blamed warm weather and intense competition as it issued a warning that profits for the full year to March would be flat. The firm’s customer numbers continue to fall, with retail accounts falling by 0.2 million to 8.9 million over the six months ended 30th September and average electricity consumption per household also declining. Management plan to streamline SSE’s systems and move towards smart metering to return to positive growth. SSE has also disposed of its stakes in a number of PPI street lighting vehicles. The shares declined by 44p to 1,536p.

Iconic supermarket chain Sainsbury’s (SBRY) has seen profits fall in the 28 weeks to 27th September as it lowered consumer prices in a bid to battle for market share, leading to flat revenues for the year despite an expansion in shop space. The firm made a statutory pre-tax loss of 290 million pounds for the period, well below last year’s profit of 433 million pounds, after taking an impairment and onerous contract charge of 628 million. On an underlying basis profits fell by 6.3% to 375 million pounds. The group will now cut back spending and rein in expansion plans. Sainsbury’s did however maintain its interim dividend at 5p per share. The shares, upon which broker Cantor Fitzgerald has a “hold” stance and 254.7p target, fell by 3p to 266.1p.

Is Sainsbury’s getting trollied by price competition?

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Mid Caps

Specialist construction products firm SIG (SHI) expects full year profits to fall below last year’s results, as European trading conditions remain poor and political uncertainties in Ukraine had a negative effect on confidence in neighbouring markets. SIG performed well in the UK and Ireland since June, delivering 7.2% like-for-like growth, and the company’s French wing outperformed the wider national sector where new housing starts have fallen substantially. The shares fell by 9.6p to 147.9p.

News agent and travel firm WH Smith (SMWH) revealed that total group sales in the first 10 weeks of the financial year were flat, with like-for-like sales down 1%. In the Travel business total sales were up by 7%, like-for-like sales were up 2% and gross margin increased in line with plans. While the High Street business saw total sales down by 5% and like-for-like sales down by 4%, margins were also in line with budgets. The firm summarised that the new financial year has started well but flagged that the peak trading periods for both businesses are yet to come. Broker Canaccord Genuity has a 1,360p target on the shares, which rose by 16p to 1,223p.

Online gaming software provider Playtech (PTEC) has launched a €315 million (246 million pounds) unsecured convertible bond offering. The coupon is expected to be in the region of 0.125% to 0.875% and the bonds will mature in November 2019. The proceeds of the offering will be used to finance acquisitions and organic growth opportunities. The shares shrank by 63p to 607p.

Online financial services outfit Moneysupermarket.com (MONY) increased revenues by 18% to 66 million pounds for the three months ended 30th September, as the firm’s Money and Home Services division continued to rapidly expand. Growth in the Moneysupermarket’s core insurance was lower than in other business areas, but remained at a respectable 15%. The shares rose by 7.8p to 212.9p.

Moneysupermarket unlikely to face discounting

Small Caps

Exploration and production firm Max Petroleum (MXP) detailed a 37.1 million pound investment in the company that will be made by AGR Energy, giving AGR control of 51% of Max’s outstanding share capital. Following this transaction, Max will pay down debt and begin a share buyback programme at a price of 1.64p per share. Proceeds from the deal will also fund ongoing development work in Kazakhstan and Central Asia. The shares rose by 0.29p to 1.07p.

Building materials and bathroom business Samuel Heath & Sons (HSM) saw a drop in sales to 5.4 million pounds in the six months to 30th September, as the UK and European economic recoveries were less strong and more uneven than had been hoped, with some markets suffering sharp downturns. The firm had budgeted for growth and as a result, pre-tax profits shrunk from 0.32 million pounds to 96,000 pounds. The shares declined by 45p to 225p despite the firm maintaining its interim dividend at 5.5p per share.

Software developer Tracsis (TRCS) more than doubled sales in the year ended 31st July as the transport industry specialist worked with major UK fleets and started to expand into the US remote monitoring market. Recurring revenue levels remain high and profits before taxation rose by 62% to 4.2 million pounds. Conditions remain favourable for Tracsis as international spending in transport markets hits record levels and interest in new technologies increases. The shares rose by 9p to 361.5p.

Computational biology specialist Physiomics (PYC) upped turnover by 12% to 0.27 million pounds for the year ended 30th June as the company broadened its Personalised Medicine offering and won a number of pre-clinical trial contracts from its existing base of pharmaceutical clients. The operating loss dropped by 15% to 0.46 million pounds but management believe that the client pipeline is strong and hope that there will be less disruption in the industry this year after the AstraZeneca and Shire takeover bids slowed down decision making. The shares fell by 0.01p to 0.14p.

Off-licence chain Conviviality Retail (CVR) plans to launch its flagship Bargain Booze brand in Scotland with Scottish Midland Co-Operative Society, with a trial to be completed by June 2015 and a national rollout following if successful. Trading in the 26 weeks to 26th October was flat relative to last year but 1.7% down on a like-for-like basis, leading the firm to invest in new fascias and improve the quality of its real estate in a bid to become more attractive to customers. The recently acquired Wine Rack business continues to trade in line with expectations. Conviviality Retail finished down by 4p at 151.5p.

Scotch expansion for Bargain Booze