(MENAFN- ProactiveInvestors) The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 5.4 points up at 7:00 am.
New York: Wall Street declined dragged down by weak private employment data. Investors are eyeing the US payroll report releasing on Friday. The S&P 500 slipped 0.4% led by losses in industrial stocks.
Asia: Equities are trading lower this morning on the news of China’s GDP growth target being set at an 11-year low of nearly 7% and a fall in the US markets. The Hang Seng was trading 1.2% lower at 7:00 am. However the Nikkei rose 0.3% on favourable currency movements and gains in healthcare stocks.
Continental Europe: Markets focused on the European Central Bank (ECB)’s policy meeting scheduled to be held today. Export stocks benefitted from a weakening euro while slower-than-expected expansion in the Eurozone’s business activity reduced overall gains. Germany’s DAX and France’s CAC 40 advanced 1.0% each.
Crude Oil: Yesterday prices dropped 0.8% whereas WTI crude oil prices rose 2.0%. The spread between the two varieties stood at US$9.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.43% higher yesterday at 712.20. To read our latest research click here.
Today’s news
Juncker states premature to discuss third bailout for Greece
Yesterday the European Commission’s President Jean-Claude Juncker clarified that the key focus of ongoing talks with Greece was the implementation of measures previously agreed between Greece and the Eurozone. Moreover he stated that it was too early to discuss another bailout programme for the country.
Fed indicates continuing economic recovery in the US
In the Beige Book the Federal Reserve stated that despite ongoing adversities such as declining crude oil prices and an abnormally cold weather the US economy continued to recover in early 2015. Of the 12 districts eight exhibited modest or moderate growth during the period.
Company News
() – Buy
Yesterday announced its preliminary results for the 52 weeks ended 26th December 2014. Revenue increased 5% to £268.9m and underlying operating profit rose 8% to £84.9m. The company’s three divisions namely funerals crematoria and pre-arranged funeral plans contributed 65% 28% and 7% respectively to its underlying operating profit before central overheads. The underlying earnings per share climbed 19% to 85.8p. Pre-arranged funeral plan sales grew robustly; at the end of the year unfulfilled pre-arranged funeral plans rose to 348000 as against 323000 in the preceding year. On the other hand number of funerals and cremations performed dropped to 65600 (2013: 68000) and 53400 (2013: 55500) respectively. During the year the company secured refinancing through a 35-year investment grade secured debt thereby reducing the annual debt service obligations to £33m from £40m. This enabled to return £64.4m cash to the shareholders. During the year 30 additional funeral locations were acquired through an investment of £24.7m. Four satellite locations were also opened within the funeral business. The Board proposed a final dividend of 11.83p up 10% from 10.75p in the preceding year.
Our view: Being UK’s only listed provider of funeral related services continues to grow robustly. In 2014 the company registered growth in operating profit for eleventh successive year since its listing in 2004. Results of the company’s internal survey demonstrate its strong customer focus with 99% families stating that it met/exceeded their expectations. Sales of pre-arranged funeral plans are on an upswing while other divisions witnessed a relatively sluggish pace of activities. In terms of operating performance the 2015 year has also kicked off on a positive note. Given the above positives and a series of smaller acquisitions in its kitty we hold a positive view about ’s future prospects.
Group () – Hold
Group reported its preliminary results for the year ended 31st December 2014. Revenues advanced 31% to £51.52bn boosted by the group’s strong investment returns and higher net earned premiums. However with higher net claims and change in insurance liabilities expenses rose at a slightly faster pace up 32% to £50.1bn. Pre-tax profit was up 8% to £1.24bn supported by solid operating profit growth across Retirement Capital and Investment Management divisions. Operating profit for ’s Retirement division increased 38% to £428m while that of its Capital division rose 13% to £203m. Besides Investment Management and Assurance Society businesses also recorded higher operating profits of £336m and £460m respectively. However the American life insurance division fared poorly with operating profit down 39% to £56m. The year saw 28% increase in annuity assets to £44.2bn while insurance premiums went up 8% to £3.0bn. Meanwhile Savings assets grew 10% to £124.2bn and assets for the Investment Management division expanded 16% to £708.5bn. The group plans to cut management expenses and operating costs by £80m in the current year for which restructuring costs of £40m is planned to be undertaken. The group’s full year dividend grew 21% to 11.25p per share.
