(MENAFN- ProactiveInvestors) The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 6.4 points down at 7:00 am.
New York: Wall Street fell amid declining inflation and discouraging jobless data. Moreover continued instability in oil prices weighed on investor sentiment. The S&P 500 dropped 0.2% primarily dragged down by the energy sector.
Asia: Markets are trading higher due to upbeat industrial output in Japan despite easing consumer inflation. The Nikkei closed 0.1% higher while the Hang Seng was trading 0.3% up at 7:00 am
Continental Europe: Equities ended in the green as investors digested a number of positive corporate earnings reports as well as upbeat economic data from the region. In addition the Fed’s Chair Janet Yellen’s confirmation of no near-term rate hike lifted investor sentiment. Germany’s DAX and France’s CAC 40 rose 1.0% and 0.6% respectively.
Crude Oil: Yesterday WTI and prices decreased 5.6% and 2.6% respectively. The spread between the two varieties stood at US$11.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.48% higher yesterday at 712.83. To read our latest research click here.
Today’s news
Business investment in UK declines on lower oil prices
The Office for National Statistics revealed business investment in the UK fell 1.4% in Q4 2014 the largest decline since Q2 2009 vis-à-vis a 1.2% drop in Q3 2014. The decrease was largely ascribed to lower profitability in oil production and uncertainty ahead of the general elections in May.
UK Consumer confidence steady in February
According to GfK’s survey the UK consumer confidence index remained unchanged at +1 in February (in line with January’s reading) its highest since August 2014. Furthermore the survey’s measure of personal finance confidence for the next 12 months remained at the highest level since May 2014.
DFS Furniture Share Offer – Now Open!
DFS Furniture the leading retailer of upholstered furniture in the UK has announced its intention to proceed with an IPO on the and Beaufort have been appointed as an intermediary for private investors. The Share Offer is now open but closes at 5:00pm Wednesday 4th March 2015 so you need to act fast to make your subscription. Click here for more information.
Company News
() – Buy
Yesterday announced final results for the year ended 31st December 2014. Underlying revenues (excluding exhibition cycling) grew 3% while on a reported basis revenues declined 4% to £5773m (2013: £6035m). Similarly underlying adjusted operating profit expanded 5% while slipped 1% on an adjusted basis to £1739m from £1749m. However the adjusted pre-tax profit expanded 1% to £1592m and the earnings (EPS) for PLC stood at 56.3p (2013: 54.0p). EPS for Reel Elsevier NV was €1.07 (2013: €0.99). Return on invested capital was up 70 basis points to 12.8%. On the operational front the company launched new products and services in existing and new market segments. It completed over 27 small acquisitions of content data and exhibition assets for a total consideration of £385m while disposing 17 assets for £74m. On 25th February 2015 the company also made some major structural changes to the organisation by moving all the assets under the two listed parent companies PLC and NV to one new single group entity RELX Group. Subject to approval from the shareholders the new structure and share listings is likely to be fully implemented from 1st July 2015 eliminating the cross-shareholding between the two parent companies. The company completed £600m share buybacks in 2014 and has planned £500m share buybacks in 2015. The company proposed a final dividend of 26.0p up 6% for PLC and €0.589 up 16% for NV.
Our view: witnessed moderate profit rise with revenues rising on an underlying basis for the year 2014. Over the years the company has transformed into a full blown content and analytics provider from being a publishing house previously. The company’s lukewarm performance for the 2014 may be sidelined in view of the overall subdued macroeconomic factors as the company deals in various segments ranging from science and medical to risk and legal. The significant restructuring decision to combine the businesses in London and Amsterdam is likely to lead to a simpler and leaner organisation thereby giving the shareholders a clearer view of the company’s performance. Moreover the implementation and announcement of a major share buyback programmes reflects the management’s confidence in the company’s future prospects. Thus in view of the above we retain our Buy rating on the stock.
() – Buy
released its preliminary full year results for the period ended 31st December 2014 yesterday. Revenues at constant currency increased 2.8% to £15.6bn while adjusted operating profit at constant currency rose 4.4% to £6.1bn. Profit from operations contracted 7.1% due to a non-tobacco litigation charge and adverse currency movements. Operating margins improved 50 basis points (bps) to 38.7%. Total cigarette volumes were 667 billion down from 676 billion in 2013 primarily due to volume contractions in some of the key markets. The four Global Drive Brands (GDB) saw collective volume growth of 5.8%. Dunhill volumes were up 2.9% Kent was down 2.8% Lucky Strike grew 0.8% and Pall Mall added 5.6%. Adjusted diluted EPS gained 7.9% to 208.1p but basic EPS declined to 167.1p from 205.4p in 2013. During the period the company repurchased 23 million shares worth £795m the company proposed a full year dividend of 148.1p per share up 4% from last year.
