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Factory activity in China stabilising – HSBC Flash PMI

Newsletter Update Monday, 23rd April 2012

FTSE-100


Graph - 230412

Source: Bloomberg

FTSE-100 statistics


Yesterday: +0.5%
Latest: 5,772.2
High: 5,775.7
Low: 5,724.2
Top three: Severn Trent  +3.7%

Vedanta +3.1%

CRH +2.8%

Bottom three: ARM Holdings -3.7%

Weir Group  -3.0%

ITV -2.4%

Source: Bloomberg

Analyst


Donald Linderyd

(t) +44 (0) 207 382 8421

(e) donald.linderyd@hbmarkets.com


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The Markets

Market opening: Markets could open lower as investors turn cautious and watch for signs of recovery in the region from Eurozone PMI data expected to be released today. FTSE futures were trading 19.5 points lower at 7:00am today.

_

New York: The S&P 500 ended a volatile week higher as better than expected corporate earnings at home outweighed the threat of the Eurozone crisis returning. The index closed 0.1% higher on Friday, taking weekly gains to 0.6%.

Asia: Markets were trading lower as weak corporate earnings disappointed investors and the HSBC Flash PMI for China indicated factory activity in the country was stabilising. The Nikkei closed 0.2% lower, while the Hang Seng was trading at 0.8% 7:00am.

Continental Europe: Markets ended a volatile week higher as banking and mining stocks recovered. The German DAX soared 1.2% led by a surprise surge in German business confidence, and was the best performer. The French CAC 40 rose 0.5%.

UK small caps: The FTSE AIM All-Share index ended 0.3% lower on Friday. To read our latest small cap research, click here.

 

Today’s breakfast menu:

- HB Markets on William Hill – Buy; IMI – Hold; Rotork – Hold; Spectris – Buy; and SuperGroup

- UK Retail sales; Germany IFO Survey; and German producer prices

Today’s news

Factory activity in China stabilising – HSBC Flash PMI

The HSBC Flash manufacturing purchasing managers’ index (PMI) moved up to 49.1 in April from 48.3 in March. Though the reading below 50 still implies contraction in factory activity, the recovery in the new orders and new export orders helped the headline index recover. The uptick in manufacturing suggests that monetary easing at the beginning of this year has stimulated factory activity. This should ease concerns about a hard landing of the economy, especially as recovery in the US is showing signs of cooling.

IMF coffers get US$430bn boost

The International Monetary Fund (IMF) received commitments for US$430bn from the world’s leading economies, effectively doubling its lending capacity. These funds will be used to shield the global economy from the Eurozone debt crisis, but it is still not clear how Eurozone countries would access the funds.


Read the latest AIM Update now!

Company News

UK companies reporting today

 

Mkt. Cap.

(£)

Ticker

Sector

Period

Expected
sales (£)

Expected
pre-tax (£)

Greene King

1.1bn

GNK LN

Restaurants

Trading update

-

-

Berendsen

919.4m

BRSN.L

Comm. servs.

Trading update

-

-

Sources: Bloomberg, Reuters, Standard & Poor’s EMS Marketscope, Consensus forecasts

William Hill (WMH.L, 278.3p) – Buy

The interim statement released Friday showed group revenue at William Hill rose 12% in Q1 2012 ended 27th March 2012. Retail revenue grew 5% due to a 2% expansion in amounts wagered. Gross machine win per week increased 3.7% to £918. Online revenue increased 33%. Operating profit was 19% higher y-o-y. Sportbook net revenue increased 58% y-o-y, with bets placed via mobiles accounting for 19% of total sportbook revenue. Amounts wagered at sportbook grew 31%. The management said its application for a gaming license with the Nevada Gaming Commission is progressing well. Considering the positive underlying trend set in Q1 2012, they remain confident of meeting full year expectations.

Our view: William Hill’s mobile app was well received and boosted online sales. The company said its licensing application with the Nevada Gaming Commission, which will enable it to expand its operations into the US through acquisition of three land-based sports betting businesses, is progressing per schedule. Also, its relationship with software partner Playtech seems to have thawed. Following the report we expect to see further upward revisions in earnings estimates and raise our rating to buy.

IMI (IMI.L, 992p) – Hold

IMI issued an interim management statement for Q1 2012 on Friday. Revenue grew 8% y-o-y. Organic revenue increased 6%. Revenue from severe services rose 30% y-o-y (20% organically) as increased output from the Brno facility helped improve new valve shipments. The management expects this growth to normalize in Q2 2012, as the division faces tougher comparables from the previous year. Fluid power revenue was similar to that in Q1 2011 as growth in US and Asia offset weak sales in Europe. Though construction activity in Europe remained weak, energy efficiency legislation helped drive revenues at the indoor climate division. In Q1 2011, merchandising division saw organic revenue grow 14%. The management said the weakening of the Pound sterling against the US dollar while strengthening against the Euro, posed significant headwinds to the business. However, H1 2012 results are expected to be in line with management expectations.

