Wednesday’s Stock Market report featuring Persimmon, Sainsbury’s, Galliford Try and Majestic Wine

The Markets

Eurozone prices dropped by 0.2% in December according to the latest estimates from Eurostat, a development that is likely to put further pressure on the European Central Bank to extend credit to the region and stimulate activity. The drop was driven by declines in the price of oil but “core” inflation, which excludes fuel and food costs, was stable at 0.7%. Howard Archer, Chief Economist, at IHS Global Insight, said that, “while the ECB would normally look through any drops in the headline inflation rate resulting from sharply falling oil prices, the bank will be seriously concerned that the move into deflation in December will lead to a further significant weakening in inflation expectations”.

New UK car sales hit a 10-year high in 2014 as consumer confidence rose, according to the Society of Motor Manufacturers and Traders. Over 2.47 million new vehicles were registered last year, 9% above 2013 and sales rose every month over the course of 2014. The SMMT said that demand had returned to levels last seen before the financial crisis and Mike Hawes, Chief Executive of the trade body, said that he expected this to continue through 2015.

At the London close the Dow Jones had increased by 198.05 points to 17,569.69 and the Nasdaq fell by 51.85 points to 4,162.68.

In London the FTSE 100 closed up by 53.32 points at 6,419.83 and the FTSE 250 rose by 73.04 points to 15,851.69. The FTSE All-Share had increased by 26.05 points to 3,460.78 while the FTSE AIM Index shrank by 5.94 points to 694.15.

Broker Notes

Cantor Fitzgerald reiterated its “buy” position on iron asset developer Beowulf Mining (BEM) after the firm agreed to accelerate the equity swap agreements between itself and Lanstead Capital as part of management’s wholesale review. Poor share price performance meant that income from the agreement had fallen below expected levels, with Beowulf receiving a final payment of around 150 thousand pounds shortly. The shares dropped by 0.05p to 1.48p.

Housebuilder Persimmon (PSN) has had its “hold” recommendation repeated by Shore Capital after the firm released a pre-close update that was broadly in line with expectations, but indicated that cash holdings were significantly higher than the broker had forecast. The broker believes that this cash position bodes well for dividends in the near future, but has little substantial effect on the long-term prospects of the company. Shore raised its target price to 1,533p on the shares, which grew by 13p to 1,541p.

Beaufort Securities recommended that investors “buy” shares in engineering firm Meggitt (MGGT) after it announced the acquisition of Precision Engine Controls Corporation from United Technologies Corporation earlier this week. The broker said that, “the strategic acquisition of PECC not only expands the actuation capabilities of Meggitt but also reinforces the company’s strategy to invest in highly engineered components. […] Meggitt seems well placed to handle the increased level of operations and activities, going forward. In light of these positives and the company’s strong customer and product portfolio, we retain our Buy rating on the stock”. The shares rose by 2.5p to 511.5p.

Blue Chips.

Power generation and climate control specialist Aggreko (AGK) has signed a new two year contract under which it will provide 150MW of diesel fuelled power in Argentina and a two year extension on other projects in Argentina and Cote d’Ivoire with a capacity of 500MW. No financial details of the arrangements were released, but management said that the deals gave the firm great positive momentum for the year. The shares rose by 43p to 1,481p.

Supermarket chain Sainsbury’s (SBRY) revealed that retail sales excluding fuel for the 14 weeks ended 3rd January 2015 were 0.4% lower than the same period of the last year. Management said that the performance was positive given the extremely difficult market conditions and that the firm had recorded record weekly customer transactions of 29.5 million. Sainsbury’s also recorded strong growth in its premium own brand ranges. The shares dropped by 5p to 229.6p.

Mid Caps

International support services group Interserve (IRV) has traded well since its update in November and management believe that full year results for the year ending 26th February will be in line with current market expectations. The integration of the recently acquired Initial Facilities business is going as planned and the purchase of ESG Group for 25 million pounds has recently been completed. The shares grew by 16/5p to 547.5p.

Specialist ground engineer Keller Group (KLR) has won a contract worth 28 million pounds to prepare ground in advance of the expansion of Changi airport in Singapore. The work will begin immediately and is expected to be completed by the middle of next year. Management said that “this contract award reflects both the Group’s excellent track record using vibrocompaction in Singapore and extensive experience in similar airport construction projects around the world”. The shares rose by 10.5p to 887p.

Housebuilder and construction outfit Galliford Try (GFRD) continues to trade well and completions for the first half of 2015 are expected to be in the range of 1,529, compared to 1,404 in the same period of 2014. The firms construction order book stands at 3.2 billion pounds, almost double its level last year, and management believe that the industry’s growth is sustainable. The shares rose by 37p to 1,272p.

Small Caps

Technical services provider Keyword Studios (KWS) has acquired Alchemic Dream, a video games customer support services outfit, and Reverb Localizacao, a South American localisation firm, to expand the firm’s geographic reach and the range of services that it can offer. Management also said that Keyword had made strong progress in the second half of 2014 and demand for its higher margin services improved. The shares rose by 1p to 143.5p.

Cloud and mobile investment specialist Tern (TERN) has noted the recent volatility in its share price and said that there were no commercial developments of which the management are aware that was influencing the movement and that it had no news to announce at this time. The company recently created a “B” class of shares as part of the consideration for a recent deal, but management did not believe to be relevant. The shares declined by 0.875p to 4.125p.

Shares in online fashion retailer Boohoo.com (BOO) plunged by 16.25p to 22p after the firm warned that its autumn marketing campaigns did not translate into sales to the extent that had been hoped. The firm blamed heavy discounting at high street rivals for the disappointing returns. However, overall revenues for the quarter ended 31st December were up 25% on 2013, with particularly positive development in European sales.

Also tumbling were shares in vintner Majestic Wine (MJW) after the firm released a disappointing Christmas trading update. While total UK store sales for the 10 weeks from 28th October to 5th January were up by 3.7%, the period saw increased levels of competitive promotional activity to attract customers into store and online. The company said it invested 50 basis points of gross margin to ensure pricing remained competitive and that it expects the tough environment to continue in 2015. The shares lost 67p, closing at 330p.