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Merkel backs ECB while pushing for closer fiscal union

Newsletter Update Friday, 17th August 2012


FTSE-100


Graph - 170812

Source: Bloomberg

FTSE-100 statistics


Yesterday: +0.02%
Latest: 5,834.5
High: 5,846.7
Low: 5,811.3
Top three: IMI  +3.8%
Lloyds  +3.2%
Kazakhmys  +2.8%
Bottom three: Pennon  -1.9%
Eurasian  -1.9%
Vodafone  -1.7%

Source: Bloomberg

Compiled by


Jim Dolan

(t) +44 (0) 207 382 8384
(e) jim.dolan@hbmarkets.com


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The Markets

Market opening: Markets could open higher today. FTSE 100 futures were trading 21 points up at 7:00am.

New York: Wall Street rose due to mixed economic data and reports that German Chancellor Angela Merkel is backing ECB’s efforts to save the Eurozone. Dow component Cisco rose nearly 10% after its results beat expectations; the company also raised dividend by 75%. The S&P 500 closed 0.7% higher.

Asia: Germany’s affirmation that ECB’s pledge to defend the Euro corresponded with the views of the EU political think-tank reduced uncertainty. Consequently, the Nikkei gained 0.8%, while the Hang Seng was trading 0.5% higher at 7:00 am.

Continental Europe: Markets rallied in anticipation of renewed stimulus measures to spur global economic growth and combat the Eurozone debt crisis. The German DAX and the French CAC 40 gained 0.7% and 0.9%, respectively.

UK small caps: The FTSE AIM All-Share index shed 0.1% yesterday. To read our latest small cap research, click here.

Today’s breakfast menu:

- HB Markets on Hikma Pharmaceuticals – Hold; Micro Focus International – Buy and Talvivaara Mining

- UK retail sales; Eurozone inflation; US initial jobless claims

 

Today’s news

Merkel backs ECB while pushing for closer fiscal union

German Chancellor Angela Merkel backed ECB President Mario Draghi’s pledge to do everything it takes to save the Euro, saying the remark was “completely in line” with views shared by Eurozone political leaders. She stressed that time was running out while reiterating her stance on closer fiscal union whereby the European Commission would be granted more power to monitor and regulate state budgets that breached EU-specified deficit limits.

Mixed economic data signals lacklustre US recovery

The business activity index compiled by the Philadelphia Federal Reserve Bank stood at -7.1 in August. Though it remained in the red for the fourth consecutive month, the contraction was lesser than that in July. Meanwhile, housing permits rose 6.8% to 812,000 in July, the highest rate since August 2008, pointing towards a positive trend in the housing market. However, housing starts declined 1.1% in July.



Read the latest AIM Update now!

Company News

UK companies reporting today
Time

 

Mkt. Cap.

(£)

Ticker

Sector

Period

Expected
sales (£)

Expected
EPS (p)

6:00am Rank Group

468.7m

RNK.L

Gambling

FY2012 -

-

7:00am Pennon Group

2.7bn

PNN LN

Utilities

Trading update  

 

               

Sources: Bloomberg, Reuters, Consensus forecasts

Hikma Pharmaceuticals (HIK.L, 749.5p) – Hold

Hikma Pharmaceuticals reported results for H1 2012 ended 30th June 2012 yesterday. Revenue increased 34.8% to US$532.3m and beat market expectations. Organic revenue rose 7.6% y-o-y slower than the 9.6% in H1 2011. Revenue from the branded division grew 24.6% to US$248.8m with recently acquired businesses of Promopharm and Savanna contributing US$23.6m. Injectables revenue increased 94% to US$225.2m thanks to acquisitions in the US, where revenue doubled to US$136.6m. The management expects a similar performance at the injectables division in H2 2012. However, revenue at the generic division declined 27.0% to US$55.8m due to additional compliance work at the Eatontown facility and increased pricing pressures. For FY2012, the management revised the revenue guidance for the division downwards to US$115m from US$125m expected previously, compared to US$155m in FY2011. Group gross profit rose 35.6% to US$234.1m. Gross margin improvement at the injectables division offset the lower margin at the generic division helping the group gross margin improve 30 basis points to 44%. EPS rose 22.2% to US$0.204. Dividend per share increased 9.1% to US$0.06. The management re-iterated the guidance of 20% revenue growth in FY2012.

