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Vodafone rises as it calls off Greek merger, while Shire climbs on bid talk

admin — Mon, 06 Feb 2012 20:43:58 +0000

Vodafone terminates plans to link up with Greece’s Wind Hellas; Shire subject of renewed speculation

Much of the recent interest in Vodafone‘s overseas businesses has revolved around India, but on Monday the focus switched to Greece.

In a short statement the mobile phone group announced it was abandoning plans – unveiled in August – to merge its Greek business with rival Wind Hellas. It said:

Vodafone and Largo, the sold shareholder of Wind Hellas, confirm they have agreed to terminate discussions relating to a potential business combination between Vodafone and Wind Hellas.

Analysts said competition concerns were probably behind the move, although Greece’s current financial problems could have played a part. Espirito Santo said:

The proposal to consolidate the Greek mobile market down to two players each with around 50% market share was never likely to succeed in any case, but it was probably worth a try; it was possible that an exception could have been made given the trauma that Greece in general and Wind in particular are going through.

We haven’t seen any official announcements regarding the reasons for the collapse of the merger from either the companies or the regulators, so we assume the regulators (Greek or EU) have told Vodafone in private discussions that this deal would not get approval. This allows Vodafone to withdraw without suffering the ignominy of public rejection.

We would now expect Vodafone to re-commit to growing its Greek business organically, which may involve some investment in subscriber growth/retention to grow its market share – a price worth paying in the short term to take advantage of Wind’s troubles.

Ahead of a trading update on Thursday Vodafone climbed 2.75p to 177.85p.

More generally, Greece was also the main subject on investors’ minds once more. With little clarity about the progress – or otherwise – of talks to allow the next €130bn tranche of bailout money to the paid to the country, the FTSE 100 suffered a little profit taking after hitting new six month highs last week. But there was no real sense of panic, and the index closed down just 8.87 points at 5892.20.

Shire rose 19p to £21.29 on renewed talk of a possible bid for the pharmaceuticals group. The company has been linked in the past with a number of predators, from Bayer to Pfizer to AstraZeneca. Traders heard suggestions this time of an offer worth perhaps £35 a share.

Still with takeover speculation, Misys climbed 5.5p to 335p hopes a bid would emerge following last week’s proposal for the IT group to merge with Swiss rival Temenos. The news disappointed those hoping for a bid premium for the UK business.

Randgold Resources was among the leading risers, up 165p at £75.65 after it reported a 259% jump in full year profits.

But Glencore lost 21.8p to 460.75p on suggestions it would have to pay more to succeed in its plans for a £50bn merger with Xstrata, down 21.5p at 1261.5p There were also reports the deal could face regulatory scrutiny.

A boardroom row at coal miner Bumi sent its shares 55p lower to 795p. Indonesia’s Bakrie family are attempting to oust financier Nathanial Rothschild and other directors from the board.

Anglo American fell 23p to £28.87 and BHP Billiton was down 6.5p at £22 on growing talk they could be about to pounce on US coal producer Walter Energy at around $125 a share. In the market Walter shares stand at around $75.

Insure Admiral gave up some of the gains it made on Friday, falling 39.5p to 998.5p. Andy Hughes at Exane BNP Paribas said:

Admiral’s share price reacted strongly on Friday (up 7.9%) to the announcement that the reinsurance arrangements had been extended to 2014 on current terms.

This prompted some commentators to say that Admiral’s reserving issues were in the past and that the reinsurers had audited the level of reserves. We see a key difference between the reinsurance and the shareholder risk. We do not believe the reinsurance structures will be effective in capital terms under Solvency II and therefore the extension is rather irrelevant.

We expect that Admiral’s market share is in decline. This could lead to a decline in vehicle count in the fourth quarter.

Elsewhere SuperGroup soared 41p to 703p after Oriel Securities moved from hold to buy, but Ocado dropped 4.8p to 103.5p on profit taking after last week’s share price rise.

Premier Foods has just started a £50m advertising push, with television spots starring Loyd Grossman plugging his sauces from today. The market seems unimpressed – Premier’s shares lost 1.5p to 10.5p.

But Character Group climbed 4.25p to 132.5 after the company signed a deal to produce a range of toys based on children’s social media and virtual world website Bin Weevils. The site won the best children’s website BAFTA in November ahead of the likes of Moshi Monsters and Club Penguin.

Amisha Chohan at Merchant Securities said:

[This] confirms the group’s ability to secure top licences, ensuring its product portfolio is broadening and up-to-date.

Avanti Communications dipped 1.5p to 284p as it announced a placing with new and existing investors to raise £75m. The cash will be used to fund the design, construction and launch Hyas 3, its third satellite which will sell capacity to telecoms companies and internet service providers.

