Wednesday’s Stock Market Report featuring the Budget, Sound Oil, AstraZeneca, IMI and UK Oil & Gas

The Markets

In what may potentially be his final Budget Chancellor George Osborne delivered a generally well received set of tax changes and a raft of boosts for investors. Highlights of the speech included a further relaxation of pension rules from April next year, which will allow up to five million pensioners to swap their fixed annual annuity payments for cash. A new “Help to Buy” ISA will see the government top up the savings of first time buyers by £50 for every £200 saved, up to a maximum bonus of £3,000. Boozers will also benefit as the Chancellor revealed a 1p cut in beer duty and 2% off cider and whisky duty. However, smokers will see a pack of 20 rise by 16p. Elsewhere, Osborne revealed £1.3 billion in tax cuts to boost North Sea oil exploration and a raising of the bank levy to 0.21% to bring in an estimated £900 million per annum.

Elissa Bayer, Senior Investment Director at Investec Wealth & Investment commented, “The Chancellor did not have a great deal to give away but as has come to be a feature of an Osborne Budget he uses any advantage carefully. Generally he balanced the giveaways and taking from banks is an easy win. Helping first time buyers is positive but through an ISA may be a complicated way to do it.”

At the London close the Dow Jones was down by 114.73 points at 17,734.35 and the Nasdaq 100 was down by 19.76 points at 4,355.87.

In London investors reacted well to the Budget, with the FTSE 100 closing up by 107.59 points at 6,945.20 and the FTSE 250 rising by 160.83 points to 17,363.74. The FTSE All-Share closed up by 52.99 points at 3,747.38 but the FTSE AIM Index slipped by 0.09 points to 715.52.

Broker Notes

Shore Capital moved its stance on Hilton Food Group (HFG) from “hold” to “buy” despite carrying out pre-emptive currency driven earnings downgrades. The meat packer will announce results for 2014 next week having provided a detailed trading update in January which pointed to trading being in line with expectations. However, Shore Capital notes that currency headwinds have strengthened materially since the start of the year, especially given that the group has c.30% sales exposure to the weakening euro, c.16% of forecast turnover in Swedish krona and c.9% in Danish krone. When combined the broker believes that these would represent a 10-12% negative headwind on translation. As such it has lowered its 2015 pre-tax profit forecast by 8% to £25.6 million and revised its 2016 forecast down by 7% to £31.3 million. Shore Capital still likes the stock, believing that the share price will be materially higher if forecasts are met. Hilton Food shares ended the day up by 14.375p at 432.5p.

Westhouse reiterated its “add” rating for hydrocarbons explorer Sound Oil (SOU) and increased its target price from 11.4p to 17.2p. According to the broker this upgrade reflects the progress Sound has made on both its Nervesa and Badile assets. Westhouse believes that the company has an interesting portfolio of producing, development and high-impact exploration assets in Italy, with it now set to begin a material drilling campaign having spent the past 12-24 months restructuring and refocusing the business. Sound Oil shares fell by 0.625p to 15p.

Blue Chips

Interim results from technology firm Smiths Group (SMIN) reported pre-tax profits down by 3% at £208 million for the six months to January after revenues slipped by 2% and margins came under pressure. During the year improvements in the Smiths Medical, John Crane and Flex-Tek businesses offset revenue declines at Smiths Detection and Smiths Interconnect, where tough trading conditions are said to persist. Smith’s also suffered from adverse foreign exchange movements during the period. Nevertheless, the company increased the interim dividend by 2% to 13p per share and said that it expects an improved underlying performance in the second half. Investors seemed to like the update, sending the shares up by 22p to 1,200p.

Drug giant AstraZeneca (AZN) has reported positive results from a Phase III trial of its PT003 drug candidate, which is looking to improve lung function in patients with Chronic Obstructive Pulmonary Disease (COPD). Two 24 week studies demonstrated statistically significant improvements in lung function from taking the drug. AstraZeneca acquired PT003 after buying Pearl Therapeutics in 2013 and plans to begin filing for global regulatory approvals this year. The shares rose by 110p to 4,750p.

Oil producer BG Group (BG.) announced that the Petrojarl Knarr floating production, storage and offloading vessel has now started production from the Knarr oil field in the North Sea, offshore Norway. The vessel, moored approximately 120 kilometres off the Norwegian coast, has a production capacity of 63,000 barrels of oil equivalent per day and a storage capacity of 800,000 barrels. The Knarr field, of which BG is the operator with a 45% working interest, has estimated gross recoverable reserves of around 80 million barrels of oil equivalent with a production life of at least ten years. Shares in BG Group added 8p, closing at 848.3p.

British Land (BLND) will be carrying out a £50 million internal refurbishment of the Meadowhall shopping outlet in Sheffield as the centre celebrates its 25th birthday. Beginning in autumn this year the works will create distinct districts within the centre, each with a different finish including wood and punctured metal. To enable all retail and leisure operators to trade throughout the period the works will largely be completed out of hours. British Land shares increased by 15p to 849p.