Our view:Hikma Pharmaceuticals reported slower growth in organic sales for H1 2012. In February, the company’s oral dosage facility at New Jersey was served a warning letter by the US Food and Drug Authority (FDA). The corrective action required to conform to the FDA’s directives has hampered production of generic drugs compelling the management to lower the annual revenue guidance for the division. In addition, Hikma Pharmaceuticals earns more than half its revenue from the Middle East and North Africa (MENA) region, which is a bit concerning given the slow recovery from turbulent political protests. Though the management maintaining the 20% revenue growth guidance lifts some of the worries; considering the lower production at the Eatontown facility, slower organic growth and higher risk associated with revenues from the MENA region, we have a hold rating on the stock.

Micro Focus International (MCRO.L, 541.5p) – Buy

Micro Focus International issued a trading update for the period from 30th April 2012 to 31st July 2012 yesterday. The management said revenue is likely to be impacted by the weakness in the Euro. However, they re-iterated their earlier guidance of revenue growth between -3% and 1% for FY2013, on a constant currency basis. Revenue for the period benefitted from a one-off licence transaction in the test business. Underlying growth in the licensing business continued while underlying revenue from the maintenance and consulting businesses declined. For the period to 31st July 2012, the adjusted EBITDA was in line with management expectations and similar to the previous year, on a constant currency basis. The previously announced guidance range of 37% to 42% for adjusted EBITDA was kept unchanged too. Net debt declined to US$90.4m from $113.2m on 30th April 2012. The company proposed a return of 50p per share to shareholders, expected to return around US$130m to shareholders.

Our view: Micro Focus International has a strong business as a provider of COBOL software, which though old, is applied in key sectors from banking and finance to business administration in the private and public sector. Though topline growth has been impacted by a decline in maintenance and consulting revenue, we expect the recent investment in research and development to bear fruit in the medium term. Further Micro Focus enjoys strong cash flows compared to newer technology based firms. We believe the return of cash to shareholders reflects the management’s confidence in the sustainability of strong cash flows, which outweigh the modest expected sales growth. We are buyers of the stock.

Talvivaara Mining (TALV.L, 137p)

Talvivaara Mining released results for Q2 2012 and H1 2012 ended 30th June 2012 yesterday. In Q2 2012, nickel production declined 19.2% y-o-y to 3,194 tonnes, and production of zinc shrank 12.7% y-o-y to 6,686 tonnes. For H1 2012, production of nickel declined to 6,568 tonnes from 8,166 tonnes in H1 2011 while zinc production increased to 14,576 tonnes from 14,005 tonnes the previous year. Net sales decreased 14.3% to €33.4m in Q2 2012 from €37.6m in Q2 2011. For H1 2012, net sales declined 30.3% to €72.5m from €104.1m in H1 2011 due to a decline in nickel prices and lower deliveries. Consequently, net losses widened to €32.4m in H1 2012 from €5.5m in the previous comparable period. The management lowered the annual production guidance for nickel to 17,000 tonnes from 25,000-30,000 tonnes estimated previously due to the dilution effect of excessive water in circulation which lead to the mining of low-grade ore and continued heavy rainfall in July and August. The decision to implement sustainable methods while ramping up production is also expected to lower annual output. Nonetheless the management expect to achieve an annualise production rate of 25,000 tonnes per annum by Q4 2012.


Read the latest HB Markets research now!

Economic News

Economic releases due today
Time

Region

Release

Indicator

Period

Previous

Expected

7:00am Germany Producer Prices m-o-m% July -0.4 0.3
7:00am Germany Producer Prices y-o-y% July 1.6 1.2
9:00am Eurozone Current Account NSA Billions June -2.5 -
9:00am Eurozone ECB Current Account SA Billions June 10.9 -
10:00am Eurozone Trade Balance SA Billions June 6.3 5.0
10:00am Eurozone Trade Balance Billions June 6.9 9.5
2:55pm US Univ. of Michigan Confidence Index August 72.3 72.2
3:00pm US Leading Indicators m-o-m% July -0.3 0.2
             

Sources: Bloomberg, Reuters, Consensus forecasts

UK retail sales

Retail sales in the UK rose 0.3% m-o-m and 2.8% y-o-y in July, the Office of National Statistics (ONS) said yesterday. Economists were expecting retail sales to drop 0.2% m-o-m but rise 2.0% y-o-y. The rise in promotional activities and decline in fuel prices helped petrol sales increase 2.6% m-o-m in July. Food sales increased 0.4%. Excluding fuel, retail sales were unchanged from June but increased 3.0% y-o-y. The ONS also revised the retail sales for June to 0.8% m-o-m increase from 0.1% reported previously. This revision lowers the fall in retail sales in Q2 2012 to 0.3%.