Our view: In February, IMI announced that the acquisition of Remosa SpA (€82.4m) and Grupo InterAtiva (£22m) strengthened its position in South America. However, on Friday, the management said that growth is expected to moderate in 2012. They also expect to face “transactional headwinds” due to currency movements. Taking stock of these announcements, we see better opportunity elsewhere in the sector and maintain a hold rating for IMI.

Rotork (ROR.L, 2,220p) – Hold

Rotork released an interim statement for Q1 2012 ended 30th March 2012. Revenue grew 26% y-o-y and organic revenue on a constant currency basis grew 14%. Q1 2012 order book increased 7.2% y-o-y to £169m. The controls division saw a slight slowdown in China, but the management considers that long term prospects have yet not changed. Increase in business in other geographies contributed to growth. The controls division is set to launch new products. However, new product introductions and inflationary pressures are driving up costs for the company. At the fluid systems division, order intake expanded 36% y-o-y, but the lag in conversion of sales will skew revenue realisation towards H2 2012. The margin target for the division remains 15%. The newly formed instruments division is looking at leveraging the Group’s global presence to expand in the other markets such as Singapore, China, India, Russia, Mexico and Brazil. The strength of the order book and strong order intake offered the management confidence about growth in 2012.

Our view: Rotork’s new instruments division should be able to utilise the company’s wide geographic footprint to quickly gain a toehold in the emerging markets, opening up further growth avenues for the company. Its strong order book and order intake in Q1 2012 offer enhanced revenue visibility. However, we believe the recent appreciation in the share price (14% over the past three months) factors in most of these positives and the stock looks fully valued.

Spectris (SXS.L, 1,840p) – BUY

On Friday, Spectris released an interim statement for Q1 2012 ended 31st March 2012. Revenue rose 21% y-o-y due to higher contribution from acquisitions. Like-for-like revenue increased 5%. Geographically, Asia-Pacific and North America saw organic revenue growth of 7% each, while Europe increased 2%. The management said 2012 growth rates have moderated after recovering sharply in 2011. Nonetheless, they remained confident of performance for the remaining year as investment in new products and acquisitions spur growth.

Our view: Acquisitions of rivals Omega Engineering and Sixnet in 2011, coupled with the strong performance in the Asia Pacific region (33% of sales last year) continues to fuel growth for the company. With the enhanced focus on cost rationalisation by most companies in the current economic environment, the demand for the Spectris’ productivity enhancing equipment is expected to rise.

SuperGroup (SGP.L, 351.8p)

SuperGroup issued an update for the financial year ending 29th April 2012, last Friday. The fashion retailer said profit before tax for the year is likely to be £43m versus the expectations of £50m, previously. The downward revision in profit was due to “arithmetic errors” worth £2.5m in the forecast of the wholesale business. The wholesale business is also likely to experience a shortfall of £2.0m due to the pull-down of stock over the year end period by both franchise and wholesale customers. Further, the retail sales, though in-line with expectations, could be reporting lower margins. Shares of SuperGroup lost 38% of their value on the profit warning


Make use of your 2012/2013 ISA Allowance now! Why wait?

Economic News

Economic releases due today

Region

Release

Indicator

Period

Previous

Expected

Eurozone PMI Composite Index April 49.1 49.3
Eurozone PMI Manufacturing Index April 47.7 48.1
Eurozone PMI Services Index April 49.2 49.3
Eurozone Govt Debt/GDP Ratio % FY2011 85.4 -
Germany PMI Manufacturing Index April 48.4 49.0
Germany PMI Services Index April 52.1 52.3

Sources: Bloomberg, Reuters, Standard & Poor’s EMS Marketscope, Consensus forecasts

UK Retail sales

Retail sales in the UK surged 1.8% m-o-m and 3.3% y-o-y in March following a m-o-m gain of 0.8% and an annual gain of 1.0% in February, the Office of National Statistics said Friday. Q1 2012 recorded a 0.8% growth in retail sales compared to 1.1% in Q4 2011.

Our view: The stronger growth in retail sales surprised economists who were expecting an increase of 0.4%. Warm weather and panic buying of automobile fuel following a strike threat issued by fuel-tanker drivers helped retail sales rise in the month. Nonetheless, the data suggests resilient consumer spending, in the face of high unemployment and inflation, probably saved the economy from slipping into a recession in Q1 2012.

Germany IFO Survey

Business confidence in Germany continued its upward trend after edging up to 109.9 in April from 109.8 in March, the IFO Institute said on Friday. The sub-index of current expectations rose to 117.5 from 117.4, while the future expectations index remained unchanged at 102.7.