Our view: The full year 2014 revenue hit was primarily down to the impact of a stronger Sterling; on a constant currency basis overall growth improved. Operating in over 200 countries the Group saw improved local pricing and higher market shares in some of its key territories. Though the company is struggling with the falling sales due to growing health awareness and tighter household budgets we feel that the company possesses strong business fundamentals and several competitive advantages to survive the challenge. BATS is also mulling over buying out its Brazilian subsidiary Souza Cruz (controlling 80% of the country’s market) in order to take advantage from the subsequent synergies. Moreover to diversify from the tobacco business the company also launched an e-cigarette brand Vype in the UK and began consumer trials of a tobacco heating product. Therefore with an ongoing focus on developing a sustainable product for more health conscious consumers we retain our Buy on the stock.
Countrywide (LON:CWD) – Buy
Yesterday Countrywide reported its preliminary annual results for the year ended 31st December 2014. Total income climbed 20% y-o-y to £702.2m rising 21% excluding the impact of Lambert Smith Hampton acquisition in October 2013. Revenue grew 20.2% to £685.0m while the operating profit widened 52% to £84.9m. Pre-tax profit jumped 63% to 102.4m and basic EPS climbed 87% to 30.8p. House exchanges sales jumped 11% to 66022 for Estate Agency division and edged up 1% to 6383 for the London & Premier division. Meanwhile Lettings retail properties under management advanced 25% to 65334. During the period the acquisition of BTW Shiells in Northern Ireland was completed as part of continued investment in the residential lettings business. Other acquisitions included Tucker Gardner in Cambridge and the upper market businesses of CHK Mountford and APW in Surrey. Overall Countrywide completed 28 businesses and added 11 new branches to its network of estate agency and lettings. Meanwhile the company disposed some of its stake in Zoopla Property worth £20m and returned 9.0p per share to the shareholders via special dividend. In October 2014 the company commenced a share buyback programme by purchasing 2.9 million shares for a consideration of £13.3m. The company recommended a final dividend of 10.0p per share taking the total dividend for 2014 to 24.0p per share including the special dividend from 8.0p in 2013.
Our view: The robust housing market in 2014 enabled the company report strong earnings for the year. Not only did the company benefit from the government’s ‘Help to Buy’ scheme but also saw demand rise due to increase in real wages of consumers and growing mortgage availability. Some moderation in growth rate was seen towards the end of the year which may be expected to continue until the general election in May 2014. However we feel that the company’s strong fundamentals would help the company sail through any such challenges. The company possesses a strong customer base and enjoys a notable network of regional offices. Moreover continued progress has been made in improving the private rented sector investments and commercial real estate activities. Thus in view of the above and the company’s highly integrated business we retain a Buy on the stock.
() – Buy
Yesterday reported financial results for the year ended 27th December 2014. Revenue increased 4.8% to £1249m up 7.1% on like-for-like (LFL) basis as the number of visitors moved up 4.9% to 62.8 million. The operating profit advanced 7.1% to £311m and the pre-tax profit climbed 34.6% to £249m. Consequently adjusted EPS grew 5% to 17.7p. invested £107m on new rides shows and features across the estate in 2014 especially at Legoland California and Heide Park in Northern Germany. The company took further initiatives to benefit from the strategic synergies with the reintroduction of the UK Merlin Annual Pass in the beginning of the year. invested in Water Park at Legoland California the new roller coaster at Heide Park and opened six new Midway attractions during 2014 across North America and Asia. Over the year Merlin progressed towards transforming its Legoland parks at Florida Denmark and Deutschland among others into destination resorts by building hotels. With product investment at existing estates and addition of accommodation facilities at multiple theme parks Merlin expects to record further growth in 2015. The company proposed a dividend of 6.2p per share for 2014.
Our view: With the final year results reported another period of strong growth and profit accumulation topping the market expectations. The success of the Lego movie brought visitors to the Legoland parks in droves enabling the company to book a like-for-like revenue growth of over 13%.The company faces tough comparatives for its growth plans next year but the grand expansion plans with the launch of interesting new rides and attractions are likely to attract more customers worldwide. The entertainment master has planned a slew of short stay sites by converted a few parks into theme based destinations. The continued strong cash flow generation and a new refinancing deal give the company enough leverage to open new parks in Dubai Japan and Korea by 2017.Thus in view of the above we expect 2015 to be another year of good trading due to the strong business pipeline. We retain a Buy on the stock.
Domino’s Pizza () – Buy
Yesterday Domino’s Pizza announced its results for the year ended 31st December 2014. Total system sales rose 14.6% to £766.6m supported by an 11.3% increase in like-for-like (LFL) sales in 724 mature UK stores and 30.6% increase in e-commerce sales in the UK. Several new store openings (44) across all regions and successful new product development also lifted sales. Online sales representing 69.4% of all delivered sales were up from 61.5% at the end of 2013. UK & ROI (rest of Ireland) online system sales increased by 30.2% to £440m. Overall revenues strengthened 10.3% to £294.4m with operating profit growing 15.7% to £55.5m. Pre-tax profit edged up 15.1% to £54.8m while underlying pre-tax profit for UK & ROI increased 14.3% to £63.1m. Basic earnings per share (EPS) rose 10.8% to 26.6p while diluted EPS increased 10.5% to 26.4p. The company declared a final dividend of 9.69p per share up 10.1% compared to previous year.