Eurozone inflation

Consumer prices declined 0.5% m-o-m in July after falling 0.1% m-o-m in June, the Eurostat reported yesterday. Annual inflation stabilised at 2.4% for the third month consecutive month. Core inflation, excluding food, alcohol and fuel prices, edged up 1.7% in July slightly ahead of the 1.6% gain the previous month.

US initial jobless claims

In the week ended 11th August, initial claims filed to avail joblessness benefits increased by 2,000 to a seasonally adjusted 366,000, the US Department of Labor said yesterday. The claims for the week ended 4th August were revised to 364,000 from 361,000 reported previously. The four-week moving average of initial claims, a less volatile series, fell by 5,500 to 363,750, the lowest since the week ended 31st March 2012.

Next week…

Companies
reporting

Time

 

Mkt. Cap. (£)

Ticker

Sector

Period

Expected sales (£)

Expected EPS (p)

   

 

 

 

   

 

Monday 20th August

 

 

7:00am Amlin

1.9bn

AML.L

Financial

H1 2012 1.7bn

27.35

7:00am Bovis Homes

650.4m

BVS.L

Homebuilding

H1 2012 169.0m

13.00

   

 

 

 

   

 

Tuesday 21st August

 

 

7:00am John Wood

3.1bn

WG/.L

Oil & gas servs.

H1 2012 US$3.2bn

0.34

7:00am Glencore Intl.

24.1bn

GLEN.L

Mining

H1 2012 -

-

7:00am Persimmon

2.1bn

PSN.L

Homebuilding

H1 2012 805.0m

21.90

7:00am Gem Diamonds

267.7m

GEMD.L

Mining

H1 2012 US$182.0m

0.15

  Afren

1.4bn

AFR.L

Oil & gas

H1 2012 US$725.6m

0.11

  Ferrexpo

1.1bn

FXPO.L

Mining

H1 2012 -

-

   

 

 

 

   

 

Wednesday 22nd August

 

 

7:00am Soco International

1.1bn

SIA.L

Oil & gas

H1 2012 US$236.3m

0.26

7:00am Derwent London

2.0bn

DLN.L

Property

H1 2012 61.9m

25.23

7:00am BHP Billiton

111.9bn

BLT.L

Mining

FY2012 US$73.6bn

3.41

7:00am Carillion

1.1bn

CLLN.L

Const. servs.

H1 2012 2.3bn

-

  Spirax-Sarco Engg.

1.6bn

SPX.L

Industrials

H1 2012 -

-

  Hochschild Mining

1.5bn

HOC.L

Mining

H1 2012 US$350.2m

0.10

  Kenmare Resources

1.1bn

KMR .L

Mining

H1 2012 US$109.0m

0.02

   

 

 

 

   

 

Thursday 23rd August

 

 

7:00am Diageo

42.8bn

DGE.L

Beverages

FY2012 10.9bn

91.57

7:00am Kazakhmys

3.7bn

KAZ.L

Mining

H1 2012 US$1.6bn

0.88

  Essar Energy

1.4bn

ESSR.L

Oil & gas

H1 2012 -

-

  IMI

2.8bn

IMI.L

Industrials

H1 2012 1.1bn

38.80

  SIG

559.5m

SHI.L

Distribution

H1 2012 1.3bn

-

  New World Resources

761.7m

NWR.L

Coal

H1 2012 €689.5m

0.13

  Premier Oil

2.1bn

PMO.L

Oil & gas

H1 2012 US$719.0m

0.42

  AZ Electronic Mats. SA

1.2bn

AZEM.L

Chemicals

H1 2012 US$385.0m

0.16

  Petropavlovsk

813.1m

POG.L

Mining

H1 2012 US$528.8m

0.52

  Ophir Energy

2.0bn

OPHR.L

Oil & gas

H1 2012 0.0m

-0.07

  Phoenix Group

831.9m

PHNX.L

Financial

H1 2012 -

-

  Aegis

2.8bn

AGS.L

Advertising

H1 2012 590.6m

4.52

   

 

 

 

   

 

Friday 24th August

 

 

  Berendsen

897.3m

BRSN.L

Comm. servs.