Our view: Despite significant pension deals adding to annuity sales ’s full-year profits have come below analysts’ expectations. The group has a solid presence in the bulk annuity market but witnessed a poor show of individual annuity sales owing to regulatory changes which are expected to decline further in the current year. On the positive side the group’s ongoing efforts towards cost reduction have enabled it to deliver better efficiency. Division-wise Retirement and Capital continue to aid in improving the group’s overall operating profit levels. The performance of individual annuity segment and anticipation of further regulatory headwinds remain a cause of concern. We assign a Hold rating to the stock.
Kefi Minerals () – Speculative Buy
Yesterday Kefi Minerals announced latest exploration results for its assets in Saudi Arabia. At Jibal Qutman ongoing drilling and trenching work at the Red Hill prospect returned the following intercepts: 17m at 2.65 grams per tonne (g/t) gold and 14m at 1.0 g/t gold from drilling; and 20m at 2.92 g/t gold and 26m at 2.23 g/t gold from trenching. Drilling activity at the 3K Hill prospect returned best results of 13m at 1.12 g/t gold and 9m at 1.72 g/t gold. Besides trenching at the 4K Hill prospect delivered best results of 24m at 1.90 g/t gold. Kefi informed that diamond drilling for metallurgical testwork was finished at four prospects and simulations were already underway. At Hawiah the first pass trenching program was concluded with initial results indicating the presence of anomalous gold across all trenches. Kefi has excavated 53 trenches over a 6 km gossanous horizon. Among the intercepts identified till date major ones include: 6m at 2.22 g/t gold 2m at 8.69 g/t gold 2m at 7.54 g/t gold and 8m at 3.04 g/t gold. Kefi Minerals is operator of the 40%-owned Gold & Minerals Joint Venture (G&M) holding these two assets.
Our view: Kefi Minerals with an attractive asset base across Saudi Arabia and the Democratic Republic of Ethiopia continues to deliver encouraging results from its ongoing exploration programmes. Latest drilling and trenching work at Red Hill and other prospects at Jibal Qutman have further strengthened the area’s prospectivity. With these results of trenching work at Red Hill length of the mineralisation zone has now increased by 600m to 1600m. Non JORC-compliant mineral resources for Jibal Qutman stand at 201237 ounces (oz) at 0.93 g/t gold within the oxidised zone and additional 428711 oz at 0.90 g/t gold in the deeper sulphide ores. In 2015 Kefi plans to submit a mining licence application for Jibal Qutman which would support further development of the asset. Meanwhile the recent JORC compliant resource update for Tulu Kapi project in Ethiopia is likely to bring in financers for the project. Given these positives we reiterate a Speculative Buy rating.
Industries () – Buy
Industries reported audited results for the year ended 31st December 2014. Revenue from continuing operations declined 6.1% to £1.4bn and headline pre-tax profit (before exceptional items and intangible asset amortisation) rose 11% to £212.5m. Headline pro-forma earnings per share (EPS) was 15.3p for the year and diluted EPS from continuing operations stood unchanged at 7.8p. Electricity and water metering company Elster acquired in 2012 continues to deliver strong orders and sales numbers. In H2 2014 its revenues were up 9% and order intake rose 6%. Within Elster all three divisions performed well with headline operating profit growth of 13% for Gas 23% for Electricity and 11% for Water. In October 2014 the company bought Eclipse a manufacturer of low-temperature industrial gas combustion equipment for US$158m to add to the Elster Gas segment. In the Energy division Brush Turbogenerators faced tough market conditions in its original equipment manufacturer (OEM) business which is expected to continue to embattle in 2015 due to a discouraging demand scenario. The group sold the Bridon wire and rope business for a gross cash consideration of £374.8m generating a profit of £96.9m on disposal. The Board proposed a final dividend of 5.3p per share bringing the full year dividend to 8.1p per share as against 7.75p last year. Besides also plans to return £200m to the shareholders following the sale of Bridon Group.
