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Geneva’s annual report indicates probable crisis

Newsletter Update Monday, 29th September 2014


FTSE-100

Source: Bloomberg

FTSE-100 statistics


Friday: +0.15%
Latest: 6,649.39
High: 6,664.00
Low: 6,615.12
Top three: Easyjet +3.19%
St James’s Place +2.78%
British Land +2.10%
Bottom three: Sainsbury -3.06%
Sports Direct -2.67%
Imperial Tobacco -1.78%

Source: Bloomberg

Compiled by


Barry Gibb

(t) +44 (0) 207 382 8384
(e) [email protected]

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The investments discussed here may not be suitable for you. You should read the Important Risk Warnings & Disclaimers at the foot of this newsletter.

The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 4.0 points down at 7:00 am.

New York: Wall Street pared losses on Friday following encouraging US GDP and consumer sentiment data. S&P climbed 0.9%, led by energy and technology shares.

Asia: Markets are trading mixed on decelerating growth in China and pro-democracy protests in Hong Kong. However, optimistic data from the US cheered investors. Nikkei closed 0.5% up, while Hang Seng was trading 2.2% lower at 7:00 am.

Continental Europe: Equities closed mixed on Friday. Positive economic data from the US and the anticipated European Central Bank stimulus improved investor sentiment; however, the impending rate hike by the Fed triggered some concern. France’s CAC 40 gained 0.9%, while Germany’s DAX lost 0.2% after Allianz plunged on news of Bill Gross’ resignation from PIMCO.

Crude Oil: On Friday, the price of Brent crude oil remained flat, while that of WTI crude rose 1.1%. The spread between the two varieties stood at US$3.5 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.24% lower on Friday at 749.49. To read our latest research click here.

Today’s breakfast menu:

– Beaufort Securities on San Leon Energy – Speculative Buy; AstraZeneca – Hold; De La Rue – Hold; and Lloyds Banking Group – Hold

– US GDP; and US University of Michigan Confidence

Today’s news

Geneva’s annual report indicates probable crisis

As per Financial Times, the report by International Centre for Monetary and Banking Studies, expected to release soon, cautions against another crisis owing to high debt and persistently slowing growth in various economies. The report records the escalating public sector debt in developed countries and private debt in emerging markets.

Bristol Beaufort Investor Evening – THIS THURSDAY (2nd October)

Following on from the success of Beaufort’s Investor Evenings held in London, we are delighted to inform you about our inaugural event in Bristol, co-hosted with Hardman & Co. The evening will take place THIS THURSDAY (2nd October 2014) at the Bristol Marriott Royal Hotel, College Green, Bristol and will feature presentations from the following FOUR AIM-listed companies…

– Ilika (IKA.L)
– Tiziana Life Sciences (TILS.L)
– Haydale Graphene Industries (HAYD.L)
– Collagen Solutions (COS.L)

Click here for more information and to register your place for FREE now!



Company News

UK companies reporting today
Time

Mkt. Cap.

(£)

Ticker

Sector

Period

Expected
sales (£)

Expected
EPS (p)

8:30am Compass Group 16.6bn CPG.L Consumer disc. Trading Update

Sources: Bloomberg, Reuters, Consensus forecasts

San Leon Energy (SLE.L, 2.20p) – Speculative Buy

San Leon Energy announced the spudding of Kety exploration well, located in the Karpaty area in Poland. The activity was in line with its August release to drill two exploration wells Karpaty area and one in the Permian Basin in Poland by Exalo Drilling rig. Kety well is targeting 4 billion cubic feet (bcf) mid-case recoverable gas from the Miocene sandstone. Contingent to successful drilling of the well by mid-October, the company intends to test and finalise it by the end of October. Gierałtowice, the other prospect in Karpaty, is aiming the Upper Carboniferous sandstone and the Lower Carboniferous limestone, to recover the same amount as Kety. San Leon Energy operates and holds 60% in the Bestwina concession in Karpaty, while the remaining 40% is held by PGNiG. Moreover, the company plans to commence drilling operations in the Permian Basin prospect, Niwiska, once the necessary approvals are in place. This prospect targets the Main Dolomite to extract 400,000 billion barrels of mid-case recoverable oil and some latent gas due to natural fracturing. As per the contract with Celtique Energy, San Leon would drill the Niwiska prospect to earn 50% stake in the concession.

