Friday’s Stock Market Report: featuring OMG and GlaxoSmithKline

In: General

22 Oct 2010

Brokers’ Notes

Following the trading update yesterday, Evolution Securities maintained its “buy” stance for OMG (OMG), the imaging technology group, with an increased target price of 45p, up from 35p. For the year ended 30th September 2010, the group said it “continued to trade well through the second half” and as a result expects to beat full-year profit expectations. The broker was happily surprised by this and, with shares trading well below historic highs, believes there is plenty of upside. OMG shares rose 4.5p to 37p.

Panmure Gordon reiterated its “hold” rating for GlaxoSmithKline (GSK) with a 1,350p target price. The stock is trading on an 11.2 times price to earnings ratio for financial year 2011 which, the broker thinks, is still undemanding despite a significant premium to peer AstraZeneca. What’s more, the pharmaceutical company has a strong pipeline of products, led by Benlysta for lupus, which could reach the market in 2010 and provide a significant source of upside. GlaxoSmithKline shares edged up 5.5p to 1,280.5p.

Believing pawnbroking is likely to be one of the few parts of the economy that will benefit in the era of austerity, Arbuthnot maintained its “buy” recommendation for H&T Group (HAT) and increased its target price from 333p to 400p. The broker commented that the Comprehensive Spending Review cuts are likely to have a large impact on those demographics with the greatest propensity to use pawnbrokers. What’s more, Arbuthnot believes that the longer the gold price/gold buying profits hold up or increase, the easier it will be to fund new store openings and, as and when these stores mature, there will be a substantial boost to recurring profits. The shares finished up 0.5p at 345.5p.

Arden Partners retained its “add” recommendation for Vitec (VTC) following the release of the media products firm’s interim management statement. The broker commented that trading in the third quarter has been stronger than expected and, despite volatile currency rates and the traditional short order visibility, the company is confident that financial year profits will be ahead of expectations. In light of this, Arden has increased its pre-tax profit forecast for the year by 8.5% to 25.5 million pounds and by 3.6% to 28.5 million pounds for 2011. The shares climbed 34.5p to 515p.

Blue-Chips

BSkyB (BSY) announced it had not been blown off course by bid interest from Rupert Murdoch’s News Corporation as it unveiled strong quarterly results that showed it was within touching distance of a long-held target of achieving 10 million customers this year. The UK pay-TV group said pre-tax profit for the July to September period had increased by 24% to 230 million pounds, while sales rose by 15% to 1.53 billion pounds. Customer numbers increased by a net 96,000 to 9.956 million. BSkyB shares gained 4p to close at 701.5p.

Saskatchewan urged the Canadian government to block BHP Billiton’s (BLT) 39 billion dollar (24.8 billion pound) bid for PotashCorp on the grounds that the Australian miner had failed to show that the deal would benefit the prairie province. “We must say no to this hostile takeover,” Brad Wall, Saskatchewan’s premier, told the chamber of commerce in Regina, the provincial capital. “In this deal we would lose a proud Canadian company. We would go from being price-setters to price-takers.” The federal government faces a 3rd November deadline under the Investment Canada Act to determine whether BHP’s proposal provides a “net benefit” to Canada. BHP shares slipped 13p to 2,199p.

Insurance group Legal & General (LGEN) announced sales rose 27% in the first nine months of the year ended 30th September as revenue from savings products increased. Worldwide sales climbed to 1.35 billion pounds in the period from 1.06 billion pounds a year earlier, Legal & General revealed in a statement. “These are pretty good numbers albeit coming off of a cyclical low point,” said Oriel Securities with a “buy” rating on the stock. “There’s a continuation of weak, dull sales in protection and annuities, which is what we would have expected. Retail investments are very strong.” The shares dipped 0.6p to 103.7p.

Mid-Caps

Betfair, the world’s largest betting exchange, announced the pricing of its initial public offering, listing its offer price at 13 pounds per share, towards the top of its planned range of between 11 pounds and 14 pounds per share. The pricing values the company at 1.39 billion pounds, and raises in excess of 200 million pounds for the company’s shareholders. A total of 16 million shares are being offered for sale, or roughly 15% of the company’s total equity. This is an increase on the 10% that the group had originally planned to sell.