Our view: Economists had forecast the headline index to fall to 109.5. However, the actual performance indicates that the economy continues to outpace its neighbours. The continuous uptrend also suggests that economists may have underestimated the underlying strength of the German economy. However, the imminent recession in Germany’s core trading partners in the Eurozone, tepid recovery in the US and a soft landing expected in China could affect export growth in Germany.

German producer prices

Producer prices in Germany rose 3.3% in March up from a 3.2% in February, the Destatis reported yesterday. Wholesale prices accelerated 0.6% m-o-m after rising 0.4% the previous month. Core prices, excluding food and energy, advanced 0.3% m-o-m and 1.6% y-o-y.

Later this week…

Companies
reporting

 

Mkt. Cap. (£)

Ticker

Sector

Period

Expected sales (£)

Expected pre-tax (£)

Tuesday 24th April

 

 

Filtrona

1.0bn

FLTR LN

Food

Q1 2012

-

-

Carpetright

410.9m

CPR LN

Retail

Trading update

-

-

ARM Holdings

8.3bn

ARM LN

Technology

Q1 2012

128.0

3.2

Associated British Foods

9.5bn

ABF.L

Food

H1 2012

5.7bn

33.50

Reed Elsevier

11.9bn

REL.L

Publishing

Q1 2012

-

-

888 Holdings

264.3m

888.L

Gambling

Trading update

-

-

Smiths News

161.9m

NWS.L

Media

H1 2012

-

-

BBA Aviation

958.9m

BBA.L

Aero & def.

Q1 2012

-

-

Wednesday 25th April

 

 

DS Smith

1.6bn

SMDS.L

Basic mats.

Trading update

-

-

Talvivaara Mining Co.

521.2m

TALV.L

Mining

Q1 2012

54.0m

-

Sports Direct International

1.7bn

SPD.L

Retail

Trading update

-

-

Fenner

848.8m

FENR.L

Basic mats.

H1 2012

-

17.0

UBM

1.5bn

UBM.L

Advertising

Q1 2012

-

-

GlaxoSmithKline

72.2

GSK.L

Healthcare

Q1 2012

6.8bn

29.12

Standard Life

5.2bn

SL.L

Insurance

Q1 2012

-

-

 Polymetal Intl

3.8bn

POLY.L

Mining

FY2012

870.8m

69.81

Capital Shopping Centres

2.8bn

CSCG.L

Property

Q1 2012

-

-

Johnston Press

36.8m

JPR.L

Media

FY2011

-

-

Premier Foods

401.7m

PFD.L

Food

Q1 2012

-

-

Stagecoach

1.5bn

SGC.L

Transport

Trading update

-

-

Bodycote

794.4m

BOY.L

Industrials

Trading update

-

-

Thursday 26th April

 

 

Elementis

898.6m

ELM.L

Basic mats

Q1 2012

-

-

Senior

824.7m

SNR.L

Aero & def.

Q1 2012

-

-

Colt Group SA

869.9m

COLT.L

Comm. servs.

Q1 2012

-

-

Cobham

2.6bn

COB.L

Aero & def.

Q1 2012

-

-

Go-Ahead Group

489.7m

GOG.L

Transport

Q3 2012

-

-

Howden Joinery Group

760.1m

HWDN.L

Retail

Q1 2012

-

-

Unilever

97.3bn

ULVR.L

Cons. goods

Q1 2012

12.1bn

-

Barclays

26.0bn

BARC.L

Financials

Q1 2012

7.9m

12.05

Royal Dutch Shell

137.8bn

RDSA.L

Oil & gas

Q1 2012

US$98.3bn

US$1.10

AstraZeneca

35.6bn

AZN.L

Healthcare

Q1 2012

US$7.8bn

US$1.78

Shire

11.3bn

SHP.L

Healthcare

Q1 2012

719.1m

0.315

Admiral Group

3.3bn

ADM.L

Insurance

Q1 2012

-

-

Whitbread

3.3bn

WTB.L

Restaurants

FY2012

1.8bn

131.16

British American Tobacco

62.6bn

BATS.L

Tobacco

Q1 2012

-

-

Meggitt

3.1bn

MGGT.L

Aero & def

Q1 2012

-

-

Kazakhmys

4.5bn

KAZ.L

Mining

Q1 2012

-

-

Segro

1.7bn

SGRO.L

Property

Q1 2012

-

-

ASOS

1.2bn

ASC.L

Comm. servs.

Trading update

-

-

Taylor Wimpey

1.6bn

TW.L

Homebuilding

Trading update

-

-

McBride

232.4m

MCB.L

Cons. staples

Q3 2012

-

-

Jardine Lloyd Thompson

1.5bn

JLT.L

Financials

Trading update

-

-

Croda

3.1bn

CRDA.L

Basic mats.