Our view: Domino’s Pizza reported remarkable final year results in 2014 majorly driven by the strong margins in UK and ROI. Further the strong LFL sales growth at 9.5% in the first eight weeks of 2015 have already provided an impressive start to the year. Growth momentum has been maintained with the development of new products and opening of new stores. These endeavours have been well supported by a better e-commerce infrastructure with the launch of a new mobile app and new website. We expect the company’s foray into the German and Switzerland markets to provide a platform for higher growth and improved performance in future. In view of the above and the company’s strong store base in the UK we retain our Buy rating.
() – Buy
released its annual results for the year ended 31st December 2014. Revenues increased 6.7% to US$1.6bn with production volumes up 9.3%. The initial gain was partially offset by lower oil prices in the second half of the year. The company swung to operating losses of US$248.1m from an operating profit US$352.0m in 2013 owing to US$784.4m of impairment charges mainly from the Huntington and Solan fields in the UK. Likewise pre-tax loss stood at US$384.0m versus a profit of US$285.0m in the previous year. Basic EPS turned negative to 40.3p from a positive 44.2p last year. generated total production of 63.6 thousand barrels of oil equivalent per day (kboepd) in 2014 up from 58.2 kboepd in 2013. Installation was completed at the Solan field but the first oil target has been delayed due to unfavourable weather conditions. Catcher project received development sanction and the Vette (Bream) field completed the front-end engineering and design (FEED) work. At the Sea Lion development the scope and size of the project was scaled back to a lower capital expenditure solution. Under its 2014 exploration programme recognised a 100 mmboe oil and liquids-rich gas discovery at Kuda/Singa Laut in Indonesia. Meanwhile from the US$190m non-core asset sales announced the company also offloaded Scott area and Luno II. The company suspended its dividend payout for the year 2014. Going forward expects to maintain a low operating cost structure and renewed its debt facility at favourable terms.
Our view: faced heavy losses due to continued fall in oil prices towards the end of the previous year. To combat these the company has enhanced focus to improve its productivity while trimming its capital expenditure plans at the Sea Lion prospect. Agreed that the company’s margins have declined but the company enjoys superior quality assets and has an experienced management team that understands the business and the global markets. Further the recent plunge in the share prices has made the stock valuation more attractive thereby making way for an interesting long-term investment opportunity. We feel that the sharp drop in oil prices is not sustainable and may lead to a major turnaround in the company’s prospects whenever they bounce back. Thus given the above and the company’s focused investment strategy we retain a Buy on the stock.
Economic News
Germany Unemployment Change
The number of people without a job in Germany fell by 20000 on a seasonally adjusted basis to 2.81 million in February the Federal Labour Agency said yesterday. Economists had forecasted unemployment to drop by merely 10000 for the month. The seasonally adjusted unemployment rate was unchanged at 6.5% in February in line with the market expectations.
Eurozone M3 money supply
Eurozone’s M3 money supply expanded at an annual pace of 4.10% in January after growing a revised 3.8% in the previous month beating the market forecast of an improvement to 3.7% the European Central Bank said yesterday. Loans to the private sector dropped 0.1% and to the households edged up 0.9%. On a three-month average from November to January growth in money supply stood at 3.6% y-o-y.
UK GDP
UK GDP grew 0.5% q-o-q in Q4 2014 in line with the preliminary estimates following a 0.7% growth in Q3 2014 the Office for National Statistics informed yesterday. On a y-o-y basis GDP growth stood at 2.7%.
Eurozone consumer confidence
The gauge of Eurozone consumer confidence improved to -6.7 in February from -8.5 in January and came in line with the preliminary estimates the European Commission said yesterday. The economic confidence index rose to 102.1 in February from an upwardly revised 101.4 in January while the measure of industry confidence increased to -4.7 from -4.8.
US CPI
US consumer price index (CPI) growth declined to a seasonally adjusted 0.7% m-o-m in January following a 0.4% fall in the preceding month the US Bureau of Labour Statistics stated yesterday. Core consumer prices excluding food and energy rose 0.2% in January following a 0.1% increase in the preceding month and came ahead of the market forecast of a 0.1% rise. On y-o-y basis CPI decreased at 0.1% in January vis-à-vis rising 0.8% in December while growth in core prices grew steadily at 1.6%.
US durable goods order
As per the Commerce Department US durable goods orders climbed 2.80% m-o-m in January after falling a revised 3.7% in December. The reading fared better than economists’ forecast of a 1.6% gain. Excluding transportation equipment orders edged up 0.3% in January after declining 0.9% in the previous month.
US initial jobless claims
Initial jobless claims in the US rose by 31000 to a seasonally adjusted 313000 in the week ended 21st February the Labor Department reported yesterday. Last week’s claims were revised downwards to 282000 from the earlier reading of 283000. Economists on the other hand had expected a smaller increase to 290000. The four-week moving average increased to 294500 from the previous week’s 283000.
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