British subprime lender Provident Financial (PFG) announced it was expecting a “good result” for the year, since its core credit division had managed to shrug off the effects of the economic slump and was still growing. The shares advanced 35p to 808p. In an interim management statement, the company said that trading for the nine months to the end of September was in line with its forecasts and that there had been a recent pick-up at its home credit business. What’s more, it expects the British government’s plans to slash spending and cut jobs – part of a move to cut a record budget deficit – to have a “modest” impact on its customers.

United Business Media (UBM) revealed it was on track to meet its full-year targets driven by an improving business environment, pushing the events and publishing group’s shares up 5p to 657.5p. For the nine months ended September, revenue rose by 2.9% to 642.9 million pounds, with strong growth from events more than offsetting a decline in print magazines. Adjusted operating profit increased 8% to 109.5 million pounds. “UBM’s continued solid performance…puts us firmly on track to meet our expectations for the full year although uncertainties over the wider economic environment remain,” David Levin, chief executive officer said in the statement.

Small Caps, AIM and PLUS

Shares in DDD (DDD) rose 2.5p to 17.75p after the 3D software provider announced a collaboration with US tech group Advanced Micro Device (AMD) to supply 3D technology to PC equipment manufacturers. Through the partnership, AMD will supply DDD’s TriDef software to power its Radeon HD 6000 family graphic processors. DDD will also offer discounted software downloads to customers that purchase the Radeon products.
Due to continuing strong trading conditions, Staffline (STAF), the national outsourcing organisation, expects earnings for the full financial year to be significantly ahead of current expectations. The shares climbed 39.5p to 190.5p. “We have continued to enjoy growth in trading this year as well as continued to benefit from recent acquisitions,” commented Andy Hogarth, chairman and chief executive. “We are…confident that our model will allow us to operate profitably and to continue to grow.”

Shares in Dods (DODS) fell 3.25p to 6.75p after the publishing and media group reported a deeper impact from the UK Government’s Spending Review with full year results expected to fall materially short of previous expectations. The short term effect of the cuts in training budgets has resulted in a significant fall in revenue and contribution from this area of the business, and it is now clear that this will continue for the remainder of the year, the firm commented.

Following the breach of its profit covenants with its senior lender, Burdale Financial, Abbeycrest (ACR) has re-set and extended the banking covenants on its 8 million pounds facility until 28th February 2012. The jewellery designer and manufacturer added that all other principal terms and conditions remain unchanged. Abbeycrest shares gained 0.37p to 6p.

Quarto Group (QRT) expects to at least meet full-year expectations after the book publisher posted a rise in both pre-tax profit and revenue for the nine-months ended 30th September 2010. For the period, pre-tax profit jumped up 17% to 3.6 million pounds on increased revenue to 81.5 million pounds, up 9% on the comparable period a year earlier. “Our business remains solid and we are comfortable that we shall meet or improve upon our expectations for the full year,” commented chairman and CEO Laurence Orbach. Quarto shares rose 7p to 130p.

Alecto Energy (ALO) shares advanced 1.63p to 4.63p on news the resource investment company’s wholly owned subsidiary, Alecto Holdings, has secured three gold and base metal development licences in the Mauritanide mobile belt of Mauritania, totalling 1,902 square kilometres The company said it has identified Mauritania as a potential location for under developed resource opportunities and, although Mauritania has a significant amount of mining activity, the board consider that much of the country is under-explored.

The Week Ahead

Amongst the small-caps we look forward to interim management statements from both investment company Promethean (PTH) and defence firm TT Electronics (TTG) as well as interims from software and support services group First Derivatives (FDP) and cardiac monitoring equipment supplier LIDCO (LID). Investors will also be keeping a close eye on finals from Mouchel (MCHL) after the consulting and business services group issued a profit warning in a trading update last week.

Microprocessors developer ARM Holdings (ARM) and pharmaceutical company AstraZeneca (AZN) are due to provide the market with third-quarter results next week, with power and temperature control solutions provider Aggreko (AGK) due to update the market with an interim management statement on Thursday. Following news that Russia is planning to ban smoking advertising by 2012 and smoking in public places by 2015, investors will be looking for some sort of reassurance from interims issued by British American Tobacco (BATS) on Wednesday. Another blue-chip updating the market on trading next week is marketing and communications services provider WPP (WPP), which has seen its shares rise recently after a study showed that marketing budgets in the third quarter of 2010 have been raised.

Amongst the mid-caps we look forward to trading updates from both high technology products manufacturer Meggitt (MGGT) and floor covering retailer Carpetright (CPR). Given the challenging consumer environment and weak housing market, we expect a lacklustre performance during the next 12-plus months at Carpetright.

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