CSS Partners FTSE350 Market Report

Market Report

8 September 2008

Serco Group PLC
SRP.L

Sector	Support Services
Last closing price (08/09/08) (p)	418.5
52 week High/Low (p)	484.5/375.75
Market Cap (£bn)	2.09
Sector weight age by Market Cap (%)	3.308
Average Volume (mn)	2.02
P/E ratio (TTM)	25.73
Industry P/E ration (TTM)	2.75

TTM: Trailing Twelve Month

Daily chart (SRP.L)

Business background and investment rationale

Serco Group PLC is an international service company operating in four business segments: civil government, transport, defence and science. The company’s private sector business is split between these segments and provides information technology (IT) services, fleet maintenance, facilities management and other services to major companies.

New contract win

Serco maintained a win rate of more than 90% on rebids and secured one in two new business pitches. In total the firm won £2 billion of new work during the first six months of 2008, including a deal with Glasgow City Council as a partner in a 10-year joint venture valued at around £265 million. Serco is also part of a consortium which was selected as the preferred bidder for the £120 million Al Safooh tramway in Dubai, which is due to come into operation in 2011. Also in Dubai, the group won a 12 and a half year contract worth £500 million to operate and maintain the new Dubai Metro, which is due to start service in September 2009. In the US, the company won a $115 million contract with the Space and Naval Warfare Systems Centre to design and deploy advanced anti-terrorism systems for ships, and infrastructure at Navy ports and federal facilities.

High visibility of future earnings

Serco Group has an order book of £15.1 billion as at 30 June 2008. Over that period, Serco has been the preferred bidder on £0.8 billion worth of contracts and £26 billion of further opportunities have been identified. The company has visibility of 99% of planned revenue for 2008, 83% for 2009 and 73% for 2010. Serco is also confident of double-digit revenue growth for 2008 and the foreseeable future. Serco has increased adjusted PBT margin by 30 basis points uplift for 2008 and 2009.

Technical outlook

On daily chart, Serco has rebounded from strong support of 400.0p and cross uptrend line with a support at 412.0p and resistance at 450.0p. It is trading above 20 and 50-day exponential moving average confirming the pattern. MACD is positive, but 12-day EMA has cross below 26-day EMA indicating more consolidation before an upside move, and 14-day RSI is near 50.0 showing flat trend. 14-day DMI is near 20 showing flat trend. Stock has strong support near 400.0p and 380.0p and resistance near 450.0p and 463.0p.

Trading strategy

The stock can be bought around 410.0p with a profit target 458p and stop loss of 389.44p (Hedge position: Short position in spread betting with £3.0475 bet per point).

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John Wood Group PLC
WG.L

Sector	Oil equipment services and distribution
Last closing price (08/09/08) (p)	426.25
52 week High/Low (p)	503.5/308.25
Market Cap (£bn)	2.342
Sector weight age by Market Cap (%)	28.473
Average Volume (mn)	3.4
P/E ratio (TTM)	26.16
Industry P/E ration (TTM)	1.41

TTM: Trailing Twelve Month

Daily chart (WG.L)

Business background and investment rationale

Wood Group (John) PLC is an energy services company operating in 44 countries. The group has three businesses: Engineering & Production Facilities, Well Support and Gas Turbine Services. These provide a range of engineering production support, maintenance management and industrial gas turbine overhaul and repair services to the oil and gas and power generation industries worldwide

Strong oil and gas demand worldwide

Due to strong oil and gas demand, Wood Group recorded the strongest revenue growth in Engineering & Production Facilities, particularly from engineering activities. EBITA margins increased in all areas, notably in Engineering & Production Facilities and Gas Turbine Services, where they increased from 8.1% to 9.5% and from 6.1% to 7.4% respectively. Group recently secured numerous contracts including the multi-million Gazprom Shtokman gas project in Russia to provide the front-end engineering design and management services. Wodd Group also landed a deal with Korea National Oil Company (“KNOC”) for front-end engineering design (“FEED”) work on the Blackgold SAG-D project and StatoilHydro for construction management services to their Northern Alberta thermal heavy oil plant.

Rapid expansion in gas based power plants

The relative environmental benefits of gas and the shorter development lead times are increasing the share for gas in world electricity generation and boosted growth in gas turbines. Increases in the running hours of installed gas turbine equipment are pushing demand for aftermarket services. The company’s ability to locate, refurbish, install, warrant, operate and maintain equipment have secured a number of contracts to provide fast track power packages in various locations, including Ghana, Pakistan and the US. Wood group is rapidly expanding its services in Asia-Pacific with a clear objective to increase its EBITA margin to 10% by 2010.

Technical Outlook

On daily chart, stock has rebounded from support of 405.0p and above 20, 50 and 200-day EMA with relatively high volatility on the rebound of crude oil prices. Momentum oscillator MACD is positive and RSI is above 50 indicating strength in trend, both indicators are making an upward trend with positive slope. 14-day DMI is above 20 and making an uptrend. Stock has resistance at 449.0p and 476.0p level, and support near 405.0p and 375.0p.

Trading strategy

Stock can be bought near 408.0p with a profit target of 455.04p and stop loss of 387.5p (Hedge position: short position in spread betting with £3.002 bet per point).

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This report has been issued by CSS Partners LLP (“CSS Partners”). CSS Partners is an appointed representative of Charles Street Securities Europe LLP (“CSS”) which is authorised and regulated by the Financial Services Authority in the UK. It constitutes non-independent “investment research” as contemplated by the FSA Rules and is thus considered a marketing communication. This report was prepared by Kuldeep Bhati who is employed as an analyst at CSS Partners and as such does not conform with the FSA definition of independent investment research and as such is not subject to the rule of not dealing ahead of distribution of the marketing communication and was not prepared in line with the legal requirements for independent communication.

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Risk Factors

There is no certainty that the recommendations will be successful or that they will make money for investors.

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Regulatory disclosures

In accordance with the Conduct of Business Rules COBS12.4.7R (i) in the preparation of the report the analyst used price and volume charts provided by independent data suppliers and applied technical analysis tools of investment and trading evaluation in arriving at his recommendations, ii) all recommendations made by the analyst are followed up in subsequent reports until the closure of a position, iii) there is no certainty that any recommendation will be successful or that technical analysis should be used exclusively to arrive at investment decisions.

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Distribution of recommendations for the period 1 July to 30 September 2008:

% Distribution of recommendations No of recommendation

Buy 60.8% 17

Hold 0 0

Sell 39.2% 11

The first column displays the % distribution of recommendations made by CSS Partners in this Technical Analysis Trading programme and the second column shows the numbers of such recommendation. Neither CSS nor CSS Partners has any investment banking relationships with any of the companies covered in the Technical Analysis Trading Programme, namely the companies in the FTSE 350 index.

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	% Distribution of recommendations	No of recommendation
Buy	60.8%	17
Hold	0	0
Sell	39.2%	11