(MENAFN- ProactiveInvestors) The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 15.0 points up at 7:00 am.
New York: Wall Street changed slightly as investors mulled moderate housing data and Yellen’s congressional testimony signalling no rate hike over the next few FOMC meetings. The S&P 500 shed 0.1% closing around a record level.
Asia: Markets are trading higher as the Japanese Financial Services Agency allowed banks to venture into new business segments like e-commerce. The Nikkei ended 1.1% higher while the Hang Seng was trading 0.5% up at 7:00 am.
Continental Europe: Equities ended in the red following a raft of corporate earnings in the region. Fed Chair Janet Yellen’s second day of testimony remained in focus. France’s CAC 40 contracted 0.1% while Germany’s DAX closed flat.
Crude Oil: Yesterday Brent and WTI crude oil prices increased 5.1% and 3.1% respectively. The spread between the two varieties stood at US$10.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.31% lower yesterday at 709.46. To read our latest research click here.
Today’s news
UK mortgage approvals rise in January
The British Bankers’ Association reported mortgage approvals for house purchase in the UK rose to 36394 in January from 35816 in December. The agency also revealed the personal loans and overdraft grew 3.9% y-o-y.
Draghi supports ECB’s Greece policy
ECB chief Mario Draghi informed the European Parliament he may reinstate the waiver on Greece bonds provided Greece abides by the guidelines of the bailout programme. Earlier this month the Central Bank refused to accept Greek sovereign bonds as collateral for regular loans thereby compelling the latter to rely on expensive short-term emergency finance.
Company News
() – Speculative Buy
Yesterday announced its unaudited results for the year ended 31st December 2014. Operating losses widened to £1.4m from £905576 due to increased administrative expenses suggesting higher operational activities at the company’s key prospects. Consequently pre-tax losses expanded to £1.9m from £677143 due to movements in the valuation of derivatives. The comprehensive loss of £2191872 was driven by significant write down of the investment. On the operational front the company extended its interest in the copper projects located in the Sultanate of Oman with the acquisition of Block 4 in November 2014. The Blocks 4 5 and 6 include an Indicated and Inferred Mineral Resource Estimate of 1.7Mt (million tonnes) at 2.2% copper. At the Jangamo Heavy Mineral Sands Project in Mozambique the company defined a maiden Inferred Mineral Resource Estimate of 65Mt at 4.2% Total Heavy Minerals. The company’s cash balances and listed shareholdings stood in excess of £2.9bn by the year end. The company also raised funds worth £3.8m in 2014. Going forward the company plans to complete the drilling programme at the Block 5 and 4 in Oman and conduct further drilling activities at the Jangamo prospect.
Our view: has maintained its strategy of building a multi-commodity portfolio with simultaneous focus on both the prospects in Oman and Mozambique. In Oman the EM surveys subsequent to the drilling programme have looked quite encouraging and plans are underway to conduct geological mapping geochemical sampling and airborne VTEM survey to understand the prospect better. Meanwhile the drilling results at the Jangamo prospect have encountered several high grade HMS mineralization zones. Fortunately for the company both the projects enjoy complete infrastructure support with access to grid power proximity to highways and ports along with encouraging government support. Thus given the above and the promising results to date we reiterate a Speculative Buy on the stock.
() – Buy
released its half yearly financial report for the six months ended 31st December 2014. Revenues expanded 24.6% to £1576.3m while the operating profit jumped 60.6% to £224.1m raising the operating margin by 320 basis points to 14.2%. Consequently pre-tax profit climbed 74.6% to £210.2m and the basic earnings per share (EPS) grew 78.9% to 17.0p. On the operational front completion volumes increased 12.5% to 6971 with nearly 100 new sites opened. Average selling price (ASP) increased 8.5% to £229200 whereas the private ASP was up 12.4% to £253200. During the six months the company agreed to purchase £373.1m of land totalling 7242 plots. The company generated a ROCE (return n employed capital) of 21.6% (2013: 14.2%) in the 12 months to 31st December 2014. In the first eight weeks of 2015 the company reported 279 net private reservations (NPR) per week leading to 0.71 NPR per active site per week. The forward sale up to 22nd February was up 17.5% to £2275.3m. The company declared an interim dividend of 4.8p up 50% compared to last year.
Our view: With another year of solid results seems to be on track to witness further improvement in its ROCE and gross margins. In the past three years the company built over 40000 homes and agreed to invest over £3bn in almost 55000 plots of land. Last year the home builders in general were benefitted by the government’s supportive ‘Help-to-Buy’ scheme; however the company’s significant land bank transformations facilitated maximum advantage from the scheme. Barratt had acquired most of its land bank in and around 2009 thereby reaping benefits in an over-heated housing market. Moreover improved supply of material and labour alleviated some of the build cost pressures to take ahead its disciplined land investment and drive efficiencies across the business. Thanks to the rising demand in London Oxford York Edinburgh and the increasing house prices Barratt is well positioned to deliver on shareholder promises. Thus in view of the above and the company’s effective planning and design excellence we reaffirm our Buy rating on the stock.