Q1 2012

-

-

Friday 27th April

 

 

AZ Electronic Materials SA

1.2bn

AZEM.L

Basic mats

Q1 2012

-

-

Aegis Group

2.1bn

AGS.L

Advertising

Q1 2012

-

-

WPP

6.7bn

WPP.L

Advertising

Q1 2012

-

-

Pearson

9.2bn

PSON.L

Media

Q1 2012

-

-

Ultra Electronics

1.2bn

ULE.L

Aero & def.

Trading update

-

-

Sources: Bloomberg, Reuters, Standard & Poor’s EMS Marketscope, Consensus forecasts

Economic
releases

Region

Release

Indicator

Period

Previous

Expected

Tuesday 24th April      
UK Public Finances (PSNCR) £bn March -7.8 13.0
UK PSNB ex Interventions £bn March 15.2 16.0
UK Public Sector Net Borrowing £bn March 12.9 14.2
US S&P/CS 20 City SA m-o-m % February -0.04 0.1
US S&P/CS Composite-20 y-o-y % February -3.8 -3.4
US S&P/Case-Shiller Home Price Index Index February 135.5 -
US Consumer Confidence Index April 70.2 69.8
US Richmond Fed Manufacturing Index Index April 7.0 6.0
US House Price Index m-o-m % February 0.0 0.1
US New Home Sales Thousands March 313.0 318.0
US New Home Sales m-o-m % March -1.6 1.6
Wednesday 25th April      
UK GDP q-o-q % Q1 2012 -0.3 0.1
UK GDP y-o-y % Q1 2012 0.5 0.3
UK CBI Trends Total Orders Index April -8.0 -6.0
UK CBI Trends Selling Prices Index April 24.0 26.0
UK CBI Business Optimism Index April -25.0 -18.0
US MBA Mortgage Applications w-o-w % 20th April 6.9 -
US Durable Goods Orders m-o-m % March 2.4 -1.7
US Durables Ex Transportation m-o-m % March 1.8 0.5
US Cap Goods Orders Non-def Ex Air m-o-m % March 1.2 1.0
US Cap Goods Ship Non-def Ex Air m-o-m % March 1.4 1.0
US FOMC Rate Decision % 25th April 0.25 0.25
Thursday 26th April      
UK BBA Loans for House Purchase Loans March 33,103.0 34,000.0
UK CBI Reported Sales y-o-y % April 0.0 -4.0
UK Nationwide House prices SA m-o-m % April -1.0 0.5
UK Nationwide House prices NSA y-o-y % April -0.9 -0.3
UK Nationwide Consumer Confidence Index March 44 43
Eurozone Business Climate Indicator Index April -0.3 -0.3
Eurozone Consumer Confidence Index April -19.8 -
Eurozone Economic Confidence Index April 94.4 94.2
Eurozone Industrial Confidence Index April -7.2 -7.0
Eurozone Services Confidence Index April -0.3 -0.5
Germany Consumer Price Index m-o-m % April 0.3 0.1
Germany Consumer Price Index m-o-m % April 2.1 2.0
Germany CPI – EU Harmonised m-o-m % April 0.4 0.1
Germany CPI – EU Harmonised y-o-y % April 2.3 2.2
US Chicago Fed National Activity Index Index March -0.09 -
US Initial Jobless Claims Thousands 21st April 386.0 375.0
US Continuing Claims Thousands 14th April 3,297.0 3,285.0
US Bloomberg Consumer Comfort Index 22nd April -31.4 -
US Pending Home Sales m-o-m % March -0.5 1.0
US Pending Home Sales y-o-y % March 13.9 7.3
US Kansas City Fed Mfg Activity Index April 9.0 7.0
Friday 27th April      
UK GfK Consumer Confidence Survey Index April -31.0 -30.0
Germany GfK Consumer Confidence Survey Index May 5.9 5.9
Germany Import Price Index m-o-m % March 1.0 0.9
Germany Import Price Index y-o-y % March 3.5 3.3
US Employment Cost Index Index Q1 2012 0.4 0.5
US GDP q-o-q % Q1 2012 3.0 2.5
US Personal Consumption % Q1 2012 2.1 2.3
US GDP Price Index % Q1 2012 0.9 2.1
US Core PCE q-o-q % Q1 2012 1.3 2.1
US U. of Michigan Confidence Index April 75.7 75.7

Sources: Bloomberg, Reuters, Standard & Poor’s EMS Marketscope, Consensus forecasts


Recommendations

During the three months to end-March 2012, the number of stocks on which HB Markets has published recommendations was 183, and the recommendations were as follows: Buy – 87; Speculative Buy – 2; Hold – 75; Sell – 19.

Full definitions of the recommendations used by HB Markets in its publications and their respective meanings can be found on our website here.

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