Nick Fletcher

FTSE falters on Greek debt deal worries but Randgold rises after profits surge

admin — Mon, 06 Feb 2012 20:43:57 +0000

Gold miner reports 259% jump in full year profits, but markets nervous as Greek talks continue

With leading shares edging lower as confusion and disagreement over the Greek bailout continues, one stock heading higher is Randgold Resources.

The gold mining group has jumped 215p to £76.15 – up almost 3% – after it said full year profits rose 259% to $433.3m thanks to increased production at its Ivory Coast and Mali projects. Profits for the fourth quarter saw an even greater increase, up 323%. It has doubled the dividend to shareholders following the figures. The company said the result was even more significant given it had carried out major expansion programmes and faced disruption at some of its sites during the year. Numis analyst Andy Davidson said:

Overall a positive operational and earnings update and a good hike in the divi which should keep everyone happy. [The stock] will no doubt remain expensive despite some likely upward revision to our forecasts, but this update shows why it trades at a premium to its peers.

Overall the FTSE 100 is down 33.21 points at 5867.86 as Greek party leaders continue their discussions on the austerity measures needed to receive the next tranche of bailout money. Kathleen Brooks at Forex.com said:

In the absence of economic data today headline risk from Greece will dominate. Watch out for anything that smacks of political brinkmanship that could put the next tranche of bailout funds in jeopardy as this could cause a knee-jerk sell off in risk. In contrast an agreement could see markets rebound.

Back with the miners, Glencore is down 15.6p at 466.95p and its proposed merger target Xstrata is 32p lower at £12.51, following reports Glencore might have to pay more and suggestions the deal could face regulatory hurdles.

Tesco has dipped 3.8p to 322.85p on talk its launch of current accounts through its banking business has been pushed back to next year. But Espirito Santo said Tesco had other problems to occupy the company:

Following December’s profit warning and announcement that around £400m of UK margin will be invested in the customer offer, investors are much more concerned about trends and recovery strategies for the core UK grocery business.

Admiral gave up some of the gains it made on Friday, falling 43p to 995p. Andy Hughes at Exane BNP Paribas said:

Admiral’s share price reacted strongly on Friday (up 7.9%) to the announcement that the reinsurance arrangements had been extended to 2014 on current terms.

This prompted some commentators to say that Admiral’s reserving issues were in the past and that the reinsurers had audited the level of reserves. We see a key difference between the reinsurance and the shareholder risk. We do not believe the reinsurance structures will be effective in capital terms under Solvency II and therefore the extension is rather irrelevant.

We expect that Admiral’s market share is in decline. This could lead to a decline in vehicle count in the fourth quarter.

Nick Fletcher

Schools supplier RM drops 13% after swinging into full year loss

admin — Mon, 06 Feb 2012 20:43:57 +0000

Teaching equipment supplier falls into red after restructuring charges as it concentrates on UK business

RM, the educational services group, has lost 13% after it swung into a loss after the coalition government cut spending on schools as part of its austerity drive.

The company, which supplies computer systems and teaching equipment, lost £23.4m in the 14 months to the end of November, compared to a £23.9m profit in the previous 12 months, after redundancy costs and provisions. It has gone through a radical restructuring to cope with the downturn, including selling overseas businesses in the US and Australia, and its Lego joint venture.

Newly appointed executive chairman Martyn Ratcliffe was scathing in his criticism of the group:

In recent years, while recognising that the market was changing, the severity of the changes was not fully appreciated by the business. This situation was compounded by an unsuccessful international expansion programme and a lack of innovation in recent years.

But he added that the underlying businesses remained profitable and the recent strategic moves had stabilised the group. However its shares have fallen 10.75p to 70p on the news, and George O’Connor at Panmure Gordon said:

[The] final results carry a health warning and the numbers coupled with the narrative makes it difficult to come up with any kind of positive investment argument. The operational restructuring of the group is “almost” complete (so more restructuring in the offing) . . . the difficult market conditions will continue for the foreseeable future (so more poor trading results in the offing).

Nick Fletcher

SuperGroup soars 7% as Oriel analysts hail smaller logos on its products

admin — Mon, 06 Feb 2012 20:43:57 +0000

Broker moves recommendation from hold to buy, praising smaller logos on its garments

SuperGroup, the fashion retailer behind the Superdry brand, recently reported good Christmas trading, but will it do even better by toning down the logos on its products?

Analysts at Oriel Securities seem to think so. In a note raising his recommendation from hold to buy, Oriel’s Jonathan Pritchard said:

It has long been our contention that a more subtle approach to logo-ing garments was required, and the new SS12 ranges carry much less of the very bold and obvious fonts seen previously.

We think that this will widen the appeal of the brand, as it has always been our view that the underlying quality, fashionability and pricing of the clothes are very good. We just think the ‘sandwich board’ effect put some people off. We are most encouraged by what we have seen of the new range so far.