Mid Caps

Shares in Galliford Try (GFRD) closed up by 3p at 1,516p after the construction group revealed it has been appointed to two public sector construction frameworks. The firm has been selected as one of six contractors on the Southern Construction Framework, with the four year plan worth up to £3.9 billion for publicly procured projects from £1 million upwards in value. Galliford has also been confirmed as one of 11 contractors on the Medium Value lot of the North West Construction Hub, worth up to £400 million over four years, which provides a procurement platform for construction services to public sector bodies across the North West.

Closed life fund consolidator Phoenix Group (PHNX) reported on a strong performance in 2014, which saw the firm meeting or exceeding all of its financial targets. While the firm’s operating companies delivered cash generation of £567 million, down from £817 million in 2013, this was above the top end of the firm’s £500 – £550 million target range. A further £390 million was received on completion of the divestment of Ignis Asset Management to Standard Life, resulting in full year cash generation of £957 million. The final dividend will be 26.7p per share, in line with the previous year. Broker Shore Capital likes the stock, commenting, “Trading at a 23% discount to the end 2014 embedded value of 1113p, reducing to 21% for 2015F (vs 1080p) with a 6.2% forward yield, based on an unchanged dividend of 53.4p, this stock offers considerable and safe income attractions”. Phoenix shares finished up by 4p at 862p.

Specialist engineering company IMI (IMI) has appointed Lord Smith of Kelvin as its new Chairman with effect from the firm’s AGM on 7th May. Kelvin is a business veteran, having chaired The Weir Group for 11 years and serving as a non-executive director at 3i, Bank of Scotland and Network Rail. He is the the current Chairman of the UK Green Investment Bank and for ten years has been Chairman of SSE. He will be paid £300,000 a year, flat on the salary of current Chairman Roberto Quarta. The share price rose by 15p to 1,346p.

Small Caps

Today saw the full first day of dealings on the Main Market of the LSE for shares in Revolution Bars Group (RBG). The company last week raised £86 million for its selling shareholder Caspian Bidco at a price of 20p per share, at the bottom of the previously announced 200p-240p range. Revolution, which targets the premium end of the 18-35 year old market, has a portfolio of 58 bars in town or city high streets across the UK, operating under the Revolution and Revolución de Cuba brands. In the year to June 2014 the business made revenues of £108.7 million and adjusted EBITDA of £13.2 million. Revolution shares fell by 2.5p to 190p.

Shares in UK Oil & Gas (UKOG) fell by 0.06p to 0.8p despite the oil explorer revealing positive news from its Horse Hill well near Gatwick Airport. In addition to the previously reported 102 feet of Portland sandstone gross oil pay, a further 407 feet of potential oil pay exists in the well within the limestone and claystone sections of the Kimmeridge, Oxford and Lias Formations. Seemingly good timing then for UKOG, which last week increased its direct interest in 65% well owner Horse Hill Developments from 20% to 30%.

In a very brief update Harry Potter publisher Bloomsbury Publishing (BMY) revealed that trading in the year to February was in line with expectations following a good second half. The market consensus is for the firm to post pre-tax profits of just over £12 million for the period and pay a 6.1p per share dividend. Results will be published on 19th May. Bloomsbury shares rose by 0.5p to 152.75p.

Charles Taylor (CTR), the provider of professional services to the global insurance market, revealed a £30.6 million rights issue in order to pursue potential acquisitions, joint ventures and business investment opportunities. In reaction the shares fell by 13.75p to 267.25p. The firm will undergo a 3 for 7 rights issue at a price of 155p per share – a discount of 44.9% to yesterday’s closing price. Broker Peel Hunt has fully underwritten the issue. Alongside the news Charles Taylor revealed that adjusted pre-tax profits grew by 11% to £11.1 million in 2014, with the dividend increased by 7.5% to 10.75p per share.

Security and risk management consultancy Falanx (FLX) reported that its security operations centre in Reading is now fully operational. The centre will be the base for the firm’s Protective Monitoring product, designed to secure computer networks at the boundary and across data sources. Falanx also revealed that it has signed a Value Added Reseller contract with ZeroDayLab, a provider of cyber security solutions estimated to attract orders in the region of £500, 000 over the coming year. Falanx shares rose by 0.25p to 30p.

Cape (CIU), the energy and mineral resources support services business, grew adjusted pre-tax profits by 29% to £45.3 million in 2014. While revenues grew by just 3.5% the firm benefitted from a 25% rise in operating margins, driven by an improved performance in Asia Pacific and the benefit of the acquisition of engineering contractor Motherwell Bridge. Cape added that 2015 results will be broadly in line with last year, flagging that there is increased uncertainty over the second half. Nevertheless, the order book as at 31st December was 15% higher at £746 million. Cape kept the dividend flat at 14p per share. Investors reacted by sending the shares up by 13.5p to 239p.