H1 2012 -

-

               

Sources: Bloomberg, Reuters, Consensus forecasts

Economic
releases

Time

Region

Release

Indicator

Period

Previous

Expected

             
Monday 20th August        
0:01am UK Rightmove House Prices m-o-m% August -1.7 -
0:01am UK Rightmove House Prices y-o-y% August 2.3 -
10:00am Eurozone Construction Output SA m-o-m% June 0.1 -
10:00am Eurozone Construction Output WDA y-o-y% June -8.4 -
1:30pm US Chicago Fed. Nat. Activity Index Index July -0.15 -
             
Tuesday 21st August        
9:30am UK Public Finances (PSNCR) £bn July 3.0 -
9:30am UK PSNB ex Interventions £bn July 14.4 -1.0
9:30am UK Public Sector Net Borrowing £bn July 12.1 -
11:00am UK CBI Trends Total Orders Index August -6.0 -
11:00am UK CBI Trends Selling Prices Index August -3.0 -
             
Wednesday 22nd August        
12:00pm US MBA Mortgage Applications w-o-w% 17th August -4.5 -
3:00pm US Existing Home Sales Millions July 4.4 4.5
3:00pm US Existing Home Sales m-o-m% July -5.4 3.0
7:00pm US Minutes of FOMC Meeting        
             
Thursday 23rd August        
7:00am Germany GDP NSA y-o-y% Q2 2012 - -
7:00am Germany Domestic Demand q-o-q% Q2 2012 -0.3 -
7:00am Germany Exports q-o-q% Q2 2012 1.7 -
7:00am Germany Capital Investment q-o-q% Q2 2012 -1.1 -
7:00am Germany Government Spending q-o-q% Q2 2012 0.2 -
7:00am Germany Construction Investment q-o-q% Q2 2012 -1.3 -
7:00am Germany Imports q-o-q% Q2 2012 0.0 -
7:00am Germany Private Consumption q-o-q% Q2 2012 0.4 -
7:00am Germany GDP SA q-o-q% Q2 2012 0.3 0.3
7:00am Germany GDP WDA y-o-y% Q2 2012 - 1.0
8:30am Germany PMI Manufacturing Index August 43.0 43.5
8:30am Germany PMI Services Index August 50.3 50.3
9:00am Eurozone PMI Composite Index August 46.5 -
9:00am Eurozone PMI Manufacturing Index August 44.0 44.3
9:00am Eurozone PMI Services Index August 47.9 47.9
9:30am UK BBA Loans for House Purchase Loans July 26,269.0 -
11:00am UK CBI Reported Sales Index August 11.0 -
1:30pm US Initial Jobless Claims Thousands 18th August 366.0 365.0
1:30pm US Continuing Claims Thousands 11th August 3,3605.0 -
1:58pm US Markit US PMI Preliminary Index August - -
2:45pm US Bloomberg Consumer Comfort Index 19th August -44.4 -
3:00pm Eurozone Consumer Confidence Index August -21.5 -22.0
3:00pm US House Price Purchase Index q-o-q% Q2 2012 0.6 -
3:00pm US New Home Sales Thousands July 350.0 362.0
3:00pm US House Price Index m-o-m% June 0.8 0.5
3:00pm US New Home Sales m-o-m% July -8.4 3.4
             
Friday 24th August        
9:30am UK GDP q-o-q% Q2 2012 -0.7 -0.5
9:30am UK GDP y-o-y% Q2 2012 -0.8 -0.6
9:30am UK Total Business Investment q-o-q% Q2 2012 1.9 -
9:30am UK Total Business Investment y-o-y% Q2 2012 14.8 -
9:30am UK Private Consumption q-o-q% Q2 2012 -0.1 -
9:30am UK Government Spending q-o-q% Q2 2012 1.9 -
9:30am UK Gross Fixed Capital Formation q-o-q% Q2 2012 1.9 -
9:30am UK Exports q-o-q% Q2 2012 -1.7 -
9:30am UK Imports q-o-q% Q2 2012 -0.3 -
1:30pm US Durable Goods Orders m-o-m% July 1.3 2.0
1:30pm US Durables Ex Transportation m-o-m% July -1.4 0.5
1:30pm US Cap Goods Orders Non-def Ex Air m-o-m% July -1.4 -
1:30pm US Cap Goods Ship Non-def Ex Air m-o-m% July 1.2 -
24-30th August Germany Import Price Index m-o-m% July -1.5 0.8
24-30th August Germany Import Price Index y-o-y% July 1.3 1.0
             

Sources: Bloomberg, Reuters, Consensus forecasts


Recommendations

During the three months to end-July 2012, the number of stocks on which HB Markets has published recommendations was 149, and the recommendations were as follows: Buy – 70; Speculative Buy – 10; Hold – 51;
Sell – 18

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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