The company previously had trouble with its distribution system, but Oriel believes these problems could be behind it. Pritchard said:

Supergroup is righting 2011′s wrongs, re-establishing a growth profile. Logos are shrinking and logistics are functional again. With rising internet sales likely to curb the appetite for physical stores, forecasts and returns will increase.

The shares have had a bit of a run but trade at no more than a sector valuation to May 2013. 2011 was far from a vintage year for the company but with earnings momentum beginning to be re-established, we think that the shares will rerate as the growth characteristics become clearer. We are upgrading to buy.

In the market SuperGroup has risen 44p to 706p, up nearly 7%.

SuperGroup

Nick Fletcher

Greece on the brink

admin — Mon, 06 Feb 2012 20:43:55 +0000

Officials in Greece were under pressure Monday to agree on the terms of a new bailout package, as the threat of a default hangs over the country.

This is NOT a tech bubble

admin — Mon, 06 Feb 2012 20:43:55 +0000

The Nasdaq is at its highest level since the end of 2000. Highly speculative companies like Netflix and Zynga are soaring, and investors are salivating about possibly paying 100 times earnings for Facebook when it goes public.

Stocks edge lower amid Greece jitters

admin — Mon, 06 Feb 2012 20:43:55 +0000

U.S. stocks slipped, as investors anxiously await a Greek government decision on budget cuts that are key to securing a second bailout and avoiding default.

Citi wins OK for Chinese credit card

admin — Mon, 06 Feb 2012 20:43:39 +0000

Citibank won approval to issue its own credit card in China, making it the first non-Asian bank to enter that market.

FTSE 100 records fourth successive daily rise as US jobs data beats forecasts

admin — Fri, 03 Feb 2012 22:41:39 +0000

Around £43.5bn added to the value of Britain’s top companies as markets welcome economic data and hope for Greek solution

Leading shares moved higher for the fourth day in a row yesterday, reaching their best level for more than six months, thanks to forecast-beating US jobs figures and continuing hopes of a resolution to the Greek debt crisis.

The FTSE 100 closed up 105 points at 5901.07, with insurer Admiral topping the risers. The group, which has been under pressure since a profit warning last November, jumped 76p to £10.38 after news it had extended its existing UK car reinsurance partnerships until 2014 at the same cost, as well as positive comments from Munich Re, one of its key partners. Ben Cohen at Collins Stewart said:

Munich Re expects €350m premium growth in 2012 due to ‘strong price increases in recovering markets (eg proportional UK motor)’. Munich’s biggest relationship in motor by some margin is with Admiral (40% co-insurance in the UK, 65% reinsurance outside the UK (ex-France)).

We think there is meaningful read-across to our Admiral forecasts. Since the third quarter update, we had been assuming flat premiums in the UK in 2012. Working backwards from Munich’s €350m, we assume €250m of the growth will come from Admiral, which we split three-quarters UK, one-quarter international. This leads us to a 6% increase in UK profits in 2012 and 10% in 2013 (because commissions earn through over time), slightly offset by a higher loss in international, for a 4% earnings per share increase in 2012 and 9% for 2013.

We raise our price target from 880p to 975p.

Since Monday the FTSE 100 has added 168 points – nearly 3% which has added £43.5bn to the value of Britain’s top companies over the week. Investors’ spirits were lifted by positive manufacturing data from around the globe on Wednesday and the surprisingly good US non-farm payroll numbers yesterday, which showed 243,000 jobs created in January compared to expectations of a 150,000 rise. Joshua Raymond, chief market strategist at City Index said:

The FTSE 100 has now firmly broken past resistance at the 5800 level to close the week higher by over 2% and at its week’s trading highs. This is a positive sign for the FTSE and if the Bank of England can deliver next week with announcing more quantitative easing, there is every chance that the FTSE 100 can recover the 6000 level sooner rather than later.

On the corporate front, a proposed £50bn merger between Glencore, up 20.85p at 482.55p yesterday, and Xstrata, 52.5p higher at £12.83, ignited the mining sector. Anglo American – a possible target for the merged group – added 79.5p to £29.10.

There was a mixed picture from the week’s trading updates, with disappointing figures from Unilever, up 35p to £20.29 yesterday, Royal Dutch Shell, down 4p at £22.61 and AstraZeneca, up 26p at £30.10.

Elsewhere Tullow Oil added 22p to £14.62 yesterday after the exploration company signed two new production licences with Uganda and said it was going ahead with a deal to partner with Total and China’s CNOOC in the fields involved at the Lake Albert Rift Basin. Tullow expects the transfer of funds to take place as soon as possible. Tullow has also been awarded a production licence for the Kingfisher project.

British Gas owner Centrica was on the rise after analysts suggested it could return up to £1.2bn to shareholders.