Our view: The timely spudding of the Kety prospect signifies that San Leon’s exploration and drilling programme has progressed, as per the plan. Further, Kęty and Gierałtowice wells are likely to benefit from a tie in with an existing gas pipeline infrastructure in the nearby area. Through a recent revelation of its advancement at the Morocco acreage, the company has demonstrated a dynamic business strategy in establishing itself as a fast growing force in the energy sector. We expect the company to use its leading technical expertise to develop its extensive and balanced portfolio of conventional and shales assets across Europe and North Africa. Thus, in light of these positives, San Leon future prospects look attractive. We reaffirm a Speculative Buy rating for the stock.

AstraZeneca (AZN.L, 4,408.50p) – Hold

On Friday, AstraZeneca announced that the European Medicines Agency (EMA) has endorsed an update to the European label for IRESSA (gefitinib). The label update would allow lung cancer patients to receive treatment after a simple blood test, instead of providing a tumour sample. Presently only the patients testing positive for the EGFR mutation are entitled for further treatment. In a separate announcement, the company also informed about the European authorities’ recommendation to the MOVENTIG (naloxegol) medicine. This is likely to benefit adult patients, suffering from opioid-induced constipation and have not responded well to laxatives. The recommendation will be reviewed by the European Commission to approve the medicine use for the European Union.

Our view: AstraZeneca’s breakthrough treatment would benefit patients who may have locally advanced or metastatic non-small cell lung cancer but cannot provide an evaluable tumour sample. On the other hand, the EMA’s approval for the constipation medicine gives major boost to the company’s innovative researches, which gives it a strong foothold in the market and also benefits the consumers. Recently, this medicine was approved by the US Food and Drug Administration and AstraZeneca also acquired a new respiratory medicine from Spain’s Almirall. However, we feel that the optimism surrounding the above is already factored into the current stock price which has risen over 35% in the past one year. We reiterate a Hold rating for the stock.

De La Rue (DLAR.L, 504.0p) – Hold

On Friday, De La Rue issued an update on its future outlook and trading for the six months to 27th September 2014. Though the half yearly performance was as expected, the prospects for the remaining part of this year and the next, have taken a hit. The currency department received high volume of orders but the competitive pricing could result in lower margins, the company informed. Growth rate of the Solutions division shrunk with reduced margins. The International business of Identity Systems also reported dismal performance owing to the trend towards “e” passports. Further, the growth of the Security Products business also slowed. Moreover, the company could not apply for prospective tenders as they were extended with the present suppliers. However, De La Rue expects its Cash Processing Solutions to breakeven in this financial year. In view of the above trading conditions, the company expects a decline of £20m each for operating profit and pre-tax profit. An interim dividend of 8.3p per share would be announced on 25th November 2014. The company’s new CEO, Martin Sutherland will assume office on 13th October 2014. The company’s shares fell almost 34% on the London Stock Exchange on Friday.

Our view: De La Rue’s operational efficiency and growth strategies have been put to a difficult test by the challenging trading conditions. In addition to the pricing and profitability pressure, the other updates, indicate a disappointing growth in the short-term. However, with the status of the largest commercial banknote printer and passport manufacturer, we believe that the business has the ability to turn around in the long term. Moreover, the company has made considerable investments in the business and the R&D for the future. We would like to watch out for the outcome of the cost cutting endeavours and the strategies announced by the new CEO. We downgrade our rating to a Hold for now.

Lloyds Banking Group (LLOY.L, 76.66p) – Hold

On Friday, Lloyds Banking Group announced the sale of TSB Banking Group’s 57.5 million ordinary shares at the price of 280p per share. The sale proceeds amount to approximately £161m, representing 11.5% of TSB’s total issued capital. Lloyds still holds approximately 50% of the ordinary shares of TSB and would continue to consolidate its results in its accounts. The group was advised by UBS Investment Bank. Lloyds had declared the stake offloading, a day before.

Our view: The selling of stake in TSB is the next step towards meeting the European regulator deadline to sell its entire interest in the latter by the end of 2016. The company had contracted a government bailout package worth £20.5bn during the financial crisis in 2008. The cash proceeds are likely to be used for wide-ranging business purposes and would not make any material difference to company’s financial position. The company’s overall business performed well in the recent past but we would like to wait and determine the overall impact of the sell-off of TSB in the financial statements of Lloyds. Hence, we reiterate a Hold rating for the stock.


