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Brokers’ Notes

Edison investment research reported on the corporate travel services company Hogg Robinson (HRG). The research house commented that the company’s “uncharacteristically” upbeat interim management statement sets the tone for continued growth on a leaner cost base as activity recovers. Increasingly favourable market conditions indicate that a “strong” first quarter could preface returns ahead of expectations. In addition, Edison suggests that management’s initial highlighting of the contribution of its highly rated investment in Spendvision could unlock significant hidden value. The group remains in any case well financed after a further sharp cut in net debt. Hogg’s shares eased 1p to 30.5p.

Arbuthnot reiterated its “neutral” recommendation for the public transport group National Express (NEX), with an increased target price from 220p to 250p. The broker was encouraged by the first half performance of the group, which was markedly better than its forecasts, and has consequently increased its earnings per share by 8% for 2010. Regarding the pace of recovery in North America, margins improved faster than expected on better cost cutting progress, albeit with some help from lower fuel costs. Arbuthnot believes that this momentum can be maintained, and has increased its divisional operating profit estimate by 12%, with more modest increases in subsequent years. Furthermore, it has increased its estimates in UK Bus, UK Rail and Spain, but trimmed them in UK Coach. The shares travelled 3.4p south to 233.4p.

Evolution Securities reiterated its “reduce” recommendation for the mining company Aquarius Platinum (AQP) with a target price of 256p. Excluding Blue Ridge production, which continues to be capitalised, the group produced 393,000 ounces of platinum group metal in the 2010 financial year. In continuation to this, the broker expects a further increase in 2011 to 514,000 ounces, helped by the re-opening of the Everest mine. However, following the fatalities at the Marikana mine, the company is in the process of moving to more safe mining methods at its mines, which could lead to an additional increase in operating cost. This, coupled with the exacerbated start-up issues at Blue Ridge, leads Evolution to believe that next year will not be an easy one for Aquarius.  The shares dropped 4p to 272.4p.

Collins Stewart reiterated its “buy” recommendation for the online gaming company PartyGaming (PRTY) while increasing its target price from 265p to 350p.  The broker believes that the proposed acquisition with the online betting company bwin will help it to build a dominant market position. The group reported that it expects to achieve 55 million Euros (46 million pounds) of synergies from the deal, of which around 44 million Euros (67 million pounds) would come in during the first full year. Meanwhile, a campaign to authorize online gambling has cleared an important hurdle with the approval by a Congressional Committee of legislation that would permit U.S. residents to gamble over the Internet. This together with the potential merger has led Collins to raise its target price for the group. PartyG aming shares fell 9.5p to 300p.

Blue-Chips

Despite both revenues and cost being hit by the closure of UK airspace following the Icelandic volcanic eruption and the impact of industrial action, British Airways’ (BAY) financial performance improved during the quarter. The trend in the group’s passenger and cargo traffic continue to be positive with yields up and costs down. This led to a reduced operating loss for the period though pre tax losses increased as a result of additional finance costs and the impact of non cash foreign exchange movements. The airliner aims to break even at a profit before tax level for the full year. Panmure Gordon commented that the speed of the revenue improvements may be held back by uncertain economic recovery, especially “if we are moving towards a double dip recession.” The broker retained its “hold” recomme ndation and 225p target price. The shares ascended 3.6p to 219.6p.

Pearson (PSON) shares slipped 22.5p to 989.5p after the education and information company completed the sale of its 61% stake in Interactive Data to investment funds managed by Silver Lake and Warburg Pincus. Interactive Data shareholders will receive 33.86 dollars (21.7 pounds) for each share, valuing the stake at 2 billion dollars (1.3 billion pounds).

Investec (INVP) shares eased back 12p to 495p despite the banking group reporting increased net operating income by 11% in the first quarter of the financial year compared to the same period last year. The UK business performed well with particularly strong results recorded by the Asset Management and Capital Markets divisions. The South African and Australian operations were affected by weak equity markets and low levels of economic activity posting results behind the prior year. The company added that “increased savings levels in the developed world should continue to underpin growth in both the wealth and asset management businesses whilst the banking and advisory revenue streams remain dependent on the sustainability of economic recovery and the normalisation of economic activity.”

Mid-Caps

Packaging company Mondi (MNDI) confirmed that underlying operating profit for the first half of 2010 is expected to be considerably higher than that of the comparable period in the prior year. The group recognised special item charges in aggregate of 78 million Euros (65.3 million pounds) after tax, up 5 million Euros (4.2 million pounds) from the same period last year, mainly relating to assets impairment, restructuring and closure costs. Accordingly, it expects half year underlying earnings per share to be in the range of 17-22 euro cents (14-18 pence) compared to an 8.3 euro cent (6.9 pence) loss in the same period in 2009. Shares in the firm rose 3.1p to 450.5p.

Charter International (CHTR) shares slid 36.5p lower to 722p despite the engineering company delivering a good set of results for the six months. Even though the group reported a slight drop in revenues by 0.7% to 840.4 million pounds, compared to the same period last year, adjusted profit before tax leaped up by 15.1% to 73.3 million pounds. Accordingly, adjusted earnings per share and dividends per shares rose by 15.1% to 32.8 pence and 7.1% to 7.5 pence, respectively. The improved results benefitted from the measures which the firm took during the downturn to reduce costs and increase efficiencies. Whilst the future economic trends remain uncertain, the board believes that Charter is well positioned to continue to prosper.