() – Buy
Yesterday announced its quarterly and 50-week period trading update till 12th February 2015. During the fourth quarter sales jumped 14.3% and the like-for-like (LFL) sales grew 5.8%. For the 50-week period sales expanded 13.3% while the LFL improved 6.5%. Premier Inn sales grew 15.2% with an LFL sales growth of 9.1%. Room occupancy rose 330 basis points to 81.3% for the year whereas the availability of rooms and revpar (revenue per available room) increased 6% and 8.7% respectively. Hotels and Restaurants contributed with 10.9% to the overall growth and 6.6% on an LFL basis. Costa total sales climbed 17.6% with an LFL improvement of 6.0%. The company plans to open around 4500 new UK rooms and approximately 230 net new Costa stores worldwide. Moreover 5500 new UK rooms and 250 net new Costa stores worldwide have been planned for the next fiscal year. The expected capital investment over the next two years would be around £575m to £700m. The company is trading in line with the expectations and plans to announce the annual results on 28th April 2015.
Our view: The robust trading in the final quarter and the year suggests that the company is likely to witness full year results towards the higher end of the revenue guidance. The improvement in the hospitality business is a strong indicator of the sector bouncing back after years of slowness following the financial crisis. The comeback is further supported by lower oil and supermarket prices. Furthermore has made elaborate plans to aggressively expand its hotel and coffee business in mainland Europe following its success in the UK. The company is financially well-positioned to support these growth activities. Additionally inroads have been made in the Middle East and South East Asian countries to gain foothold in the emerging markets. Considering ’s healthy financial position and the management’s ambitious growth plans targeting a higher market share we maintain our Buy rating.
Meggitt () – Buy
Meggitt announced that its subsidiary Heatric has won a multi-million pound contract for supplying recuperative heat exchangers for a demonstration power plant from NET Power. The power plant which will demonstrate NET Power’s Allam Cycle technology would be naturally gas fired requiring low-cost energy while emitting no carbon dioxide. The plant would be delivered by a consortium of CB&I Exelon Generation Toshiba and 8 Rivers Capital. Heatric printed circuit heat exchangers (PCHEs) are suitable for the plant’s core processes that require very high temperatures and pressures. The subsidiary would deliver four PCHEs by April 2016 to commission the 50MWt demonstration plant in Texas US later that year.
Our view: The multi-million pound contract presents Meggitt with a new opportunity in the green energy generation. Heatric has been a dedicated supplier of PCHEs since the past 25 years. These heat exchangers use an exclusive solid state ‘diffusion bonding’ process that not only improves the performance of a unit but is also around 85% smaller and lighter than traditional shell and tube exchangers. In the previous year the company’s profits were severely impacted due to reduced defence budgets currency headwinds and problems at its Energy business. However Meggitt continued investment in facilities and manufacturing capacity expansions to improve its operational efficiency to become the preferred supplier of its customized products. We expect the demand for the company’s products to pick up in 2015 as defence spending increases picks up in the US. In light of the above whilst also considering the potential for this key contract to bolster the Group’s overall business scenario we maintain our Buy rating on Meggitt.
St. James’s Place () – Buy
Yesterday St. James’s Place released its annual results for the year ended 31st December 2014. On a European Embedded Value (EEV) basis operating profit grew 29% to £596.4m while the new business profit climbed 14% to £373.1m. The EEV net asset value per share was up 14% to 657.9p. Meanwhile new single investments grew 18% to £7.8bn from £6.6bn due to introduction of over 52000 new clients while the net inflow of funds under management increased 20% to £5.09bn compared to £4.23bn in 2013. Funds under management stood at £52bn up 17.3% and the total number of qualified advisors also increased 10.3% to 2835. Segment wise profit from the life business was marginally lower at £160.7m from £162.7m last year whereas the unit trust business profit for the year increased to £61.2m from £58.3m. However the distribution business saw a further rise in losses to £10.9m from £6.1m.The company’s future plans include expanding the regional academy centres and introducing a new banking service in April called ‘The St. James’s Place Money Management Account’. The banking service would be powered by the Metro bank. In 2014 the company unified the major back office teams in Craigforth and Essex under the integrated technology platform managed by IFDS. The company declared a dividend of 14.37p per share taking the full year dividend to 23.30p up 46%.
Our view: The wealth management company reported a remarkable 30% rise in the profits last year aided by strong client retention and upbeat performance of the underlying funds. The company was further benefitted by the government’s reform encouraging tax-free savings to individuals with the funds in order to drive them away from saving in bank accounts. The company has laid out plans to provide banking services to its clients in order to offer them a more complete proposition. Significant investments have been made to improve the back office infrastructure that can handle growing number of clients and overall increasing business volumes. We believe that the company has further potential to generate substantial returns for its shareholders. Thus we maintain our Buy rating on the stock.
Economic News
US MBA mortgage applications
US home mortgage applications including both refinancing and home purchase fell 3.5% in the week ended 20th February following 13.2% decline in the preceding week the Mortgage Bankers Association said yesterday. The refinance index slid 7.5% while the loan requests for home purchases a leading indicator of home sales climbed 4.6%.
US new home sales
New home sales in the US edged down 0.2% to a seasonally adjusted annual rate of 481000 units in January the Commerce Department said yesterday. The annualised sales figure for December was revised to 482000 from the previously reported 481000. However economists had expected new home sales to decrease at 2.3% recording an annualised rate of 470000. The median price of a new home stood at US$294300 in January marking a 9.1% increase from last year.
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