CSS Partners FTSE350 Market Report

Market Report

3 November 2008

Associated British Foods PLC
ABF.L

Sector	Food producers
Last closing price (03/11/2008) (p)	707.5
52 week High/Low (p)	940.5/590
Market Cap (£bn)	5.27
Sector weight age by Market Cap (%)	12.621
Average Volume (mn)	1.94
P/E ratio (TTM)	12.50
Industry P/E ration (TTM)	12.91

TTM: Trailing Twelve Month

Daily chart (ABF.L)

Business background and investment rationale

Associated British Foods can be categorised into four segments: grocery, primary food and agriculture, ingredients, and retail. The group has sales worldwide and manufacturing operations across Europe, North America, Asia, Australia and New Zealand.

Strong retail growth

In a trading statement on September 2008, ABF again expected sales and profits at Primark to be well ahead of last year. The group expects to open eight stores in the second half of the year, with five in Spain and three in the UK bringing the total to 181 outlets. ABF will be trading from 5.4 million sq ft of selling space, which is an increase of 8% over the period. Like-for-like sales growth of 2% is expected in the second half despite the weak trading in April when poor weather contrasted with last year’s warm weather and the benefit of Easter trading in the comparative period. Operating profit margin is expected to be broadly in line with last year. As a consequence of continuing growth, ABF will open a major new distribution centre at Thrapston, Northamptonshire by the end of the financial year whichwill increase UK capacity by some 50%.

Acquisition and improvement in cost efficiency

During the year ABF spent £125m on acquisitions, primarily on establishing a major presence in the beet sugar industry in north east China and on certain European assets from the Gilde Bakery. In Australia, the acquisition of KR Castlemaine, a leading meat and small goods manufacturer, included a modern low cost factory at Castlemaine, Victoria and the regional KR brand. Combined with the existing meat business, this will provide an opportunity to drive efficiencies and enable a greater focus on product innovation. The group also announced the merger of Ryvita with Jordans, the UK breakfast cereal and cereal bar business, in which ABF will have a 62% interest. The merger will create a leading position for the supply of products to meet the increasing consumer demand for natural ingredients and healthy eating, and faster overseas expansion of the Jordans brand using the group’s international grocery presence. Some cost savings will also be achieved in both brands.

Technical outlook

On daily chart, stock has rebounded from a 52-week low of 600.0p and trading just below resistance level of 700.0p. ABF has cross above downward trend line on closing price, MACD, RSI and stochastic, indicating a clear buy signal. MACD is negative, but 12-day EMA cross above 26-day EMA with positive slope, indicating a buy signal. Stock has good support between 600.0p and strong resistance at 775p and 819.0p levels.

Trading strategy

The stock can be bought around 680.0p with a profit target 758.40p and stop loss of 645.9p (Hedge position: Short position in spread betting with £1.837 bet per point).

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FirstGroup PLC
FGP.L

Sector	Travel & Leisure
Last closing price (03/11/2008) (p)	412
52 week High/Low (p)	824.5/381.25
Market Cap (£bn)	1.88
Sector weight age by Market Cap (%)	5.191
Average Volume (mn)	2.94
P/E ratio (TTM)	14.32
Industry P/E ration (TTM)	0.09

TTM: Trailing Twelve Month

Daily chart (FGP.L)

Business background and investment rationale

FirstGroup PLC is engaged in the provision of passenger transport services. It operates in four divisions: UK bus services, UK rail services, North America yellow school buses, and Greyhound intercity coach transportation in the United States and Canada.

Balance portfolio of business

FirstGroup’s balanced portfolio of businesses continues to generate strong operating cash flows and good opportunities for future growth. Approximately 50% of the company’s revenues are secured under medium-term contracts. The group’s contracts with government agencies and other large organisations in the UK and North America represent a robust annual revenue stream worth £2.8bn. After completion of the $3.5bn acquisition of Laidlaw International Inc in the US, FirstGroup America has created a stronger, more robust business which operates in a vast, highly fragmented marketplace with clear opportunities for growth. FirstGroup expects to deliver better than anticipated synergies of $150m per annum from April 2009 following the Laidlaw acquisition.

Strong passenger growth

FirstGroup is Britain’s largest bus operator running more than one in five of all local bus services. A fleet of nearly 9,000 buses carries approximately three million passengers a day in more than 40 major towns and cities. FirstGroup introduced passenger growth initiatives such as the ‘Fuel buster ticket’ which allows passengers to fix travel costs for six months. Partnership with local authorities across the UK through targeted investment in new vehicles has delivered like-for-like passenger revenue increases of 7.5%, as soaring fuel prices are encouraging travelers to switch from cars to public transport. The group also operates one-quarter of the UK passenger rail network, with a balanced portfolio of intercity, commuter and regional services, carrying almost 275 million passengers a year.

Technical outlook

On chart, FirstGroup is trading at a 52-week low just above 400.0p with volatility in negative indicating formation of bottom at this level. MACD is negative and at historical low but 12-day EMA is just above 26-day EMA. 14-day RSI is near 30 indicating near to oversold. DMI index is below 20 indicating consolidation with correction is expected between 390.0p and 410.0p before a higher move. Stock has support at 400.0p and resistance at 450.0p.

Trading strategy

The stock can be bought around 400.0p with a profit target 446.12p and stop loss of 379.94p (Hedge position: short position in spread betting with £3.125 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

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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