United Business Media (UBM) shares fell 22.5p to 550.5p on news the business information services provider acquired the Shanghai International Children-Baby Maternity Products Exhibition and related businesses for 16.1 million dollars (10.3 million pounds). The consideration comprises 9.7 million dollars (6.2 million pounds) cash on completion and a further performance-related consideration of up to 6.4 million dollars (4.1 million pounds), payable over the next two years. Launched in 2001, this annual exhibition is aimed at international and domestic manufacturers and distributors of child and baby products for the Chinese market. In a separate announcement, the group delivered a solid performance in the first half of the year, achieving a 6% improvement in operating profit on revenues unchanged on las t year’s first half. The board anticipate that its solid first half performance will continue, allowing the firm to deliver full year results in line with our expectations. Given the mix of highly attractive Trade Exhibitions and emerging market exposure, Singer Capital Markets continues to find the group “very appealing.” The broker reiterated its “buy” recommendation and increased its target price from 592p to 708p.

Small Caps, AIM and PLUS

Coe (COE) shares soared 3p to 8.5p following the surveillance company receiving a 3.3 million pounds takeover offer from security company Digital Barriers. The terms of the offer value each of the group’s shares at 9p. Digital Barriers said that the acquisition will provide it with the next step in the development of its strategy to build a leading mid-market business in homeland security. The directors of the Leeds-based company intend “unanimously to recommend” shareholders to accept the offer.

Metminco (MNC) shares rallied 1.625p to 11.5p subsequent to the mineral exploration company announcing a 350% resources upgrade at the Los Calatos copper and molybdenum porphyry deposit in Peru to 926 million tonnes. The total distance drilled on the Los Calatos Project to June 2010 was 21,261 metres. Separately, Metminco increased its interest in Hampton Mining from 69.4% to 71.9%, following the completion of the acquisition of a further 5 million shares in the group.

Pantheon Resources (PANR) announced that the drilling of the Kara Farms #1H well (formerly the Vision William Baggett #1 well) in Texas has been delayed again due to the “continued lack of availability of a suitable specialised rig.” The well was originally expected to spud in March and the window for possible rig availability is now between mid-September and mid-November 2010. Shares in the company finished 2p lower at 22.5p.

Mount Engineering (MOU), the oil and gas-focused engineering company, announced that “challenging conditions” have continued to prevail in the first half of the current financial year with trading in key markets in the Middle East and North America remaining “resilient.” Markets in Asia, Europe and the UK, all of which tend to have a greater dependence on project activity, have been weaker than anticipated. As a result the trading performance of Mount has been marginally behind management’s expectations. Whilst market expectations are for improved trading conditions in the second half of the financial year, performance improvement will be dependent on the timing of an upturn in demand from the international oil and gas markets, the group added. The shares tumbled 7p to 50p.

Hasgrove (HGV) shares climbed 5p to 55p following the marketing and communication services group issuing a positive trading update for the six month period ended 30th June 2010. For the first half the company expects to report gross income in the region of 14.1 million pounds, up 7% on the last year, which includes a 0.2 million pounds adverse currency impact. It anticipates reporting a pre-exceptional operating profit of approximately 1.72 million pounds, up 19% year-on-year. Even though the company said that trading conditions have continued to be “unpredictable”, the board will reinitiate dividend payments.

PLUS-quoted company One Media Publishing* (OMPP) shares moved to 2.25p as the audio and visual copyright company experienced a massive uplift in revenues. The group achieved consolidated turnover of 580,949 pounds in the six months to 30th April 2010, an increase of 69% on the equivalent six months figure last year. This reflects both the growing success in building the digital download business and the favourable exchange rate movements for the firm. The profit before tax for the six months was 104,556 pounds, up from 5,667 pounds, with a basic and fully diluted profit per share of 0.09 pence. One Media added that it now has sufficient digital content in the market to provide a source of “recurring income and an increasingly robust business model.”

The Week Ahead

We expect a busy week on the news-flow front from the mid-caps next week. House builder Bellway (BWY) is due to update the market on trading next week with carpet and floor covering retailer Carpetright (CPR) and brewer Marstons (MARS) both due to give interim management statements on Wednesday. Later on in the week investors will be looking for a positive update from betting company Ladbrokes (LAD), which has yet to recover since its shares fell in mid-2007.

Amongst the blue-chips, the bank HSBC (HSBA) will be providing interim results on Monday, with shares expected to continue improving following passing the EU-wide stress tests late last week. What investors will be looking for however is how the steps to cut government borrowing, such as higher taxes and public spending cuts, will hit consumer demand at clothing retailer Next (NXT) and food producer Unilever (ULVR). Another mid cap firm reporting next week is insurance group Aviva ( AV.), shares in which have, more or less, gone up since giving a presentation on ‘capital generation’ in July.

Amongst the small caps we look forward to interim results from audio technology company Wolfson Microelectronics (WLF) on Wednesday and final results from wireless communication equipment firm Filtronic (FTC) on Monday. Filtronic shares have recovered since announcing that it expects to make a small operating loss for the full year in April and are now at its highest point in four months.