The Telegraph - Jul 01 - Jul 07 2009
July 1 - 7, 2009
EURO TO £ RATE CHANGE $ TO £
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Damian Reece unravels the news spin telegraph.co.uk/finance
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DEALERS toyed with the idea that Anglo American might turn the tables on rival Xstrata by launching a counter-bid, possibly in tandem with a Chinese company.
Such a move is known as a ‘Pac-Man’ defence and was said to be considered by Rio Tinto when BHP Billiton first made its takeover approach for Rio in 2007. However, traders were sceptical of the theory. They argued that Cynthia Carroll, chief executive of Anglo, is unlikely to have as much support from shareholders as Mick Davis, the boss of Xstrata, to run the combined mining giants.
And when asked about the possibility, a source said: “Anglo doesn’t believe that this merger makes strategic sense. So, I think such a move is very unlikely.”
Christopher LaFemina, analyst at Barclays Capital, believes the merger battle between Xstrata and Anglo will take a different twist. He upgraded Anglo to ‘‘buy’’, adding: “It is possible that Anglo finds a white knight — such as the Chinese or Vale — who is willing to pay a premium.”
Still, Anglo retreated 27p to £18.04 along with some of its peers, which were under pressure amid renewed uncertainty about the prospects for a global recovery. Eurasian Natural Resources Corporation fell 13 to 652p.
However, Xstrata, which last week saw several large hedge funds disclose positions in the stock, gained 16.8 to 686p.
Last Friday was a volatile day in the wider market. The FTSE 100 swung between gains and
losses before closing down 11.56 points to 4241.01, dragged lower by a poor start on Wall Street. The FTSE 250, though, perked up 42.95 points to 7386.26.
Financials were mixed. Life assurers fell but some banks were in demand. Legal & General lost 0.9 to 56.01p and Prudential slipped 7 to 399¼p. However, Royal Bank of Scotland rose 1.3 to 38.1p. HSBC was also given a boost after UBS published an in-depth research note on the European banking sector and regulatory environment. Analysts said: “We see the picture as a strong driver of earnings recovery at HSBC which, thanks to its funding mix and diversification, should be largely immune from regulatory volatility.”
In the retail sector, Marks & Spencer rose 9 to 312p. The company’s interim statement is due this week and broker Investec is expecting a better first-quarter sales performance. Investec upgraded the company from ‘‘sell’’ to ‘‘hold’’. Elsewhere, J Sainsbury slipped 3¼ to 311½p.
Oil services company Petrofac topped the blue-chip leaderboard, rising 29 to 655p. Cazenove raised its price target on the company earlier in the week, arguing investors were underestimating growth and the possibility of cash returns.
Among the second-liners, Ladbrokes slipped 7¼ to 178p after Credit Suisse lowered its price target on the company to 197p from 202p. The broker believes William Hill, down 3¾, is a better investment.
The charts Find all the latest news and data at telegraph.co.uk/markets
July 1 - 7, 2009
Best of Questor
Reckitt Benckiser £27.71 -2p Questor says BUY
QUESTOR recommended buying shares in Reckitt Benckiser in March when they were at £24.96 because their dividend looked safe. The shares are now 11pc above that level – and remain a buy.
The dividend yield now stands at 3.2pc.
About 75pc of the group’s sales come from products that are number one or two in their category, such as acne treatment Clearasil.
Reckitt operates in a defensive sector and it has a strong balance sheet. At the end of the first quarter, net debt stood at £693m, £403m lower than the Dec 31 level.
In the first quarter of the year, the group’s fully-diluted earnings per share rose 49pc to 42.1p on revenues that were 27pc ahead at £1.9bn. At constant exchange rates, sales were up 8pc.
The company reiterated its target of net revenue growth of 4pc this year and net income growth of 8pc-10pc. Both of these targets are at constant exchange rates. The shares are trading on a December 2009 earnings multiple of 15.7 times, falling to 13.1 in 2010.
From Tuesday, June 23
AGGREKO shares have come off highs because of fears of slowing growth, but they are still 20pc ahead of their recommendation price.
The company rents out generators, cooling apparatus and power systems. The market reacted badly to the trading update on June 23, sending the shares 6pc lower. Questor feels these fears are overdone.
Although Aggreko said that it expected growth to slow in the second half of the year, the group maintained its guidance for the full year and reiterated that it expected profits in constant currency to be at similar levels to 2008. Cash generation should also be boosted by the fact that capital expenditure is likely to be lower than expected. The group said this will be reduced by £25m to £170m.
The main negative in the update was that trade in its “local businesses” had weakened. Business at the international power division was strong. This unit should grow its revenues in the first half by 40pc, in constant currency and excluding fuel costs. This should translate to an 80pc boost in sterling terms.
The shares are trading on a December 2010 earnings multiple of 9.6 times and yielding 2.2pc.
From Wednesday, June 24
Standard Chartered £11.35 -40 Questor says BUY
SHARES in Standard Chartered were recommended at £12.40 on June 4 and they have fallen by about 7pc since then. However, Standard remains Questor’s favoured banking play because of the quality of its balance sheet and the growth markets in which it operates.
In its last trading update at the start of March, the group said it had a record first quarter in terms of profits and revenues, although there was some margin compression.
Standard deals in more than 70 markets globally, including dozens in Asia.
The shares are trading on a current-year earnings multiple of 13.2 times, falling to 12.6 in 2010. The yield is 3.2pc.
From Wednesday, June 24
DIAGEO shares have underperformed other defensives over the past six months, but the company generates good cash flows and its dividend is safe. The shares are currently yielding 4.4pc, but the group has a progressive dividend policy of raising the payout by 5pc each year.
The spirits and beer group has not been immune to the effects of the recession. However, it is the emerging markets of India and China that are likely to drive growth over the longer term. The group is also taking advantage of the downturn to cut costs. It is targeting £100m in savings from its operations.
The shares are trading on June 2010 earnings multiple of 11.9 times and yielding 4.4pc.
From Friday, June 26
SHARES in Dignity, the UK’s only listed funeral operator, have proved to be some of the most defensive around.
The majority of funerals are paid out of the estate of the deceased, so this source of income is pretty secure. The shares were recommended as a buy on May 10 at 538p – and they are up around 11pc.
Despite its net debt of about £250m, the debt profile of the group is relatively conservative.
The company’s bonds are fixed at an average 6.7pc interest and are only due to be repaid in 2031.
The shares are trading on a December 2009 earnings multiple of 15 times, falling to 13.7 in 2010. They are also trading on a prospective dividend yield of 2pc.
From Friday, June 26
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