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Economic News

Economic releases due today
Time

Region

Release

Indicator

Period

Previous

Expected

Monday 29th September
8:00am Germany CPI Saxony m-o-m% September 0.0
8:00am Germany CPI Saxony y-o-y% September 0.8
9:00am Germany CPI Brandenburg m-o-m% September 0.0
9:00am Germany CPI Brandenburg y-o-y% September 0.9
9:00am Germany CPI Hesse m-o-m% September 0.0
9:00am Germany CPI Hesse y-o-y% September 0.7
9:00am Germany CPI Bavaria m-o-m% September 0.1
9:00am Germany CPI Bavaria y-o-y% September 0.8
9:30am UK Net Consumer Credit £bn August 1.1 0.9
9:30am UK Net Lending Sec. on Dwellings £bn August 2.3 2.1
9:30am UK Mortgage Approvals Thousands August 66.6 65.0
9:30am UK Money Supply M4 m-o-m% August 0.3
9:30am UK M4 Money Supply y-o-y% August -1.0
9:30am UK M4 Ex IOFCs 3M Annualised 3m% August 3.8
9:30am Germany CPI North Rhine Westphalia m-o-m% September 0.1
9:30am Germany CPI North Rhine Westphalia y-o-y% September 1.1
10:00am Eurozone Economic Confidence Index September 100.6 99.9
10:00am Eurozone Industrial Confidence Index September -5.3 -5.8
10:00am Eurozone Consumer Confidence Index September -11.4 -11.4
10:00am Eurozone Services Confidence Index September 3.1 2.5
10:00am Eurozone Business Climate Indicator Index September 0.2 0.1
1:00pm Germany CPI m-o-m% September 0.0 -0.1
1:00pm Germany CPI y-o-y% September 0.8 0.8
1:00pm Germany CPI EU Harmonized m-o-m% September 0.0 -0.1
1:00pm Germany CPI EU Harmonized y-o-y% September 0.8 0.7
1:30pm US Personal Income m-o-m% August 0.2 0.3
1:30pm US Personal Spending m-o-m% August -0.1 0.4
1:30pm US PCE Deflator m-o-m% August 0.1 -0.1
1:30pm US PCE Deflator y-o-y% August 1.6 1.4
1:30pm US PCE Core m-o-m% August 0.1 0.0
1:30pm US PCE Core y-o-y% August 1.5 1.4
3:00pm US Pending Home Sales m-o-m% August 3.3 0.5
3:00pm US Pending Home Sales y-o-y% August -2.7 -1.4
3:30pm US Dallas Fed Manf. Activity Index September 7.1 10.5
Germany CPI Baden Wuerttemberg m-o-m% September 0.0
Germany CPI Baden Wuerttemberg y-o-y% September 0.9

Sources: Bloomberg, Reuters, Consensus forecasts

US GDP

US real GDP grew at an annualised rate of 4.6% in Q2 2014, matching economists’ expectation, after contracting 2.1% in the preceding quarter, the Commerce Department stated on Friday. Personal Consumption increased 2.5% for the quarter compared with an increase of 1.2% in the first. Government consumption and gross investments increased 1.7% after falling 0.8% in the previous quarter.

US University of Michigan Confidence

US University of Michigan consumer sentiment index climbed to 84.6 in September according to the final reading released on Friday while the August reading stood at 82.5. The Consumer expectations Index jumped to high of 75.4 in September from 71.3 in the last month. However, the current economic conditions inched down to 98.9 in September from 99.8 in August.