Our view: The acquisition of Eclipse which contributed as much as £12.2m to the revenues and £1.4m to the headline operating profit within a span of merely two months looks a strategically smart move for . Eclipse is expected to contribute significantly to the group financials from the current year. Though the overall revenues took a dip it seems to be a short-term glitch and a result of adverse market setting. With these positive developments signs of favourable currency movements towards the end of 2014 and expected improvement in the energy market globally over the medium term chances of meaningful addition to the shareholder returns seem strong. We recommend a Buy.
(LON:CLLN.) – Buy
announced annual results for the year ended 31st December 2014. Revenue remained unchanged from last year at £4.1bn; underlying profit from operations inched up 1% to £216.9m with improved margins across support services and Middle East construction services segments. On an underlying basis pre-tax profit was down 1% to £172.9m and earnings per share (EPS) lowered 3% to 33.7p driven by reduction in the sale of equity investments in Public Private Partnership (PPP) projects. The company invested £38.5m in business acquisitions during the year. The value of new orders and probable orders rose to £5.1bn from £4.9bn in 2013. As a result the value of high-quality order book plus probable orders reached £18.6bn from £18.0bn. By the year-end had 85% revenue visibility for 2015. The pipeline of contract opportunities widened to £39.2bn compared to £37.5bn in 2013. The full-year dividend was raised by 1% to 17.75p. In an operational update released the same day the company announced bagging a new facilities management framework contract with Scape Group for a value of up to £1.5bn spread over six years.
Our view: made good operational progress in 2014 even as revenue and profits suffered due to challenging market environment. Net borrowing trimmed down to £177.3m from £215.2m despite a £38.5m investment in business acquisitions. In the past couple of years has been awarded £10bn worth of contracts. Going forward the company’s plan to tap opportunities in the defence and health sectors within UK is likely to provide further impetus to its growth. With broadening position across growth markets especially in the area of support services a healthy balance sheet & order book and growing business of contract opportunities is expected to tread steadily on a growth path. We assign a Buy rating.
Holdings () – Buy
released its customer and load factor statistics for February 2015 and announced the purchase of three additional Boeing 737-800 aircrafts. Compared to February 2014 customer traffic jumped 29% to 5.8 million customers and load factor improved by 11 percentage points to 89% during the month. Rolling annual traffic up to February 2015 was up 9% to 89.1 million customers. In a separate release reported the procurement of three more Boeing 737-800 aircrafts for US$280m at current list prices to be delivered in early 2016.
Our view: ’s low fare strategy and substantial forward bookings seems to be delivering good results. These factors along with the company’s “Always Getting Better” (AGB) customer programme have provided a major boost to its customer traffic and load factors for February 2015. has also undertaken a series of other measures such as opening up its operations for new routes and increasing frequencies in order to cater to the growing needs of its customers. The company is now planning to launch the second year of its AGB programme which would bring in additional facilities such as a new website and app new cabin interiors reduced airport fees and enhanced digital features. Benefits of all these measures are likely to be reflected in the future periods as well. The purchase of these Boeing 737-800 aircrafts would bring the company closer to its target of expanding the scale of operations to a fleet of more than 520 aircrafts and traffic of more than 160 million customers by 2024. We are Buyers of the stock.
Economic News
US MBA mortgage applications
US mortgage applications edged up 0.1% in the week ended 27th February following a decline of 3.5% in the preceding week the Mortgage Bankers’ Association said yesterday. Refinance index rose 0.5% while the gauge of loan requests for home purchases inched down 0.2% over the week.
US ADP employment change
Private sector employment in the US rose 212000 in February following an upwardly revised increase of 250000 in January the payroll processor Automatic Data Processing (ADP) reported yesterday. The employment figure was below the economists’ expectation of a rise of 219000.
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