The company raised its stake in the Statfjord field in the north sea earlier in the week, but UBS said further such deals were unlikely to fit its acquisition criteria. Analyst Stephen Hunt said:

Even though Centrica’s preferred strategy remains vertical integration, if the company doesn’t find sufficient investment opportunities, then it could redistribute cash.

We believe that the payment of a special dividend of up to 23.5p a share (8% yield, totalling £1.2bn) is possible in 2012, although Centrica would likely target a lower payout in order to leave headroom for further acquisitions. Strong cashflows mean such a payment could also be repeated in future years.

Hunt repeated his buy recommendation and 330p price target, helping push the shares 5.3p higher to 300.9.

Takeover speculation returned during the week to waste management group Shanks, down 2.5p at 110.5p on profit taking yesterday, and recruitment company Hays, up 5.8p at 85.75p.

Old Mutual added 6.3p to 157.8p after it said it would return £1bn to shareholders via a special dividend after the sale of its Nordic businesses to Skandia.

Lower down the market Enterprise Inns rose 2.75p to 42p following the sale of 15 tenanted pubs to Fuller, Smith & Turner, up 17.5p at 740p, for £22.9m, compared to their £18.4m book value.

Game Group jumped 25% to 6.64p as the troubled retailer agreeing revised lending terms with its banks.

Dixons Retail rose 0.69p to 14.39p after John Lewis reported strong demand for electrical goods last week – up 19.2% helped by continuing demand for tablets and notebooks. Freddie George at Seymour Pierce said:

The news on electricals should help to support the Dixons Retail share price and shows that the positive trend seen in electrical sales in the first couple of weeks of January has continued throughout the rest of the month.

Finally, drug discovery firm Summit Corporation closed 37% higher at 6.5p. A new scientific paper on the progress in understanding and treating Alzheimers drew investors’ attention to Summit’s work in this area, where it is developing possible treatments for the disease.

Nick Fletcher

Tullow Oil climbs more than 3% on Uganda deal as FTSE drifts higher

admin — Fri, 03 Feb 2012 22:41:38 +0000

Exploration group signs licensing deal with Ugandan government, while leading shares await US employment data

As the FTSE 100 heads for another new six month peak, Tullow Oil has gushed more than 3% higher.

The exploration company has signed two new production licences with Uganda and is going ahead with a deal to partner with Total and China’s CNOOC in the fields involved at the Lake Albert Rift Basin. Tullow expects the transfer of funds to take place as soon as possible. Tullow has also been awarded a production licence for the Kingfisher project.

The news has lifted Tullow 51p to £14.91 and helped the leading index climb 8.36 points to 5804.43 ahead of the US non-farm payroll figures this afternoon. A rise of between 135,000 and 150,000 is expected. Manoj Ladwa at ETX Capital said:

Equities have begun the trading session quietly but with a mildly positive feel about them as the FTSE 100 shows no signs of selling off. Trading is likely to be quiet ahead of non-farm payroll numbers out later in the session. Anything greater than the market expects is likely to see equities closing on the highs for the week.

BT has climbed 6.3p to 212.2p after its results, while Man has recovered another 6.1p to 212p with traders saying the hedge fund group’s shares had been oversold recently on worries about its growth prospects.

Insurer Admiral is topping the risers, up 87p to £10.49 after news it has extended its existing UK car reinsurance partnerships until 2014 at the same cost, as well as positive comments from Munich Re. Ben Cohen at Collins Stewart said:

Munich Re expects €350m premium growth in 2012 due to ‘strong price increases in recovering markets (eg proportional UK motor)’. Munich’s biggest relationship in motor by some margin is with Admiral (40% co-insurance in the UK, 65% reinsurance outside the UK (ex-France)).

We think there is meaningful read-across to our Admiral forecasts. Since the third quarter update, we had been assuming flat premiums in the UK in 2012. Working backwards from Munich’s €350m, we assume €250m of the growth will come from Admiral, which we split three-quarters UK, one-quarter international. This leads us to a 6% increase in UK profits in 2012 and 10% in 2013 (because commissions earn through over time), slightly offset by a higher loss in international, for a 4% earnings per share ncrease in 2012 and 9% for 2013.

We raise our price target from 880p to 975p.

Game Group is one of the day’s stars, up 35% to 7.2p after the troubled retailer agreeing revised lending terms with its banks.

Dixons Retail is up 0.28p at 13.98p after John Lewis reported strong demand for electrical goods last week – up 19.2% helped by continuing demand for tablets and notebooks. Freddie George at Seymour Pierce said:

The news on electricals should help to support the Dixons Retail share price and shows that the positive trend seen in electrical sales in the first couple of weeks of January has continued throughout the rest of the month.

Nick Fletcher