Later this week…

Companies reporting

Time

Mkt. Cap. (£)

Ticker

Sector

Period

Expected sales (£)

Expected EPS (p)

Tuesday 30th September
9:30am Wolseley 8.9bn WOS.L Consumer disc. FY 2014 13.2bn 190.97
Euromoney Institutional Investor 1.4bn ERM.L Media Q4 2014 245.0m 0.75
ICAP 2.5bn IAP.L Financials servs. Q2 2014
HomeServe 1.5bn HSV.L Financial servs. Q2 2015
Wednesday 1st October
7:00am J Sainsbury 5.3bn SBRY.L Consumer Staples Trading Update
ITE Group 484.5mn ITE.L Consumer disc. Q4 2014
Thursday 2nd October
8:00am Electrocomponents 1.6bn ECM.L Technology Trading Update
Domino’s Pizza Group 969.2mn DOM.L Consumer disc. Q3 2014
Dunelm Group 1.7bn DNLM.L Consumer disc. Q1 2015
Carillion 1.4bn CLLN.L Transportation Q3 2014
Friday 3rd October
3:00pm International Consolidated Airlines Group 7.6bn IAG.L Consumer disc. Trading Update
easyJet 5.2bn EZJ.L Consumer disc. Q4 2014 16.1bn

Sources: Bloomberg, Reuters, Consensus forecasts

Economic
releases

Time

Region

Release

Indicator

Period

Previous

Expected

Tuesday 30th September
12:05am UK GfK Consumer Confidence Index September 1.0 0.0
7:00am UK Nationwide House PX m-o-m% September 0.8 0.5
7:00am UK Nationwide House Px NSA y-o-y% September 11.0 10.4
7:00am Germany Retail Sales m-o-m% August -1.1 0.5
7:00am Germany Retail Sales y-o-y% August 1.0 0.3
8:55am Germany Unemployment Change Thousands September 2.0 -2.0
8:55am Germany Unemployment Rate % September 6.7 6.7
9:30am UK Lloyds Business Barometer Index September 47.0
9:30am UK GDP q-o-q% Q2 2014 0.8 0.8
9:30am UK GDP y-o-y% Q2 2014 3.2 3.2
9:30am UK Current Account Balance £bn Q2 2014 -18.5 -18.0
9:30am UK Index of Services m-o-m% July 0.3 0.3
9:30am UK Index of Services 3M/3M July 1.0 1.0
9:30am UK Total Business Investment q-o-q% Q2 2014 5.0
9:30am UK Total Business Investment y-o-y% Q2 2014 10.6
10:00am Eurozone Unemployment Rate % August 11.5 11.5
10:00am Eurozone CPI Estimate y-o-y% September 0.4 0.3
10:00am Eurozone CPI Core y-o-y% September A 0.9 0.9
2:00pm US ISM Milwaukee Index September 59.6 61.0
2:00pm US S&P/CS 20 City SA m-o-m% July -0.2 -0.1
2:00pm US S&P/CS Composite-20 y-o-y% July 8.1 7.4
2:00pm US S&P/CaseShiller Home Price Index NSA Index July 172.3 174.5
2:00pm US S&P/Case-Shiller US HPI NSA Index July
2:00pm US S&P/Case-Shiller US HPI y-o-y% July
2:45pm US Chicago Purchasing Manager Index September 64.3 62.0
3:00pm US Consumer Confidence Index Index September 92.4 92.5
Wednesday 1st October
8:55am Germany Markit/BME Germany Manufacturing PMI Index September 50.3 50.3
9:00am Eurozone Markit Eurozone Manufacturing PMI Index September 50.5 50.5
9:30am UK Markit UK PMI Manufacturing SA Index September 52.5 52.7
12:00pm US MBA Mortgage Applications w-o-w% 26th September -4.1
1:15pm US ADP Employment Change Thousands September 204.0 207.0
2:45pm US Markit US Manufacturing PMI Index September 57.9 58.0
3:00pm US ISM Manufacturing Index September 59.0 58.3
3:00pm US ISM Prices Paid Index September 58.0 57.0
3:00pm US Construction Spending m-o-m% August 1.8 0.4
7:30pm US Domestic Vehicle Sales Millions September 13.9 13.6
7:30pm US Total Vehicle Sales Millions September 17.5 16.9
Thursday 2nd October
9:30am UK Markit/CIPS UK Construction PMI Index September 64.0 63.5
10:00am Eurozone PPI m-o-m% August -0.1 -0.1
10:00am Eurozone PPI y-o-y% August -1.1 -1.2
12:30pm US Challenger Job Cuts y-o-y% September -20.7
12:30pm US RBC Consumer Outlook Index Index October 52.4
12:45pm Eurozone ECB Main Refinancing Rate % 2nd October 0.1 0.1
12:45pm Eurozone ECB Deposit Facility Rate % 2nd October -0.2 -0.2
12:45pm Eurozone ECB Marginal Lending Facility % 2nd October 0.3 0.3
1:30pm US Initial Jobless Claims Thousands 27th September 293.0 298.0
1:30pm US Continuing Claims Thousands 27th September 2,439.0 2,425.0
2:45pm US ISM New York Index September 57.1
3:00pm US Factory Orders m-o-m% August 10.5 -9.5
Friday 3rd October
8:55am Germany Markit Germany Services PMI Index September 55.4 55.4
8:55am Germany Markit/BME Germany Composite PMI Index September 54.0 54.0
9:00am Eurozone Markit Eurozone Services PMI Index September 52.8 52.8
9:00am Eurozone Markit Eurozone Composite PMI Index September 52.3 52.3
9:30am UK Official Reserves Changes US$m September 377.0
9:30am UK Markit/CIPS UK Services PMI Index September 60.5 59.0
9:30am UK Markit/CIPS UK Composite PMI Index September 59.3 59.2
10:00am Eurozone Retail Sales m-o-m% August -0.4 0.1
10:00am Eurozone Retail Sales y-o-y% August 0.8 0.7
1:30pm US Trade Balance US$bn August -40.5 40.8
1:30pm US Change in Nonfarm Payrolls Thousands September 142.0 215.0
1:30pm US Two-Month Payroll Net Revision Thousands September
1:30pm US Change in Private Payrolls Thousands September 134.0 210.0
1:30pm US Change in Manufact. Payrolls Thousands September 0.0 13.0
1:30pm US Unemployment Rate % September 6.1 6.1
1:30pm US Underemployment Rate % September 12.0
1:30pm US Average Hourly Earnings m-o-m% September 0.2 0.2
1:30pm US Average Hourly Earnings y-o-y% September 2.1 2.2
1:30pm US Average Weekly Hours All Employees hours September 34.5 34.5
1:30pm US Change in Household Employment Thousands September 16.0
1:30pm US Labor Force Participation Rate % September 62.8
2:45pm US Markit US Services PMI Index September F 58.5
2:45pm US Markit US Composite PMI Index September F 58.8
3:00pm US ISM Non-Manf. Composite Index September 59.6 58.5

Sources: Bloomberg, Reuters, Consensus forecasts


Recommendations

During the three months to end-August 2014, the number of stocks on which Beaufort Securities has published recommendations was 276, and the recommendations were as follows: Buy – 51; Speculative Buy – 187; Hold – 32; Sell – 6.

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

Important Risk Warnings and Disclaimers

This report is published by (“Beaufort Securities”). is Authorised and Regulated by the Financial Conduct Authority and is a Member of the London Stock Exchange.

RELIANCE ON THIS NOTE FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY EXPOSE YOU TO A SIGNIFICANT RISK OF LOSING ALL OF THE FUNDS, PROPERTY OR OTHER ASSETS INVESTED OR OF INCURRING ADDITIONAL LIABILITY.

This document is not an offer to buy or sell any security or currency. This document does not provide you with individually tailored investment advice. It has been prepared without regard to the your financial circumstances and objectives The appropriateness of a particular investment or currency will depend on your individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for you.

This research is non-independent and is classified as a Marketing Communication under FCA rules. As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research in COBS 12.2.5. However Beaufort Securities has adopted internal procedures which prohibit analysts from dealing ahead of non-independent research, except for legitimate market making and fulfilling clients’ unsolicited orders.

By receiving this document, you will not be deemed a client or provided with the protections afforded to clients of Beaufort Securities. When distributing this document, Beaufort Securities is not acting for you and will not be responsible for providing advice to you in relation to this document. Accordingly, Beaufort Securities will not be responsible to you for providing the protections afforded to its clients.

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This document is based on information Beaufort Securities has received from publicly available reports and industry sources. Beaufort Securities may not have verified all of this information with third parties. Neither Beaufort Securities nor its advisors, directors or employees can guarantee the accuracy, reasonableness or completeness of the information received from any sources consulted for this publication, and neither Beaufort Securities nor its advisors, directors or employees accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document (except in respect of wilful default and to the extent that any such liability cannot be excluded by the applicable law). You should not rely on this document and should not use it substitution for the exercise of the independent judgment of yourself or your adviser.

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